STAPLES-MOTLEY SCHOOL DISTRICT INDEPENDENT SCHOOL DISTRICT NO FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2016

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1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2016

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4 TABLE OF CONTENTS (CONTINUED) JUNE 30, 2016 INTRODUCTORY SECTION 4 BOARD OF EDUCATION AND ADMINISTRATION 1 FINANCIAL SECTION 1 INDEPENDENT AUDITORS REPORT 2 REQUIRED SUPPLEMENTARY INFORMATION 5 MANAGEMENT S DISCUSSION AND ANALYSIS 5 BASIC FINANCIAL STATEMENTS 16 STATEMENT OF NET POSITION 16 STATEMENT OF ACTIVITIES 17 BALANCE SHEET GOVERNMENTAL FUNDS 18 RECONCILIATION OF THE BALANCE SHEET GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION GOVERNMENTAL ACTIVITIES 20 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS 21 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS TO STATEMENT OF ACTIVITIES GOVERNMENTAL ACTIVITIES 23 STATEMENT OF FIDUCIARY NET POSITION 24 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION 25 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL GENERAL FUND 26 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL FOOD SERVICE FUND 27 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL COMMUNITY SERVICE FUND 28 NOTES TO FINANCIAL STATEMENTS 29 REQUIRED SUPPLEMENTARY INFORMATION 67 SCHEDULE OF FUNDING PROGRESS FOR POSTEMPLOYMENT BENEFIT PLAN 67 SCHEDULE OF EMPLOYER CONTRIBUTIONS 68 SCHEDULE OF FUNDING PROGRESS FOR SUPPLEMENTAL BENEFIT PLAN 69 SCHEDULE OF THE DISTRICT S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY 70 SCHEDULE OF DISTRICT CONTRIBUTIONS 71

5 TABLE OF CONTENTS (CONTINUED) JUNE 30, 2016 FINANCIAL SECTION (CONTINUED) 72 SUPPLEMENTARY INFORMATION 72 UNIFORM FINANCIAL ACCOUNTING AND REPORTING STANDARDS COMPLIANCE TABLE 72 SINGLE AUDIT AND OTHER REQUIRED REPORTS 73 INDEPENDENT AUDITORS 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 73 INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE 75 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 77 INDEPENDENT AUDITORS REPORT ON MINNESOTA LEGAL COMPLIANCE 78 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 79 XX

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7 INTRODUCTORY SECTION

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9 BOARD OF EDUCATION AND ADMINISTRATION JUNE 30, 2016 BOARD OF EDUCATION NAME TERM ON BOARD EXPIRES BOARD POSITION Mary Freeman December 31, 2016 Chair Bryan Winkels December 31, 2018 Vice Chair Roy DiGiovanni December 31, 2016 Clerk Chad Longbella December 31, 2016 Treasurer David Hoemberg December 31, 2018 Member Bruce Lund December 31, 2016 Member ADMINISTRATION Mary Klamm Marci Lord Superintendent Business Manager District Offices Independent School District No Staples-Motley School District 202 Pleasant Ave NE Staples, MN (218) (1)

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11 FINANCIAL SECTION

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13 CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS REPORT Board of Education Independent School District No Staples-Motley Schools District Staples-Motley, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Independent School District No (the District), as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the 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. Auditors Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District 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. (2)

14 Board of Education Independent School District No 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 the District as of June 30, 2016, and the respective changes in financial position, and the respective budgetary comparison for the General Fund, Food Service Fund, and Community Service Fund, for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information The District s financial statements of the governmental activities, each major fund and the aggregate remaining fund information as of June 30, 2015 and for the year then ended were audited by other auditors, and they expressed an unmodified opinion on those audited financial statements in their report dated November 23, The summarized comparative information presented herein has been derived from those 2015 financial statements, and we express no opinion on it. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, the Schedule of Funding Progress for Postemployment Benefit Plan, the Schedule of Employer Contributions, the Schedule of the District s Proportionate Share of the Net Pension Liability, and the Schedule of District Contributions, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The Uniform Financial Accounting and Reporting Standards Compliance Table, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, cost Principles, and Audit Requirements for Federal Awards, is also presented for purposes of additional analysis and is not a required part of the basic financial statements. (3)

15 Board of Education Independent School District No Other Matters (Continued) Supplementary Information (Continued) The Uniform Financial Accounting and Reporting Standards Compliance Table, and the Schedule of Expenditures of Federal Awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 12, 2016, 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 result of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District s internal control over financial reporting and compliance. CliftonLarsonAllen LLP Brainerd, Minnesota December 12, 2016 (4)

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17 REQUIRED SUPPLEMENTARY INFORMATION

