MERCED COUNTY OFFICE OF EDUCATION ANNUAL FINANCIAL REPORT JUNE 30, 2015

Transcription

1 ANNUAL FINANCIAL REPORT JUNE 30, 2015

2 TABLE OF CONTENTS JUNE 30, 2015 FINANCIAL SECTION Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 16 Statement of Activities 17 Fund Financial Statements Governmental Funds - Balance Sheet 18 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 19 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 20 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 21 Fiduciary Funds - Statement of Net Position 22 Fiduciary Funds - Statement of Changes in Net Position 23 Discretely Presented Component Unit Virginia Smith Charitable Trust Statement of Financial Position 24 Statement of Activities 25 Statement of Cash Flows 26 Notes to Financial Statements 27 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 62 Special Education Pass-Through Fund - Budgetary Comparison Schedule 63 Child Development Fund - Budgetary Comparison Schedule 64 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 65 Schedule of County Office of Education's Proportionate Share of the Net Pension Liability 66 Schedule of County Office of Education Contributions 67 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 69 Local Education Agency Organization Structure 71 Schedule of Average Daily Attendance 72 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 73 Schedule of Financial Trends and Analysis 74 Schedule of Charter Schools 75 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 76 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 77 Note to Supplementary Information 78 INDEPENDENT AUDITOR'S REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 81 Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by the OMB Circular A Report on State Compliance 85

3 TABLE OF CONTENTS JUNE 30, 2015 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 89 Financial Statement Findings 90 Federal Awards Findings and Questioned Costs 91 State Awards Findings and Questioned Costs 92 Summary Schedule of Prior Audit Findings 93

4 FINANCIAL SECTION 1

5 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITOR'S REPORT Governing Board Merced County Office of Education Merced, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the Merced County Office of Education (MCOE) as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise MCOE's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, issued by the California Education Audit Appeals Panel as regulations. 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 MCOE'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 MCOE'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 N. Fresno Street, Suite 101 Fresno, CA Tel: Fax:

6 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the Merced County Office of Education, as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter - Change in Accounting Principles As discussed in Note 1 to the financial statements, in 2015, the District adopted new accounting guidance, GASB Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the required supplementary information, such as management's discussion and analysis on pages 5 through 15, and budgetary comparison, other postemployment benefit, net pension liability, and County Office of Education contribution information on pages 62 through 67, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Merced County Office of Education's basic financial statements. The accompanying supplementary information, such as the combining and individual non-major fund financial statements and Schedule of Expenditures of Federal Awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates 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 accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3

7 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2015, on our consideration of the Merced County Office of Education'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 Merced County Office of Education's internal control over financial reporting and compliance. Fresno, California December 15,

8 Merced County Office of Education Steven E. Gomes, Ed.D., Superintendent Equal Opportunity Employer MANAGEMENT'S DISCUSSION AND ANALYSIS This section of the Merced County Office of Education's (MCOE) annual financial report presents our discussion and analysis of MCOE's financial performance during the fiscal year that ended on June 30, Please read it in conjunction with MCOE's financial statements immediately following this section. Comparative information will be presented between the fiscal years ending June 30, 2014 and June 30, The Merced County Office of Education (MCOE) provides services to districts within Merced County, operates education programs for special populations of students and manages programs with education related objectives. Services provided to districts include administrative, fiscal, personnel, technology, media, educational television, curriculum, professional development, leadership training, beginning teacher support and assessment, Tier II professional services credential, psychological, occupational training, mental health, foster youth services, California student opportunity and access program, outdoor school, and governmental relations. Educational programs operated for special populations of students are three-county regional Migrant (Merced, Stanislaus, and Madera), Special Education, Regional Occupational Program, Valley Community School, Juvenile Court School, Workforce Investment Act Youth Programs, Merced Scholars Charter School, and Head Start/Early Head Start. Programs related to educational objectives include child care subsidy programs (for CalWORKS recipients and other financially eligible families), a multitude of child care and workforce support services, a six-county regional California Preschool Instructional Network and the Race To The Top Early Learning Challenge grant. Other education-related grant programs support business-education partnerships and the work of the Family Resource Council. MCOE operates an after school program in collaboration with Merced County school districts. MCOE has a main administrative complex which houses the Superintendent, Human Resources, and other various program administrative offices as well as a media center and print shop. MCOE has an ancillary administrative complex which houses Head Start administrative offices, information technology, and a warehouse. In addition, MCOE maintains five smaller off-site administrative offices and has over 200 school sites housing employee workstations. The Superintendent provides general administrative and executive functions for the organization and employs over 1,400 staff. The MCOE has a $5.0 million annual operating expenditure budget. This includes a General Fund budget of $70.4 million, a Child Development Fund budget of $23.9 million and a Charter School Fund budget of $705 thousand. 632 West 13th Street Merced, California (209)

