REED UNION SCHOOL DISTRICT COUNTY OF MARIN TIBURON, CALIFORNIA AUDIT REPORT JUNE 30, 2011

Transcription

1 COUNTY OF MARIN TIBURON, CALIFORNIA AUDIT REPORT JUNE 30, 2011

2

3 JUNE 30, TABLE OF CONTENTS FINANCIAL SECTION Independent Auditors Report Management's Discussion and Analysis (Unaudited) 1 3 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets Statement of Activities Fund Financial Statements: Balance Sheet - Governmental Funds Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities Statement of Net Assets - Fiduciary Funds Notes to the Basic Financial Statements SUPPLEMENTARY INFORMATION SECTION Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General Fund 45 Combining Statements: Combining Balance Sheet - Non-Major Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Non-Major Governmental Funds 46 47

4 JUNE 30, 2011 TABLE OF CONTENTS (CONCLUDED) SUPPLEMENTARY INFORMATION SECTION (CONCLUDED> Schedule of Funding Progress Organization/Board of Trustees/Administration Schedule of Average Daily Attendance Schedule of Instructional Time Schedule of Expenditures of Federal Awards Reconciliation of Annual Financial and Budget Report with Audited Financial Statements Schedule of Financial Trends and Analysis Notes to Supplementary Information OTHER INDEPENDENT AUDITOR'S REPORTS SECTION Independent Auditor's Report on State Compliance Independent Auditor's Report on Internal ContrOl over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards FINDINGS AND QUESTIONED COSTS SECTION Schedule of Findings and Questioned Costs: Section I Sec1ion II Section III Summary of Auditor's Results Financial S1atement Findings State Award Findings and Questioned Costs Status of Prior Year Recommendations 64 ii

5 FINANCIAL SECTION

6

7 STEPHEN ROA TCH ACCOUNTANCY CORPORATION Certified Public Accountants INDEPENDENT AUDITOR'S REPORT Board of Trustees Reed Union School District Tiburon, California We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Reed Union School District, as of and for the year ended June 30, 2011, which collectively comprise the District's basic financia l statements as listed in the table of contents. These financial statements are the responsibility of Reed Union School District's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. The financial statements referred to above include only the primary government of Reed Union School District, which consists of all funds that comprise the District's legal entity. The financial statements do not include financial data of the Foundation for Reed Schools, Reed Union School District's legally separate component unit, which accounting principles generally accepted in the United States of America require to be reported with the financial data of the District's primary government. As a result, the primary government financial statements do not purport to, and do not, present fairly the financial position of the reporting entity of Reed Union School District, as of June 30, 2011, and the changes in its financial position, for the year then ended in conformity with accounting principles generally accepted in the United States of America. 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 Reed Union School District, as of June 30, 2011, and the respective changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America, In accordance with Government Auditing Standards, we have also issued our report dated December 5, 2011 on our consideration of Reed Union School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or an compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. P.o. Box Folsom, CA Phone (916) 961> Fax (916) 961>-3815

8 Board of Trustees Reed Union School District Page Two Management's discussion and analysis on pages 3 through 13, the budgetary comparison information on page 45, and the schedule of funding progress on page 48 are not required parts of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Reed Union School District's basic financial statements. The combining statements, supplementary schedules listed in the table of contents, and the Schedule of Expenditures of Federal Awards, which is presented as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, are presented for purposes of additional analysis, and are not required parts of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relalion to the basic financial statements taken as a whole. December 5, 2011 STEPHEN ROATCH ACCOUNTANCY CORPORATION Certified Public Accountants 2