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19 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 This section of Staples-Motley School District Independent School District No s (the District) annual financial report presents our discussion and analysis of the District s financial performance during the fiscal year that ended on June 30, FINANCIAL HIGHLIGHTS Key financial highlights for the fiscal years include the following: District-wide accrual basis net position increased by approximately $292,000 on revenues of $16,234,639 compared to expenses of $15,942,949. Total General Fund revenues were approximately $14,233,000 as compared to $14,293,000 of expenditures. The fund balance of the General Fund increased by approximately $18,400 from the prior year representing a.6% increase in fund balance. OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of the annual report consists of four parts Independent Auditors Report, required supplementary information which includes the management s discussion and analysis (this section), the basic financial statements, and supplementary information. The basic financial statements include two kinds of statements that present different views of the District: The first two statements are District-wide financial statements that provide both shortterm 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 District-wide statements. o 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. o 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 to whom the resources belong. (5)

20 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED) The financial statements also include notes that explain some of the information in the statements and provide more detailed data. District-Wide Statements The District-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 Position includes all of the District s assets, deferred outflows of resources, liabilities, and deferred inflows of resources. 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. Two District-wide statements report the District s net position and how they have changed. Net position the difference between the District s assets, deferred outflows of resources, liabilities, and deferred inflows of resources is one way to measure the District s financial health or position. Over time, increases or decreases in the District s net position are an indicator of whether its financial position is improving or deteriorating, respectively. To assess the overall financial health of the District, you need to consider additional nonfinancial factors such as enrollment trends, changes in the District s property tax base, and the condition of school buildings and other facilities. In the District-wide financial statements, the District s activities are shown in one category: Governmental activities Most of the District s basic services are included here, such as regular and special education, transportation, administration, food services, and community education. Property taxes, state aids, and federal aids finance most of these activities. Fund Financial Statements The fund financial statements provide more detailed information about the District s funds focusing on its most significant or major funds not the District as a whole. 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 (e.g., repaying its long-term debts) or to show that it is properly using certain revenues (e.g., federal grants). (6)

21 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 OVERVIEW OF THE FINANCIAL STATEMENTS (CONTINUED) Fund Financial Statements (Continued) The District has two kinds 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 to 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 District-wide statements, we provide additional reconciling information within the governmental funds statements to explain the relationship (or differences) between the funds. Fiduciary funds The District is the trustee, or fiduciary, for assets that belong to others. 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. All of the District s fiduciary activities are reported in a separate statement of fiduciary net position. We exclude these activities from the District-wide financial statements because the District cannot use these assets to finance its operations. FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Net Position The District s combined net position was $3,544,573 on June 30, Table A-1 The District's Net Position Governmental Activities Percentage Change Current and Other Assets $ 8,095,186 $ 7,120, % Capital and Noncurrent Assets 11,302,189 11,281, Total Assets 19,397,375 18,401, Deferred Outflows of Resources 1,646,351 1,317,422 N/A Current Liabilities 3,340,472 1,792, Long-Term Liabilities 11,488,760 10,842, Total Liabilities 14,829,232 12,634, Deferred Inflows of Resources 2,669,921 3,831,323 (30.3) Net Position Net Investment in Capital Assets 9,068,873 8,719, Restricted 1,285, , Unrestricted (6,809,339) (6,385,076) 6.6 Total Net Position $ 3,544,573 $ 3,252, (7)

22 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (CONTINUED) Changes in Net Position The District s total revenues were $16,234,639 for the year ended June 30, Property taxes and state aid formula accounted for 63% of total revenue for the year. Another 29% came from other program-specific federal and state aid. Table A-2 Change in Net Position Revenues Program Revenues Charges for Services 1,019,264 Governmental Activities for the Total % Change $ $ 922, % Operating Grants and Contributions 4,405,068 2,912, Capital Grants and Contributions 352,043 37, General Revenues Property Taxes 1,726,915 2,091,280 (17.4) Unrestricted Federal and State Aid 8,497,987 10,412,804 (18.4) Investment Earnings 10,845 2, Other 222, , Total Revenues 16,234,639 16,529,500 (1.8) Expenses Administration 885, ,715 (4.7) District Support Services 517, , Regular Instruction 6,571,474 6,162, Vocational Education Instruction 350, , Special Education Instruction 2,546,849 2,315, Instructional Support Services 464, , Pupil Support Services 1,338,639 1,455,299 (8.0) Sites and Buildings 1,623,574 2,176,300 (25.4) Fiscal and Other Fixed Cost Programs 80,308 84,343 (4.8) Food Service 896, ,343 (4.9) Community Service 547, ,004 (0.8) Interest and Fiscal Charges on Long-Term Liabilities 119, , Total Expenses 15,942,949 15,926, Increase (Decrease) in Net Position 291, ,863 Net Position - Beginning of Year 3,252,883 2,650,020 Net Position - End of Year $ 3,544,573 $ 3,252,883 Revenues and expenses in fiscal year 2016 remained very consistent with the prior year, increasing net position by $291,690. (8)