9 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2015 OVERVIEW OF THE FINANCIAL STATEMENTS The Financial Statements The financial statements presented herein include all of the activities of the Merced County Office of Education and its component units using the integrated approach prescribed by GASB Statement Number 34. The Government-Wide Financial Statements present the financial picture of MCOE from the economic resources measurement focus using the accrual basis of accounting. MCOE statements present only governmental activities, as MCOE has no business-type activities. These statements include all assets of MCOE (including infrastructure) as well as all liabilities (including long-term obligations). Additionally, certain eliminations have been made as prescribed by the GASB Statement for interfund activity for payables and receivables. The Fund Financial Statements include statements for each of the two types of activities: governmental and fiduciary. MCOE has no business-type funds. The Governmental Activities statements are prepared using the current financial resources measurement focus and modified accrual basis of accounting. The Fiduciary Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach. The primary unit of government is the Merced County Office of Education. REPORTING MCOE AS A WHOLE The Statement of Net Position and the Statement of Activities and Changes in Net Position The Statement of Net Position and the Statement of Activities and Changes in Net Position report financial information about MCOE as a whole and about its activities. These statements include all assets and liabilities of MCOE using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report MCOE's net position and changes in them. Net position is the difference between assets and deferred outflows of resources, and liabilities and deferred inflows of resources, which is one way to measure MCOE's financial health, or financial position. Over time, increases or decreases in MCOE's net position will serve as a useful indicator of whether the financial position of MCOE is improving or deteriorating. Other factors to consider are changes in MCOE's property tax base and the condition of MCOE's facilities. 6

10 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2015 The difference between revenue and expense is MCOE's operating result. MCOE's responsibility is to provide services to our students, Merced county school districts and other populations, and not to generate profit as commercial entities do. Hence one must consider other factors when evaluating the overall health of MCOE. The quality of the education and services we provide and the safety and condition of our schools would likely be an important component in this evaluation. In the Statement of Net Position and the Statement of Activities and Changes in Net Position, we display MCOE activities as follows: Governmental Activities - MCOE reports all of its services in this category. This includes the education of students with special needs or at risk youth in kindergarten through grade twelve. Services include the education of ROP students, Migrant education activities, Head Start programs and alternate payment programs for child care providers. MCOE also provides a variety of business and instructional services to Merced County School Districts and funds an on-going effort to improve and maintain MCOE buildings and sites. Property taxes, state income taxes, user fees, interest income, federal, state and local grants finance these activities. REPORTING MCOE'S MOST SIGNIFICANT FUNDS Fund Financial Statements The fund financial statements provide detailed information about the most significant funds - not MCOE as a whole. Some funds are required by State law and by bond covenants. However, management establishes other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education. Governmental Funds - MCOE's basic services are reported in governmental funds. The governmental statements focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of MCOE's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance MCOE's programs. The differences in results in the governmental fund financial statements compared to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement. MCOE AS TRUSTEE Reporting MCOE's Fiduciary Responsibilities MCOE is the trustee, or fiduciary, for funds held on behalf of others, like our funds for retiree benefits and associated student body activities. MCOE's fiduciary activities are reported in the Statements of Fiduciary Net Position and in the Statement of Changes in Fiduciary Net Position. We exclude these activities from MCOE's other financial statements because MCOE cannot use these assets to finance its operations. MCOE is responsible for ensuring that the assets reported in these funds are used for their intended purposes. 7

