DOUGLAS COUNTY SCHOOL DISTRICT NO. 4 Roseburg, Oregon FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

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1 Roseburg, Oregon FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2013 WITH INDEPENDENT AUDITOR'S REPORT

2 ROSEBURG, OREGON JUNE 30, 2013 BOARD OF DIRECTORS AS OF JUNE 30, 2013 Rodney Cotton 324 N River Drive, Roseburg, Oregon Dan Endicott 1535 W Basil, Roseburg, Oregon Joseph Garcia 146 Pasadena Court, Roseburg, Oregon Lee Charles PO Box 486, Roseburg, Oregon Paul Meyer 1631 NW Vale CT, Roseburg, Oregon Steve Patterson 1886 Oerding, Roseburg, Oregon Stacy Stiefel PO Box 219, Winchester, Oregon Vice-Chair Director Director Director Director Chair Director Administrative Office: 1419 NW Valley View Drive Roseburg, Oregon ADMINISTRATIVE STAFF Dr. Larry C. Parsons Cheryl Northam Superintendent Chief Operations Officer

3 ROSEBURG, OREGON YEAR ENDED JUNE 30, 2013 Table of Contents Page Independent Auditor's Report A-1 A-3 Management s Discussion and Analysis B-1 B-10 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position 1 Statement of Activities 2 Fund Financial Statements: Balance Sheet - Governmental Funds 3 Reconciliation of Governmental Funds Balance Sheet to Statement of Net Position 4 Statement of Revenues, Expenditures and Changes in Fund Balance - Governmental Funds 5 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance of Governmental Funds to the Statement of Activities 6 Notes to the Basic Financial Statements 7 31 Required Supplementary Information: Schedule of Funding Progress - Other Postemployment Benefits 32 Major Governmental Funds Budgetary Comparison Information: Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 33 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Special Revenue Fund 34 Other Supplementary Information: Other Major Governmental Funds Budgetary Comparison Information: Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Debt Service Fund 35 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Capital Projects Fund 36 Schedule of Property Tax Transactions 37 School District Financial Accounting Summaries Independent Auditor s Report Required by State Regulations 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 OMB Circular A Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs 52

4 Member Division for CPA Firms AICPA MICHAEL L. PIELS CERTIFIED PUBLIC ACCOUNTANTS, LLP 940 Town Centre Drive, Medford, Oregon (541) FAX (541) INDEPENDENT AUDITOR'S REPORT Board of Directors Douglas County School District No. 4 Roseburg, Oregon Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities and each major fund of Douglas County School District No. 4 (the District), as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the presentation 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-1

5 Board of Directors Douglas County School District No. 4 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the District as of June 30, 2013, and the respective changes in financial position 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, the schedule of funding progress (other postemployment benefits), and the general fund and special revenue major governmental funds budgetary comparison information 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 applied certain limited procedures to management s discussion and analysis, and the schedule of funding progress (other postemployment benefits) in accordance with auditing standards generally accepted in the United States of America, which consisted of inquires of management about the methods of preparing the information and comparing the information for consistency with 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 management s discussion and analysis and the schedule of funding progress (other postemployment benefits) because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The general fund and special revenue major governmental funds budgetary comparison information is the responsibility of management and was 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 general fund and special revenue major governmental funds budgetary comparison information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The other supplementary information listed in the table of contents is presented for purposes of additional analysis and is not required as part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the basic financial statements. A-2

6 Board of Directors Douglas County School District No. 4 Other Supplementary Information (Continued) The other supplementary information and 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 financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other financial schedules, other supplementary information, and schedule of expenditures of federal awards are fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards and Oregon State Regulations In accordance with Government Auditing Standards, we have also issued our report dated December 27, 2013 on our consideration of the 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 District s internal control over financial reporting and compliance. In accordance with Oregon State Regulation, we have also issued our report dated December 27, 2013 on our consideration of the District s compliance with certain provisions of laws, regulations, contracts, and grants, including the provisions of Oregon Revised Statutes (ORS) as specified in Oregon Administrative Rules through of the Minimum Standards for Audits of Oregon Municipal Corporations. The purpose of that report is to describe the scope of our testing necessary to address the required provisions of ORS, and not to provide an opinion on compliance with such provisions. Michael L. Piels CPAs, LLP December 27, 2013 A-3

