WASHTENAW TECHNICAL MIDDLE COLLEGE

Transcription

1 WASHTENAW TECHNICAL MIDDLE COLLEGE AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION Year ended

2 TABLE OF CONTENTS Page Independent Auditor s Report 1 Management s Discussion and Analysis 4 Financial Statements Academy-wide Financial Statements Statement of Financial Position 11 Statement of Activities 12 Fund Financial Statements Governmental Fund Balance Sheet 13 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 14 Statement of Revenue, Expenditures, and Changes in Fund Balances 15 Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 16 Fiduciary Funds Statement of Fiduciary Assets and Liabilities 17 Notes to Financial Statements 18 Required Supplementary Information Budgetary Comparison Schedule General Fund 40 Schedule of the Academy s Proportionate Share of the Net Pension Liability 41 Schedule of the Academy s Pension Contributions 42 Schedule of the Academy s Proportionate Share of the Net OPEB Liability 43 Schedule of the Academy s OPEB Contributions 44 Notes to Required Supplemental Information 45 Other Supplementary Information General Fund Comparative Balance Sheet 46 Schedule of Revenues Compared to the Budget 47 Schedule of Expenditures Compared to Budget 48 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 49

3 Washtenaw Technical Middle College Members of the Board of Directors and Administration Members of the Board of Directors Stuart E. White - Chair Jan Gensheimer - Vice-chairman Paulette R. Miller - Treasurer Alex Milshteyn - Secretary Willard Johnson - Director Frederick McDonald - Director R. Griffith MacDonald - Director Margaret A. Talburtt, Ph.D. - Director Katie Richards-Schuster Director Richard Landau WCC Board Liason Administration Karl Covert, Ph.D. - Dean

4 INDEPENDENT AUDITOR S REPORT To the Board of Directors Washtenaw Technical Middle College Ann Arbor, Michigan We have audited the accompanying financial statements of the governmental activities, the major fund, and the aggregate remaining fund information of Washtenaw Technical Middle College (the Academy), as of and for the year ended, and the related notes to the financial statements, which collectively comprise the Academy s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. A member of UHY International, a network of independent accounting and consulting firms

5 To the Board of Directors Washtenaw Technical Middle College Page Two Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the major fund, and the aggregate remaining fund information of Washtenaw Technical Middle College, as of, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Adoption of New Accounting Standard As discussed in Note 1 to the financial statements, as of July 1, 20107, the Academy adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pension. The Academy s unrestricted net position has been restated as of July 1, 2017 as a result of this change in accounting principle. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, budgetary comparison information, schedule of the Academy s proportionate share of the net pension liability, schedule of the Academy s pension contributions, schedule of the Academy s proportionate share of the net OPEB liability, and schedule of the Academy s OPEB contributions, as identified 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 inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

6 To the Board of Directors Washtenaw Technical Middle College Page Three Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Washtenaw Technical Middle College s basic financial statements. The other supplementary information, as identified in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. The other supplementary information as identified in the table of is the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary information, as identified in the table of contents is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 19, 2018 on our consideration of Washtenaw Technical Middle College'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 in considering Washtenaw Technical Middle College s internal control over financial reporting and compliance. Farmington Hills, Michigan October 19, 2018

