To the Board of Education of School District No. 53 (Okanagan Similkameen), and To the Minister of Education, Province of British Columbia

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4 INDEPENDENT AUDITOR'S REPORT To the Board of Education of School District No. 53 (Okanagan Similkameen), and To the Minister of Education, Province of British Columbia I have audited the accompanying consolidated financial statements of School District No. 53 (Okanagan Similkameen) ( the entity ), which comprise the consolidated statement of financial position as at June 30, 2018, and the consolidated statements of operations, changes in net financial assets (debt) and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian Public Sector Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility My responsibility is to express an opinion on these consolidated financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. In my view, the audit evidence I have obtained is sufficient and appropriate to provide a basis for my qualified audit opinion. Basis for Qualified Opinion As described in Note 2 to the consolidated financial statements, the entity s accounting treatment for contributions received from governments and for externally restricted contributions received from non-government sources is to initially record them as deferred revenue (a liability) and then recognize revenue in the statement of operations either on the same basis as the related

5 SCHOOL DISTRICT NO. 53 (OKANAGAN SIMILKAMEEN) Independent Auditor s Report expenditures occur or, in the case of funds for the purchase or construction of capital assets, to recognize revenue on the same basis as the related assets are amortized. The entity was required to adopt this accounting policy as prescribed by Province of British Columbia Treasury Board Regulation 198/2011. Under Canadian Public Sector Accounting Standards, the entity s method of accounting for contributions is only appropriate in circumstances where the funding meets the definition of a liability. Otherwise, the appropriate accounting treatment is to record contributions as revenue when they are received or receivable. In my opinion certain contributions of the entity do not meet the definition of a liability, and as such the entity s method of accounting for those contributions represents a departure from Canadian Public Sector Accounting Standards. This departure has existed since the inception of the standard, which applies to periods beginning on or after April 1, When the cumulative effects of this departure to date are adjusted through opening accumulated surplus, the entity s records indicate that the effects of this departure on the current year consolidated financial statements is an overstatement of the liability for deferred revenue of 32,764 and deferred capital revenue of 61.3 million, an understatement of opening accumulated surplus of 61.1 million, and a current year understatement of revenue of 0.2 million. Accordingly, the current year surplus is understated by 0.2 million and net debt is overstated by 61.3 million. Qualified Opinion In my opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the consolidated financial statements present fairly, in all material respects, the financial position of School District No. 53 (Okanagan Similkameen) as at June 30, 2018, and the results of its operations, changes in its net financial assets (debt), and its cash flows for the year then ended in accordance with Canadian Public Sector Accounting Standards. Victoria, British Columbia September 27, 2018 Russ Jones, FCPA, FCA Deputy Auditor General

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9 School District No. 53 (Okanagan Similkameen) Consolidated Statement of Cash Flows Year Ended June 30, 2018 Operating Transactions Surplus (Deficit) for the year (Note 18) Changes in Non-Cash Working Capital Decrease (Increase) Accounts Receivable (Note 2d, 3) Prepaid Expenses (Note 21) Increase (Decrease) Accounts Payable and Accrued Liabilities (Note 5) Deferred Revenue (Note 2f, 6) Employee Future Benefits (Note 2g, 8) Other Liabilities (Note 5) Amortization of Tangible Capital Assets (Note 2j, 10) Amortization of Deferred Capital Revenue (Note 2f, 7) Total Operating Transactions Capital Transactions Tangible Capital Assets Purchased (Note 2j, 10) Transportation Society - Buses Total Capital Transactions Financing Transactions Capital Revenue Received (Note 2f, 7) Lease Payment Total Financing Transactions Investing Transactions Endowment Contributions Total Investing Transactions Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, beginning of year (Note 2c) Cash and Cash Equivalents, end of year 2018 Actual 903,031 (97,998) (57,925) 239,657 (1,480) 37,894 99,312 2,504,455 (2,160,473) 1,466,473 (2,424,319) (2,424,319) 1,814,421 (131,577) 1,682, ,998 5,739,144 6,464, Actual 1,339,479 (13,4J4) 11,087 (28,310) 53,521 (9,240) (45,606) 3,768,123 (3,338, 198) 1,737,442 (2,077,800) (99,773) (2,177,573) 2,518,637 (129,861) 2,388,776 (40,000) (40,000) 1,908,645 3,830,499 5,739,144 Statement 5 Cash and Cash Equivalents, end of year, is made up of: Cash (Note 2c) 6,464,142 6,464,142 5,739,144 5,739,144 Version: September 21, :17 The accompanying notes are an integral part of these financial statements. Page 7