7 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2013 As management of Douglas County School District No. 4 (the District), we offer readers of the District's financial statements this narrative overview and analysis of the financial activities for the fiscal year ended June 30, FINANCIAL HIGHLIGHTS In the government-wide statements, the assets of the District exceeded its liabilities at June 30, 2012 by $ million. Of this amount, $ million represents the District s investment in capital assets, $1.599 million is restricted for debt service, $43,811 is restricted for grant services, and the balance, $4.301 million is unrestricted and available for appropriation at the District s discretion. For the fiscal year ended June 30, 2013, the District s total net assets increased slightly by $459,303. This increase is attributable primarily to a receipt of federal forest fees that were unbudgeted. The District s governmental funds report a combined ending fund balance of $5.297 million, an increase of about $273 thousand in comparison with the prior year. This was the result of a slight increase in revenues in excess of budget. At the end of the fiscal year, unassigned fund balance in the general fund was $2,862,083 or 6.2 percent of total general fund expenditures and other financing uses. This was an increase from the previous unassigned general fund balance of $444,708. The District s total debt decreased by just over $2.0 million during the fiscal year. Debt decreased due to bond principal repayment. Regular debt service payments were made as scheduled. During the year, the district sold $12,705,000 in bonds to complete an advance refunding of a portion of its general obligation debt. This refunding lowered the interest rate on the outstanding debt and will save taxpayers approximately $721,502 in interest payments over the next eight years. OVERVIEW OF THE FINANCIAL STATEMENTS This Management s Discussion and Analysis is intended to serve as an introduction to the District s basic financial statements. The District s basic financial statements consist of three components: 1) governmentwide financial statements, 2) fund financial statements, and 3) notes to the basic financial statements. This report also contains supplementary information in addition to the basic financial statements themselves. B-1

8 Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the District s finances, in a manner similar to a private-sector business. These statements include: Statement of Net Position. The Statement of Net Position presents information on all of the assets and liabilities of the District at year-end. Net position is what remains after the liabilities have been recognized. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the District is improving or deteriorating. Statement of Activities. The Statement of Activities presents information showing how the net position of the District changed over the year by tracking revenues, expenses and other transactions that increase or reduce net position. 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 (e.g., uncollected taxes). In the government-wide financial statements, the District s activities are shown in one category: Governmental activities. Most of the District s basic functions are shown here, such as regular and special education, child nutrition services, transportation, administration, and facilities acquisition and construction. These activities are primarily financed through property taxes, Oregon s State School Fund and other intergovernmental revenues. The government-wide financial statements can be found on pages 1 and 2 of this report. Fund financial statements. The fund financial statements provide more detailed information about the District s funds, focusing on its most significant or major funds not the District as a whole. 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. Douglas County School District No. 4, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the District are major governmental funds and fund balances are reported in accordance with GASB Statement 54. Governmental funds. The governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near-term financing requirements. B-2

9 Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financing decisions. Both the governmental fund Balance Sheet and Statement of Revenues, Expenditures and Changes in Fund Balances are reconciled to the government-wide Statements of Net Assets and Activities. The District maintains four individual governmental funds. Information is presented separately in the governmental fund Balance Sheet and the governmental fund Statement of Revenues, Expenditures and Changes in Fund Balances for the General, Special Revenue, Debt Service, and Capital Projects Funds, all of which are considered to be major funds. The basic governmental fund financial statements can be found on pages 3 and 5 of this report. Notes to the basic financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the basic financial statements can be found on pages 7 through 31 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted previously, net position may serve over time as a useful indicator of a government s financial position. In the case of the District, assets exceeded liabilities by $ million at June 30, Capital assets, which consist of the District s land, buildings, building improvements, vehicles and equipment, represent about 46% of total assets. The remaining assets consist mainly of investments, cash, grants and property taxes receivable. The District s largest liability (88%) is for the long-term portion of general obligation and pension obligation bonds. Other liabilities, representing about 12% of the District s total liabilities, consist of payables on accounts, salaries and benefits, and the current portion of long-term debt. About 75% of the District s net position reflect its investment in capital assets (e.g., land, buildings, vehicles and equipment), less any related debt used to acquire those assets that is still outstanding. The District uses these capital assets to provide services to students and other District residents; 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 (generally property taxes and state school fund support), since the capital assets themselves cannot be used to liquidate these liabilities. The majority of the capital related debt is a general obligation of the District for which the District has unlimited taxing authority under the Oregon constitution. B-3