7 MANAGEMENT S DISCUSSION AND ANALYSIS This section of Washtenaw Technical Middle College s (the Academy ) annual financial report presents our discussion and analysis of the Academy s financial performance during the year ended. Please read it in conjunction with Academy s financial statements, which immediately follow this section. Using this Annual Report This annual report consist of a series of financial statements and notes to those statements. These statements are organized so the reader can understand Washtenaw Technical Middle College financially as a whole. The government-wide statements provide information about the activities of the whole Academy, presenting both an aggregate view of the Academy s finances and a longer-term view of those finances. The fund financial statements provide the next level of detail. For governmental activities, these statements tell how services were financed in the short term as well as what remains for future spending. The fund financial statements look at the Academy s operations in more detail than the government-wide statements by providing information about the Academy s most significant fund the General Fund. The remaining statement, the statement of fiduciary assets and liabilities, presents financial information about activities for which the Academy acts solely as an agent for the benefit of students and parents. The components of the annual report are as follows: Management's Discussion and Analysis (MD&A) (Required Supplementary Information) Basic Financial Statements Governement-wide Financial Statements Fund Financial Statements Notes to the Basic Financial Statements Budgetary Information for Major Fund (Required Supplementary Information Reporting the Academy as a Whole Government-wide Financial Statements One of the most important questions asked about the Academy is, As a whole, what is the Academy s financial condition as result of the year s activities? The statement of net assets and the statement of activities, which appear first in the Academy s financial statements, report information on the Academy as a whole and its activities in a way that helps you answer this question. We prepare these statements to include all assets and liabilities, using the accrual basis of accounting, which is similar to the accounting used by most by private sector companies. All of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the Academy s net position the difference between assets and liabilities, as reported in the statement of net position which is one way to measure the Academy s financial health or financial position. Page 4

8 MANAGEMENT S DISCUSSION AND ANALYSIS Over time, increases or decreases in the Academy s net position as reported in the statement of activities are indicators of whether its financial health is improving or deteriorating. The relationship between revenues and expenses is the Academy s operating results. However, the Academy s goal is to provide services to our students, not to generate profits as commercial entities do. One must consider many other nonfinancial factors, such as quality of the education provided, to asses overall health of the Academy. The statement of net position and the statement of activities report the governmental activities for the Academy, which encompass all of the Academy s services, including instruction and support services. Unrestricted state aid (foundation allowance revenue) and state grants finance most of these activities. Reporting the Academy s Most Significant Fund Fund Financial Statements The Academy s fund financial statements provide detailed information about the Academy s General Fund not the Academy as a whole. The governmental fund of the Academy uses the following accounting approach: All of the Academy s services are reported in the governmental fund. Governmental fund reporting focuses on showing how money flows into and out of funds and the balances left at year end that are available for spending. They are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the operations of the Academy and the services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the Academy s programs. We describe the relationship (or differences) between governmental activities (reported in the statement of net position and the statement of activities) and the governmental fund in a reconciliation. The Academy as Trustee Reporting the Academy s Fiduciary Responsibilities The Academy is the trustee, or fiduciary, for its student activity funds. All of the Academy s fiduciary activities are reported in a separate statement of fiduciary assets and liabilities. We exclude these activities from the Academy s other financial statements because the Academy cannot use these assets to finance its operations. The Academy is responsible for ensuring that the assets reported in the funds are used for their intended purposes. Restatement of Prior Year Net Position As required by the Governmental Accounting Standards Board (GASB), the Academy adopted GASB Statement No. 75. This standard required the inclusion of the Academy s proportionate share of the Michigan Public School Employees Retiree Health Care Plan within the Academy s financial statements, effective July 1, The effect of the adoption was to decrease July 1, 2017 beginning net position by $1.5 million, and to include the net OPEB obligation and restated deferred inflows and outflows of resources in the financial statements. Page 5

9 MANAGEMENT S DISCUSSION AND ANALYSIS The Academy as a Whole Recall that the statement of net position provides the perspective of the Academy as a whole. The following table provides a summary of the Academy s net position as of June 30, 2018 and 2017: Governmental Activities ASSETS Current and other assets $ 4,436,409 $ 2,942,957 Capital assets 135,501 14,726 Total Assets 4,571,910 2,957,683 DEFERRED OUTFLOWS OF RESOURCES Deferred amount of pension expense related to net pension liability 1,574,064 1,128,207 Deferred amount of OPEB expense related to net OPEB liability 88,239 - Total assets and deferred outflows of resources 6,234,213 4,085,890 LIABILITIES Current liabilities 647, ,818 Long-term liabilities 5,849,475 3,846,812 Total liabilities 6,496,707 4,362,630 DEFERRED INFLOWS OF RESOURCES Deferred amount of net pension liability 409, ,166 Deferred amount of net OPEB liability 50,438 - Total liabilities and deferred inflow of resources 6,956,537 4,499,796 NET POSITION Invested in capital assets 135,501 14,726 Unrestricted (deficit) (857,825) (428,632) Total net position $ (722,324) $ (413,906) The above analysis focuses on the net position (see above table). The change in net position (see table below) of the Academy s governmental activities is discussed below. The Academy s net positions was approximately $(722,000) at. Capital assets totaling approximately $136,000 represent the original cost less depreciation of the Academy s capital assets. Page 6

