Independent Auditor's Report To the Board of Education Schaumburg Community Consolidated School District No. 54 Schaumburg, Illinois We have audited t

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18 Independent Auditor's Report To the Board of Education Schaumburg Community Consolidated School District No. 54 Schaumburg, Illinois We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining fund information of as of and for the year ended June 30, 2008, which collectively comprise the District s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund and the aggregate remaining fund information of as of June 30, 2008, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated October 7, 2008, 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, and should be considered in assessing the results of our audit. McGladrey & Pullen, LLP is a member firm of RSM International an affiliation of separate and independent legal entities. 1

19 The required supplementary information which includes management s discussion and analysis (pages 3-13), pension related schedules (pages 40 41) and budgetary schedules and related note (pages 42-44) is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements of the. The combining and individual fund financial statements and other schedules listed in the table of contents as supplementary data are presented for purposes of additional analysis, and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The accompanying introductory and statistical sections, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. This information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on it. Chicago, Illinois October 7,

20 Required Supplementary Information

21 Management s Discussion And Analysis (MD&A)

22 SCHAUMBURG COMMUNITY CONSOLIDATED SCHOOL DISTRICT NO. 54 MANAGEMENT S DISCUSSION AND ANALYSIS This section of s annual financial report presents its discussion and analysis of the District s financial performance during the fiscal year ended June 30, Please read it in conjunction with the transmittal letter found in the introductory section and the District s financial statements. The Management s Discussion and Analysis (MD&A) is an element of the new reporting model adopted by the Governmental Accounting Standards Board (GASB) in their Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, issued June Financial Highlights The District s financial status continues to be strong. Total net assets increased 15.9 percent over the course of the year. Overall revenues were $202.1 million, $35.5 million more than expenses. The total costs increased by 2.5%, mainly due to planned salary and benefit cost increases. Investment earnings decreased due to federal interest rate decreases trickling down to interest net earnings. Enrollment continues to moderately decline. The second phase of planned life safety negotiations commenced in the summer of 2008 and will have a financial impact on the District for the next six years. These costs have been planned for and will be funded from accumulated balances. Overview of the Financial Statements This annual report consists of three parts: management s discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the District: The first two statements are government-wide financial statements that provide both short-term and long-term information about the District s overall financial status. The remaining statements are fund financial statements that focus on individual parts of the District, reporting the District s operations in more detail than the government-wide statements. The governmental funds statements tell how basic services such as regular and special education were financed in the short term as well as what remains for future spending. Fiduciary funds statements provide information about the financial relationships in which the District acts solely as a trustee or agent for the benefit of others. 3

23 SCHAUMBURG COMMUNITY CONSOLIDATED SCHOOL DISTRICT NO. 54 MANAGEMENT S DISCUSSION AND ANALYSIS The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. Figure A-1 shows how the various parts of this annual report are arranged and related to one another. Figure A-1 Organization of Annual Financial Report Management s Discussion and Analysis Basic Financial Statements Required Supplementary Information Government- Wide Financial Statements Fund Financial Statements Notes to the Financial Statements Summary Detail This report also contains other supplemental information in addition to the basic financial statements. 4

24 SCHAUMBURG COMMUNITY CONSOLIDATED SCHOOL DISTRICT NO. 54 MANAGEMENT S DISCUSSION AND ANALYSIS Figure A-2 summarizes the major features of the District s financial statements, including the portion of the District s activities they cover and the types of information they contain. The remainder of this overview section of management s discussion and analysis highlights the structure and contents of each of the statements. Figure A-2 Major Features of the Government-Wide and Fund Financial Statements Scope Required financial statements Statement of net assets. Statement of activities. Accounting Basis and measurement focus Type of asset/liability information Type of inflow/outflow information Government-Wide Fund Financial Statements Statements Governmental Funds Fiduciary Funds Entire District (except fiduciary funds). Accrual accounting and economic resources focus. All assets and liabilities, both financial and capital, shortterm and long-term. All revenues and expenses during year, regardless of when cash is received or paid. The activities of the District that are not proprietary or fiduciary, such as Educational and Operations and Maintenance. Balance sheet. Statement of revenues, expenditures, and changes in fund balance. Modified accrual accounting and current financial focus. Generally assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets or long-term liabilities included. Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and the related liability is due and payable. Instances in which the District administers resources on behalf of someone else, such as student activities monies. Statement of fiduciary net assets. Statement of changes in fiduciary net assets. Accrual accounting and economic resources focus. All assets and liabilities, both short-term and long-term; funds do not currently contain capital assets, although they can. All additions and deductions during the year, regardless of when cash is received or paid. 5