10 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 1 AUTHORITY AND PURPOSE The School District, established on December 1, 1996, operates under authority of the School Act of British Columbia as a corporation under the name of "The Board of Education of School District No. 53 (Okanagan Similkameen)", and operates as "School District No. 53 (Okanagan Similkameen)." A board of education ( Board ) elected for a four-year term governs the School District. The School District provides educational programs to students enrolled in schools in the district, and is principally funded by the Province of British Columbia through the Ministry of Education. School District No. 53 (Okanagan Similkameen) is exempt from federal and provincial corporate income taxes. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Basis of Accounting These consolidated financial statements have been prepared in accordance with Section 23.1 of the Budget Transparency and Accountability Act of the Province of British Columbia. This Section requires that the financial statements be prepared in accordance with Canadian public sector accounting standards except in regard to the accounting for government transfers as set out in Notes 2(f) and 2(n). In November 2011, Treasury Board provided a directive through Restricted Contributions Regulation 198/2011 providing direction for the reporting of restricted contributions whether they are received or receivable by the School District before or after this regulation was in effect. As noted in notes 2(f) and 2(n), Section 23.1 of the Budget Transparency and Accountability Act and its related regulations require the School District to recognize non-capital restricted contributions into revenue in the fiscal period in which the restriction the contribution is subject to is met and related regulations require the School District to recognize government transfers for the acquisition of capital assets into revenue on the same basis as the related amortization expense. As these transfers do not contain stipulations that create a liability, Canadian public sector accounting standards would require these grants to be fully recognized into revenue. The impact of correcting this difference on the consolidated financial statements of the School District is as follows: Year ended June 30, decrease in annual surplus by 1,499,423 June 30, increase in closing accumulated surplus 61,134,152, a decrease in deferred capital revenue by 61,100,717 and a decrease in deferred revenue by 33,435 Year ended June 30, 2018 increase in annual surplus by 167,678 June 30, 2018 increase in closing accumulated surplus by 61,301,830 decrease in deferred capital revenue by 61,269,066 and decrease in deferred revenue by 32,764 b) Basis of Consolidation These consolidated financial statements reflect the assets, liabilities, revenues and expenses of the reporting entity, which is comprised of all controlled entities. The following entities are consolidated into the financial statements: South Okanagan Secondary School Transportation Society Osoyoos Secondary School Transportation Society Similkameen Elementary Secondary School Extra-Curricular Support Group Page 8 JUNE 2018