10 MANAGEMENT S DISCUSSION AND ANALYSIS The approximately $(858,000) in unrestricted net position of governmental activities represents the accumulated results of all past years operations. The unrestricted net position balance enables the Academy to meet working capital and cash flow requirements as well as to provide for future uncertainties. This statement has been affected by the following: GASB 68 Accounting and Financial Reporting for Pension - In accordance with GASB Statement 68, the Academy has implemented the standard that requires, that the net pension liability is reported in financial statements for pensions across the country, including the Michigan Public School Employees Retirement System. Since the State of Michigan has no employees in this plan and is not a participating employer in the plan, the pension liability and expense are required to be recorded by the participants in the plan Michigan Public Schools. Effective June 30, 2015 the Academy must record its proportionate share of the total Michigan Public School Employees Retirement System net pension liability and expense in the Academy-wide financial statements. Additional information regarding the liability and expense can be found in the disclosure footnotes to the Financial Statements. GASB 75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions - In accordance with GASB Statement 75, the Academy has implemented the standard that requires, that the net OPEB liability is reported in financial statements for OPEB across the country, including the Michigan Public School Employees Retirement System. Since the State of Michigan has no employees in this plan and is not a participating employer in the plan, the OPEB liability and expense are required to be recorded by the participants in the plan Michigan Public Schools. Effective June 30, 2018 the Academy must record its proportionate share of the total Michigan Public School Employees Retirement System net OPEB liability and expense in the Academywide financial statements. Additional information regarding the liability and expense can be found in the disclosure footnotes to the Financial Statements. The net pension liability, net OPEB liability and related expenses have a significant impact on the Academy s Total Net Position. These are not new liabilities. They have been a shared responsibility of all Michigan public schools since the 1990 s. In order to provide useful employer-level pension information, improve transparency, and to make it easier to compare public pension plans by standardizing financial reporting requirements, the net pension liability and the net OPEB liability are now being recorded on the Academy-wide financial statements. What is new is that the total liabilities are now being divided proportionately among state-wide employers and recorded on the financial statements. They are unlike any other liability reported on a balance sheet. They are not immediately due and cannot be paid off under an accelerated schedule. The pension and OPEB expenses represents the change in net pension and OPEB liabilities from year to year and can change materially from year to year depending on new retirees to the system and the number of employer contributions made to the systems. The Office of Retirement Services calculates the total pension and OPEB liabilities. The proportionate share for each Academy is calculated based on the prior year s total pension and OPEB contributions to the systems. Page 7

11 MANAGEMENT S DISCUSSION AND ANALYSIS These large liabilities have a significant impact on the unrestricted net position of the Academy but do not affect the Academy s governmental-fund financial statements. The majority of Michigan Academies, if not every single one of them, will report a significant decrease in Net position based on the implementation of GASB 68 and GASB 75. The operating results of the General Fund will have a significant impact on the change in unrestricted net positon from year to year. Approximately, $1,000,000 has been set aside for the support and development of Washtenaw Technical Middle College. The results of the year s operations for the Academy as a whole are reported in the statement of activities (see table below), which shows the changes in net assets for fiscal years 2018 and Governmental Activities Revenue Program Revenue Charges for services $ 15 $ 25 Operating grants 451, ,693 General Revenue State foundation allowance 6,463,794 4,942,968 Other 1,863 1,807 Total revenue 6,916,947 5,304,493 Functions/Program Expenses Instruction 4,336,971 3,702,972 Support services 1,415,852 1,279,008 Depreciation (unallocated) 9,739 7,228 Total functions/program expenses 5,762,562 4,989,208 Change in Net Position $ 1,154,385 $ 315,285 As reported in the statement of activities, the cost of all of our governmental activities this year was $7,225,365. Certain activities were partially funded from those who benefited from the programs or by other governments that subsidized certain programs with grants of $451,275. We paid for the remaining public benefit portion of our governmental activities with $6,463,794 in state foundation allowance and with our other revenues, i.e., interest. Page 8