25 SCHAUMBURG COMMUNITY CONSOLIDATED SCHOOL DISTRICT NO. 54 MANAGEMENT S DISCUSSION AND ANALYSIS Government-Wide Statements The government-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The statement of net assets includes all of the District s assets and liabilities. All of the current year s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the District s net assets and how they have changed. Net assets the difference between the District s assets and liabilities is one way to measure the District s financial health or position. Over time, increases or decreases in the District s net assets are an indicator of whether its financial position is improving or deteriorating, respectively. To assess the District s overall health, you need to consider additional non-financial factors such as changes in the District s property tax base and the condition of school buildings and other facilities. In the government-wide financial statements, the District s activities are all categorized as Governmental activities. All of the District s basic services are included here, such as regular and special education, transportation, and administration. Property taxes and state aid finance most of these activities. Fund Financial Statements School District 54 s 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. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs: Some funds are required by state law and by bond covenants. The District establishes other funds to control and manage money for particular purposes (such as repaying its longterm debts) or to show that it is properly using certain revenues (such as Working Cash). The District has two categories of funds: Governmental funds: Most of the District s basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the District s programs. Because this information does not encompass the additional long-term focus of the government-wide statements, additional information at the bottom of the governmental funds statements explains the relationship (or differences) between them. Fiduciary funds: The District is the trustee, or fiduciary, for assets that belong to others, such as the student activities funds. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The District excludes these activities from the government-wide financial statements because it cannot use these assets to finance its operation. 6

26 SCHAUMBURG COMMUNITY CONSOLIDATED SCHOOL DISTRICT NO. 54 MANAGEMENT S DISCUSSION AND ANALYSIS Financial Analysis of the District as a Whole Net assets. The District s combined net assets were significantly larger on June 30, 2008, than they were the year before, increasing 15.9 percent to $258.9 million. (See Figure A-3). Figure A-3 Condensed Statement of Net Assets (in millions of dollars) Governmental Activities Current assets $251.2 $230.4 Noncurrent assets Total assets $375.8 $353.6 Long-term debt outstanding $ 11.4 $ 19.9 Other liabilities Total liabilities $116.9 $130.2 Net assets Invested in capital assets, net of related debt $119.0 $103.2 Unrestricted Total net assets $258.9 $223.4 The District s improved financial position is the product of many factors. The largest increase is the amount invested in capital assets, which reflects the District s commitment to invest in capital equipment with available dollars rather than paying with future dollars. Growth during the year in taxes and grants was another significant contributor to this improvement. Another factor in the District s continued growth is the Board of Education s continued freeze on hiring that limits salary and benefit increases. Furthermore, salary costs continue to be contained by taking the strategy to replace retiring employees with employees in the early stages of the salary schedule. With a limited supply of funding, the Board of Education has had to work within the current employee configuration to modify educational programs. Changes in net assets. The District s total revenues were $202.1 million (See Figure A-4.) Real estate taxes accounted for most of the District s revenue, contributing about 78 cents of every dollar raised. (See Figure A-5.) Another 17 cents came from state and federal aid for specific programs and the remainder from fees charged for services and miscellaneous sources. 7

27 SCHAUMBURG COMMUNITY CONSOLIDATED SCHOOL DISTRICT NO. 54 MANAGEMENT S DISCUSSION AND ANALYSIS The total cost of all programs and services was $166.6 million. The District s expenses are predominantly related to instructing, caring for (pupil services) and transporting students (83 percent). (See Figure A-6.) The District s administrative and business activities accounted for 8.5 percent of total costs. Total revenues surpassed expenses, increasing net assets by $35.5 million over last year. Figure A-4 Changes in Net Assets from Operating Results (in millions of dollars) Governmental Activities Percentage Change Revenues Program revenues Charges for services $2.1 $ % Operating Grants and Contributions % General revenues Taxes % Investment earnings % State formula aid and formula grants % Other % Total revenues % Expenses Instruction % Pupil and Instructional Services % Administration and Business % Maintenance and Operations % Transportation % Other % Total expenses % Increase in net assets Net assets: Beginning Ending $258.9 $