23 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (CONTINUED) Changes in Net Position (Continued) The cost of all governmental activities this year was $15,942,949. Some of the cost was paid by the users of the District s programs ($1,019,264). The federal and state governments subsidized certain programs with grants and contributions ($4,757,111). The majority of the remaining District s costs ($10,166,574), however, were paid by District taxpayers and the taxpayers of our state through $10,224,902 in property taxes and state aid based on the statewide education aid formula. Figure A-1 Sources of District's Revenues for Fiscal 2016 Unrestricted Federal and State Aid 52% All Other 2% Charges for Services 6% Operating and Capital Grants 29% Property Taxes 11% Figure A-2 District Expenses for Fiscal 2016 Food & Community Services 9% Maintenance 10% Other 1% Administrative 6% Student Support Services 15% Instruction Related 59% (9)

24 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (CONTINUED) Changes in Net Position (Continued) Table A-3 Cost and Net Cost of Services Total Cost of Services Net Cost of Services Change Change Administration $ 885,477 $ 928,715 (4.7)% $ 879,303 $ 928,695 (5.3)% District Support Services 517, , , ,831 (30.5) Regular Instruction 6,571,474 6,162, ,603,274 5,301,728 (13.2) Vocational Education Instruction 350, , , , Special Education Instruction 2,546,849 2,315, , , Instructional Support Services 464, , , ,168 (2.4) Pupil Support Services 1,338,639 1,455,299 (8.0) 1,098,793 1,370,667 (19.8) Sites and Buildings 1,623,574 2,176,300 (25.4) 1,283,390 2,083,965 (38.4) Fiscal and Other Fixed Cost Programs 80,308 84,343 (4.8) 28,629 84,343 (66.1) Food Service 896, ,343 (4.9) 22,585 56,944 (60.3) Community Service 547, ,004 (0.8) 127, ,485 (44.9) Interest and Fiscal Charges on Long-Term Liabilities 119, , , , Total $ 15,942,949 $ 15,926, $ 10,166,574 $ 12,054,032 (15.7) FINANCIAL ANALYSIS OF THE DISTRICT S FUNDS The 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 a combined fund balance of $4,574,178. Revenues for the District s governmental funds were $16,130,592, while total expenditures were $16,165,447. GENERAL FUND The General Fund includes the primary operations of the District in providing educational services to students from kindergarten through grade 12 including pupil transportation activities and capital outlay projects. The following graph shows the trend in student counts over the past ten years: Table A-4 Student Enrollment (Average Daily Membership) Table A Pre-K HCP K Reg K Elementary Secondary Total Students for Aid 1,396 1,415 1,352 1,276 1,287 1,257 1,170 1,182 1,193 1,170 Percent Change -2.24% 1.36% -4.45% -5.62% 0.86% -2.33% -6.92% 1.03% 0.93% -1.93% (10)

25 GENERAL FUND (CONTINUED) MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 Student Enrollment (Average Daily Membership) 1,500 1,400 1,300 1,200 1,100 1, Table A-5 STAPLES - MOTLEY PUBLIC SCHOOLS Student Enrollment (in ADM's) Secondary Elementary The following schedule presents a summary of General Fund Revenues: Table A-6 General Fund Revenues Year Ended Change Amount Percent June 30, June 30, Increase Increase Fund (Decrease) (Decrease) Local Sources Property Taxes $ 1,163,186 $ 1,542,673 $ (379,487) (24.6)% Earnings on Investments 9,644 2,651 6, Other 722, ,276 16, State Sources 11,741,756 11,779,477 (37,721) (0.3) Federal Sources 596, ,060 (86,602) (12.7) Total General Fund Revenue $ 14,233,373 $ 14,714,137 $ (480,764) (3.3) Total General Fund revenue decreased by $480,764 or 3.3% from the prior year as shown above. The decrease in property taxes is due to a decrease in the levy. (11)

26 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 GENERAL FUND (CONTINUED) The following schedule presents a summary of General Fund Expenditures: Table A-7 General Fund Expenditures Year Ended Change Amount of Percent June 30, June 30, Increase Increase (Decrease) (Decrease) Salaries $ 7,748,028 $ 7,879,746 $ (131,718) (1.7)% Employee Benefits 2,503,246 2,491,929 11, Purchased Services 2,325,295 2,406,150 (80,855) (3.4) Supplies and Materials 622, ,876 (116,470) (15.8) Capital Expenditures 862, , , Other Expenditures 18,562 19,981 (1,419) (7.1) Debt Service 212, ,862 11, Total Expenditures $ 14,293,231 $ 14,293,328 $ (97) (0.0) During the current year, the District increased capital expenditures while offsetting this increase with a decrease in supplies and materials and salary expenditures. General Fund Budgetary Highlights Over the course of the year, the District revised the annual operating budget two times. These budget amendments fall into two categories: Generally speaking, the first budget amendment concentrates on students and staff. Actual student counts from the beginning of the school year are tracked and matched against the student enrollment estimates used to project many of the revenue components in the preliminary budget revenue categories. Actual staffing and respective assignments are verified for accuracy against the projected staffing costs used to establish the preliminary budget expense for salaries and benefits. Because it occurs further into the fiscal year, the second amendment of the budget has a heavier concentration on the review and tracking of both actual revenue and expense categories toward the annual budgeted amounts. In the case of either budget amendments, depending on how actual revenue and expense items are tracking against the preliminary budget amounts, adjustments are proposed to specific categories for review and approval by the school board. (12)