12 MANAGEMENT S DISCUSSION AND ANALYSIS The Academy experienced an increase in net position of $1,154,385 which was primarily due the increase in state aid received in the current year. As discussed above, the net cost shows the financial burden that was placed on the Academy by each of these functions. Since unrestricted state aid constitutes the vast majority of Academy operating revenue sources, the board of directors and administration must annually evaluate the needs of the Academy and balance those needs with stateprescribed available unrestricted resources. The Academy s Governmental Funds As we noted earlier, the Academy uses funds to help it control and manage money for particular purposes. Looking at funds helps the reader consider whether the Academy is being held accountable for the resources the State and others provide to it and may provide more insight into the Academy s overall financial health. As the Academy completed this year, the General Fund reported a fund balance of $3,789,177, which is an increase of $1,362,038 from last year. General Fund balance is available to fund costs related to allowable school operating purposes and to maintain adequate cash flow. This is important as no state aid revenue is received in September and without adequate fund balance to maintain cash flow, the Academy would need to borrow funds and would spend additional funds on interest costs. General Fund Budgetary Highlights Over the course of the year, the Academy revises its budget at its attempts to deal with unexpected changes in revenues and expenditures. State law requires that the budget be amended to ensure that expenditures do not exceed appropriations. The final amendment to the budget was adopted in June A schedule showing the Academy s original and final budget amounts compared with amounts actually paid and received is provided in required supplementary information of these financial statements. There were no significant variances between the final budget and actual amounts. Capital Assets As of, the Academy invested $308,268 in furniture and equipment without any debt outstanding. Accumulated depreciation totaled $172,767, which results in a book value of $135,501. No major capital projects are planned for the fiscal year. We present more detail information about our capital assets in the notes to the financial statements. Page 9

13 MANAGEMENT S DISCUSSION AND ANALYSIS Economic Factors and Next Year s Budgets and Rates Our board of directors and administration consider many factors when setting the Academy s fiscal year budget. One of the most important factors affecting the budget is our student count. The state foundation revenue is determined by multiplying the blended student count by the foundation allowance per pupil. The blend count for the fiscal year is 10 percent and 90 percent of the February 2018 and October 2018 student counts respectively. The budget was adopted in June 2018, based on an estimate of students that will be enrolled in October Substantially all of the General Fund revenue is from the foundation allowance. As a result, Academy funding is dependent on the State s ability to fund local school operations. Based on early enrollment data at the start of the school year, we anticipate that the fall student count will be approximately 850. Once the final student counts and related per pupil funding is validated, state law requires the Academy to amend the budget if actual Academy resources are not sufficient to fund original appropriations. Since the Academy s revenue is dependent on state funding and the health of the State s School Aid Fund, the actual revenue received depends on the State s ability to collect revenues to fund its appropriations to school districts. The State periodically holds a revenue-estimating conference to estimate revenues. If the State determines at this conference that funds are not sufficient to fund the appropriations, the Legislature must revise the appropriation or a proration of state aid will occur. Page 10

14 STATEMENT OF NET POSITION Governmental Activities ASSETS Cash $ 2,640,141 Accounts receivable 19,248 Due from other governmental units 1,256,819 Certificates of deposit 508,029 Prepaid items 12,172 Capital assets - net of accumulated depreciation 135,501 Total Assets 4,571,910 DEFERRED OUTFLOWS OF RESOURCES Deferred amount of pension expense related to net pension liability 1,574,064 Deferred amount of OPEB expense related to net OPEB liability 88,239 Total assets and deferred outflows of resources 6,234,213 LIABILITIES Accounts payable 293,813 Accrued expenditures 142,004 Accrued salaries payable 211,415 Noncurrent liabilities Postemployment benefit obligation 1,491,928 Net pension liability 4,346,867 Compensated absences 10,680 Total liabilities 6,496,707 DEFERRED INFLOWS OF RESOURCES Deferred amount of net pension liability 409,392 Deferred amount of OPEB expense related to net OPEB liability 50,438 Total liabilities and deferred inflows of resources 6,956,537 NET POSITION Invested in capital assets 135,501 Unrestricted (deficit) (857,825) Total net position $ (722,324) See notes to financial statements. Page 11