28 SCHAUMBURG COMMUNITY CONSOLIDATED SCHOOL DISTRICT NO. 54 MANAGEMENT S DISCUSSION AND ANALYSIS Figure A-5 Government-Wide Revenues By Source Operating Grants & Contributions 14.3% Investment Earnings 3.5% Charges for Services 1.0% Other 0.5% Taxes 77.9% State Formula Aid & Formula Grants 2.8% Figure A-6 Government-Wide Expenses Administration & Business 8.5% Pupil & Instructional Services 15.9% Instruction 61.2% Other 1.3% Transportation 5.6% Maintenance & Operations 7.5% 9

29 SCHAUMBURG COMMUNITY CONSOLIDATED SCHOOL DISTRICT NO. 54 MANAGEMENT S DISCUSSION AND ANALYSIS Governmental Activities Revenues for the District s governmental activities were $202.1 million in 2008, an increase of 3.4% over Total expenses in 2008 were $166.6 million, an increase of 2.5% over Net assets increased $35.5 million in The good health of the District s finances can be credited to both a strong real estate tax base and budgetary controls put in place by the Board of Education. Rising real estate values led to continued strong property tax revenues in 2008, despite the fact that property tax appeals continue to be high. Operating grants and contributions for governmental activities continue to remain consistent with no new significant funding initiatives realized in Figure A-7 presents the cost of six major District activities: instruction, pupil and instructional services, administration and business, maintenance and operations, transportation, and other. The table also shows each activity s net cost (total cost less fees generated by the activities and intergovernmental aid provided for specific programs). The net cost shows the financial burden placed on the District s taxpayers by each of these functions. Figure A-7 Net Cost of Governmental Activities (in millions of dollars) Percentage Percentage Total Cost of Services Change Net Cost of Services Change Instruction $ $ % $ 79.1 $ % Pupil & Instructional Services % % Administration & Business (6.0)% (6.9)% Maintenance & Operations (1.6)% (1.6)% Transportation % (27.1)% Other (29.0)% (31.3)% TOTAL $ $ $ $ The cost of all governmental activities this year was $166.6 million. Some of the cost was financed by the users of the District s programs ($2.1 million). The federal and state governments subsidized certain programs with grants and contributions of $34.5 million; of this amount $5.6 million are state aid formula grants and $28.9 million are operating grants and contributions. Most of the District s costs, however, were financed by District taxpayers. 10

30 SCHAUMBURG COMMUNITY CONSOLIDATED SCHOOL DISTRICT NO. 54 MANAGEMENT S DISCUSSION AND ANALYSIS Financial Analysis of the District s Funds The strong financial performance of the District as a whole is reflected in its governmental funds as well. As the District completed the year, its governmental funds reported combined fund balances of $145.5 million. Six of the District s governmental funds had more revenues and other financing sources than expenditures and other financing uses in 2008 while two funds experienced a deficit. The General Fund experienced a surplus of $14.4 million and the Transportation Fund experienced a surplus of $.2 million due mainly to cost containment measures taken by the District. All of the other funds surplus or deficits were planned and nothing significant warrants attention. General Fund Budgetary Highlights Over the course of the year, the District did not revise the annual operating budget. Although the District s final budget for the General Fund anticipated that revenues and other financing sources would exceed expenditures and other financing uses by roughly $4.9 million, the actual reports for the year show a $14.4 million surplus. Actual revenues and other financing sources were $2.3 million more than expected due to better than expected interest income and greater than projected State revenue. The actual expenditures and other financing uses were $8.6 million below budget, due to salary and benefit costs being less than anticipated, anticipated capital outlay costs were deferred one year and operation and maintenance cost savings achieved. Capital Asset and Debt Administration Capital Assets By the end of 2008, the District had invested $124.4 million in a broad range of capital assets, including school buildings, computer and audio-visual equipment, and administrative offices. (See Figure A-8.) (More detailed information about capital assets can be found in Note 4 to the financial statements.) Total depreciation expense for the year amounted to $6.0 million, while building improvements and additions to equipment and furniture amounted to $7.4 million. 11