27 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 GENERAL FUND (CONTINUED) General Fund Budgetary Highlights (Continued) Actual results differed from budget as follows: While the District s final budget for the General Fund anticipated that expenditures and other financing uses would exceed revenues and other financing sources by $346,625, actual revenues and other financing sources exceeded actual expenditures and other financing uses by $18,433. Overall, actual revenues were about $96,333 more than budgeted, representing less than a one percent variation from budget to actual. The actual expenditures for current year were $238,137 less than budgeted, which represents less than two percent of budgeted expenditures. The General Fund s unassigned fund balance increased by $77,040. FOOD SERVICE FUND Expenditures exceeded revenues in the Food Service Fund by $22,471. Most of the decrease in fund balance came from declining participation and higher food costs. COMMUNITY SERVICE FUND Expenditures exceeded revenues in the Community Service Fund by $1,218. The slight decrease in fund balance is due to the increase in revenues and decrease in expenditures compared to the significant decreases in past years. CONSTRUCTION PROJECTS AND DEBT SERVICE An annual levy is made to fund the bond payments of approximately $320,000 in principal and $124,000 of interest. (13)

28 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 CAPITAL ASSETS As shown in the table below, the District has invested approximately $24,244,000 in a broad range of capital assets, including school buildings, athletic facilities, computer and audio-visual equipment, and administrative offices. More detailed information about capital assets can be found in Note 4 to the financial statements. Total depreciation expense for the year was approximately $721,000. Table A-8 The District's Capital Assets Percentage Change Land $ 845,239 $ 845,239 - % Construction-in-Progress 31,375 6, Land Improvements 763, , Buildings and Improvements 18,951,640 18,615, Equipment 3,651,543 3,474, Less: Accumulated Depreciation (12,941,458) (12,329,606) 5.0 Total $ 11,302,189 $ 11,281, LONG-TERM LIABILITIES At year-end, the District had $2,810,000 in general obligation bonds outstanding and about $971,000 in capital leases as shown in Note 5 to the financial statements. Table A-9 The District's Long-Term Liabilities Percentage Change General Obligation Bonds $ 2,810,000 $ 2,030, % Net Bond Premium and Discount 32, Obligations Under Capital Leases 970,699 1,112,184 (12.7) Total $ 3,813,316 $ 3,142, (14)

29 MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED JUNE 30, 2016 FACTORS BEARING ON THE DISTRICT S FUTURE The District has been experiencing an overall reduction in the number of students over the last number of years. Since the school year, when the District served 1,765 students according to the fall (October 1) enrollment, the student count has decreased to 1,170 students served as recorded by enrollment data for fiscal year This is a decrease over fiscal year when the student enrollment was 1,193 students. With the exception of the board and voter-approved referendum (approved June, 2013 and renewed November, 2013 for 10 years, respectively), the District is dependent on the State of Minnesota for its revenue authority. Below are some of the changes made in 2016 by the Minnesota Legislature which have a positive impact to the District in future years: General education basic formula allowances increased by 2% for fiscal year Fiscal year 2017 establishes long-term facilities maintenance revenue (combines health and safety, deferred maintenance and disable access revenue) which provides the greater of $193 per pupil or the amount the District would have received in that year under the old law. Per pupil amount will increase to $292 and $380, respectively in fiscal year 2018 and Funding for English language learners was extended from six to seven years. New appropriation for Indian Education formula aid. Increased appropriation for school readiness and early learning scholarships. The District will strive to maintain its long-standing commitment to academic excellence and educational opportunity for students with a framework of financial fiduciary responsibility. CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, 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 Business Office, Independent School District No. 2170, 202 Pleasant Avenue NE, Staples, Minnesota, or by telephone at (218) (15)

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31 BASIC FINANCIAL STATEMENTS