11 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The transactions of these entities are accounted for using the line by line consolidation method. Interentity transactions have been eliminated. c) Cash and Cash Equivalents Cash and cash equivalents include cash and highly liquid securities that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value. These cash equivalents generally have a maturity of three months or less at acquisition and are held for the purpose of meeting short-term cash commitments rather than for investing. d) Accounts Receivable Accounts receivable are measured at amortized cost and shown net of allowance for doubtful accounts. e) Portfolio Investments The School District has investments in GIC s and term deposits that have a maturity of greater than 3 months at the time of acquisition. GIC s and term deposits not quoted in an active market are reported at cost or amortized cost. Detailed information regarding portfolio investments is disclosed in Note 4. f) Deferred Revenue and Deferred Capital Revenue Deferred revenue includes contributions received with stipulations that meet the description of restricted contributions in the Restricted Contributions Regulation 198/2011 issued by Treasury Board. When restrictions are met, deferred revenue is recognized as revenue in the fiscal year in a manner consistent with the circumstances and evidence used to support the initial recognition of the contributions received as a liability as detailed in Note 2 (n). Funding received for the acquisition of depreciable tangible capital assets is recorded as deferred capital revenue and amortized over the life of the asset acquired as revenue in the consolidated Statement of Operations. This accounting treatment is not consistent with the requirements of Canadian public sector accounting standards which require that government transfers be recognized as revenue when approved by the transferor and eligibility criteria have been met unless the transfer contains a stipulation that creates a liability in which case the transfer is recognized as revenue over the period that the liability is extinguished. See note 2 (a) for the impact of this policy on these consolidated financial statements. g) Employee Future Benefits The School District provides certain post-employment benefits including vested and non-vested benefits for certain employees pursuant to certain contracts and union agreements. The School District accrues its obligations and related costs including both vested and non-vested benefits under employee future benefit plans. Benefits include accumulated non-vested sick leave, retirement/severance, overtime and death benefits. The benefits cost is actuarially determined using the projected unit credit method pro-rated on service and using management s best estimate of expected salary escalation, termination rates, retirement rates and mortality. The discount rate used to measure obligations is based on the cost of borrowing. The cumulative unrecognized actuarial gains and Page 9 JUNE 2018

12 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) losses are amortized over the expected average remaining service lifetime of active employees covered under the plan. The most recent valuation of the obligation was performed at March 31, 2016 and projected to March 31, The next valuation will be performed at March 31, 2019 for use at June 30, For the purposes of determining the financial position of the plans and the employee future benefit costs, a measurement date of March 31 was adopted for all periods subsequent to July 1, The School District and its employees make contributions to the Teachers Pension Plan and Municipal Pension Plan. The plans are multi-employer plans where assets and obligations are not separated. The costs are expensed as incurred. h) Asset Retirement Obligations Liabilities are recognized for statutory, contractual or legal obligations associated with the retirement of tangible capital assets when those obligations result from the acquisition, construction, development or normal operation of the assets. The obligations are measured initially at fair value, determined using present value methodology, and the resulting costs capitalized into the carrying amount of the related tangible capital asset. In subsequent periods, the liability is adjusted for accretion and any changes in the amount or timing of the underlying future cash flows. The capitalized asset retirement cost is amortized on the same basis as the related asset and accretion expense is included in the consolidated Statement of Operations. i) Liability for Contaminated Sites Contamination is a result of contamination being introduced into air, soil, water or sediment of a chemical, organic or radioactive material or live organism that exceeds an environmental standard. The liability is recorded net of any expected recoveries. A liability for remediation of contaminated sites is recognized when a site is not in productive use and all the following criteria are met: an environmental standard exists; contamination exceeds the environmental standard; the School District is directly responsible or accepts responsibility; it is expected that future economic benefits will be given up; and a reasonable estimate of the amount can be made. The liability is recognized as management s estimate of the cost of post-remediation including operation, maintenance and monitoring that are an integral part of the remediation strategy for a contaminated site. At this time the School District has determined there are no liabilities for contaminated sites. j) Tangible Capital Assets The following criteria apply: Tangible capital assets acquired or constructed are recorded at cost which includes amounts that are directly related to the acquisition, design, construction, development, improvement or betterment of the assets. Cost also includes overhead directly attributable to construction as well as interest costs that are directly attributable to the acquisition or construction of the asset. Page 10 JUNE 2018