31 SCHAUMBURG COMMUNITY CONSOLIDATED SCHOOL DISTRICT NO. 54 MANAGEMENT S DISCUSSION AND ANALYSIS Figure A-8 Capital Assets (net of depreciation, in millions of dollars) Governmental Activities Total Percentage Change Land $ 1.3 $ % Improvements, other than building (7.1)% Buildings and improvements % Machinery and equipment % TOTAL $ $ % s student enrollment has declined slightly over the last three years, 4.2 percent since 2005 to reach a present enrollment of 13,939. The current facilities adequately accommodate the District s enrollment. The near term future plans call for repair and maintenance to existing facilities as the main capital needs of the District. The District is in the middle of life safety renovations that will last several years and are considered repair and maintenance. Long Term Debt At year-end, the District had $20.5 million in general obligation bonds and other long-term debt outstanding as shown in Figure A-9. (More detailed information about the District s long-term liabilities is presented in Note 5 to the financial statements.) Figure A-9 Outstanding Long-Term Debt (in millions of dollars) Total Percentage Change Total School District General obligation bonds & note (financed with property taxes) $ 16.6 $ 19.9 (16.6)% Other general obligation debt (20.4)% TOTAL $ 20.5 $ 24.8 (17.3)% The District continued to pay down its debt, retiring $18.3 million of outstanding bonds. The District issued new debt in the amount of $14.9 million in life safety renovations. 12

32 SCHAUMBURG COMMUNITY CONSOLIDATED SCHOOL DISTRICT NO. 54 MANAGEMENT S DISCUSSION AND ANALYSIS Factors Bearing on the District s Future At the time these financial statements were prepared and audited, the District was unaware of any existing circumstances that could significantly affect its financial health in the future. The District s certified staff are under contract through the 2009 fiscal year and so long as property tax revenue increases stay in line with salary increases, the District projects balanced budgets for the foreseeable future. Contacting the District s Financial Management This financial report is designed to provide the District s citizens, taxpayers, customers, and investors and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Assistant Superintendent, Business Services, 524 East Schaumburg Road, Schaumburg, Illinois

33 Basic Financial Statements

34 Government-Wide Financial Statements (GWFS)

35 Statement of Net Assets June 30, 2008 Assets Governmental Activities Current Assets Cash and investments $ 163,010,950 Receivables: Real estate taxes, net of allowance for uncollectibles 71,896,859 Interest 1,733,175 Prepaid items 61,597 Due from other governmental units 14,545,723 Total current assets 251,248,304 Noncurrent Assets Unamortized bond issuance costs 115,349 Capital assets not being depreciated 1,331,538 Capital assets being depreciated, net 123,116,223 Total noncurrent assets 124,563,110 Liabilities Total assets $ 375,811,414 Current Liabilities Accounts payable $ 4,129,469 Accrued payroll 10,679,559 Compensated absences 461,346 Accrued liabilities 1,698,319 Accrued interest 50,243 Deferred revenue 78,431,579 General obligation bonds 8,215,000 Retirement benefits 1,817,557 Total current liabilities 105,483,072 Long-term Liabilities, net of current maturities Unamortized bond premiums 383,274 General obligation bonds 8,380,000 Retirement benefits 2,109,525 Other post employment benefits 498,093 Total long-term liabilities 11,370,892 Total liabilities 116,853,964 Net Assets Invested in capital assets, net of related debt 118,996,564 Unrestricted 139,960,886 Total net assets 258,957,450 Total liabilities and net assets $ 375,811,414 See Notes to Basic Financial Statements. 14

36 Statement of Activities Year Ended June 30, 2008 Net (Expense) Revenue and Changes in Program Revenue Net Assets Operating Charges for Grants and Governmental Functions/Programs Expenses Services Contributions Activities Governmental activities: Instruction: Regular programs $ 66,645,392 $ 1,127,994 $ 7,005,762 $ (58,511,636) Special programs 24,242,258-11,637,795 (12,604,463) Other instructional programs 11,085,801-3,115,612 (7,970,189) Support services: Pupils 13,598, (13,598,772) Instructional staff 12,785,360-1,416,198 (11,369,162) General administration 1,748, (1,748,846) School administration 8,525, (8,525,676) Business 3,887, , ,085 (3,055,133) Transportation 9,351, ,763 5,390,019 (3,471,943) Operations and maintenance 12,402, (12,402,062) Central 1,197, (1,197,282) Community services 379, (379,002) Payments to other governments 310, (310,040) Interest and fees 419, (419,749) Total governmental activities $ 166,579,079 $ 2,074,653 $ 28,940,471 (135,563,955) General revenues: Taxes: Real estate taxes, general purposes 135,690,728 Real estate taxes, debt service 19,453,128 Corporate property replacement taxes 2,384,620 State aid-formula grants 5,635,469 Investment earnings 6,948,107 Miscellaneous 981,384 Total general revenues 171,093,436 Change in net assets 35,529,481 Net assets: July 1, ,427,969 June 30, 2008 $ 258,957,450 See Notes to Basic Financial Statements. 15

