MORGAN COUNTY SCHOOL DISTRICT

Transcription

1 MORGAN COUNTY SCHOOL DISTRICT AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES For the year ended June 30, 2016 Prepared by: WHITE & ASSOCIATES, PSC CERTIFIED PUBLIC ACCOUNTANTS 1407 Lexington Road Richmond, Kentucky Phone (859) Fax (859)

2 TABLE OF CONTENTS *************** Page INDEPENDENT AUDITOR S REPORT MANAGEMENT DISCUSSION AND ANALYSIS 4-11 BASIC FINANCIAL STATEMENTS: Government-Wide Financial Statements: Statement of Net Position.. 12 Statement of Activities Fund Financial Statements: Balance Sheet-Governmental Funds Reconciliation of the Balance Sheet- Governmental Funds to the Statement of Net Position Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds 16 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual Special Revenue Fund Statement of Fund Net Position Proprietary Funds.. 20 Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Funds Statement of Cash Flows Proprietary Funds.. 22 Statement of Fiduciary Net Position Fiduciary Funds Notes to the Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Schedule of the District s Proportionate Share of the Net Pension Liability. 47 Schedule of Contributions.. 48 Notes to Required Supplementary Information.. 49 SUPPLEMENTAL INFORMATION Combining Statements Non-Major Funds and Other: Combining Balance Sheet Nonmajor Governmental Funds

3 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Non-major Governmental Funds 51 Combining Balance Sheet of Fiduciary Fund School Activity Funds Combining Statement of Revenues, Expenses, and Changes in Fund Balance - School Activity Funds 53 Statement of Revenues, Expenses, and Changes in Fund Balance - Morgan County High School. 54 Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards.. 57 INDEPENDENT AUDITOR S 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 AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY UNIFORM GUIDANCE SCHEDULE OF FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS... 63

4 White & Associates PSC CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR S REPORT To the Board of Education of the Morgan County School District West Liberty, Kentucky Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the Morgan County School District, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Morgan County School District 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 and the audit requirements prescribed by the Kentucky State Committee for School District Audits in the Auditor Responsibilities and State Compliance Requirements sections contained in the Kentucky Public School Districts Audit Contract and Requirements. 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.

5 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Morgan County School District, as of June 30, 2016, and the respective changes in financial position, and, where applicable, cash flows, and the respective budgetary comparison schedules for the General Fund and Special Revenue Fund thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, schedule of the District s proportionate share of the net pension liability, and schedule of contributions as listed 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. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Morgan County School District s basic financial statements. The additional supplementary information as contained in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The additional 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 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 additional supplementary information and the schedule of expenditures of federal awards are fairly stated in all material respects in relation to the basic financial statements as a whole. 2

6 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 15, 2016, on our consideration of the Morgan County 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 in considering the Morgan County School District s internal control over financial reporting and compliance. White & Associates, PSC Richmond, Kentucky November 15,

7 Morgan County Public School District West Liberty, Kentucky Management s Discussion and Analysis (MD & A) Year Ended June 2016 As management of the Morgan County Public School District (District), we offer readers of the District s financial statements this narrative overview and analysis of the financial activities of the District for the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with additional information found within the body of the audit FINANCIAL HIGHLIGHTS The beginning fund balance for fund 1 for the District was $10,909,655 which includes Site Based CWFD in the amount of $10,863, and committed sick leave of $92,231. The CWFD amount was re-budgeted in the per pupil accounts for designated schools. The ending fund balance for fund 1 was $6,099,455 which includes committed Site Based CWFD in the amount of $9,222 and will be budgeted appropriately for FY The FY16 fund balance also included $92,231 for committed sick leave liability and $2,701,760 committed other. The committed other funds are for future projects such as bus garage renovation, district technology improvements, bus purchases, central office improvements, and future KSBIT payments. General Fund currently has $1,575,000 invested in CD s. The General Fund had $27,627,115 in revenue, including beginning balance and inter-fund transfers, which primarily consisted of the state program (SEEK), property, utility, motor vehicle taxes, Universal Service Fund reimbursement and insurance funds from tornado settlement. There was $21,527,659 in General Fund expenditures including $5,547,419 in inter-fund transfers which involved KETS and KISTA debt service. Also included within this amount is $129,765 budgeted for sick leave with an actual of $17,925 paid out and long term sick leave liability reflected in the notes to the financial statements. On-behalf payments of $3,440,129 are included in both revenue and expenditures. The general fund portion of diesel /gasoline fuel for the district decreased by $79,652 from last year due decreasing rates for fuel. General fund absorbed fuel cost (0699-fuel reimbursement code) in the amount of $96,250 for athletic and academic trips. The cost for fuel would be considerably higher if PTO s, school activity accounts and Fund 2 grants did not continue supporting this cost. The board also supplements various other areas including health nurses/supplies $286,134; Speech Therapy $39,410; Physical Therapy $15,044; Occupational Therapy $27,078; Gifted and Talented $7,650; Technology $13,659; Band $2,637; Athletics (MCHS/MCMS) $23,602; Academics Teams (MCMS/MCHS) $2,081; Vocational $2,489; Textbooks $14,425 and Competition Based/District/Regional/National $41,400. The combined total of all of these programs was $58,507 less than budget of $525,508. General fund salaries, including on-behalf payments and benefits, totaled $13,411,622. This was $163,110 less than the previous year. The overall utilities reflected a decrease of $52,700 in the district from FY The Kentucky Retirement Systems notified the district of a decrease in the employer contribution for CERS (classified staff) from percent for FY15 to percent for FY16 resulting in $21,723 less in CERS contributions. Kentucky Teachers Retirement (certified staff) employer 4