13 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Donated tangible capital assets are recorded at their fair market value on the date of donation, except in circumstances where fair value cannot be reasonably determined, which are then recognized at nominal value. Transfers of capital assets from related parties are recorded at carrying value. Work-in-progress is recorded as an acquisition to the applicable asset class at substantial completion. Tangible capital assets are written down to residual value when conditions indicate they no longer contribute to the ability of the School District to provide services or when the value of future economic benefits associated with the sites and buildings are less than their net book value. The write-downs are accounted for as expenses in the consolidated Statement of Operations. Buildings that are demolished or destroyed are written-off. The cost, less residual value, of tangible capital assets (excluding sites), is amortized on a straight-line basis over the estimated useful life of the asset. It is management s responsibility to determine the appropriate useful lives for tangible capital assets. These useful lives are reviewed on a regular basis or if significant events initiate the need to revise. Estimated useful life is as follows: Buildings Furniture & Equipment Vehicles Computer Software Computer Hardware 40 years 10 years 10 years 5 years 5 years k) Capital Leases Leases that, from the point of view of the lessee, transfer substantially all the benefits and risks incident to ownership of the property to the School District are considered capital leases. These are accounted for as an asset and an obligation. Capital lease obligations are recorded at the present value of the minimum lease payments excluding executor costs, e.g., insurance, maintenance costs, etc. The discount rate used to determine the present value of the lease payments is the lower of the School District s rate for incremental borrowing or the interest rate implicit in the lease. All other leases are accounted for as operating leases and the related payments are charged to expenses as incurred. l) Prepaid Expenses Payments for insurance, subscriptions and maintenance contracts for use within the School District in a future period are included as a prepaid expense and stated at acquisition cost and are charged to expense over the periods expected to benefit from it. Text books and other teaching supplies are expensed as purchased. m) Funds and Reserves Certain amounts, as approved by the Board are set aside in accumulated surplus for future operating and capital purposes. Transfers to and from funds and reserves are an adjustment to the respective fund when approved (see Note 13 Interfund Transfers and Note 18 Restricted Surplus). Page 11 JUNE 2018

14 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) n) Revenue Recognition Revenues are recognized in the period in which the transactions or events occurred that gave rise to the revenues. All revenues are recorded on an accrual basis, except when the accruals cannot be determined with a reasonable degree of certainty or when their estimation is impracticable. Contributions received or where eligibility criteria have been met are recognized as revenue except where the contribution meets the criteria for deferral as described below. Eligibility criteria are the criteria that the School District has to meet in order to receive the contributions including authorization by the transferring government. For contributions subject to a legislative or contractual stipulation or restriction as to their use, revenue is recognized as follows: Non-capital contributions for specific purposes are recorded as deferred revenue and recognized as revenue in the year related expenses are incurred, Contributions restricted for site acquisitions are recorded as revenue when the sites are purchased, and Contributions restricted for tangible capital assets acquisitions other than sites are recorded as deferred capital revenue and amortized over the useful life of the related assets. Donated tangible capital assets other than sites are recorded at fair market value and amortized over the useful life of the assets. Donated sites are recorded as revenue at fair market value when received or receivable. The accounting treatment for restricted contributions is not consistent with the requirements of Canadian public sector accounting standards which require that government transfers be recognized as revenue when approved by the transferor and eligibility criteria have been met unless the transfer contains a stipulation that meets the criteria for liability recognition in which case the transfer is recognized as revenue over the period that the liability is extinguished. See note 2(a) for the impact of this policy on these consolidated financial statements. Revenue related to fees or services received in advance of the fee being earned or the service is performed is deferred and recognized when the fee is earned or service performed. Investment income is reported in the period earned. When required by the funding party or related Act, investment income earned on deferred revenue is added to the deferred revenue balance. o) Expenditures Expenses are reported on an accrual basis. The cost of all goods consumed and services received during the year is expensed. Categories of Salaries Principals and Vice-Principals employed under an administrative officer contract are categorized as Principals and Vice-Principals. Page 12 JUNE 2018