37 Fund Financial Statements (FFS)

38 Balance Sheet Governmental Funds June 30, 2008 Assets Nonmajor Total Working Debt Governmental Governmental General Cash Service Funds Funds Cash and investments $ 82,495,890 $ 39,213,447 $ 13,146,959 $ 28,154,654 $ 163,010,950 Receivables: Real estate taxes, net of allowance for uncollectibles 61,025,670 1,259,534 4,463,260 5,148,395 71,896,859 Interest 914, , , ,630 1,733,175 Prepaid items 61, ,597 Due from other governmental units 7,895, ,650,041 14,545,723 Total assets $ 152,393,582 $ 40,889,978 $ 17,750,024 $ 40,214,720 $ 251,248,304 Liabilities and Fund Balances Liabilities Accounts payable $ 1,448,741 $ - $ - $ 2,680,728 $ 4,129,469 Accrued payroll 10,449, ,861 10,679,559 Compensated absences 461, ,346 Accrued liabilities 1,698, ,698,319 Deferred revenue 68,091,592 1,292,953 8,740,159 10,672,051 88,796,755 Total liabilities 82,149,696 1,292,953 8,740,159 13,582, ,765,448 Fund balances: Reserved for: Debt service - - 9,009,865-9,009,865 Prepaid items 61, ,597 Unreserved, reported in: General 70,182, ,182,289 Special revenue funds - 39,597,025-13,975,592 53,572,617 Capital projects funds ,656,488 12,656,488 Total fund balances 70,243,886 39,597,025 9,009,865 26,632, ,482,856 Total liabilities and fund balances $ 152,393,582 $ 40,889,978 $ 17,750,024 $ 40,214,720 $ 251,248,304 See Notes to Basic Financial Statements. 16

39 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets June 30, 2008 Total fund balances - governmental funds $ 145,482,856 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not current financial resources and therefore are not reported in the funds 124,447,761 State grant revenue that is deferred in the fund financial statements because it is not available but is recognized as revenue in the government-wide financial statements. 10,365,176 Bond issuance costs that are an expenditure in the fund financial statements are an asset that is amortized over the life of the bonds in the government-wide financial statements. 115,349 Premiums on bonds that are other financing sources in the fund financial statements are a liability that is amortized over the life of the bonds in the government-wide financial statements. (383,274) Some liabilities reported in the statement of activities do not require the use of current financial resources and therefore are not reported as liabilities in governmental funds: These liabilities consist of: Bonds payable (16,595,000) Retirement benefits payable (3,927,082) Other post employment benefits (498,093) Accrued interest (50,243) Net assets of governmental activities $ 258,957,450 See Notes to Basic Financial Statements. 17