15 STATEMENT OF ACTIVITIES For the Year Ended Program Revenues Net (Expense Operating Revenue and Charges for Grants and Changes in Expenses Services Contributions Net Position FUNCTIONS/PROGRAMS Governmental activities Instruction $ 4,336,971 $ 15 $ 210,384 $ (4,126,572) Supporting services 1,415, ,891 (1,174,961) Depreciation (unallocated) 9, (9,739) Total governmental activities $ 5,762,562 $ 15 $ 451,275 (5,311,272) GENERAL REVENUES State aid - unrestricted 6,463,794 Interest earnings 1,863 Total general revenues 6,465,657 Change in net position 1,154,385 Net Position - Beginning of year, as previously reported (413,906) Cumulative Effect of Change in Accounting Standard (1,462,803) NET POSITION - as restated (1,876,709) NET POSITION - ending $ (722,324) See notes to financial statements. Page 12

16 Governmental Fund Balance Sheet General Fund ASSETS Cash $ 2,640,141 Accounts receivable 19,248 Due from other governmental units 1,256,819 Certificates of deposit 508,029 Prepaid items 12,172 Total Assets 4,436,409 LIABILITIES AND FUND BALANCE LIABILITIES Accounts payable 293,813 Accrued expenditures 142,004 Accrued salaries payable 211,415 Total Liabilities 647,232 FUND BALANCE Non-spendable Prepaid items 12,172 Assigned Academy development 1,000,000 Unassigned 2,777,005 Total fund balance 3,789,177 Total liabilities and fund balance $ 4,436,409 See notes to financial statements. Page 13

17 RECONCILIATION OF BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION TOTAL FUND BALANCES FOR GOVERNEMENTAL FUNDS $ 3,789,177 Total net position for governmental activities in the statement of net position is different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Capital assets - net of accumaleted depreciation 135,501 Deferred outflows (inflows) of resources Deferred inflows of resources resulting from net pension liability (409,392) Deferred outflows of resources resulting from net pension liability 1,574,064 Deferred inflows of resources resulting from net OPEB liability (50,438) Deferred outflows of resources resulting from net OPEB liability 88,239 Long-term liabilities applicable to governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities Net pension liability (4,346,867) Net OPEB liability (1,491,928) Compensated absences (10,680) NET POSITION OF GOVERNMENTAL ACTIVITIES $ (722,324) See notes to financial statements. Page 14

18 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE For the Year Ended General Fund REVENUES Local sources $ 1,877 State sources 6,824,153 Interdistrict sources 90,916 Total revenues 6,916,946 EXPENDITURES Current Education Instruction 4,054,465 Supporting services 1,369,432 Capital outlay 131,011 Total expenditures 5,554,908 Excess of revenues over expenditures 1,362,038 FUND BALANCE - beginning 2,427,139 FUND BALANCE - ending $ 3,789,177 See notes to financial statements. Page 15

19 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Year Ended NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS $ 1,362,038 Total change in net position reported for governmental activities in the statement of activities is different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlay 130,514 Depreciation expense (9,739) The statement of net position reports the net pension and OPEB liabilities and deferred outflows of resources and deferred inflows related to the net pension and OPEB liabilities and pension and OPEB expense. However, the amount recorded on the governmental funds equals actual pension contributions. Net change in net pension liability (514,815) Net change in the deferred inflow of resources related to the net pension liability (272,226) Net change between actual OPEB contributions and the cost of benefits earned 445,857 Net change in net OPEB liability (29,125) Net change in the deferred inflow of resources related to the net OPEB liability (50,438) Net change between actual OPEB contributions and the cost of benefits earned 88,239 Expenses are recorded when incurred in the statement of activities. Compensated absences 4,080 CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ 1,154,385 See notes to financial statements. Page 16