9 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE FISCAL YEAR ENDED JUNE 30, 2011 (PREPARED BY DISTRICT MANAGEMENT) This section of Reed Union School District's annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, Please read it in conjunction with the Independent Auditor's Report presented on pages 1 and 2, and the District's financial statements, which immediately follow this section. USING THIS ANNUAL REPORT Th is annual report consists of a series of financial statements. The Statement of Net Assets and Statement of Activities, presented on pages 14 and 15, provide information about the activities of the District as a whole and present a longer-term view of the District's finances. The fund financial statements for governmental activities, presented on pages 16 through 22, provide information about how District services were financed in the short-term, and how much remains for future spending. Fund financial statements also report the District's operations in more detail than the government-wide statements by providing information about the District's most significant funds. The remaining statement provides financial information about activities for which the District acts solely as a trustee or agent for the benefit of those outside the District. FINANCIAL HIGHLIGHTS» The overall financial status of the District improved during the year as total net assets of the District increased 6.5%.» On the Statement of Activities, total current year revenues exceeded total current year expenses by $867,186.» On the Statement of Revenues, Expenditures, and Changes in Fund Balances, total current year revenues and other financing sources exceeded current year expenditures and other financing uses by $1,157,353.» Capital assets, net of depreciation, decreased $1,498,895 due to the current year recognition of $1,498,895 of depreciation expense.» Tolal long-ierm liabilities decreased $1,173,347 due primarily 10 the current year reduction of the District's obligation for general obligation bonds.» The District's P-2 average daily attendance (ADA) increased from 1,193 ADA in fiscal year , up to 1,273 ADA in fiscal year , an increase of 6.7%.» During fiscal year , the District's General Fund produced an operating surplus of $923,836, and reported a $4,004,232 increase in its available reserves due to a change in financial statement presentation resulting from the implementation of GASB Statement No. 54. >- The District maintains sufficient reserves for a district its size. It meets the state required minimum reserve for economic uncertainty of 3% of general fund expenditures, transfers out, and other uses (total outgo). During fiscal year , General Fund expenditures and other financing uses totaled $15,286,430. At June 30, 2011, the District has available reserves of $4,483,753 in the General Fund, which represents a reserve of 29.33%. 3

10 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE FISCAL YEAR ENDED JUNE 30, 2011 (PREPARED BY DISTRICT MANAGEMENT) THE FINANCIAL REPORT The full annual financial report consists of three separate parts, including the basic financial statements, supplementary information, and management's discussion and analysis. The three sections together provide a comprehensive overview of the District. The basic financial statements are comprised of two kinds of statements that present financial information from different perspectives, government-wide and funds. ~ Government-wide financial statements, which comprise the first two statements, provide both short-term and long-term information about the District's overall financial position.» Individual parts of the District, which are reported as fund financial statements comprise the remaining statements. :. Basic services funding is described in the governmental funds statements. These statements include short-term financing and identify the balance remaining for future spending. :. Short and long-term financial information about the activities of the District Ihat operate like businesses are provided in the proprietary fund statements. :. Financial relationships, for which the District acts as an agent or trustee for the benefit of others to whom the resources belong, are presented in the fiduciary funds statements. Notes to the financials, which are included in the financial statements, provide more detailed data and explain some of the information in the statements. The required supplementary information provides further explanations and provides additional support for the financial statements. A comparison of the District's budget for the year is included. Reporting the District as a Whole The District as a whole is reported in the Government-wide statements and uses accounting methods similar to those used by companies in the private sector. All of the District's assets and liabilities are included in the Statement of Net Assets. The Statement of Activities reports all of the current year's revenues and expenses regardless of when cash is received or paid. The District's financial health or position (net assets) can be measured by the difference between the District's assets and liabilities. :l> :l> Increases or decreases in the net assets of the District over time are indicators of whether its financial position is improving or deteriorating, respectively. Additional non-financial factors such as the condition of school buildings and other facilities, and changes in the property tax base of the District need to be considered in assessing the overall health of the District. 4