8 contributions continue to increase. Per law, KTRS employer contributions will increase in increments until it reaches 3% by FY 2016 (FY %; FY %, FY %, FY %, FY %). These increases resulted in an additional $46,638 in KTRS employer contributions compared to the previous year. Bonds are issued as the District renovates facilities consistent with a long-range facilities plan that is established with community input and in keeping with regulations of the Kentucky Department of Education (KDE). During FY 2016, the district began two major renovations projects financed mainly through bond sales. The Ezel Elementary renovation project was primarily financed through $1,335,000 in bonds sales and the Energy Savings Renovation Project involving four schools totaling $4,855,000 in bond sales. The district also undertook two other projects which involved insurance funds from the tornado settlement. The high school athletic complex received an additional $3,139,711 and the Board began the process of purchasing the former Morehead State University building to be designated as the new central office at a cost of $1,895,000. KISTA payments decreased by $12,559. The notes to the financial statements reflect liability for KISTA bus leases per paying agents for the district. The paying agent for buses is Huntington National Bank. During FY16, the district made the second payment totaling $83,286 to the Kentucky School Boards Insurance Trust due to the dissolving of KSBIT. During the next five years, the district will continue to budget for the remaining payments totaling $255,046. OVERVIEW OF FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the Morgan County School District s basic financial statements. The District s basic financial statements are comprised of three components: 1) district-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. District-Wide Financial Statements - The district-wide financial statements are designed to provide readers with a broad overview of the Morgan County School District s finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the Morgan County School District s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Morgan County School District is improving or deteriorating. The statement of activities presents information showing how the Morgan County School District s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods. The district-wide financial statements outline functions of the Morgan County School District that are principally supported by property taxes and intergovernmental revenues (governmental activities). The governmental activities of the District include instruction, support services, operation and maintenance of 5

9 plant, student transportation and operation of non-instructional services. Capital assets and related debt is also supported by taxes and intergovernmental revenues. The district-wide financial statements can be found on the table of contents of this report. Fund Financial Statements - A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. This is a state mandated uniform system and chart of accounts for all Kentucky public school districts utilizing the MUNIS administrative software. The District uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the District can be divided into three categories: governmental, proprietary funds and fiduciary funds. Fiduciary funds are trust funds established by benefactors to aid in student education, welfare and teacher support. The only proprietary fund is our food service operations. All other activities of the District are included in the governmental funds. The basic governmental fund financial statements can be found on the table of contents of this report. Notes to the Financial Statements - The notes provide additional information that is essential to a full understanding of the data provided in the district-wide and fund financial statements. The notes to the financial statements can be found on the table of contents of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net position may serve over time as a useful indicator of a government s financial position. In the case of the Morgan County School District, assets plus deferred outflows exceeded liabilities by approximately $25,444,576 million as of June 30, The largest portion of the District s net position reflects its investment in capital assets (e.g., land and improvements, buildings and improvements, vehicles, furniture and equipment and construction in progress), less any related debt used to acquire those assets that is still outstanding. The District uses these capital assets to provide services to its students; consequently, these assets are not available for future spending. Although the District s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. The District s financial position is the product of several financial transactions including the net results of activities, the acquisition and payment of debt, the acquisition and disposal of capital assets, and the depreciation of capital assets. 6