15 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Superintendents, Secretary-Treasurers, Trustees and other employees excluded from union contracts are categorized as Other Professionals. Allocation of Costs Operating expenses are reported by function, program, and object. Whenever possible, expenditures are determined by actual identification. Additional costs pertaining to specific instructional programs, such as special and aboriginal education, are allocated to these programs. All other costs are allocated to related programs. Actual salaries of personnel assigned to two or more functions or programs are allocated based on the time spent in each function and program. School-based clerical salaries are allocated to school administration and partially to other programs to which they may be assigned. Principals and Vice-Principals salaries are allocated to school administration and may be partially allocated to other programs to recognize their other responsibilities. Employee benefits and allowances are allocated to the same programs, and in the same proportions, as the individual s salary. Supplies and services are allocated based on actual program identification. p) Endowment Contributions Endowment contributions are reported as revenue on the consolidated Statement of Operations when received. Investment income earned on endowment principal is recorded as deferred revenue if it meets the definition of a liability and is recognized as revenue in the year related expenses (disbursements) are incurred. If the investment income earned does not meet the definition of a liability, it is recognized as revenue in the year it is earned. Endowment assets are reported as restricted non-financial assets on the consolidated Statement of Financial Position. q) Financial Instruments A contract establishing a financial instrument creates, at its inception, rights and obligations to receive or deliver economic benefits. The financial assets and financial liabilities portray these rights and obligations in the consolidated financial statements. The School District recognizes a financial instrument when it becomes a party to a financial instrument contract. Financial instruments consist of cash and cash equivalents, accounts receivable, portfolio investments, accounts payable and accrued liabilities and other liabilities. All financial assets and liabilities are recorded at cost or amortized cost and the associated transaction costs are added to the carrying value of these investments upon initial recognition. Transaction costs are incremental costs directly attributable to the acquisition or issue of a financial asset or a financial liability. Unrealized gains and losses from changes in the fair value of financial instruments are recognized in the consolidated statement of remeasurement gains and losses. Upon settlement, the cumulative gain or loss is reclassified from the consolidated statement of remeasurement gains and losses and recognized in the consolidated statement of operations. Interest and dividends attributable to financial instruments are reported in the consolidated statement of operations. Page 13 JUNE 2018

16 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) All financial assets except derivatives are tested annually for impairment. When financial assets are impaired, impairment losses are recorded in the consolidated statement of operations. A write-down of a portfolio investment to reflect a loss in value is not reversed for a subsequent increase in value. For financial instruments measured using amortized cost, the effective interest rate method is used to determine interest revenue or expense. r) Measurement Uncertainty Preparation of consolidated financial statements in accordance with the basis of accounting described in note 2 a) requires management to make estimates and assumptions that impact reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reporting periods. Significant areas requiring the use of management estimates relate to the potential impairment of assets, rates for amortization and estimated employee future benefits. Actual results could differ from those estimates. NOTE 3 ACCOUNTS RECEIVABLE OTHER RECEIVABLES Other 279, , , ,323 NOTE 4 PORTFOLIO INVESTMENTS Investments in the cost and amortized cost category: GIC s 4,132 4,132 4,132 4, NOTE 5 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES - OTHER Trade payables 449, ,091 Salaries and benefits payable 229,168 33,109 Accrued vacation pay 229, ,858 Other 51, , , ,273 Page 14 JUNE 2018

17 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 6 DEFERRED REVENUE Deferred revenue includes unspent grants and contributions received that meet the description of a restricted contribution in the Restricted Contributions Regulation 198/2011 issued by Treasury Board, i.e., the stipulations associated with those grants and contributions have not yet been fulfilled Balance, beginning of year 632, ,891 Changes for the year: Increases: Provincial grants - MOE 3,001,894 1,765,036 Other revenue 1,035, ,613 4,037,353 2,642,649 Decrease: Allocated to revenue (4,038,833) (2,589,128) Net change for the year (1,480) 53,521 Balance, end of year 630, ,412 NOTE 7 DEFERRED CAPITAL REVENUE Deferred capital revenue includes grants and contributions received that are restricted by the contributor for the acquisition of tangible capital assets that meet the description of a restricted contribution in the Restricted Contributions Regulation 198/2011 issued by Treasury Board. Once spent, the contributions are amortized into revenue over the life of the asset acquired. Deferred Capital Revenue: Balance, beginning of year 61,100,717 62,633,575 Changes for the year: Increases: Transferred from Unspent DCR Capital Additions 2,328,822 1,805,340 2,328,822 1,805,340 Decreases: Amortization of Deferred Capital Revenue (2,160,473) (3,338,198) Net change for the year 168,349 (1,532,858) Balance, end of year 61,269,066 61,100,717 Page 15 JUNE 2018