10 Douglas County School District No. 4 Net Assets (In thousands) Increase (Decrease) Governmental Activities From Fiscal 2012 Current and other assets $ 9,742 $ 10,224 $ (482) Prepaid UAL 31,537 31,973 (436) Capital assets 35,552 36,759 (1,207) Total assets 76,831 78,956 (2,125) Other liabilities 4,993 4, Long-term debt 47,952 50,639 (2,687) Total liabilities 52,945 55,529 (2,584) Net assets: Invested in capital assets, net of related debt 17,941 18,354 (413) Restricted 1,643 2,119 (476) Unrestricted 4,302 2,954 1,328 Total net assets $ 23,886 $ 23,427 $ 459 During the current fiscal year, the District s net assets increased by $459 thousand. Unrestricted net assets increased by $1.328 million. This was primarily due to decreased spending and the receipt of some onetime federal revenue. The District s investment in capital assets, net of related debt decreased by $413 thousand as a result of depreciation. Few capital investments have been made during the last few fiscal years as state funding has decreased to a point where virtually every service provided by the District has been adversely impacted. B-4

11 Governmental activities. The key elements of the change in the District s net assets for the year ended June 30, 2013 are as follows: Douglas County School District 4 Changes in Net Position For the year ended June 30, 2013 (In thousands) Increase (Decrease) Governmental Activities From Fiscal Revenues: Program revenues: Charges for services $ 2,355 $ 1,693 $ 662 Operating grants and contributions 5,330 8,214 (2,884) Capital grants and contributions (65) General revenues: Property taxes 15,463 15, State school fund general support 30,630 29,619 1,011 Other state and local sources 1, Earnings on investments Total Revenues 55,540 55,831 (291) Expenses: Instruction 29,883 29, Support services 19,244 19,459 (215) Community services 2,222 2,320 (98) Facilities acquisition and 1, construction Interest on long-term debt 2,488 2,504 (16) Total Expenses 55,081 54, (Decrease) increase in net assets 459 1,103 (644) Net Position July 1 23,427 22,324 1,103 Net Position June 30 $ 23,886 $ 23,427 $ 459 B-5

12 Oregon State School Fund revenues increased by $1.011 million (3.4%) during the fiscal year. This increase was the result of an increase in the legislatively appropriated amount for fiscal Property tax revenue increased by $197 thousand (1.1%), due to an increase in the District s assessed property values. Assessed value is allowed to increase up to 3% annually. Operating grants and contributions decreased by $2.884 million for the year. Most of these revenues are the result of federal grant awards in the Title and IDEA programs, but revenues are also received from local and other state sources. Investment earnings remained flat during fiscal Reserves have increased, but interest rates remain at historic lows. Other state and local sources revenue increased by $787 thousand. Governmental program expenses increased by $353 thousand from the prior year. The majority of this increase was due to negotiated payroll increases granting steps and columns to eligible employees. FINANCIAL ANALYSIS OF THE DISTRICT S FUNDS As noted earlier, the District uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental funds. The focus of the District s governmental funds is to provide information on relatively short-term cash flow and funding for future basic services. Such information is useful in assessing the District s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government s net resources available for spending at the end of a fiscal year. At June 30, 2013, the District s governmental funds reported combined ending fund balances of $5.297 million, an increase of $273 thousand in comparison with the prior year. Approximately $2.86 million (54%) of the ending fund balance constitutes unassigned ending fund balance, which is available for spending at the government s discretion. The primary component of the increase was the result of increased resources being received in the General Fund that were not allocated at budget time. Amounts committed for cocurricular activities are $672 thousand, $43 thousand is restricted for Grant Services and an additional $1.392 million is restricted for debt service obligations. General Fund. The General Fund is the chief operating fund of the District. As of June 30, 2013, the unassigned fund balance was $2.862 million. This is an increase of about $445 thousand (18%) from the previous year. As a result of some additional resources and budgeted reductions in expenditures, the General Fund balance reached 6.7% of General Fund expenditures and Other Financing Uses. It will be difficult to maintain this level of ending fund balance as the District continues to try balance needs with limited resources. B-6