40 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds Year Ended June 30, 2008 Nonmajor Total General Working Debt Governmental Governmental Fund Cash Service Funds Funds Revenues: Real estate and replacement taxes $ 125,132,578 $ 2,344,334 $ 19,453,128 $ 10,598,436 $ 157,528,476 State aid 24,217, ,117,345 29,334,731 Federal aid 6,293, ,293,572 Interest 3,681,616 1,728, , ,184 6,948,107 Other 2,566, ,973 3,056,037 Total revenues 161,891,216 4,072,467 20,077,302 17,119, ,160,923 Expenditures: Current: Instruction: Regular programs 57,477, ,524,888 60,002,573 Special programs 19,789, ,322 20,608,975 Other instructional programs 9,405, ,486 9,912,856 State retirement contributions 10,503, ,503,530 Support services: Pupils 13,153, ,192 13,592,889 Instructional staff 8,072, ,986 8,531,912 General administration 299, ,255,268 1,554,521 School administration 8,349, ,320 8,525,676 Business 3,591, ,405 3,870,769 Transportation ,346,697 9,346,697 Operations and maintenance 10,784, ,649 11,574,882 Central 926, , ,962 Community services 370, , ,002 Payments to other governments 310, ,040 Capital outlay 2,992, ,310,363 8,303,116 Debt service: Principal ,255,000-18,255,000 Interest and fees , ,683 Bond issuance costs - 111, ,158 Total expenditures 146,027, ,158 19,058,683 21,948, ,145,241 Excess (deficiency) of revenues over (under) expenditures 15,864,097 3,961,309 1,018,619 (4,828,343) 16,015,682 Other financing sources (uses): Bond proceeds - 14,920, ,920,000 Premium on bonds sold - 191, ,158 Transfers in ,472,896 16,472,896 Transfers (out) (1,472,896) (15,000,000) - - (16,472,896) Total other financing sources (uses) (1,472,896) 111,158-16,472,896 15,111,158 Net change in fund balances 14,391,201 4,072,467 1,018,619 11,644,553 31,126,840 Fund balances: July 1, ,852,685 35,524,558 7,991,246 14,987, ,356,016 June 30, 2008 $ 70,243,886 $ 39,597,025 $ 9,009,865 $ 26,632,080 $ 145,482,856 See Notes to Basic Financial Statements. 18

41 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities Year Ended June 30, 2008 Net change in fund balances total governmental funds $ 31,126,840 Amounts reported for governmental activities in the statement of activities are different because: State grant revenues that are deferred in the fund financial statements because they are not available but are recognized as revenue in the government-wide financial statements Prior year deferred balance $ (11,417,539) Current year deferred balance 10,365,176 (1,052,363) Governmental funds report capital outlays as expenditures paid while governmental activities report depreciation expense to allocate those expenditures over the lives of the assets. This is the amount by which capital outlays exceeded depreciation expense in the current period. Capital outlays 7,375,481 Depreciation expense (6,047,674) 1,327,807 In the governmental funds, long-term debt is considered other financing sources, but in the statement of net assets, debt is recorded as a liability. This is the amount for the current period. General obligation bonds (14,920,000) Premium on bonds is recorded as other financing sources in the fund financial statements, but the premium is recorded as a liability in the statement of net assets and is amortized over the life of the bonds. These are the amounts in the current period. Premium on bonds (191,158) Amortization of premium on bonds 523, ,449 Bond issuance costs are recorded as an expenditure in the fund financial statements, but the cost is recorded as an asset in the statement of net assets and is amortized over the life of the bonds. These are the amounts in the current period. Bond issuance costs 111,158 Amortization of bond issuance costs (89,430) 21,728 Repayment of principal on long-term debt is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. Bond principal retirement 18,255,000 Some liabilities reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as liabilities in governmental funds. These liabilities consist of: Accrued interest (50,243) Other post employment benefits (498,093) Retirement benefits payable 986,356 Change in net assets of governmental activities $ 35,529,481 See Notes to Basic Financial Statements. 19

42 Statement of Fiduciary Assets and Liabilities Agency Fund June 30, 2008 Assets Agency Student Activity Fund Cash and investments $ 403,152 Liabilities Due to student groups $ 403,152 See Notes to Basic Financial Statements. 20

43 Notes to Basic Financial Statements Note 1. Summary of Significant Accounting Policies Nature of Activities operates as a public school system under the direction of its Board of Education in Schaumburg, Illinois. The District is organized under The School Code of the State of Illinois, as amended. The District serves the communities of Schaumburg Township, Elk Grove Village, Streamwood, Hanover Park and Roselle. The accounting policies of the District conform to accounting principles generally accepted in the United States of America as applicable to governments. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the more significant accounting policies: Financial Reporting Entity As defined by generally accepted accounting principles established by the Governmental Accounting Standards Board (GASB), the financial reporting entity consists of the primary government, as well as component units, which are legally separate organizations for which elected officials of the primary government are financially accountable. Financial accountability is defined as: (1) Appointment of a voting majority of the component unit s board, and either a) the ability to impose will by the primary government, or b) the possibility that the component unit will provide a financial benefit to or impose a financial burden on the primary government; or (2) Fiscal dependency on the primary government. Based upon the application criteria, no component units have been included within the reporting entity. Government-Wide and Fund Financial Statements Government-Wide Financial Statements: The government-wide Statement of Net Assets and Statement of Activities report the overall financial activity of the District. Eliminations have been made to minimize the double counting of internal activities of the District. The financial activities of the District consist of governmental activities, which are primarily supported by taxes and intergovernmental revenues. The Statement of Net Assets presents the District s non-fiduciary assets and liabilities with the difference reported in three categories: Invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation and reduced by outstanding balances for bonds and other debt that are attributable to the acquisition, construction, or improvement of those assets. Restricted net assets result when constraints placed on net asset use are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law through constitutional provisions or enabling legislation. The District had no restricted net assets at June 30, Unrestricted net assets consist of net assets that do not meet the criteria of the two preceding categories. 21