10 2016 District-Wide Governmental Net position compared to 2015 as follows: Table 1 Net Position (in Millions) Total Governmental Business-type Total Percentage Activities Activities School District Change Assets: Current and Other Assets % Capital Assets % Total Assets % Loss for the difference in reacquisition and carrying value of refunding debt % % Liabilities: Current Liabilities % Noncurrent Liabilities % Total Liabilities % Deferred Inflows Net difference between projected & actual earnings pension plan Net Position: Invested in Capital Assets Net of Debt $ Restricted % Unrestricted Net Position % Total Net Position % 7

11 GOVERNMENTAL ACTIVITIES Ending net position were $26.01 million for the District. This was an increase of $2.76 million from Revenues: Table 2 Changes in Net Position (in millions) Total Percentag Total e Governmental Activities Business-Type Activities School District Change $ 0.14 $ 0.28 $ % Charges for services $ 0.06 $ 0.04 $ 0.21 Operating grants and contributions % Capital grants and contributions % General revenues % Total revenue % Expenses: Instruction % Student % Instructional staff % District administration % School administration % Business % Plant operation & maintenance % Student transportation % Land Improvements % Facilities acquisition and construction % Community services operations % Amortization % Depreciation % Interest on long-term debt % Debt service % Food Service Operations % Extraordinary Item % Total Expenses $ $19.14 $1.50 $1.56 $ $ % Change in net position $ 9.03 $ 1.72 $ 0.02 $ 0.08 $ 9.04 $ % 8

12 CAPITAL ASSETS At the end of fiscal 2016, the District had $53,836,495 invested in capital assets, including land, buildings, buses, computers and other equipment. This amount represents an increase (including additions and deductions) of $ 2,867,115 over last year. DEBT Capital Assets at Year-End (Net of depreciation) Governmental Activities Business Type Activities Totals Land 1,089,020 1,089, ,089,020 1,089,020 Land and Improvements 828, , , ,190 Buildings & Improvements 40,924,020 41,939, ,924,020 41,939,084 Technology Equipment 1,237, ,298 6,063-1,243, ,298 Vehicles 3,347,994 3,521,594 18,800 18,800 3,366,794 3,540,394 General Equipment 3,446,123 1,147,430 1,082, ,747 4,528,363 2,067,177 Construction In Progress 96,682 4,471, ,682 4,741,878 Capital lease and general obligation debt increased $4.87 million from FY Outstanding Debt at Year-End (in Millions) Government Activities Capital Lease Obligations $ 1.18 $ 0.96 General Obligation Bonds Total Obligations $ $

13 THE DISTRICT S FUNDS As the District completed the year, the General Fund reflected a fund balance of $6,099,455, which is less than last year s fund balance of $10,909,655. The unassigned portion of the fund balance at the end of fiscal year 2016 is $3,296,242, compared to $10,806,561 from the preceding year. The following table presents a summary of revenue and expense for the District as a whole for the fiscal year ended June 30, 2016: *Note This chart does not include beginning balances. REVENUE Fund Fund Fund Fund Fund Fund Fund Fund Local Revenue Sources 3,082,207 50,895 33, , ,019 State Revenue Sources 13,347, , , , , ,216 Federal Revenue Sources 62,111 1,600, ,364,317 Other 96,322-6,196,667 Transfers 129,276 44,342 5,310, ,805 TOTALS 16,717,461 2,476,268 33, , ,197 11,507,527 1,792,843 1,644,552 Fund Fund Fund Fund Fund Fund Fund Fund EXPENDITURES Instruction 8,526,328 1,783,498 20,455 Student Support Services 1,017,115 44,921 Instructional Staff Support Services 564, ,105 17,471 District Admin Support 621,755 4,937 School Admin Support 1,059,056 Business Support Services 555, Plant Operation & Management 2,113,344 77,586 Student Transportation 1,500, Food Service Operations 1,536,336 Community Services 22, ,000 Debt Service 51,252 1,792,843 Site Improvement 161,196 Building Acquisitions & Construction 118,453 Building Improvements 4,104,227 Other-Facilities 310,906 Transfers 5,547, , ,104 - TOTALS 21,527,660 2,476,268 38, , ,104 4,746,034 1,792,843 1,536,336 Excess / (Deficit) (4,810,199) - (4,800) - 221,093 6,761, ,217 10