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33 STATEMENT OF NET POSITION JUNE 30, 2016 (WITH SUMMARIZED FINANCIAL INFORMATION AS OF JUNE 30, 2015) Governmental Activities ASSETS Cash and Investments $ 3,951,241 $ 4,155,808 Cash and Investments Restricted 1,100,000 - Receivables Current Taxes 785, ,081 Delinquent Taxes 70,296 76,944 Accounts and Interest Receivable 44,102 47,332 Due from Other Governments 1,663,140 1,603,524 Other 100,520 Inventories 24,307 30,261 Prepaid Items 36,741 36,435 Net Prepaid OPEB Obligation 319, ,735 Capital Assets Land 845, ,239 Construction-in-Progress 31,375 6,120 Other Capital Assets, Net of Depreciation 10,425,575 10,430,235 Total Assets 19,397,375 18,401,714 DEFERRED OUTFLOWS OF RESOURCES Pension Contributions 1,646,351 1,317,422 LIABILITIES Salaries and Payroll Deductions Payable 1,273,531 1,323,963 Accounts and Contracts Payable 24, ,337 Accrued Interest 34,304 39,387 Due to Other Governmental Units 209, ,249 Unearned Revenue - Charges for Services 82,285 87,653 Net Pension Liability 8,959,995 7,298,649 Long-Term Liabilities Portion Due Within One Year 1,716, ,269 Portion Due in More Than One Year 2,528,765 2,988,423 Total Liabilities 14,829,232 12,634,930 DEFERRED INFLOWS OF RESOURCES Pension Related 1,128,960 2,354,650 Property Taxes Levied for Subsequent Year 1,540,961 1,476,673 Total Deferred Inflows of Resources 2,669,921 3,831,323 NET POSITION Net Investment in Capital Assets 9,068,873 8,719,411 Restricted for: General Fund Operating Capital Purposes 356, ,828 General Fund State-Mandated Reserves 314, ,714 Food Service 73,068 70,115 Community Service 71,981 - Debt Service 149, ,891 Payment of Benefits 319,721 - Unrestricted (6,809,339) (6,385,076) Total Net Position $ 3,544,573 $ 3,252,883 See accompanying Notes to Financial Statements. (16)

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35 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2016 (WITH SUMMARIZED FINANCIAL INFORMATION FOR THE YEAR ENDED JUNE 30, 2015) Net (Expense) Net (Expense) Revenue and Revenue and Changes in Changes in Program Revenues Net Position Net Position Operating Capital Total Total Charges for Grants and Grants and Governmental Governmental Functions Expenses Services Contributions Contributions Activities Activities Governmental Activities Administration $ 885,477 $ 5,000 $ - $ 1,174 $ (879,303) $ (928,695) District Support Services 517, ,804 32,672 (343,191) (493,831) Regular Instruction 6,571, ,063 1,725,853 9,284 (4,603,274) (5,301,728) Vocational Education Instruction 350,933 43,494 12,780 - (294,659) (279,813) Special Education Instruction 2,546,849 99,396 1,457,480 - (989,973) (732,421) Instructional Support Services 464,590-76,174 12,461 (375,955) (385,168) Pupil Support Services 1,338,639 65, ,677 14,633 (1,098,793) (1,427,611) Sites and Buildings 1,623,574 58, ,819 (1,283,390) (2,083,965) Fiscal and Other Fixed Cost Programs 80,308-51,679 - (28,629) (189,315) Food Service 896, , ,278 - (22,585) - Community Service 547, , ,343 - (127,593) (231,485) Interest and Fiscal Charges on Long-Term Liabilities 119, (119,229) - Total School District $ 15,942,949 $ 1,019,264 $ 4,405,068 $ 352,043 (10,166,574) (12,054,032) General Revenues Property Taxes Levied for: General Purposes 1,156,538 1,537,909 Community Service 102, ,543 Debt Service 468, ,828 State Aid Not Restricted to Specific Purposes 8,497,987 10,412,804 Gain on Sale of Assets 5,016 1,654 Earnings on Investments 10,845 2,890 Miscellaneous 217, ,267 Total General Revenues 10,458,264 12,656,895 Change in Net Position 291, ,863 Net Position - Beginning of Year 3,252,883 2,650,020 Net Position - End of Year $ 3,544,573 $ 3,252,883 See accompanying Notes to Financial Statements. (17)

36 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2016 (WITH SUMMARIZED FINANCIAL INFORMATION AS OF JUNE 30, 2015) Major Funds Food Community General Service Service ASSETS Cash and Investments $ 3,537,825 $ 40,113 $ 31,468 Cash and Investments Restricted Receivables Current Property Taxes 565,597-57,156 Delinquent Property Taxes 44,439-2,920 Accounts and Interest Receivable 33, ,848 Due from Other Minnesota School Districts 90, ,766 Due from Minnesota Department of Education 1,058,126 8,166 9,414 Due from Federal through Minnesota Department of Education 455,030 60,645 - Due from Other Governmental Units 52,644-16,575 Prepaid Items 36, Inventory 3,385 20,922 - Total Assets $ 5,877,801 $ 130,840 $ 137,147 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES Liabilities Salaries and Payroll Deductions Payable $ 1,207,408 $ 43,460 $ 22,663 Accounts and Contracts Payable 22, ,132 Due to Other Minnesota School Districts 190, Due to Other Governmental Units 18, Unearned Revenue - Charges for Services 36,229 12,784 33,272 Total Liabilities 1,474,169 57,772 58,089 Deferred Inflows of Resources Property Taxes Levied for Subsequent Year 1,072, ,851 Unavailable Revenue - Delinquent Taxes 44,439-2,920 Total Deferred Inflows of Resources 1,117, ,771 Fund Balance Nonspendable: Prepaid Items 36, Inventory 3,385 20,922 - Restricted: Deferred Maintenance 220, Operating Capital 356, Learning and Development 14, Gifted and Talented 24, Basic Skills Programs 11, Safe Schools - Crime Early Childhood and Family Educations Programs ,481 Staff Development 42, Other Restricted - 52,146 - Committed: Separation/Retirement Benefits 370, Other Committed 4, Assigned: Other Assigned 784, Unassigned 1,415,470 - (91,194) Total Fund Balances 3,286,322 73,068 (45,713) Total Liabilities, Deferred Inflows of Resources, and Fund Balances $ 5,877,801 $ 130,840 $ 137,147 See accompanying Notes to Financial Statements. (18)