44 Notes to Basic Financial Statements Note 1. Summary of Significant Accounting Policies (continued) Government-wide and Fund Financial Statements (continued) When both restricted and unrestricted resources are available for use, it is the District s policy to use restricted resources first to finance qualifying activities, then unrestricted resources as they are needed. The Statement of Activities demonstrates the degree to which the direct expenses of a given function (i.e., instruction, support services, etc.) are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs (including fines and fees), and (b) grants and contributions that are restricted to meeting the operational requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fiduciary funds are excluded from the government-wide financial statements. Fund Financial Statements: Separate financial statements are provided for governmental funds and fiduciary (agency) funds, even though the latter are excluded from the government-wide financial statements. The fund financial statements provide information about the District s funds. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. The District has the following major governmental funds- General Fund, Working Cash Fund and Debt Service Fund. All remaining governmental special revenue and capital projects funds are aggregated and reported as nonmajor governmental funds. The District administers the following major governmental funds: General Fund This is the District s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. Working Cash Fund Is a special revenue fund in which property taxes are levied for working cash purposes. Debt Service Fund Accounts for the resources accumulated and payments made for principal and interest on long-term general obligation debt of governmental funds. Additionally, the District administers an agency fund that is used to account for assets held by the District in an agency capacity. These funds are held on behalf of the students of the District. Measurement Focus and Basis of Accounting and Financial Statement Presentation The 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 flow takes place. Nonexchange transactions, in which the District gives (or receives) value without directly receiving (or giving) equal value in exchange, include various taxes, stateshared revenues and various state, federal and local grants. On an accrual basis, revenues from taxes are recognized when the District has a legal claim to the resources. Grants, entitlements, state-shared revenues and similar items are recognized in the fiscal year in which all eligibility requirements imposed by the provider have been met. 22

45 Notes to Basic Financial Statements Note 1. Summary of Significant Accounting Policies (continued) Measurement Focus and Basis of Accounting and Financial Statement Presentation (continued) Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the District considers revenues to be available if they are collected within 90 days of the end of the current fiscal year (60 days for property taxes). Significant revenue sources which are susceptible to accrual include property taxes, other taxes, grants, and interest. All other revenue sources are considered to be measurable and available only when cash is received. Expenditures generally are recorded when the liability is incurred, as under accrual accounting. General capital asset acquisitions are reported as expenditures in governmental funds. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in the government-wide financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Property taxes Property taxes receivable represent the 2007 property tax levy and were recognized as a receivable at the time they were levied. The 2007 tax levy was passed by the Board of Education on November 15, 2007 and attached as an enforceable lien on the property as of the preceding January 1. The taxes become due and collectible in March and September 2007, and are collected by the county collector, who in turn remits to the District its respective share. The District receives the remittances from the county treasurer approximately one month after collection. For all funds, with the exception of the Debt Service Fund, the District recognizes one-half of the levy in the current fiscal year as revenue with the second half to be recognized in the following fiscal year. Accordingly, the second half amount is reflected as deferred revenue this year. The debt service fund recognizes property tax revenue from the 2007 levy in an amount sufficient to liquidate the July 1, 2008 debt service expenditure and defers the remaining revenue to liquidate the debt service expenditures due December 1, 2008 and January 1, This methodology conforms to the measurable and available criteria for revenue recognition. An allowance for the estimated uncollectible taxes has been provided based on prior year collection experiences. Assets, Liabilities, and Net Assets or Equity Cash and cash equivalents For purposes of reporting cash flows, all highly liquid investments (including restricted amounts) with original maturities of three months or less when purchased are considered to be cash and cash equivalents. Investments Investments are stated at fair value based on quoted market prices for same or similar investments. 23