14 Comments on Budget Comparisons The District s total general fund revenues for the fiscal year ended June 30, 2016, net of Interfund transfers, Beginning Balance, and sale of land /equipment was $16,491,862. General fund budget compared to actual revenue varied slightly from line item to line item with the ending actual revenue being $490,142 more than budget or approximately 3.1 percent. General fund budget expenditures to actual varied line item to line item with the actual expenditures being $1,157,201 less than budgeted. BUDGETARY IMPLICATIONS In Kentucky the public school fiscal year is July 1-June 30; other programs, i.e. some federal programs operate on a different fiscal calendar, but are reflected in the district overall budget. By law the budget must have a minimum of 2%. Per PSD/CSD data submitted to Kentucky Department of Education certified staff decreased 2 and classified 5 from last year. SEEK is the district s major source of revenue. Issues which will impact future budgets include: Increased expenses to meet federal and state academic mandates. Declining ADA which results in less SEEK funds. Declining federal funds. Continued insufficient funding of the state transportation formula. Questions regarding this report should be directed to the Finance Officer, Addison Whitt or Superintendent, Deatrah Barnett at (606) or by mail at Morgan County Board of Education, 212 University Drive, West Liberty, Kentucky

15 Morgan County School District Statement of Net Position June 30, 2016 Primary Government Business- Governmental type Activities Activities Total ASSETS Cash and cash equivalents $ 13,534,525 $ 290,947 $ 13,825,472 Investments 1,575,000 1,575,000 Receivables (net) 508,585 16, ,078 Inventories 32,542 32,542 Capital assets: Land, improvements, and construction in progress 5,830,898 5,830,898 Other capital assets, net of depreciation 32,982, ,365 33,408,046 Total capital assets 38,813, ,365 39,238,944 Total assets 54,431, ,347 55,197,036 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions 1,085,608 93,148 1,178,756 Deferred savings from refunding bonds 459, ,502 Total deferred outflows of resources 1,545,110 93,148 1,638,258 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES 55,976, ,495 56,835,294 LIABILITIES Accounts payable and accrued expenses 275, ,060 Accrued interest payable 124, ,658 Unearned revenue 224, ,532 Long-term liabilities: Due within 1 year: Bond obligations 1,250,000 1,250,000 KSBIT payable 83,287 83,287 Capital lease obligations 186, ,701 Sick leave 139, ,266 Total due within 1 year 1,659,254-1,659,254 Due in more than 1 year: Bond obligations 22,005,000 22,005,000 KSBIT payable 171, ,759 Capital lease obligations 772, ,478 Sick leave 231, ,720 Net pension liability 5,067, ,737 5,357,377 Total due in more than 1 year 28,248, ,737 28,538,334 Total liabilities 30,532, ,615 30,822,838 NET POSITION Net Investment in capital assets 15,106, ,365 15,531,702 Restricted Capital projects 9,004,162 9,004,162 Food services 142, ,516 Other purposes 2,817,992 2,817,992 Unrestricted (1,483,915) (1,483,915) Total net position 25,444, ,880 26,012,457 TOTAL LIABILITIES AND NET POSITION $ 55,976,799 $ 858,495 $ 56,835,294 See the accompanying notes to the financial statements. 12

16 Morgan County School District Statement of Activities Year Ended June 30, 2016 Program Revenues Net (Expense) Revenue and Changes in Net Position Operating Capital Business- Charges for Grants and Grants and Governmental type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total PRIMARY GOVERNMENT: Governmental activities: Instruction $ 10,470,465 $ - $ 1,633,599 $ - $ (8,836,866) $ (8,836,866) Support Services Student 1,076,739 32, ,233 (908,309) (908,309) Instructional Staff 881, ,193 (776,736) (776,736) District Administration 630,753 75,234 (555,520) (555,520) School Administration 1,075, ,279 (947,200) (947,200) Business 562,583 67,103 (495,480) (495,480) Plant Operation & Maintenance 935, , ,612 (157,216) (157,216) Student Transportation 1,128, ,586 (993,777) (993,777) Food Service Operations 1,262 1,262 1,262 Community Services Operations 305,759 36,470 (269,290) (269,290) Loss on retirement of capital assets 101,956 12,161 (89,795) (89,795) Amortization 53,373 (53,373) (53,373) Depreciation 1,276,463 (1,276,463) (1,276,463) Interest on long-term debt 789,022 6, ,039 85,683 85,683 Total governmental activities 19,288,282 40,126 2,440,427 1,534,651 (15,273,079) (15,273,079) Business-type activities: Food service operations 1,495, ,843 1,499,533 $ 148, ,771 Loss on retirement of capital assets 2,308 (2,308) (2,308) Depreciation 64,863 (64,863) (64,863) Total business-type activities 1,562, ,843 1,499, ,600 81,600 Total primary government $ 20,851,059 $ 184,969 $ 3,939,960 $ 1,534,651 (15,273,079) 81,600 (15,191,479) General revenues: Taxes: Property taxes 1,675,689 1,675,689 Motor vehicle taxes 373, ,978 Unmined minerals tax 7,354 7,354 Uitility taxes 615, ,985 Franchise 322, ,216 State and formula grants 13,347,544 13,347,544 Unrestricted investment earnings 29, ,143 Sale of equipment 96,322 96,322 Other local 527, ,498 Total general revenues 16,996, ,996,729 Change in net position 1,723,159 82,091 1,805,250 Net position - beginning 23,721, ,790 24,207,207 Net position - ending $ 25,444,576 $ 567,880 $ 26,012,457 See the accompanying notes to the financial statements. 13 Primary Government