13 Special Revenue Fund. The Special Revenue Fund is used to account for Federal, State, and local grants, as well as our food service, associated student body, and early retirement programs. All funds are utilized to carry out specific programs, and the ending fund balance of $716 thousand is primarily assigned to associated student body programs and activities and grant related activities. Special revenue funding has become much more volatile over the last three years as state and federal stimulus programs are established for short periods of time. As general funding continues to be impacted by the economy, our reliance on special revenues increases. At the end of , the early retirement fund was closed out into the general fund. All future expenditures for the district s early retirement program will be budgeted within the general fund. Debt Service Fund. The Debt Service Fund has a total fund balance of $1.39 million, all of which is restricted for the payment of debt service. The decrease in fund balance during the current year was $317 thousand. This decrease reflects reduced amounts charged other funds to repay District pension obligations, which was less than our current year pension debt obligations. Charges were reduced in to help offset the budget in the General Fund. In future years, the charges for services for payroll will need to reflect the actual debt service requirements. Capital Projects Fund. The Capital Projects Fund has a total fund balance of $101,463 all of which is assigned for ongoing capital projects. The fund balance increased by $36,867 during the current fiscal year as a result of decreased expenditures. All bond funds were expended in prior years and there are no significant capital funding sources remaining. Unless additional local funding is approved by voters, the current economic environment will not allow for capital project expenditures in the near future. General Fund Budgetary Highlights Resources in the General Fund, including beginning fund balance, were $1.06 million higher than budgeted, mainly due to receipt of unbudgeted federal forest fee receipts. During the year, expenditures were about $1,017 thousand less than budgeted. It is anticipated that resources will grow in the next few years as the economy is anticipated to continue its slow recovery. B-7

14 CAPITAL ASSET AND DEBT ADMINISTRATION Capital assets. The District s investment in capital assets includes land, buildings and improvements, vehicles and equipment, and construction in progress. As of June 30, 2013, the District had invested approximately $35.55 million in capital assets, net of depreciation, as shown in the following table: Douglas County School District No. 4 Capital Assets (In thousands) Governmental activities Increase (Decrease) From Fiscal 2012 Land $ 3,445 $ 3,445 $ - Buildings and improvements 30,034 31,055 (1,021) Vehicles & equipment 2,073 2,258 (185) Total $ 35,552 $ 36,758 $ (1,206) During the year, the District s investment in capital assets remained relatively flat as no major assets were purchased. The major capital asset events for the year include the following: The decrease in building and improvements was a result of depreciation. The decrease in vehicles & equipment was a result of depreciation. There were minor increases before depreciation due to the purchase of some equipment items, including a scrubber and table saw. Additional information regarding the District s capital assets can be found in Note 4 of this report. Long-term debt. At the end of the current fiscal year, the District had total bonded debt outstanding of $49,310 million (net of unamortized deferred charge), consisting of general obligation debt, pension obligation debt and other full faith and credit obligations. B-8

15 Douglas County School District No. 4 Outstanding Debt (In thousands) (Decrease) Increase Governmental activities From Fiscal 2012 General Obligation Bonds $15,108 $16,362 $ (1,254) Pension Obligation Bonds 32,396 32,991 (595) Other Obligations 1,806 2,043 (237) Total $49,310 $51,396 $ (2,086) During the current fiscal year, the District s total debt decreased by $2.086 million. This was the result of regularly scheduled principal payments and amortization of premiums and bond costs. Additional information on the District s long-term debt can be found in Note 5 of this report. ECONOMIC FACTORS AND NEXT YEAR S BUDGET The most significant economic factor for the District is the State of Oregon s State School Fund as appropriated by the Oregon Legislature on a biennial basis. For the year ended June 30, 2013, the State School Fund basic support provided about 64% of the District s General Fund program revenue, down from almost 70% just a few years ago. When combined with local property taxes, which are included in the school fund formula, these two sources provide about 97% of the resources for the General Fund. While the percentage provided by these two sources combined has returned to near historical levels, the overall resource is still lower than it was five fiscal years ago. The Oregon Legislature has increased its appropriations for K-12 funding for the biennium. This increased funding added close to $2 million to the district s general fund budget for Additionally, the legislature met in a special session that resulted in an additional anticipated increase for school funding that is planned for fiscal The district intends to use the additional funding to restore some of the cuts made over the last several fiscal years. District attendance decreased slightly in for the eighth consecutive fiscal year. The weighted enrollment (which is the basis for school fund distribution) came in very close to the anticipated enrollment. Enrollment is a key element for school districts in Oregon, since between 90% and 95% of our total funding is contingent on the state school formula, which is directly tied to weighted student enrollment. Coupled with the lower than needed overall State School Fund allocations, the revenue reduction due to enrollment B-9