18 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 7 DEFERRED CAPITAL REVENUE (continued) Unspent Deferred Capital Revenue: Unspent Deferred Capital Revenue, beginning of year 1,034, ,561 Changes for the year: Increases: Provincial grants - MOE 1,802,231 2,509,630 Investment income 12,190 9,007 Other 1,814,421 2,518,637 Decrease: Transferred to DCR- Capital Additions (2,328,822) (1,805,340) Net change for the year (514,401) 713,297 Unspent Deferred Capital Revenue, end of year 520,457 1,034,858 Total Deferred Capital Revenue, end of year 61,789,523 62,135,575 NOTE 8 EMPLOYEE FUTURE BENEFITS Benefits include accumulating non-vested sick leave, retirement/severance and death benefits. Funding is provided when the benefits are paid and accordingly, there are no plan assets. Although no plan assets are uniquely identified, the School District has provided for the payment of these benefits. Page 16 JUNE 2018

19 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 8 EMPLOYEE FUTURE BENEFITS (continued) Reconciliation of Accrued Benefit Obligation Accrued Benefit Obligation April 1 1,250,547 1,334,959 Service Cost 92,262 92,046 Interest Cost 34,699 33,276 Benefit Payments (95,058) (142,582) Increase (Decrease) in obligation due to Plan Amendment - - Actuarial (Gain) Loss (64,519) (67,152) Accrued Benefit Obligation March 31 1,217,931 1,250,547 Reconciliation of Funded Status at End of Fiscal Year Accrued Benefit Obligation - March 31 1,217,931 1,250,547 Market Value of Plan Assets - March Funded Status - Surplus (Deficit) (1,217,931) (1,250,547) Employer Contributions After Measurement Date - 19,252 Benefits Expense After Measurement Date (32,778) (31,740) Unamortized Net Actuarial (Gain) Loss (195,805) (145,584) Accrued Benefit Asset (Liability) - June 30 (1,446,513) (1,408,619) Reconciliation of Change in Accrued Benefit Liability Accrued Benefit Liability (Asset) - July 1 1,408,619 1,417,859 Net Expense for Fiscal Year 113, ,333 Employer Contributions (75,806) (128,573) Accrued Benefit Liability (Asset) - June 30 1,446,513 1,408,619 Components of Net Benefit Expense Service Cost 93,472 92,100 Interest Cost 34,526 33,631 Immediate Recognition of Plan Amendment - - Amortization of Net Actuarial (Gain)/Loss (14,298) (6,398) Net Benefit Expense (Income) 113, ,333 Assumptions Discount Rate - April % 2.50% Discount Rate - March % 2.75% Long Term Salary Growth - April % 2.50% Long Term Salary Growth - March % 2.50% EARSL - March Page 17 JUNE 2018

20 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 9 CAPITAL LEASE OBLIGATIONS The School District entered into a 48-month capital lease obligation for computer hardware, payable on September 1, 2014 with an option to buy the computer hardware at the end of the lease. The interest rate implicit in the lease is 1.32%. Lease has been paid in full in Total interest on lease for the year was 1,881 (2017: 3,597). NOTE 10 TANGIBLE CAPITAL ASSETS Net Book Value: Net Book Value 2018 Net Book Value 2017 Sites 1,093,054 1,093,054 Buildings 61,551,594 61,352,260 Furniture & Equipment 874, ,079 Vehicles 389, ,217 Computer Software 10,322 13,271 Computer Hardware 120, ,155 Computer Hardware under capital lease 201, ,485 Total 64,240,385 64,320,521 June 30, 2018 Opening Cost Additions Disposals Transfers (WIP) Total 2018 Sites 1,093, ,093,054 Buildings 84,620,265 2,253, ,873,444 Furniture & Equipment 1,394,882 87,123 14,512-1,467,493 Vehicles 1,194, ,723-1,022,671 Computer Software 14, ,747 Computer Hardware 535,745 84, , ,959 Computer Hardware under capital 523, ,066 lease Total 89,376,153 2,424, ,038-91,251,434 Page 18 JUNE 2018