17 Morgan County School District Balance Sheet Governmental Funds June 30, 2016 Governmental Funds Other Special Debt Governmental General Revenue Construction Service Funds Total ASSETS Cash and cash equivalents $ 4,418,540 $ - $ 8,974,386 $ - $ 297,187 $ 13,690,113 Investments 1,575,000 1,575,000 Receivables, net Taxes-current 91,043 91,043 Taxes-delinquent 11,294 11,294 Accounts 26,102 26,102 Intergovernmental-state 380, ,146 Intergovernmental-federal - Total assets 6,121, ,146 8,974, ,187 15,773,698 LIABILITIES Accounts payable 22, , ,182 Overdraft payable 155, ,588 Unearned revenue 224, ,532 Total liabilities 22, , , ,302 FUND BALANCE Restricted 8,721, ,408 9,004,162 Committed 2,803,213 14,779 2,817,992 Unassigned 3,296,242 3,296,242 Total fund balance 6,099,455-8,721, ,187 15,118,396 TOTAL LIABILITIES AND FUND BALANCE $ 6,121,979 $ 380,146 $ 8,974,386 $ - $ 297,187 $ 15,773,698 See the accompanying notes to the financial statements. 14

18 Morgan County School District Reconciliation of the Balance Sheet - Governmental Funds to the Statement of Net Position June 30, 2016 Fund balances-total governmental funds $ 15,118,396 Amounts reported for governmental activities in the statement of net position are different because: Capital assets are not reported in this fund financial statement because they are not current financial resources, but they are reported in the statement of net position. 38,813,579 Accounts receivable from delinquent property taxes are not recorded in the fund financial statements because they are not available for use (received within 60 days). These receivables are accrued on the statement of net position because they have been earned and are measurable Costs associated with bond issues and refundings are expensed in the fund financial statements because they are a use of current financial resources but are capitalized on the statement of net position using the economic resources focus 459,502 Certain liabilities (such as bonds payable, the long-term portion of accrued sick leave, accrued interest payable, other accounts payable, and net pension obligations) are not due and payble in the current period and, therefore, are not reported in the funds Accrued interest payable (124,658) Bonds and capital leases payable (24,214,179) KSBIT payable (255,046) Sick leave liability (370,986) Net pension liability (5,067,640) Deferred outflows and inflows or resources related to pensions are applicable to future periods and, therefore, are not reported in the funds Deferred outflows related to pensions 1,085,608 Net position of governmental activities $ 25,444,576 See the accompanying notes to the financial statements. 15

19 Morgan County School District Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended June 30, 2016 Other Total Special Debt Governmental Governmental General Revenue Construction Service Funds Funds REVENUES From Local Sources Taxes Property $ 1,256,345 $ - $ - $ - $ 419,344 $ 1,675,689 Motor vehicle 373, ,978 Unmined Minerals 7,354 7,354 Utilities 615, ,985 Franchise 322, ,216 Earnings on investments 29, ,652 Food service 1,262 1,262 Student Activities 32,197 32,197 Other local revenue 475,527 50,784 1, ,498 Intergovernmental - state 13,347, , , ,612 15,659,992 Intergovernmental - federal 62,111 1,600, ,662,630 Total revenues 16,491,862 2,431, ,039 1,119,625 20,908,452 EXPENDITURES Instruction 8,526,328 1,783,498 20,455 10,330,281 Support Services Student 1,017,115 44,921 1,062,036 Instructional Staff 564, ,105 17, ,832 District Administration 621,755 4, ,692 School Administration 1,059,056 1,059,056 Business 555, ,155 Plant Operation & Maintenance 2,113,344 77,586 2,190,929 Student Transportation 1,500, ,501,173 Community Services Operations 22, , ,822 Building Acquisitions & Construction 118, ,453 Site Improvement 161, ,196 Building Improvements 4,104,227 4,104,227 Other Facilities 310, ,906 Debt Service 51,252 1,792,843 1,844,095 Total expenditures 15,980,240 2,476,268 4,746,034 1,792,843 38,469 25,033,854 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 511,622 (44,342) (4,746,034) (927,805) 1,081,156 (4,125,402) OTHER FINANCING SOURCES (USES) Sale of land and equipment 96,322 96,322 Bond proceeds 6,190,000 6,190,000 Bond premium 6,667 6,667 Operating transfers in 129,276 44,342 5,310, ,805 6,412,282 Operating transfers (out) (5,547,419) (864,863) (6,412,282) Total other financing sources and (uses) (5,321,821) 44,342 11,507, ,805 (864,863) 6,292,989 NET CHANGE IN FUND BALANCE (4,810,199) 0 6,761, ,293 2,167,587 FUND BALANCE - BEGINNING 10,909,655 1,960,260 80,894 12,950,808 FUND BALANCE - ENDING $ 6,099,455 $ 0 $ 8,721,754 $ - $ 297,187 $ 15,118,396 See the accompanying notes to the financial statements. 16