46 Notes to Basic Financial Statements Note 1. Summary of Significant Accounting Policies (continued) Assets, Liabilities, and Net Assets or Equity (continued) Interfund Activity Transfers flows of assets (such as cash or goods) without equivalent flows of assets in return and without a requirement for repayment. In governmental funds, transfers are reported as other financing uses in the funds making transfers and as other financing sources in the funds receiving transfers. Capital Assets Capital assets which include land, buildings, and other equipment, are reported in the Statement of Net Assets. Capital assets are defined as assets with an initial individual cost of more than $500, and an estimated useful life of greater than one year. Additions or improvements that significantly extend the useful life of an asset, or that significantly increase the capacity of an asset are capitalized. Expenditures for asset acquisitions and improvements are stated as capital outlay expenditures in the governmental funds. These assets have been valued at historical cost or estimated historical cost if purchased or constructed. Donated assets are recorded at their estimated fair market value at the date of donation. Interest incurred during the construction phase of capital assets is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend the assets lives are not capitalized. Depreciation of capital assets is recorded in the Statement of Activities with accumulated depreciation reflected in the Statement of Net Assets and is provided on the straight-line basis over the following estimated useful lives: Buildings and improvements Machinery and equipment Improvements other than buildings 50 years 5 10 years 20 years 24

47 Notes to Basic Financial Statements Note 1. Summary of Significant Accounting Policies (continued) Assets, Liabilities, and Net Assets or Equity (continued) Deferred Revenue The District defers revenue recognition in connection with resources that have been received, but not yet earned. Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Compensated Absences Certified employees working less than 12 months a year do not earn vacation days, however, full-time employees working 12 months a year earn vacation days which accumulate as they accrue. Vacation pay includes the actual salary plus salary related payments. Vacation that is expected to be liquidated with expendable available financial resources is reported as an expenditure and a current liability of the governmental funds. Vacation is reported as an expense and liability as it accrues in the government-wide financial statements. Substantially all full-time employees receive nine sick days and five personal days per year, and these days may accumulate to a maximum of 280 days for certified employees and 240 days for noncertified employees. These accumulated sick days do not vest and have not been recognized as a liability as they will not be paid in cash. Long-Term Obligations In the government-wide financial statements, long-term debt and other long-term obligations, including compensated absences, are reported as liabilities in the Statement of Net Assets. Items such as premiums, discounts, bond issuance costs and gains or losses on bond sales are capitalized and amortized over the life of the related debt. In the fund financial statements, the face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Restricted Net Assets For the government-wide Statement of Net Assets, net assets are reported as restricted when constraints placed on net asset use are either: Externally imposed by creditors (such as debt covenants), grantors, contributors, or laws or regulations of other governments; Imposed by law through constitutional provisions or enabling legislation. 25

48 Notes to Basic Financial Statements Note 1. Summary of Significant Accounting Policies (continued) Assets, Liabilities, and Net Assets or Equity (continued) Fund Balance Reserves In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Eliminations and Reclassifications In the process of aggregating data for the government-wide Statement of Activities, some amounts reported as interfund activity and interfund balances in the funds are eliminated or reclassified. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenditures/expenses during the period. Actual results could differ from these estimates. New Accounting Pronouncement The District adopted GASB Statement No. 45 Accounting and Financial Reporting by Employers for Postretirement Benefits Other Than Pensions as of June 30, 2008 on a prospective basis. The District adopted GASB Statement No. 50 Pension Disclosures an amendment to GASB Statements No. 25 and No. 27 as of June 30, Note 2. Cash and Investments a) Deposits State statutes authorize the District to make deposits in interest bearing depository accounts in federally insured and/or state chartered banks, savings and loan associations, and credit unions. As of June 30, 2008, the District had deposits with federally insured financial institutions of $126,239,314 with bank balances totaling $124,640,046. These deposits were fully insured or collateralized. Custodial credit risk Deposits. Custodial credit risk is the risk that in the event of a bank failure, the District s deposits may not be returned to it. The District does not have a policy for custodial credit risk. 26