37 Total Governmental Debt Funds Service $ 341,835 $ 3,951,241 $ 4,155,808 1,100,000 1,100, , , ,081 22,937 70,296 76,944-44,102 47, ,520 93,390 2,540 1,078,246 1,435, ,675 39,935-69,219 34,280-36,741 36,435-24,307 30,261 $ 1,629,677 $ 7,775,465 $ 6,703,385 $ - $ 1,273,531 $ 1,323,963-24, , , ,701-19,145 19,548-82,285 87,653-1,590,030 1,753, ,239 1,540,961 1,476,673 22,937 70,296 76, ,176 1,611,257 1,553,617-36,741 36,435-24,307 30, , , , ,828-14,571 1,519-24,535 27,588-11,503 4, ,481 37,323-42,577 39,500 1,260,501 1,312, , , ,858-4,062 86, , ,568-1,324,276 1,231,280 1,260,501 4,574,178 3,396,566 $ 1,629,677 $ 7,775,465 $ 6,703,385 (19)

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39 RECONCILIATION OF THE BALANCE SHEET GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION GOVERNMENTAL ACTIVITIES JUNE 30, 2016 (WITH SUMMARIZED FINANCIAL INFORMATION AS OF JUNE 30, 2015) Total Fund Balance for Governmental Funds $ 4,574,178 $ 3,396,566 Total net position reported for governmental activities in the Statement of Net Position is different because: Capital assets used in governmental funds are not financial resources and, therefore, are not reported in the funds. Those assets consist of: Land 845, ,239 Construction-in-Progress 31,375 6,120 Land Improvements, Net of Accumulated Depreciation 194, ,543 Buildings and Improvements, Net of Accumulated Depreciation 8,894,658 9,055,697 Equipment, Net of Accumulated Depreciation 1,336,529 1,259,995 OPEB trust assets net of the OPEB liability recognized to date, are not current financial resources and, therefore, are not reported at fund level. 319, ,735 The District's Net Pension Liability and related deferred inflows and outflows are recorded only on the Statement of Net Position. Balances at year-end are: Net Pension Liability (8,959,995) (7,298,649) Deferred Inflows of Resources - Pension Related (1,128,960) (2,354,650) Deferred Outflows of Resources - Pension Contributions 1,646,351 1,317,422 Some of the District's property taxes will be collected after year-end, but are not available soon enough to pay for the current-period's expenditures and, therefore, are reported as deferred inflows of resources in the funds. 70,296 76,944 Interest on long-term debt is not accrued in governmental funds, but rather is recognized as an expenditure when due. (34,304) (39,387) Long-term liabilities that pertain to governmental funds, including bonds payable, are not due and payable in the current period and, therefore, are not reported as fund liabilities. All liabilities - both current and long-term - are reported in the Statement of Net Position. Balances at year-end are: Bonds Payable (2,810,000) (2,030,000) Unamortized Premiums (32,617) - Obligations Under Capital Leases (970,699) (1,112,184) Severance Benefits and Compensated Absences (86,289) - Severance Payable (345,298) (401,508) Total Net Position of Governmental Activities $ 3,544,573 $ 3,252,883 See accompanying Notes to Financial Statements. (20)

40 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2016 (WITH SUMMARIZED FINANCIAL INFORMATION FOR THE YEAR ENDED JUNE 30, 2015) Major Funds REVENUES Local Food Community General Service Service Property Taxes $ 1,163,186 $ - $ 102,243 Earnings on Investments 9, Other 722, , ,176 State Sources 11,741,756 75, ,906 Federal Sources 596, ,027 - Total Revenues 14,233, , ,384 EXPENDITURES Current Administration 858, District Support Services 479, Regular Instruction 5,804, Vocational Education Instruction 340, Special Education Instruction 2,508, Instructional Support Services 451, Pupil Support Services 1,202, Sites and Buildings 1,492, Fiscal and Other Fixed Cost Programs 80, Food Service - 876,242 - Community Service ,082 Capital Outlay 862,976 20,501 2,079 Debt Service Principal 161, Interest and Fiscal Charges 51, Total Expenditures 14,293, , ,161 Excess (Deficiency) of Revenues Over (Under) Expenditures (59,858) (22,471) (2,777) OTHER FINANCING SOURCES (USES) Transfers In - - 1,559 Transfers Out (1,559) - - Refunding Bond Premium Sale of Refunding Bonds Insurance Recovery Proceeds 51, Capital Lease Proceeds 20, Sale of Capital Assets 8, Total Other Financing Sources (Uses) 78,291-1,559 NET CHANGE IN FUND BALANCE 18,433 (22,471) (1,218) Fund Balance - Beginning of Year 3,267,889 95,539 (44,495) FUND BALANCE - END OF YEAR $ 3,286,322 $ 73,068 $ (45,713) See accompanying Notes to Financial Statements. (21)