20 Morgan County School District Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year ended June 30, 2016 Net change in fund balances-total governmental funds $ 2,167,587 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report district pension contributions as expenditures. However in the Statement of Activities, the cost of pension benefits earned net of employee contributions is reported as pension expense. District pension contributions less costs of benefits earned net employee contributions (247,265) Capital outlays are reported as expenditures in this fund financial statement because they use current financial resources, but they are presented as assets in the statement of activities and depreciated over their estimated economic lives. The difference is the amount by which capital outlays exceeds depreciation expense for the year. 4,759,448 The difference in the issue amount of the refunding of bond proceeds and the amount for payment to the escrow account to pay the refunded bonds is amortized over the life of the refunding issue. (53,373) Bond and capital lease payments are recognized as expenditures of current financial resources in the fund financial statement but are reductions of liabilities in the statement of net position. (4,873,187) Generally, expenditures recognized in this fund financial statement are limited to only those that use current financial resources, but expenses are recognized in the statement of activities when they are incurred. Accrued interest payable (43,927) Other KSBIT payable 83,287 Noncurrent sick leave payable (69,411) Change in net position of governmental activities $ 1,723,159 See the accompanying notes to the financial statements. 17

21 Morgan County School District Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual General Fund Year Ended June 30, 2016 Variance Budgeted Amounts with Final Budget Favorable Original Final Actual (Unfavorable) REVENUES From Local Sources Taxes Property $ 1,200,000 $ 1,200,000 $ 1,256,345 $ 56,345 Motor vehicle 350, , ,978 23,978 Unmined minerals 7,354 7,354 Utilities 575, , ,985 40,985 Franchise 200, , , ,216 Earnings on investments 10,000 10,000 29,542 19,542 Food service 1,262 1,262 Other local revenue 295, , , ,925 Intergovernmental - state 12,855,013 13,336,119 13,347,544 11,426 Intergovernmental - federal 35,000 35,000 62,111 27,111 Total revenues 15,520,268 16,001,721 16,491, ,142 EXPENDITURES Instruction 8,597,352 8,850,494 8,526, ,166 Support Services Student 1,010,596 1,079,940 1,017,115 62,825 Instructional Staff 600, , ,256 26,068 District Administration 609, , ,755 68,956 School Administration 1,126,506 1,140,466 1,059,056 81,409 Business 486, , ,098 14,394 Plant Operation & Maintenance 2,416,426 2,479,553 2,113, ,209 Student Transportation 1,673,836 1,718,106 1,500, ,640 Community Services Operations 18,355 18,355 22,822 (4,467) Total expenditures 16,539,231 17,137,441 15,980,240 1,157,201 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (1,018,963) (1,135,721) 511,622 1,647,343 OTHER FINANCING SOURCES (USES) Sale of land and equipment 96,322 96,322 Operating transfers in 66, , ,276 - Operating transfers out (302,301) (5,547,419) (5,547,419) - Total other financing sources and (uses) (236,298) (5,418,144) (5,321,821) 96,322 NET CHANGE IN FUND BALANCE (1,255,260) (6,553,864) (4,810,199) 1,743,665 FUND BALANCE - BEGINNING 10,758,808 10,817,424 10,909,655 92,231 FUND BALANCE - ENDING $ 9,503,548 $ 4,263,559 $ 6,099,455 $ 1,835,896 See the accompanying notes to the financial statements. 18