16 declines has made it very difficult to provide needed local school services. remain flat or grow slightly for the year. Enrollment is anticipated to Due to the continued district needs for curriculum, technology and major maintenance, the district elected to close an elementary school starting in the year. The approximately $300,000 in expected savings from this school closure has been set aside in the current year budget to help meet those needs. For fiscal years and , all bargaining groups have settled for a 1% COLA adjustment and increases in the insurance caps for each year, as well as step and column adjustments for those that qualify. The School Board does not have a policy mandating that the District budget and maintain a minimum percent of its General Fund as contingency or ending fund balance; however, they recognize that the ending General Fund Balance fell below prudent levels in past years as they tried to deal with the short term budget crisis during the prior recession in That was a deliberate action to lessen the impact of rising costs and uncertain revenues on the District s instructional programs. The Board has historically provided direction to attempt to maintain ending General Fund balances of approximately 5% of annual expenditures and transfers. For the end of fiscal the District was able, through cost cutting and a slight increase in resources, and the receipt of unanticipated federal forest fee revenue, to achieve higher ending fund balance than in prior years. The federal forest fee funds will need to be deducted from anticipated school support funds in , and the budget for that fiscal year reflects this. Beyond , the District will once again be required to deal with significant increases in benefits costs associated with insurance and retirement. The most recent actuarial valuation from the Oregon Public Employees Retirement system indicates that the required retirement contributions will increase for and beyond. Additionally, the district needs to be aware of the increasing PERS debt service obligation, as those payments are scheduled to rise through the life of the debt. During these uncertain times, legislative approval of future education funding will be critical to our ability to provide high level services in the future. REQUESTS FOR INFORMATION This financial report is designed to present the user (citizens, taxpayers, investors, and creditors) with a general overview of the District s finances and to demonstrate the District s accountability. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the District s Business Office at 1419 NW Valley View Drive, Roseburg, Oregon B-10

17 BASIC FINANCIAL STATEMENTS

18 GOVERNMENT-WIDE FINANCIAL STATEMENTS

19 STATEMENT OF NET POSITION JUNE 30, 2013 Assets: Cash and Investments $ 6,121,402 Receivables: Taxes 1,834,757 Other 126,673 Due From Other Government Sources 786,037 Inventory - General 173,637 Prepaid Expense 51,050 Net Pension Asset 255,163 Prepaid PERS Unfunded Actuarial Liability 31,537,066 Bond Issue Costs (net of accumulated amortization) 392,873 Capital Assets (net of accumulated depreciation) Land 3,444,964 Buildings and Improvements 30,034,193 Vehicles and Equipment 2,073,001 TOTAL ASSETS 76,830,816 Liabilities: Accounts Payable 353,783 Accrued Payroll and Related charges 1,894,572 Accrued Interest Payable 12,694 Bonds Payable, (net of unamortized deferred charge) Due Within One Year 2,731,020 Due in More Than One Year 46,579,374 Other Post Employment Benefit Obligations Due in More Than One Year 1,373,109 TOTAL LIABILITIES 52,944,552 NET POSITION: Invested in Capital Assets, Net of Related Debt 17,941,112 Restricted for Debt Service 1,599,440 Restricted for Grant Services 43,811 Unrestricted 4,301,901 TOTAL NET POSITION $ 23,886,264 See notes to the basic financial statements. 1