11 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2015 FINANCIAL HIGHLIGHTS OF THE PAST YEAR MCOE's stated financial worth has decreased over last fiscal year. Total net position at the end of FY 2015 is $45.0 million. This is an increase of $2.6 million from the year ending June 30, The increase is mostly due to increased state funding. $2.8 million in capital assets were added to the inventory this year. Revenues were greater than expenses in some programs, but overall expenses were higher than revenues. The ending balance of the General Fund increased by nearly than $3.7 million from last year. MCOE has only a small amount of outstanding long-term obligations other than pensions. In FY , MCOE obtained a Qualified Zone Academy Bond (QZAB) of $1 million which will be totally defeased (prefinanced) with an initial deposit of $554,464 and the interest earnings on the deposit. In FY , the office was awarded a second QZAB of $2 million. This QZAB is being paid off over a period of 15 years. FINANCIAL ANALYSIS OF MCOE AS A WHOLE Net Position MCOE's net position was $45.0 million for the fiscal year ended June 30, 2015, and $42.4 million (restated) for the fiscal year ended June 30, This is an increase of $2.6 million. Of this amount, $15.7 million was restricted. Restricted net position is reported separately to show legal constraints from debt covenants and enabling legislation that limit MCOE's ability to use net position for day-to-day operations. Our analysis below focuses on the net position (Table 1) and change in net position (Table 2) of MCOE's governmental activities for the past two fiscal years. 8

12 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2015 Table 1 Net Position (Amounts in millions) Governmental Activities FY Restated FY Difference Assets Current and other assets $ 52.4 $ 51.5 $ 0.9 Capital assets (0.7) Total Assets Deferred Outflows of Resources Liabilities Current liabilities (3.3) Long-term obligations (0.4) Aggregate net pension liability (14.3) Total Liabilities (18.0) Deferred Inflows of Resources Net Position Net investment in capital assets (0.5) Restricted Unrestricted (37.9) (39.0) 1.1 Total Net Position $ 45.0 $ 42.4 $ 2.6 The $(37.9) million in unrestricted net position of governmental activities represents the accumulated results of all past years' operations. Unrestricted net position the part of net position that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements decreased by 2.8 percent ($(37.9) million compared to $(39.0) million restated). Changes in Net Position The results of the past two year's operations for MCOE as a whole are reported in the Statement of Activities. Table 2 takes the information from this Statement, and rearranges it slightly so you can see our total revenues and expenses on a functional basis for the past two years. 9

13 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2015 Table 2 Changes in Net Position (Amounts in millions) Governmental Activities FY FY Difference Revenues Program revenues: Charges for services $ 8.7 $ 9.0 $ (0.3) Operating grants and contributions Capital grants and contributions General revenues: Federal and State aid not restricted (1.0) Property taxes Other general revenues (0.7) Total Revenues Expenses Instruction related Student support services (1.4) Administration (0.7) Plant services Community services Other Total Expenses Change in Net Position $ 2.6 $ (1.9) $ 4.5 Governmental Activities As reported in the Statement of Activities, the cost of all of our governmental activities this year was approximately $115.3 million as compared to $114.2 million in the prior year. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $10.0 million because the cost was paid by those who benefited from the programs ($8.7 million) or by government and other organizations who subsidized certain programs with grants and contributions ($80.4 million). We paid for the remaining "public benefit" portion of our governmental activities with $13.4 million in State and Federal unrestricted funds, and with other revenues like interest and general entitlements of $3.4 million. In Table 3, we have presented the cost of each of MCOE's largest functions. The chart shows each program's net cost (total cost less revenues generated by the activities). As discussed above, net cost shows the amount that local taxpayers are required to pay for each of these functions 10