22 Morgan County School District Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Special Revenue Fund Year Ended June 30, 2016 Variance Budgeted Amounts with Final Budget Favorable Original Final Actual (Unfavorable) REVENUES From Local Sources Earnings on investments $ - $ 102 $ 111 $ 9 Other local revenue 27,250 67,064 50,784 (16,280) Intergovernmental - state 845, , ,797 (73,788) Intergovernmental - federal 1,530,591 1,549,265 1,600,234 50,969 Total revenues 2,402,898 2,471,016 2,431,926 (39,090) EXPENDITURES Instruction 1,733,262 1,750,182 1,783,498 (33,317) Support Services Student 72,280 82,674 44,921 37,753 Instructional Staff 272, , ,105 (4,023) District Administration 4,937 (4,937) Business 2, ,943 Plant Operation & Maintenance 89, ,990 77,586 28,404 Student Transportation 5,992 6, ,828 Community Services Operations 284, , ,000 6,439 Total expenditures 2,457,498 2,515,358 2,476,268 39,090 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (54,600) (44,342) (44,342) 0 OTHER FINANCING SOURCES (USES) Operating transfers in (out) 54,600 44,342 44,342 - Total other financing sources and (uses) 54,600 44,342 44,342 - NET CHANGE IN FUND BALANCE FUND BALANCE - BEGINNING FUND BALANCE - ENDING $ - $ - $ - $ - See the accompanying notes to the financial statements. 19

23 Morgan County School District Statement of Fund Net Position Proprietary Funds June 30, 2016 School Other Total Food Enterpise Proprietary Services Fund Funds ASSETS Cash and cash equivalents $ 290,947 $ - $ 290,947 Accounts receivable, net 16,493 16,493 Inventories 32,542 32,542 Capital assets: Other capital assets, net of depreciation 425, ,365 Total assets 765, ,347 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions 93,148 93,148 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES 858, ,495 LIABILITIES Accounts payable Net pension liability 289, ,737 Total Liabilities 290, ,615 NET POSITION Net Investment in capital assets 425, ,365 Restricted for: Food Service 142, ,516 Total net position 567, ,880 TOTAL LIABILITIES AND NET POSITION $ 858,495 $ - $ 858,495 See the accompanying notes to the financial statements. 20

24 Morgan County School District Statement of Revenues, Expenses, and Changes in Fund Net Position Proprietary Funds Year Ended June 30, 2016 School Other Total Food Enterprise Proprietary Services Fund Funds OPERATING REVENUES Lunchroom sales $ 144,528 $ 315 $ 144,843 Total operating revenues 144, ,843 OPERATING EXPENSES Depreciation 64,863 64,863 Food service operations Employee services 611, ,426 Operational expenses 883, ,179 Total operating expenses 1,560, ,560,468 Operating income (loss) (1,415,625) - (1,415,625) NONOPERATING REVENUES (EXPENSES) Federal grants 1,364,317 1,364,317 State grants 135, ,216 Loss on retirement of capital assets (2,308) (2,308) Earnings from investments Total nonoperating revenues 1,497,715-1,497,715 CHANGE IN NET POSITION 82,091-82,091 NET POSITION, BEGINNING 485, ,790 NET POSITION, ENDING $ 567,880 $ - $ 567,880 See the accompanying notes to the financial statements. 21

25 Morgan County School District Statement of Cash Flows Proprietary Funds Year Ended June 30, 2016 School Other Total Food Enterprise Enterprise Services Fund Fund CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 144,528 $ 315 $ 144,843 Payments to suppliers (883,864) (315) (884,179) Payments to employees (578,653) - (578,653) Net cash provided (used) by operating activities (1,317,989) - (1,317,989) CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Loss on capital asset retirement (2,308) (2,308) Purchase of capital assets (73,982) (73,982) Net cash provided (used) by capital financing activities (73,982) - (73,982) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Intergovernmental revenue 1,499,533-1,499,533 Net cash provided (used) by noncapital financing activities 1,499,533-1,499,533 CASH FLOWS FROM INVESTING ACTIVITIES Interest Net cash provided (used) by investing activities NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 108, ,052 CASH AND CASH EQUIVALENTS, BEGINNING 182, ,895 CASH AND CASH EQUIVALENTS, ENDING $ 290,947 $ - $ 290,947 Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) $ (1,415,625) $ - $ (1,415,625) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation 64,863-64,863 Changes in assets and liabilities: Receivables 6,850 6,850 Inventories (7,676) (7,676) Deferrals (77,015) (77,015) Deferrals (18,052) (18,052) Pensions 128, ,004 Accounts Payable Net cash provided (used) by operating activities $ (1,317,989) $ - $ (1,317,989) NONCASH NONCAPITAL FINANCING ACTIVITIES During the year, the district received $73,953 of food commodities from the U.S. Department of Agriculture. During the year, the district recognized revenues and expenses for on-behalf payments relating to fringe benefits in the amount of $114,234 provided by state government. See the accompanying notes to the financial statements. 22