20 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2013 Program Revenues Net (Expense) Operating Capital Revenue and Charges for Grants and Grants and Change in FUNCTIONS Expenses Services Contributions Contributions Net Position GOVERNMENTAL ACTIVITIES Instructional Services $ 29,882,537 $ 1,100,533 $ 2,186,032 $ - $ (26,595,972) Support Services 19,244, ,400 1,319,972 - (17,222,841) Community Services 2,221, ,943 1,823, ,256 Interest on Long-Term Liabilities 2,488, (2,488,238) Facilities Acquisition and Construction 1,244, ,115 (1,119,289) Total Governmental Activities $55,080,797 $ 2,354,876 $ 5,329,723 $ 125,115 (47,271,083) General Revenues: Property Taxes Levied for General Purposes 13,408,425 Property Taxes Levied for Debt Service 2,054,770 State School Fund 30,629,547 Common School Fund 579,170 Federal Forest Fees 74,051 County School Fund 864,142 Earnings on Investments 63,612 Miscellaneous 56,669 Total General Revenues 47,730,386 CHANGE IN NET POSITION 459,303 Net Position - July 1, ,426,961 Net Position - June 30, 2013 $ 23,886,264 See notes to the basic financial statements. 2

21 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2013 Assets: Special Debt Capital General Revenue Service Projects Fund Fund Fund Fund Total Cash and Investments $ 4,243,335 $ 431,695 $ 1,354,657 $ 91,715 $ 6,121,402 Receivables: Taxes 1,589, ,783-1,834,757 Other 44,903 81, ,673 Due From Other Funds 146, ,727 Due From Other Government Sources 370, ,093-10, ,037 Inventory - General 173, ,637 Prepaid 51, ,050 TOTAL ASSETS $ 6,620,512 $ 918,558 $ 1,599,440 $ 101,773 $ 9,240,283 Liabilities and Fund Balances Liabilities: Accounts Payable $ 297,754 $ 55,719 $ - $ 310 $ 353,783 Accrued Payroll and Related charges 1,894, ,894,572 Due to Other Funds - 146, ,727 Deferred Revenue 1,341, ,679-1,548,095 TOTAL LIABILITIES 3,533, , , ,943,177 Fund Balances: Nonspendable 224, ,687 Restricted - Grant Services - 43, ,811 Restricted - Debt Service - - 1,392,761-1,392,761 Committed - Co-Curricular - 672, ,301 Assigned - Capital Projects , ,463 Unassigned 2,862, ,862,083 TOTAL FUND BALANCES 3,086, ,112 1,392, ,463 5,297,106 TOTAL LIABILITIES AND FUND BALANCE $ 6,620,512 $ 918,558 $ 1,599,440 $ 101,773 $ 9,240,283 See notes to the basic financial statements. 3

22 RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET TO STATEMENT OF NET POSITION JUNE 30, 2013 TOTAL FUND BALANCES $ 5,297,106 Capital assets are not financial resources and therefore are not reported in the governmental funds: Cost 61,097,116 Accumulated Depreciation (25,544,958) 35,552,158 A portion of the District's property taxes are collected after year-end but are not available to pay for current operations, therefore, are not reported as revenue in the governmental funds. 1,548,095 The District sold pension bonds to prepay a long-term unfunded actuarial liability which is not shown as an asset in the governmental funds. 31,537,066 The Actuarially determined Net Pension Asset relating to the District's pension obligations does not provide current financial resources and are not reported as revenues in the governmental funds. 255,163 The unamortized portion of bond issuance costs is not available to pay for current expenditures, therefore, is not reported in governmental funds 392,873 Interest on long-term debt is not accrued in the governmental funds, but rather is recognized as an expenditure when due. (12,694) The liability for other post employment benefits obligations is not recorded as a governmental fund liability. (1,373,109) Long-term liabilities not payable in the current year are not reported as governmental fund liabilities. (49,310,394) TOTAL NET POSITION $ 23,886,264 See notes to the basic financial statements. 4