21 NOTE 10 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 TANGIBLE CAPITAL ASSETS (continued) Opening Accumulated Amortization Additions Disposals Total 2018 Sites Buildings 23,268,005 2,053,845-25,321,850 Furniture & Equipment 464, ,119 14, ,410 Vehicles 684, , , ,112 Computer Software 1,476 2,949-4,425 Computer Hardware 387, , , ,644 Computer hardware under capital lease 249,581 72, ,608 Total 25,055,632 2,504, ,038 27,011,049 June 30, 2017 Opening Cost Additions Disposals Total 2017 Sites 1,093, ,093,054 Buildings 82,882,321 1,737,944-84,620,265 Furniture & Equipment 1,190, ,546 7,409 1,394,882 Vehicles 1,223,483 99, ,862 1,194,394 Computer Software - 14,747-14,747 Computer Hardware 915, , , ,745 Computer Hardware under capital lease 523, ,066 Total 87,827,714 2,177, ,134 89,376,153 Opening Accumulated Amortization Additions Disposals Total 2017 Sites Buildings 20,260,761 3,007,244-23,268,005 Furniture & Equipment 283, ,816 7, ,803 Vehicles 635, , , ,177 Computer Software - 1,476-1,476 Computer Hardware 631, , , ,590 Computer Hardware under capital lease 104, , ,581 Total 21,916,643 3,768, ,134 25,055,632 Page 19 JUNE 2018

22 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 11 EMPLOYEE PENSION PLANS The School District and its employees contribute to the Teachers Pension Plan and Municipal Pension Plan (jointly trusteed pension plans). The boards of trustees for these plans, representing plan members and employers, are responsible for administering the pension plans, including investing assets and administering benefits. The plans are multi-employer defined benefit pension plans. Basic pension benefits are based on a formula. As at December 31, 2016, the Teachers Pension Plan has about 45,000 active members and approximately 35,000 retired members. As of December 31, 2016, the Municipal Pension Plan has about 193,000 active members, including approximately 24,000 from school districts. Every three years, an actuarial valuation is performed to assess the financial position of the plans and adequacy of plan funding. The actuary determines an appropriate combined employer and member contribution rate to fund the plans. The actuary s calculated contribution rate is based on the entry-age normal cost method, which produces the long-term rate of member and employer contributions sufficient to provide benefits for average future entrants to the plans. This rate may be adjusted for the amortization of any actuarial funding surplus and will be adjusted for the amortization of any unfunded actuarial liability. The most recent actuarial valuation of the Teachers Pension Plan as at December 31, 2014, indicated a 449 million surplus for basic pension benefits on a going concern basis. As a result of the 2014 basic account actuarial valuation surplus and pursuant to the joint trustee agreement, the employer basic contribution rate decreased. The most recent actuarial valuation for the Municipal Pension Plan as at December 31, 2015, indicated a 2,224 million funding surplus for basic pension benefits on a going concern basis. As a result of the 2015 basic account actuarial valuation surplus and pursuant to the joint trustee agreement, 1,927 million was transferred to the rate stabilization account and 297 million of the surplus ensured the required contribution rate remain unchanged. The School District paid 2,250,018 for employer contributions to the plans for the year ended June 30, 2018 (2017: 2,095,203). The next valuation for the Teachers Pension Plan will be as at December 31, 2017, with results available in The next valuation for the Municipal Pension Plan will be as at December 31, 2018, with results available in Employers participating in the plans record their pension expense as the amount of employer contributions made during the fiscal year (defined contribution pension plan accounting). This is because the plans record accrued liabilities and accrued assets for each plan in aggregate, resulting in no consistent and reliable basis for allocating the obligation, assets and cost to individual employers participating in the plans. Page 20 JUNE 2018