20 STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES For the Year Ended Agency Fund ASSETS Cash $ 13,851 LIABILITIES Due to student activity groups $ 13,851 See notes to financial statements. Page 17

21 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of Washtenaw Technical Middle College (the Academy) conform to accounting principles generally accepted in the United States of America (US GAAP) as applicable to governmental units. The following is a summary of the Academy s significant accounting policies: Reporting Entity The Academy was formed as a charter school academy pursuant to the Michigan School Code of 1976, as amended by Act No. 362 of the Public Acts of 1993 and Act No. 416 of the Public Accounts of The Academy has entered into a contract with Washtenaw Community College (WCC) to charter a public school academy through June 30, The contract requires the Academy to act exclusively as a governmental agency and not undertake any action inconsistent with its status as an entity authorized to receive state school aid funds pursuant to the State Constitution. WCC is the fiscal agent for the Academy and is responsible for overseeing the Academy s compliance with the contract and all applicable laws. The Academy pays WCC three percent of the state aid foundation as administrative fees. The total administrative fees for the year to WCC was approximately $192,000. The accompanying financial statements have been prepared in accordance with criteria established by the Governmental Accounting Standards Board (GASB) for determining the various governmental organizations to be included in the reporting entity. The Academic and Career Education Academy Board of Directors (Board) is the primary government that has oversight responsibility and control over all activities related to public education in the Academy. The Board receives funding from local, state, and federal government sources and must comply with the concomitant requirements of these funding source entities. However, the Board is not included in any other governmental reporting entity as defined in GASB pronouncements. The board has separate legal standing and is fiscally independent of other government entities. As such, the Board has decision-making authority, the right to determine its budget, the power to designate management, the ability to significantly influence operations and primary accountability for fiscal matters. The Board does not include any other component within its financial statements. Academy-wide Financial Statements The Academy s basic financial statements include both Academy-wide (reporting for the Academy as a whole) and fund financial statements (reporting for the Academy as a whole) and fund financial statements (reporting the Academy s majors funds). The Academy-wide financial statements categorize all non-fiduciary activities as governmental activities. Page 18

22 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The statement of net position presents governmental activities on a consolidated basis, using the economic resources measurement focus and accrual basis of accounting. This method recognizes all long-term assets and receivables as well as long-term debt and obligations. The Academy s net position is reported in two parts (1) net investment in capital assets, and (2) unrestricted net position. The statement of activities reports both the gross and net cost of each of the Academy s functions. The functions are also supported by general government revenues (certain intergovernmental revenues). The statement of activities reduces gross expenses, including depreciation by related program revenues, operating and capital grants. Program revenues must be directly associated with the function. Operating grants include operating-specific and discretionary (either operating or capital) grants. The net costs (by function) are normally covered by general revenue (state sources and federal sources, interest income, etc.). The Academy does not allocate indirect costs. The Academy-wide focus is on sustainability of the Academy as an entity and the change in the Academy s net position resulting from current year activities. Fund Financial Statements Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the Academy-wide financial statements. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized as soon as it is both measureable and available. Revenue is considered to be available if it is collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Academy considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, expenditures related to compensated absences are recorded only when payment is due. Unrestricted state aid, restricted state aid, intergovernmental grants, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenue of the current fiscal period. All other revenue items are considered to be available only when cash is received by the government. Fiduciary fund statements also are reported using the economic resources measurement focus and the accrual basis of accounting. The Academy reports the following major governmental fund: General Fund The General Fund is used to record the general operations of the Academy pertaining to education and those operations not required to be provided for in other funds. Page 19