14 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2015 Table 3 Net Cost of Governmental Activities (Amounts in millions) Total Cost Net Cost of Services of Services Instruction related $ 52.9 $ 11.7 Student support services Administration Plant services Community services Other Total $ $ 24.2 FINANCIAL ANALYSIS OF MCOE'S FUNDS The financial performance of MCOE as a whole is reflected in its governmental funds. As MCOE completed this fiscal year, our governmental funds reported a balance of $36.9 million while the prior year reported a balance of $33.2 million. This was an increase of $3.7 million over the FY ending fund balances. Our General Fund is our principal operating fund. The fund balance in the General Fund increased to approximately $31.1 million. This increase of nearly $3.7 million resulted primarily from cost reductions. Our special revenue fund balances increased slightly over the previous year. The funds include a separate fund for the operation of our charter school, a fund for pass-through of special education funds, and a Child Development Fund to account for the child development programs that MCOE operates. Our County School Facilities Fund decreased approximately $0.2 million due to continued state funded construction project costs. General Fund Budgetary Highlights Over the course of the year MCOE revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. The final amendment to the budget was adopted on June 8, A schedule showing MCOE's original and final budget amounts compared with amounts actually paid and received is provided in our annual report. Revenue revisions were made to the budget over the course of the year. Generally both revenue and expenses decreased over the course of the year from that originally budgeted. This reflects budgeting for beginning balances and continued cost reduction efforts. Total revenue in the General Fund including transfers in ended up about $1.6 million lower than what was originally budgeted and expenditures decreased by approximately $5.9 million over what was originally budgeted, resulting in an actual increase to the fund of $3.7 million. 11

15 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2015 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At June 30, 2015, MCOE had $69.2 million net investments in a broad range of capital assets, including land, buildings, and furniture and equipment. At June 30, 2014, net capital assets totaled $69.9 million. This amount represents a net decrease (including additions, deductions and depreciation) of $0.7 million from Table 4 displays our capital assets. Table 4 Capital Assets at Year-end (Net of depreciation, in millions of dollars) Governmental Activities FY FY Difference Land $ 4.9 $ 4.7 $ 0.2 Construction in process (18.4) Buildings, sites, and improvements Equipment (0.7) Total $ 69.2 $ 69.9 $ (0.7) This year's additions (before depreciation) of approximately $2.8 million in capital assets includes nearly $2.0 million in construction in progress for the Stefani Elementary School and over $0.3 million for phase three of the Cooper complex. More than $20.5 million was moved out of construction in progress for completed projects including more than $14.6 million for Atwater VCS. We present more detailed information about our capital assets in the Notes to Financial Statements. Long-Term Obligations Other Than Pensions At the end of FY , MCOE had $2.2 million in long-term obligations other than pensions. Table 5 displays our long-term obligations. Table 5 Outstanding Debt at Year-end (Amounts in millions) Governmental Activities FY FY Difference Qualified Zone Academy Bonds $ 2.0 $ 2.2 $ (0.2) Compensated absences (0.2) Total $ 2.2 $ 2.6 $ (0.4) MCOE's Certificates of Participation S&P rating at the time of its last issuance was "AAA". 12

16 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2015 Net Pension Liability (NPL) The District implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27, which required the District to recognize its proportionate share of the unfunded pension obligation for CalSTRS and CalPERS. The implementation resulted in a reduction of beginning net position of $59.0 million. As of June 30, 2015, the District reported Deferred Outflows from pension activities of $4.3 million, Deferred Inflows from pension activities of $15.8 million, and a Net Pension Liability of $48.9 million. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS The Governor signed the State Budget, Assembly Bill (AB) 93, Senate Bill (SB) 97, and accompanying trailer bills on June 24, The budget includes Proposition 98 (Prop. 98) funding of $68.4 billion for , an increase of $7.6 billion over the Budget. Since , Prop. 98 funding for K-12 education has grown more than $18.6 billion. Prop. 98 maintenance factor will be reduced to $772 million by the end of Below are some major funding and policy components of the State Budget most of which are reflected in AB 104 (Education Trailer Bill) and SB 78 (Local Control Funding Formula (LCFF) Trailer Bill): Local Control Funding Formula The Budget provides $5.994 billion toward implementation of LCFF. The gap funding is percent. The Department of Finance (DOF) is still projecting full implementation of LCFF to occur in This is the third year of the Local Control Funding Formula (LCFF). The LCFF is intended to correct historical inequities and increase local flexibility. The LCFF provides a form of equalization for County Offices of Education (COEs). For the Merced County Office of Education (MCOE) the LCFF target funding amount is less than 20 percent of our total budgeted revenue. The COE LCFF provides for two grants. The first is a county operations grant for COE operations and countywide services. The second is an alternative education grant for programs operated by the COE to provide direct instructional services to students for which the county has responsibility. The students identified in law for this funding include juvenile courts, probation referred, and mandatory expelled. LCFF is intended to provide a mechanism that is simple and transparent allowing Local Education Agencies (LEAs) maximum flexibility in allocating resources to meet local needs. LCFF for the MCOE replaces restricted and unrestricted Revenue Limit funding, restricted Court & Community School Revenue Limit funding and restricted funding received through many categorical programs. Transportation is a categorical program outside of the LCFF formula. The MCOE on behalf of the SELPA (Special Education Local Plan Area) receives approximately $1.2 million to transport special education children. This funding is an add-on to our LCFF and will not be increased by State COLA. Regional Occupational Program (ROP) is a major categorical program operated in Merced County which no longer has a direct identifiable funding source. In MCOE operated an approximate $4.1 million dollar county-wide program. 13