23 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2013 Special Debt Capital General Revenue Service Projects Fund Fund Fund Fund Total REVENUES: Property Taxes $ 13,584,865 $ - $ 2,081,047 $ - $ 15,665,912 Other Local Revenue 785,061 1,846,388 1,861, ,359 4,700,689 County (Intermediate Sources) 120, , ,858 State Sources 31,248,197 61, ,309,847 Federal/State Grants 871,602 4,819, ,691,242 TOTAL REVENUES 46,610,199 6,842,062 3,942, ,359 57,602,548 EXPENDITURES: CURRENT EXPENDITURES: Instruction 27,582,635 3,278, ,860,919 Support Services 17,263,936 2,424, ,688,289 Community Services - 2,249, ,249,977 CAPITAL OUTLAY ,018 42,018 DEBT SERVICE: - - 4,259, ,474 4,488,178 TOTAL EXPENDITURES 44,846,571 7,952,614 4,259, ,492 57,329,381 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 1,763,628 (1,110,552) (316,776) (63,133) 273,167 OTHER FINANCING SOURCES (USES): Other Financing Source Series 2013 Bonds ,705,000-12,705,000 Other Financing Use Refunding - - (12,558,464) - (12,558,464) Other Financing Use Debt Issue Costs - - (146,536) - (146,536) Transfers In - 1,101, ,000 1,201,398 Transfers Out (1,201,398) (1,201,398) TOTAL OTHER FINANCING SOURCES (USES (1,201,398) 1,101, ,000 - NET CHANGE IN FUND BALANCE 562,230 (9,154) (316,776) 36, ,167 FUND BALANCE - JULY 1, ,524, ,266 1,709,537 64,596 5,023,939 FUND BALANCE - JUNE 30, 2013 $ 3,086,770 $ 716,112 $ 1,392,761 $ 101,463 $ 5,297,106 See notes to the basic financial statements. 5

24 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2013 NET CHANGE IN FUND BALANCE $ 273,167 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlay as expenditures. In the statement of activities, depreciation is reported as an expense, thus allocating the asset over its useful life. This is the amount by which depreciation and reductions exceeded capital outlays. Expenditures for capital assets 58,687 Less current year depreciation (1,265,669) (1,206,982) Long-term debt proceeds are reported as other financing sources in the governmental funds. In the statement of net position, issuing long-term debt increases the liabilities. Repayment of principal is an expenditure in the governmental funds and a reduction of the liability in the statement of net position. Proceeds from Series 2013 refunding (12,705,000) GO Bonds refunding 11,680,000 Deferred charge 696,704 Debt principal repaid 2,232,256 1,903,960 Actuarially determined net pension assets do not provide current financial resources and are not reported as revenues in the governmental funds statements. (138,177) Current year amortization related to the unfunded actuarial liability not reported as an expense in the governmental funds statements. (435,973) Governmental funds report the effect of issuance costs, premiums and discounts when debt is issued. These amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences: Debt issue costs, Series 2013 refunding 146,536 Write off of issue cost associated to refunded obligations (183,293) Write off of bond premium associated to refunded obligations 181,760 Amortization of bond issuance costs (16,960) 128,043 In the statement of activities, contributions for other post employment benefits greater than the actuarially determined amount decrease the other post employment benefit obligation. In the governmental funds, the entire contribution is recognized as an expenditure. This is the amount by which the obligation decreased: 123,841 In the statement of activities, interest is accrued on long-term debt, whereas it is recorded as an expense when payments are due in the governmental funds. The net change in accrued interest is: 14,141 Property taxes which are not measurable and available are deferred in the governmental funds. In the statement of activities property taxes are recognized when levied. (202,717) CHANGE IN NET POSITION $459,303 See notes to the basic financial statements. 6