23 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Additionally, the Academy reports the following fund type: Fiduciary Fund Fiduciary Fund is used to account for assets held by the Academy in a trustee capacity or as an agent. The Agency Fund is custodial in nature (assets equal liabilities) and does not involve the measurement of results of operations. This fund is used to record the transactions of student groups for school and school-related purposes. Assets, Liabilities and Equity Cash Cash and cash equivalents include cash on hand, demand deposits, and shortterm investments with a maturity of three months or less when acquired. Receivables All trade receivables are shown net of an allowance for uncollectible amounts. The Academy considers all accounts receivable to be fully collectible; accordingly, no allowance for uncollectible amounts is recorded. Prepaid items Certain payments to vendors reflect costs applicable to future fiscal years. For such payments in the governmental funds the Academy follows the consumption method, and they therefor are capitalized as prepaid items in both district-wide and fund financial statements. Capital assets Purchased or constructed capital assets are reported at historical cost. Donated capital assets are recorded at fair market value at the date of donation. The Academy defines capital assets as assets with an initial individual cost in excess of $5,000 and an estimated useful life in excess of one year. Costs of normal repair and maintenance that do not add to the value or materially extend asset lives are not capitalized. The Academy does not have infrastructure assets. Equipment and furniture are depreciated using the straight-line method over a five year useful life. Deferred outflows of resources A deferred outflow of resources is a consumption of net position by the government that is applicable to a future reporting period. For Academywide financial statements, the Academy reports deferred outflows of resources as a result of changes in proportion and differences between the Academy s contributions and the proportionate share of pension and OPEB contributions as defined by the Michigan Public Schools Employees Retirement System. Changes in assumptions relating to the net pension liability are deferred and amortized over the expected remaining services lives of the employees and retirees in the plan. The Academy also reported deferred outflows of resources for pension and OPEB contributions made after the measurement date. These amounts will reduce net pension and OPEB liabilities in the following year. Compensated Absences The Academy has recorded all liabilities associated with compensated absences. The liability for compensated absences reported in The Academy-wide statements consists of sick leave benefits. A liability for these amounts is reported in the governmental funds as it comes due for payment using the vested method. Page 20

24 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Pension For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Michigan Public School Employees Retirement System (MPSERS) and additions to/deductions from MPSERS fiduciary net position have been determined on the same basis as they are reported by MPSERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Deferred inflows of resources A deferred inflow of resources is an acquisition of net position by the government that is applicable to a future reporting period. For governmental funds this includes unavailable revenue in connection with receivables for revenues that are not considered available to liquidate liabilities of the current period. For Academy-wide financial statements, the Academy reports deferred inflows of resources as a result of pension and OPEB earnings. These amounts are the result of differences between what the plan expected to earn from plan investments and what the plan actually earned. These amount will be amortized over the next four years and included in pension and OPEB expense. Changes in assumptions relating to the net pension liability are deferred and amortized over the expected remaining services lives of the employees and retirees in the plan. Deferred inflows of resources also includes revenue received relating to the amounts included in the deferred outflows for payments related to MPSERS Unfunded Actuarial Accrued Liabilities (UAAL) Stabilization defined benefit pension statutorily required contributions. Postemployment Benefits Other Than Pensions For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the Michigan Public School Employees Retirement System (MPSERS) and additions to/deductions from MPSERS fiduciary net position have been determined on the same basis as they are reported by MPSERS. For this purpose, benefits provided (including comprehensive group medical, prescription drug, dental and vision coverage for retirees and beneficiaries) cover a portion of total healthcare costs and the remaining premiums are deducted from the monthly pension payments for each retiree healthcare recipient. Investments are reported at fair value. Fund Equity In the fund financial statements, governmental funds report fund balance in the following categories: Non-spendable amounts that are not available in a spendable form. Restricted amounts that are legally imposed or otherwise required by external parties to be used for a specific purpose. Page 21