17 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2015 Another aspect of the LCFF is the concept of Hold Harmless. LEAs are to receive minimum State funding of no less than the total received in the fiscal year, as adjusted for changes in ADA and property taxes. MCOE is an LEA that falls under this Hold Harmless provision. MCOE s projected LCFF target funding is less than our revenue limit and categorical funding base. Local Control Accountability Plan (LCAP) - The MCOE is preparing to meet with stakeholders to develop the MCOE s LCAP and review the progress of the plan. The requirement for LEA s to develop and adopt an LCAP that aligns with their budget became effective in LCAPs are required to describe district goals that address State priorities. Permanent regulations were adopted in November 2014 by the State Board of Education (SBE). The deadline for SBE to approve the LCAP rubrics was extended one year to October 1, Mandates backlog The budget included $3.2 billion in one-time discretionary funding to provide LEAs with additional resources to invest in professional development, teacher induction for beginning teachers, and instructional materials and technology. Early Childhood Education - The budget provides $2.85 billion additional funding for Preschool and Child Care. Career Technical Education (CTE) - The Budget establishes the CTE Incentive Grant Program by providing $900 million in one-time Prop. 98 funding in each of the next three years to establish new or expanded highquality CTE programs. This competitive grant establishes various funding level categories based on size of program as well as positive consideration for certain applicant characteristics. The MCOE is in the process of applying for the grant funding to expand the CTE programs currently run in Merced and Madera counties. The funds received will go towards maintaining and growing our current CTE services via a dollar for dollar match program. Educator Effectiveness - The budget provided $500 million one-time (Prop. 98) General Fund for educator support. $490 million is for activities that promote educator quality and effectiveness. $10 million is provided to K-12 High Speed Network (HSN) to provide LEAs professional development and technical assistance in network management. Special Education - The Budget directed $60.1 million to Special Education in response to recommendations provided by the statewide Special Education Task Force. $50.1 million is ongoing and $10 million is one-time. COE responsibilities The Budget extends the time frame COEs have to examine, make certain determinations, approve, conditionally approve, or disapprove a district s adopted budgets from August 15 to September 15. This gives COEs additional working time to assure district budgets and district LCAPs are in alignment. Federal Revenue - The outlook of federal funding levels for is known but future years are still uncertain. MCOE has made conservative federal funding reductions in We are also planning flat funding in subsequent budget years. MCOE is committed to ensuring every student a success. We are using one-time funds on the best one-time purchases to support our programs and students. At the present time we have a balanced budget and the day to day operations of our organization are serving the needs of today s students. 14

18 MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2015 CONTACTING MCOE'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of MCOE's finances and to show MCOE's accountability for the money it receives. If you have questions about this report or need any additional financial information, contact Janet Riley, Assistant Superintendent, Business Services, at Merced County Office of Education, 632 W. 13th Street, Merced CA, 95341, or at: jriley@mcoe.org. 15

19 STATEMENT OF NET POSITION JUNE 30, 2015 Governmental Activities ASSETS Deposits and investments $ 32,322,532 Receivables 15,669,609 Prepaid expenses 89,467 Stores inventories 52,383 Net OPEB Plan Asset 1,523,414 Nondepreciable capital assets 7,384,859 Capital assets being depreciated 92,454,004 Accumulated depreciation (30,597,465) Total Assets 118,898,803 DEFERRED OUTFLOWS OF RESOURCES Current year pension contribution 4,302,800 Total Deferred Outflows of Resources 4,302,800 LIABILITIES Accounts payable 10,495,469 Unearned revenue 732,332 Current portion of long-term obligations other than pensions 105,140 Noncurrent portion of long-term obligations other than pensions 2,112,387 Aggregate net pension liability 48,888,557 Total Liabilities 62,333,885 DEFERRED INFLOWS OF RESOURCES Net change in proportionate share of net pension liability 1,414,379 Difference between projected and actual earnings on pension plan investments 14,443,005 Total Deferred Inflows of Resources 15,857,384 NET POSITION Net investment in capital assets 67,187,658 Restricted for: Capital projects 4,954,342 Educational programs 10,818,118 Unrestricted (37,949,784) Total Net Position $ 45,010,334 The accompanying notes are an integral part of these financial statements. 16