25 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Douglas County School District No. 4 (the District) was organized under provisions of Oregon Statutes pursuant to ORS Chapter 332 for the purpose of operating elementary and secondary schools. The District is governed by a separately elected seven-member Board of Education (Board) who approves the administrative officials. The daily functioning of the District is under the supervision of the Superintendent. As required by generally accepted accounting principles, all activities of the District have been included in the basic financial statements. The District qualifies as a primary government since it has a separately elected governing body, is a legally separate entity, and is fiscally independent. There are various governmental agencies and special service districts which provide service within the District's boundaries. However, the District is not financially accountable for any of these entities and, therefore, none of them are considered component units or included in these basic financial statements. Basis of Presentation Government-Wide Financial Statements The Statement of Net Position and the Statement of Activities display information about the District. These statements include the governmental financial activities of the overall District. As a general rule, eliminations have been made to minimize the double counting of internal activities. Direct services charged to other funds have not been eliminated. Governmental activities are financed primarily through property taxes, intergovernmental revenues, and charges for services. The Statement of Activities presents a comparison between direct expenses and program revenues for each of its functions/programs. Direct expenses are those that are specifically associated with a function and, therefore, are clearly identifiable to that function. Eliminations have been made to minimize the double counting of internal activities in the Statement of Activities. Program revenues include: (1) charges to students or others for tuition, fees, rentals, materials, supplies or services provided, (2) operating grants and contributions, and (3) capital grants and contributions. Revenues that are not classified as program revenues, including property taxes and state support, are presented as general revenues. Separate financial statements are provided for governmental funds. The District has no proprietary funds or fiduciary funds. Net Position is reported as restricted when constraints placed on net asset use are either externally restricted, imposed by creditors (such as through grantors, contributors or laws) or through constitutional provisions or enabling resolutions. 7

26 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of Presentation (continued) Fund Financial Statements The fund financial statements provide information about the District's funds. Separate statements for each fund category are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as other governmental funds. The District has no non-major funds. The District reports the following major governmental funds: General Fund - This is the District's primary operating fund and accounts for all revenues and expenditures, except those required to be accounted for in another fund. Special Revenue Fund - This fund accounts for funds received through Federal, State and Private grant sources. It is also used to account for the District s early retirement program, school lunch program, and special revenues derived from Associated Student Body activities. Debt Service Fund - This fund provides for the payment of principal and interest on general obligation bonded debt and pension obligation bonds. Principal revenue sources are property taxes and charges to other funds. Capital Projects Fund - This fund accounts for activities related to the acquisition, construction, equipping and furnishing of facilities. Principal revenue sources are proceeds from the sale of bonds, interest earnings and transfers from other funds. Measurement Focus and Basis of Accounting Government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Non-exchange transactions, in which the District receives value without giving equal value in exchange, include property taxes, grants, entitlements and donations. On the accrual basis of accounting, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Under terms of grant agreements, the District funds certain programs by a combination of specific costreimbursement grants and general revenues. Thus, when program expenses are incurred, there are both restricted and unrestricted net position available to finance the program. It is the District's policy to first apply cost-reimbursement grant resources to such programs and then general revenues. 8

27 NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Measurement Focus and Basis of Accounting (continued) Government fund financial statements are reported using the current financial resources measurement focus and modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. Property taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt and claims and judgments, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in the governmental funds and proceeds from general longterm debt and acquisitions under capital leases are reported as other financing sources. Private sector standards of accounting and reporting issued prior to December 1, 1989, generally are followed in the government-wide fund financial statements to the extent that these standards do not conflict or contradict the guidance of the Governmental Accounting Standards Board. Cash, Cash Equivalents and Investments The District's cash and cash equivalents consist of cash on hand, demand deposits and short-term investments with original maturities of three months or less. Short-term investments are stated at cost, which approximates fair value. The District's investments may consist of time certificates of deposit, banker's acceptances, commercial paper, U.S. Government Agency securities, and the State of Oregon Treasurer's Local Government Investment Pool (LGIP). The District s investments are reported at fair value at year end. Changes in the fair value of investments are recorded as investment earnings. The LGIP is stated at cost, which approximates fair value. Fair value of the LGIP is the same as the District's value in the pool shares. The Oregon State Treasury administers the LGIP. It is an open-ended no-load diversified portfolio offered to any agency, political subdivision or public corporation of the State that by law is made the custodian of, or has control of, any fund. The LGIP is commingled with the State s short-term funds. In seeking to best serve local governments, the Oregon Legislature established the Oregon Short-Term Fund Board. The purpose of the Board is to advise the Oregon State Treasury in the management and investment options of the LGIP. The investments are regulated by the Oregon Short Term Fund Board and approved by the Oregon Investment Council (ORS to ). 9