25 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Committed amounts that have been formally set aside by the Board of Education for specific purposes. A fund balance commitment may be established, modified, or rescinded by a resolution of the Board of Education. Assigned amounts intended to be used for specific purposes, as determined by the Board of Directors. Residual amounts in governmental funds other than the general fund are automatically assigned by their nature. $1,000,000 is assigned for the support and development of the Academy. Unassigned all other resources; the remaining fund balances after non-spendable, restrictions, commitments and assignments. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the Academy s policy is to consider restricted funds spent first. When an expenditure is incurred for purposes for which committed, assigned, or unassigned amounts could be used, the Academy s policy is to consider the funds to be spent in the following order: (1) committed, (2) assigned, (3) unassigned. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as well as deferred inflows and deferred outflows of resources at the date of the financial statements and the reported amounts of revenue and expenditures during the reporting period. Actual results could differ from those estimates. Adoption of New Accounting Pronouncement As of July 1, 2017, the Academy adopted GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which addresses reporting by governments that provide postemployment benefits other than pensions (OPEB) to their employees and for governments that finance OPEB for employees of other governments. This OPEB standard will required the Academy to recognize on the face of the financial statements its proportionate share of the net OPEB liability to its participation in the Michigan Public School Employees Retirement System (MPSERS). The statement also enhances accountability and transparency through revised not disclosures and required supplemental information (RSI). In accordance with the statement, the Academy has reported a net OPEB liability of $1,462,803 and deferred outflows of financial resources for OPEB contributions of $110,851 made subsequent to the measurement date, as the effects of this change in accounting principles on the Academy s net position as of July 1, Page 22

26 NOTES TO FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Upcoming Accounting and Reporting Changes Statement No. 84, Fiduciary Activities improves the guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. The focus of the criteria includes the flowing: (1) is the government controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. The four fiduciary funds that should be reported, if applicable are: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds. Custodial funds generally will report fiduciary activities that are not held in a trust or a similar arrangement that meets specific criteria. The requirements of this Statement are effective for the fiscal year ending June 30, The Academy is evaluating the impact that the above pronouncement will have on its financial reporting. NOTE 2 STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY Budgetary Information Annual budgets are adopted on a basis consistent with US GAAP and state law for the general fund. All annual appropriations lapse at fiscal year-end, and thereby canceling all encumbrances. These appropriations are reestablished at the beginning of the fiscal year. The budget document presents information by fund and function. The legal level of budgetary control adopted by the governing body is the function level. State law requires the Academy to have its budget in place by July 1. The Academy is not considered in violation of the law if reasonable procedures are in use by the Academy to detect violations. Budgeted amounts are as originally adopted or as amended by the Board of Directors throughout the year. Individual amendments were not material in relation to the original appropriations. Excess of Expenditures over Appropriations The Academy did not have significant expenditures budget variances. Academy-Wide Deficits The Academy has an unrestricted net position deficit for Academy-Wide activities in the amounts of $(857,825) as of. There are no governmental funds with a deficit. Page 23

27 NOTES TO FINANCIAL STATEMENTS NOTE 3 DEPOSITS The Academy s deposits were reported in the basic financial statements in the basic financial statements in the following categories: Total Governmental Fiduciary Primary Activities Funds Government Cash $ 2,640,141 $ 13,851 $ 2,653,992 Certificates of deposit 508, ,029 $ 3,148,170 $ 13,851 $ 3,162,021 Interest rate risk In accordance with its investment policy, the Academy manages its exposure to declines in fair values by limiting the weighted average maturity of its investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities in the open market; and, investing operating funds primarily in shorter-term securities, liquid asset funds, money market mutual funds, or similar investment pools and limiting the average maturity in accordance with the Academy s cash requirements. Credit risk State statutes and the Academy s investment policy authorize the Academy to make deposits in the accounts of federally insure banks, credit unions, and savings and loan associations that have an office in Michigan; the Academy is allowed to invest in U.S. Treasury or Agency obligations, U.S. government repurchase agreements, bankers acceptances, commercial paper rated prime at the time of purchase that matures not more than 270 days after the date of purchase, mutual funds, and investment pools that are compose of authorized investment vehicles. Concentration of credit risk The Academy s investment policy requires diversification so the impact of potential losses from any one type of security or issuer will be minimized. Custodial credit risk deposits In the case of deposits, this is the risk that in the event of a bank failure, the Academy s deposits may not be returned to it. As of year-end, $2,556,154 of the Academy s bank balance of $3,314,183 was exposed to custodial credit risk because it was uninsured and uncollateralized. Page 24