23 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 12 RESTRICTED ASSETS - ENDOWMENT FUNDS Donors have placed restrictions on their contributions to the endowment funds of the School District in which the original contribution cannot be spent. A large portion of the income earned on endowment funds are used for student scholarships Total Endowments 269, , , ,018 NOTE 13 INTERFUND TRANSFERS Interfund transfers between the operating, special purpose and capital funds for the year ended June 30, 2018, were as follows: Transfer from operating fund to capital fund of 11,480 for furniture & equipment Transfer from operating fund to capital fund of 133,458 for computer lease payment Transfer from special purpose fund to capital fund of 84,017 for computer hardware NOTE 14 RELATED PARTY TRANSACTIONS The School District is related through common ownership to all Province of British Columbia ministries, agencies, school districts, health authorities, colleges, universities, and crown corporations. Transactions with these entities, unless disclosed separately, are considered to be in the normal course of operations and are recorded at the exchange amount. NOTE 15 CONTRACTUAL OBLIGATIONS AND CONTINGENCIES The School District has entered into a number of multiple-year contracts for the delivery of services and the construction of tangible capital assets. These contractual obligations will become liabilities in the future when the terms of the contracts are met. Disclosure relates to the unperformed portion of the contracts. Contractual obligations Thereafter Ricoh Financial 71,057 71,057 71,057 71,057 65,136 NOTE 16 BUDGET FIGURES Budget figures included in the financial statements were approved by the Board through the adoption of an annual budget on June 01, Page 21 JUNE 2018

24 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 NOTE 17 EXPENSE BY OBJECT Salaries and benefits 24,270,360 22,223,512 Services and supplies 4,780,604 4,485,052 Amortization 2,504,455 3,768,123 31,555,419 30,476,687 NOTE 18 RESTRICTED SURPLUS Internally Restricted (appropriated) for: 2018 School Surplus carried forward 162,957 Additional Transportation fund 58,055 Technology Upgrades Maintenance requirements District Initiatives Staffing Leadership Initiatives/New Curriculum Transfer to Local Capital 75, ,000 50, ,000 75,000 2,553,078 Subtotal Internally Restricted Available for Future Operations 3,324,090 Special Purpose Fund 269,018 Capital Fund 3,035,305 Accumulated Surplus (Deficit) end of year 6,628,413 NOTE 19 ECONOMIC DEPENDENCE The operations of the School District are dependent on continued funding from the Ministry of Education and various governmental agencies to carry out its programs. These consolidated financial statements have been prepared on a going concern basis. NOTE 20 RISK MANAGEMENT The School District has exposure to the following risks from its use of financial instruments: credit risk, market risk and liquidity risk. The Board ensures that the School District has identified its risks and ensures that management monitors and controls them. a) Credit risk: Credit risk is the risk of financial loss to an institution if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Such risks arise principally from certain financial assets held consisting of cash, amounts receivable and investments. The School District is exposed to credit risk in the event of non-performance by a borrower. This risk is mitigated as most amounts receivable are due from the Province and are collectible. Page 22 JUNE 2018

25 SCHOOL DISTRICT No. 53 (Okanagan Similkameen) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2018 It is management s opinion that the School District is not exposed to significant credit risk associated with its cash deposits and investments as they are placed in recognized British Columbia institutions and the School District invests solely in GICs. b) Market risk: Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk is comprised of currency risk and interest rate risk. Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the foreign exchange rates. It is management s opinion that the School District is not exposed to significant currency risk, as amounts held and purchases made in foreign currency are insignificant. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the market interest rates. The School District is exposed to interest rate risk through its investments. It is management s opinion that the School District is not exposed to significant interest rate risk as they invest solely in GICs. c) Liquidity risk Liquidity risk is the risk that the School District will not be able to meet its financial obligations as they become due. The School District manages liquidity risk by continually monitoring actual and forecasted cash flows from operations and anticipated investing activities to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the School District s reputation. Risk Management and insurance services for all School Districts in British Columbia are provided by the Risk Management Branch of the Ministry of Finance. Page 23 JUNE 2018

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