41 Total Governmental Debt Funds Service $ 468,134 $ 1,733,563 $ 2,101,991 1,028 10,845 2,890-1,283,694 1,149,518 25,401 11,948,005 11,972,892-1,154,485 1,283, ,563 16,130,592 16,510, , , , ,297-5,804,271 6,030, , ,830-2,508,819 2,397, , ,149-1,202,091 1,318,720-1,492,050 1,573,094-80,308 84, , , , , , , , , , , , , ,312 16,165,447 16,212,178 50,251 (34,855) 298,388-1,559 71,104 - (1,559) (71,104) 32,617 32,617-1,100,000 1,100, , , ,171 1,995 1,132,617 1,212,467 1,995 1,182,868 1,177, ,383 77,633 3,396,566 3,096,183 $ 1,260,501 $ 4,574,178 $ 3,396,566 (22)

42 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS TO STATEMENT OF ACTIVITIES GOVERNMENTAL ACTIVITIES YEAR ENDED JUNE 30, 2016 (WITH SUMMARIZED FINANCIAL INFORMATION FOR THE YEAR ENDED JUNE 30, 2015) Net Change in Fund Balance-Total Governmental Funds $ 1,177,612 $ 300,383 Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, assets are capitalized and the cost is allocated over their estimated useful lives and reported as depreciation expense. Capital Outlays 744, ,956 Net Depreciated Value of Assets Sold (3,155) (340) Depreciation Expense (720,858) (722,762) Some capital asset additions are financed through capital leases. In governmental funds, a capital lease arrangement is considered a source of financing, but in the Statement of Net Position, the lease obligation is reported as a liability. Repayment of capital lease principal is an expenditure in the governmental funds, but repayment reduces the lease obligation in the Statement of Net Position. Capital Lease Proceeds (20,000) - Change in Accrued Interest Expense - Capital Leases 5,083 5,921 Principal Payments - Capital Leases 161,485 - Payment of OPEB benefits are recognized as expenditures at the fund level while the change in the net prepaid OPEB obligation is recognized in the Statement of Net Position. Pension expenditures on the governmental funds are measured by current year employee contributions. Pension expenses on the Statement of Activities are measured by the change in Net Pension Liability and the related deferred inflows and outflows of resources. (97,014) 6,643 (106,727) 209,865 The governmental funds report bond proceeds as financing sources, while repayment of bond principal is reported as an expenditure. In the Statement of Net Position, however, issuing debt increases longterm liabilities and does not affect the Statement of Activities and repayment of principal reduces the liability. Also, governmental funds report the effect of premiums when debt is first issued, whereas these amounts are amortized in the statement of activities. Interest is recognized as an expenditure in the governmental funds when it is due. In the Statement of Activities, however, interest expense is recognized as it accrues, regardless of when it is due. The net effect of these differences in the treatment of general obligation bonds and related items is as follows: General Obligation Bond Proceeds (1,100,000) - Net Bond (Premium) Discount Amortization (32,617) - Repayment of Bond Principal 320, ,849 Delinquent property taxes receivable will be collected this year, but are not available soon enough to pay for the current-period s expenditures and, therefore, are unavailable in the funds. In the Statement of Activities, severance benefits and compensated absences are measured on the accrual basis. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). (6,648) (652) (30,079) - Change in Net Position of Governmental Activities $ 291,690 $ 602,863 See accompanying Notes to Financial Statements. (23)

43 STATEMENT OF FIDUCIARY NET POSITION JUNE 30, 2016 (WITH SUMMARIZED FINANCIAL INFORMATION AS OF JUNE 30, 2015) Other Post-Employment Benefits Trust Fund ASSETS Cash and Investments $ 855,944 $ 934,473 NET POSITION Held in Trust $ 855,944 $ 934,473 See accompanying Notes to Financial Statements. (24)

44 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION YEAR ENDED JUNE 30, 2016 (WITH SUMMARIZED FINANCIAL INFORMATION FOR THE YEAR ENDED JUNE 30, 2015) Other Post-Employment Benefits Trust Fund ADDITIONS Investment Earnings $ 42,036 $ 35,525 DEDUCTIONS OPEB Health Insurance Payments 120, ,558 CHANGE IN NET POSITION (78,530) (90,033) Net Position - Beginning of Year 934,474 1,024,507 NET POSITION - END OF YEAR $ 855,944 $ 934,474 See accompanying Notes to Financial Statements. (25)