20 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 Program Revenues Charges for Operating Capital Services and Grants and Grants and Functions/Programs Expenses Sales Contributions Contributions Governmental Activities: Instruction $ 34,980,364 $ 1,755,702 $ 25,274,754 $ 1,975,728 Instruction-related activities: Supervision of instruction 8,682, ,875 6,288,570 - Instructional library, media, and technology 950, , ,049 - School site administration 8,237, ,390 4,634,282 - Pupil services: Home-to-school transportation 4,855,634 1,885,066 28,984 - Food services 1,268,192 65,528 1,144,412 - All other pupil services 10,965, ,315 8,719,874 - Administration: Data processing 2,235, All other administration 4,981, ,502 3,958,267 - Plant services 5,349, ,118 2,805,574 - Ancillary services 45, Community services 8,947, ,347 7,516,123 - Enterprise services 346,269 45,087 72,965 - Other outgo 23,460,068 2,130,371 19,753,016 - Total Governmental Activities $ 115,306,686 $ 8,676,055 $ 80,427,870 $ 1,975,728 General revenues and subventions: Property taxes, levied for general purposes Taxes levied for other specific purposes Federal and State aid not restricted to specific purposes Interest and investment earnings Interagency revenues Miscellaneous Subtotal, General Revenues Change in Net Position Net Position - Beginning, as restated Net Position - Ending The accompanying notes are an integral part of these financial statements. 17

21 Net (Expenses) Revenues and Changes in Net Position Governmental Activities $ (5,974,180) (1,879,094) (576,916) (3,239,080) (2,941,584) (58,252) (1,325,685) (2,235,198) (648,656) (2,183,068) (45,813) (1,314,609) (228,217) (1,576,681) (24,227,033) $ 9,904,683 63,976 13,387, , ,534 2,374,945 26,785,700 2,558,667 42,451,667 45,010,334 17

22 GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2015 Special Education Child General Pass-Through Development Fund Fund Fund ASSETS Deposits and investments $ 25,275,234 $ 120,056 $ 1,072,867 Receivables 10,178,082 2,122,975 3,356,501 Due from other funds 2,741,136-11,509 Prepaid expenditures 82,437-7,030 Stores inventories 52, Total Assets $ 38,329,272 $ 2,243,031 $ 4,447,907 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable 7,089,907 $ $ 2,243,031 $ 1,057,886 Due to other funds 46,648-2,609,393 Unearned revenue 124, ,153 Total Liabilities 7,260,734 2,243,031 4,275,432 Fund Balances: Nonspendable 160,570-7,030 Restricted 9,941, ,445 Assigned 7,086, Unassigned 13,879, Total Fund Balances 31,068, ,475 Total Liabilities and Fund Balances $ 38,329,272 $ 2,243,031 $ 4,447,907 The accompanying notes are an integral part of these financial statements. 18

23 Non-Major Governmental Funds Total Governmental Funds $ 5,854,375 $ 32,322,532 12,051 15,669,609 35,139 2,787,784-89,467-52,383 $ 5,901,565 $ 50,921,775 $ 104,645 $ 10,495, ,743 2,787, , ,388 14,015, ,600 5,665,177 15,772,460-7,086,797-13,879,333 5,665,177 36,906,190 $ 5,901,565 $ 50,921,775 18