26 Morgan County School District Statement of Fiduciary Net Position Fiduciary Fund June 30, 2016 School Activity Funds ASSETS Cash and cash equivalents $ 80,204 Accounts receivable 230 TOTAL ASSETS 80,434 LIABILITIES Due to student groups 80,434 TOTAL LIABILITIES 80,434 NET POSITION HELD IN TRUST $ - See the accompanying notes to the financial statements. 23

27 MORGAN COUNTY SCHOOL DISTRICT NOTES TO THE FINANCIAL STATEMENTS For the year ended June 30, 2016 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity The Morgan County Board of Education ( Board ), a five-member group, is the level of government, which has oversight responsibilities over all activities related to public elementary and secondary school education within the jurisdiction of the Morgan County Board of Education ( District ). The District receives funding from Local, State and Federal government sources and must comply with the commitment requirements of these funding source entities. However, the District is not included in any other governmental reporting entity as defined in Section 2100-Codification of Governmental Accounting and Financial Reporting Standards. Board members are elected by the public and have decision making authority, the power to designate management, the responsibility to develop policies, which may influence operations and primary accountability for fiscal matters. The District, for financial purposes, includes all of the funds relevant to the operation of the Morgan County Board of Education. The financial statements presented herein do not include funds of groups and organizations, which although associated with the school system, have not originated within the District itself such as Band Boosters, Parent-Teacher Associations, etc. The financial statements of the District include those of separately administered organizations that are controlled by or dependent on the Board. Control or dependence is determined on the basis of budget adoption, funding and appointment of the respective governing board. Based on the foregoing criteria, the financial statements of the following organization are included in the accompanying financial statements: Blended Component Unit: Morgan County Board Of Education Finance Corporation The Board authorized establishment of the Morgan County Board Of Education Finance Corporation a non-stock, non-profit corporation pursuant to Section of the School Bond Act and Chapter 273 and Section of the Kentucky Revised Statutes (the Corporation ) to act as an agency of the District for financing the costs of school building facilities. The Board of Directors of the Corporation shall be the same persons who are at any time the members of the Board of Education of the Morgan County Board of Education. Basis of Presentation Government-wide Financial Statements The statement of net position and the statement of activities display information about the District as a whole. These statements include the financial activities of the primary government, except for fiduciary funds. The statements distinguish between those activities of the District that are governmental and those that are considered business-type activities. 24

28 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) The government-wide statements are prepared using the economic resources measurement focus. This is the same approach used in the preparation of the proprietary fund 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 governmental funds. The government-wide statement of activities presents a comparison between direct expenses and program revenues for each segment of the business-type activities of the District and 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. Program revenues include charges paid by the recipient of the goods or services offered by the program and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues of the District, with certain limited exceptions. The comparison of direct expenses with program revenues identifies the extent to which each business segment or 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 and enterprise fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Nonmajor funds are aggregated and presented in a single column. Fiduciary funds are reported by fund type. The accounting and reporting treatment applied to a fund is determined by its measurement focus. All governmental fund types are accounted for using a flow of current financial resources measurement focus. The financial statements for governmental funds are a balance sheet, which generally includes only current assets and current liabilities and a statement of revenues, expenditures and changes in fund balances, which reports on the changes in fund balance. Proprietary funds and fiduciary funds are reported using the economic resources measurement focus. The statement of cash flows provides information about how the District finances and meets the cash flow needs of its proprietary activities. The District has the following funds: I. Governmental Fund Types (A) General Fund The General Fund is the main operating fund of the District. It accounts for financial resources used for general types of operations. This is a budgeted fund, and any fund balances are considered as resources available for use. This is always a major fund of the District. (B) Special Revenue (Grant) Fund The Special Revenue (Grant) Fund accounts for proceeds of specific revenue sources (other than expendable trust funds or major capital projects) that are legally restricted to disbursements for specified purposes. It includes federal financial programs where unused balances are returned to the grantor at the close of specified project periods as well as the state grant programs. Project accounting is employed to 25