45 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2016 REVENUES Local Sources Over (Under) Budgeted Amounts Actual Final Original Final Amounts Budget Property Taxes $ 1,265,210 $ 1,272,211 $ 1,163,186 $ (109,025) Earnings on Investments 500 2,500 9,644 7,144 Other 536, , ,329 30,915 State Sources 11,539,634 11,574,842 11,741, ,914 Federal Sources 588, , , Total Revenues 13,930,094 14,137,040 14,233,373 96,333 EXPENDITURES Current Administration 872, , , District Support Services 517, , ,388 (6,907) Elementary and Secondary Regular Instruction 5,644,046 5,804,249 5,804, Vocational Education Instruction 353, , ,301 (17,363) Special Education Instruction 2,412,635 2,489,883 2,508,819 18,936 Instructional Support Services 414, , ,807 (30,105) Pupil Support Services 1,312,590 1,235,717 1,202,091 (33,626) Sites and Buildings 1,441,663 1,576,169 1,492,050 (84,119) Fiscal and Other Fixed Cost Programs 100,000 85,372 80,308 (5,064) Capital Outlay 767, , ,976 (80,844) Debt Service Principal 158, , ,485 (1) Interest and Fiscal Charges 49,822 51,234 51,233 (1) Total Expenditures 14,045,287 14,531,368 14,293,231 (238,137) Excess (Deficiency) of Revenues Over (Under) Expenditures (115,193) (394,328) (59,858) 334,470 OTHER FINANCING SOURCES (USES) Transfers Out (52,494) (3,978) (1,559) 2,419 Insurance Recovery Proceeds - 51,681 51,679 (2) Capital Lease Proceeds ,000 20,000 Sale of Capital Assets - - 8,171 8,171 Total Other Financing Sources (Uses) (52,494) 47,703 78,291 30,588 NET CHANGE IN FUND BALANCE $ (167,687) $ (346,625) 18,433 $ 365,058 FUND BALANCE Beginning of Year 3,267,889 END OF YEAR $ 3,286,322 See accompanying Notes to Financial Statements. (26)

46 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL FOOD SERVICE FUND YEAR ENDED JUNE 30, 2016 REVENUES Local Sources Over (Under) Budgeted Amounts Actual Final Original Final Amounts Budget Earnings on Investments $ - $ - $ 114 $ 114 Other - Primarily Meal Sales 214, , ,189 (9,545) State Sources 63,000 63,000 75,942 12,942 Federal Sources 573, , ,027 (18,052) Total Revenues 850, , ,272 (14,541) EXPENDITURES Current Food Service 904, , ,242 (27,898) Capital Outlay - 20,501 20,501 - Total Expenses 904, , ,743 (27,898) NET CHANGE IN FUND BALANCE $ (54,320) $ (35,828) (22,471) $ 13,357 FUND BALANCE Beginning of Year 95,539 END OF YEAR $ 73,068 See accompanying Notes to Financial Statements. (27)

47 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL COMMUNITY SERVICE FUND YEAR ENDED JUNE 30, 2016 REVENUES Local Sources Over (Under) Budgeted Amounts Actual Final Original Final Amounts Budget Property Taxes $ 102,053 $ 102,053 $ 102,243 $ 190 Earnings on Investments Other - Primarily Tuition and Fees 186, , ,176 13,778 State Sources 96, , ,906 (4,467) Total Revenues 385, , ,384 9,560 EXPENDITURES Current Community Service 457, , ,082 (9,867) Capital Outlay 3,200 3,729 2,079 (1,650) Total Expenditures 460, , ,161 (11,517) Excess (Deficiency) of Revenues Over (Under) Expenditures (75,307) (23,854) (2,777) 21,077 OTHER FINANCING SOURCES Transfer In 52,494 1,559 1,559 - NET CHANGE IN FUND BALANCE $ (22,813) $ (22,295) (1,218) $ 21,077 FUND BALANCE Beginning of Year (44,495) END OF YEAR $ (45,713) See accompanying Notes to Financial Statements. (28)

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49 NOTES TO FINANCIAL STATEMENTS

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51 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Presentation The financial statements of Independent School District No, 2170 (the District) have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. B. Financial Reporting Entity The District is an instrumentality of the state of Minnesota established to function as an educational institution. The elected Board of Education (Board) is responsible for legislative and fiscal control of the District. A Superintendent is appointed by the Board and is responsible for administrative control of the District. U.S. Generally Accepted Accounting Principles (GAAP) require that the District's financial statements include all funds, departments, agencies, boards, commissions, and other organizations which are not legally separated from the District. In addition, the District's financial statements are to include all component units - entities for which the District is financially accountable. Financial accountability includes such aspects as appointing a voting majority of the organization's governing body, significantly influencing the programs, projects, activities or level of services performed or provided by the organization or receiving specific financial benefits from, or imposing specific financial burden on, the organization. These financial statements include all funds of the District. There are no other entities for which the District is financially accountable. The student activity accounts of the District are under the Board s control; therefore, activity is included with the General Fund activity. (29)