24 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION JUNE 30, 2015 Total Fund Balance - Governmental Funds $ 36,906,190 Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of capital assets is $ 99,838,863 Accumulated depreciation is (30,597,465) Net Capital Assets 69,241,398 Expenditures relating to contributions made to pension plans were recognized on the modified accrual basis, but are not recognized on the accrual basis. 4,302,800 In governmental funds, OPEB costs are recognized when employer contributions are made. In the statement of net position, OPEB contributions that cumulatively exceed the current the OPEB obligation are recognized as a Net OPEB Plan Asset. 1,523,414 The net change in proportionate share of net pension liability as of the measurement date is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis over the expected remaining service life of members receiving pension benefits. (1,414,379) The difference between projected and actual earnings on pension plan investments are not recognized on the modified accrual basis, but are recognized on the accrual basis as an adjustment to pension expense. (14,443,005) Long-term obligations, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Qualified zone academy bonds 2,053,740 Compensated absences 163,787 Net pension liability 48,888,557 Total Long-Term Obligations (51,106,084) Total Net Position - Governmental Activities $ 45,010,334 The accompanying notes are an integral part of these financial statements. 19

25 GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2015 Special Education General Pass-Through Development Fund Fund Fund REVENUES Local Control Funding Formula $ 20,920,778 $ - $ - Federal sources 11,717,002 7,738,568 15,273,004 Other State sources 22,570,269 15,159,310 3,413,803 Other local sources 14,436,839-3,718,807 Total Revenues 69,644,888 22,897,878 22,405,614 EXPENDITURES Current Instruction 27,663,362-4,992,583 Instruction-related activities: Supervision of instruction 7,467,352-1,046,179 Instructional library, media and technology 618, School site administration 5,635,285-2,134,152 Pupil services: Home-to-school transportation 4,218, Food services 261, ,222 All other pupil services 8,776,445-2,056,042 Administration: Data processing 2,098, All other administration 3,745,958-1,514,834 Plant services 3,380,758-1,329,724 Facility acquisition and construction 596, Ancillary services 8, Community services 678,230-8,283,576 Other outgo 385,038 22,897,878 - Enterprise services 321, Debt service Principal 105, Total Expenditures 65,961,446 22,897,878 22,339,312 NET CHANGE IN FUND BALANCES 3,683,442-66,302 Fund Balance - Beginning 27,385, ,173 Fund Balance - Ending $ 31,068,538 $ - $ 172,475 Child The accompanying notes are an integral part of these financial statements. 20

26 Non-Major Governmental Funds Total Governmental Funds $ 661,308 $ 21,582,086-34,728,574 2,001,580 43,144,962 41,310 18,196,956 2,704, ,652, ,099 32,960, ,438 8,632, ,924 69,380 7,838,817-4,218,832-1,244,119 8,532 10,841,019-2,098,125 40,901 5,301,693 57,911 4,768,393 1,973,729 2,570,526-8,242-8,961, ,152 23,460, , ,140 2,751, ,949,778 (46,944) 3,702,800 5,712,121 33,203,390 $ 5,665,177 $ 36,906,190 20

27 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 Total Net Change in Fund Balances - Governmental Funds $ 3,702,800 Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures; however, for governmental activities, those costs are shown in the Statement of Net Position and allocated over their estimated useful lives as annual depreciation expenses in the Statement of Activities. This is the amount by which capital outlay exceeds depreciation in the period. Capital outlays $ 2,470,732 Depreciation expense (3,295,104) Net Expense Adjustment (824,372) Loss on disposal of capital assets is reported in the government-wide Statement of Net Position, but is not recorded in the governmental funds. (134,032) Construction in progress written off in the amount of $336,762 for projects that will not be completed. 336,762 In the Statement of Activities, certain operating expenses - compensated absences (vacations) are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). Vacation earned was less than the amounts paid by $277, ,242 In the governmental funds, pension costs are based on employer contributions made to pension plans during the year. However, in the Statement of Activities, pension expense is the net effect of all changes in the deferred outflows, deferred inflows and net pension liability during the year. 15,366 Postemployment benefits other than pensions (OPEB): In governmental funds, OPEB costs are recognized when employer contributions are made. In the Statement of Activities, OPEB costs are recognized on the accrual basis. This year, the difference between OPEB costs and actual employer contributions was: 494,140 Payment of principal on long-term obligations is an expenditure in the governmental funds, but it reduces long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: Qualified zone academy bonds 105,140 Change in Net Position of Governmental Activities $ 3,973,046 The accompanying notes are an integral part of these financial statements. 21

28 FIDUCIARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2015 Retiree Benefits Agency Trust Funds ASSETS Deposits and investments $ 878,587 $ 5,235,585 Total Assets $ 878,587 $ 5,235,585 LIABILITIES Due to student groups - ROP $ - $ 22,458 Due to student groups - Schelby School - 49,362 Due to student groups - Green Meadows - 35 Other current liabilities - Payroll Revolving - 5,163,730 Total Liabilities - $ 5,235,585 NET POSITION Reserved for retiree benefits 878,587 Total Net Position $ 878,587 The accompanying notes are an integral part of these financial statements. 22

29 FIDUCIARY FUNDS STATEMENT OF CHANGES IN NET POSITION FOR THE YEAR ENDED JUNE 30, 2014 Retiree Benefits ADDITIONS Trust Contributions $ 1,349,349 Investment income 25,072 Total Additions 1,374,421 DEDUCTIONS Distributions 970,713 Administrative fees 751 Total Deductions 971,464 Change in Net Position 402,957 Net Position - Beginning 475,630 Net Position - Ending $ 878,587 The accompanying notes are an integral part of these financial statements. 23

30 DISCRETELY PRESENTED COMPONENT UNIT VIRGINIA SMITH CHARITABLE TRUST STATEMENT OF FINANCIAL POSITION JUNE 30, 2015 ASSETS Current Assets: Cash and cash equivalents $ 98,428 Investments 1,471,124 Accounts receivable 49,212 Total Current Assets 1,618,764 Endowment Investments: Investments 2,000,000 Increase in fair value of investments 1,664,903 Total Endowment Investments 3,664,903 Equity investment in University Community Land Company (374,327) Total Assets $ 4,909,340 LIABILITIES AND NET ASSETS Current Liabilities: Accounts payable and accrued liabilities $ 2,113 Due to Merced County Office of Education 4,172 Total Current Liabilities 6,285 Net Assets: Unrestricted net asset 1,238,152 Total Unrestricted Net Assets 1,238,152 Permanently restricted net assets 3,664,903 Total Net Assets 4,903,055 Total Liabilities and Net Assets $ 4,909,340 The accompanying notes are an integral part of these financial statements. 24

31 DISCRETELY PRESENTED COMPONENT UNIT VIRGINIA SMITH CHARITABLE TRUST STATEMENT OF ACTIVITIES JUNE 30, 2015 Temporarily Permanently Unrestricted Restricted Restricted PUBLIC SUPPORT, REVENUES, AND RECLASSIFICATIONS Interest, dividends and investments income $ 67 $ - $ 35,702 Rent 98, Transfer of investment earnings available for distribution 60,000 - (60,000) Total public support, revenues, and reclassifications 158,491 - (24,298) EXPENSES AND LOSSES Program - Scholarships: Scholarships 72, Supporting Activities: Meetings 8, Legal and professional consultations 45, Miscellaneous Total program expenses 126, Administration: Merced County Office of Education (MCOE) 48, Total administration expenses 48, Total expenses 175, Unrealized gain/(loss) on investments 139, ,255 Change in Net Assets 122, ,957 Net assets as of beginning of year, as restated 1,115,244-3,467,946 Net assets as of ending of year $ 1,238,152 $ - $ 3,664,903 The accompanying notes are an integral part of these financial statements. 25

32 Total $ 35,769 98, ,193 $ 72,800 8,059 45, ,873 48,570 48, , , ,865 4,583,190 4,903,055 25

33 DISCRETELY PRESENTED COMPONENT UNIT VIRGINIA SMITH CHARITABLE TRUST STATEMENT OF CASH FLOWS JUNE 30, 2015 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 319,865 Accounts receivable (49,212) Accounts payable and accrued liabilities 6,285 Net Cash Provided by Operating Activities 276,938 CASH FLOWS FROM INVESTING ACTIVITIES Investments (313,775) Endowment investment (196,957) University Community Land Company, LLC investment 78,484 Net Cash Used for Investing Activities (432,248) CASH FLOWS FROM FINANCING ACTIVITIES Payments of note payable to Merced County Office of Education (6,206) Net Cash Used for Financing Activities (6,206) Change in cash and cash equivalents (161,516) Cash and cash equivalents as of beginning of year 259,944 Cash and cash equivalents as of ending of year $ 98,428 26