11 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE FISCAL YEAR ENDED JUNE 30, 2011 (PREPARED BY DISTRICT MANAGEMENT) THE FINANCIAL REPORT (CONCLUDED) Reporting the District as a Whole (Concluded) In the Statement of Net Assets and the Statement of Activities, we divide the District into two kinds of activities: Governmental Activities: The basic services provided by the District, such as reg ular education and administration, are included here, and are primarily financed by property taxes. Non-basic services, such as child nutrition are also included here, but are financed by a combination of local revenues and state programs. Business-type Activities: The Districl does nol provide any services that should be included in this category. Reporting the District's Most Significant Funds The District's fund-based financial statements provide detailed information about the District's most significant funds. Some funds are required to be established by State law and bond covenants. However, the District establishes many other funds as needed to control and manage money for specific purposes. Governmental Funds: The major governmental funds of the Reed Union School District are the General Fund, Bond Interest and Redemption Fund, and Capital Projects - Special Reserve Fund. Governmental fund reporting focuses on how money flows into and out of the funds and the balances that remain at the end of the year. A modified accrual basis of accounting measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed shorherm view of the District's operations and services. Governmental fund information helps to determine the level of financial resources available in the near future to finance the District's programs. Proprietary Funds: Services for wh ich the District charges a fee are generally reported in proprietary funds on a full accrual basis. These include both Enterprise funds and Internal Service funds. Enterprise funds are considered business-type activities and are also reported under a full accrual method. This is the same basis as business-type activities; therefore no reconciling entries are required. Internal service funds are reported with the Governmental Funds. The District has no funds of this type. Fiduciary Funds: The District is the trustee, or fiduciary, for its student activity funds. All of the District's fiduciary activities are reported in separate Fiduciary Statements. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance their operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. 5

12 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE FISCAL YEAR ENDED JUNE 30, 2011 (PREPARED BY DISTRICT MANAGEMENT) FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE GOVERNMENTAL ACTIVITIES The District's net assets increased from $13,423,563 at June 30, 2010, up to $1 4,290,749 at June 30, 2011, an increase of 6.5%. Comparative Statement of Net Assets Governmental Activities Assets Deposits and Investments S 9,279,567 $ 10,644,019 Receivables 483, ,030 Prepaid Expenses 91,363 0 Capital Assets, net 50,018, ,519,617 Total Assets 59,873,357 59,805,666 liabilities Current 3,591,575 4,079,261 Long-term 42,858,219 41,435,656 Total liabilities 46,449,794 45,514,917 Net Assets Invested in Capital Assets - Net of Related Debt 5,730,659 5,831,119 Restricted 4,413,733 3,901,761 Unrestricted 3,279,171 4,557, 869 Total Net Assets $ 13,423,563 $ 14,290,749 Table includes financial data of the combined governmental funds. 6

13 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE FISCAL YEAR ENDED JUNE 30, 2011 (PREPARED BY DISTRICT MANAGEMENT) FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE (CONTINUED) GOVERNMENTAL ACTIVITIES (CONTINUED) The District's total current year revenues exceeded total current year expenses by $867,186. Comparative Statement of Changes in Net Assets Governmental Activities Program Revenues Charges for Services $ 160,784 $ 224,589 Operating Grants & Contributions 2,369,852 2,466,032 General Revenues Taxes levied 15,797,708 15,798,859 Federal & State Aid 668, ,333 Interest & Investment Earnings 54,350 39,887 Transfers 0 (2,183) Miscellaneous 928, ,459 Total Revenues 19,979,358 19,897,976 Expenses Instruction 11,024,125 11,047,546 Instruction-Related Services 1,562,118 1,671,197 Pupil Services 496, ,030 General Administration 1,581,166 1,292,236 Plant Services 2,527,806 2,278,812 Interest on Long-Term Debt 2,151,330 2,022,285 Other Outgo 189, ,684 Total Expenses 19,533,122 19,030,790 Change in Net Assets $ 446,236 $ 867,186 Table includes financial data oi1h6 combined governmental funds. 7

14 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE FISCAL YEAR ENDED JUNE 30, 2011 (PREPARED BY DISTRICT MANAGEMENT) FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE (CONTINUED! GOVERNMENTAL ACTIVITIES (CONTINUED) Comparative Schedule of Costs of Services Total Cost of Services Net Cost of Services Instruction $ 11,024,125 $ 11,047,546 $ $ 8,911,865 Instruction-Related Services 1,562,118 1,671,197 1,434,595 1,533,963 Pupil Services 496, , , ,654 General Administration 1,581,166 1,292,236 1,572,529 1,249,200 Plant Services 2,527, ,812 2,503,363 2,269,949 Interest on long-term Debt 2,151,330 2,022,285 2,151,330 2,022,285 Other Outgo Totals $ 19,533, 122 $ 19,030,790 $ 17,002,486 $ 16,340,169 Table includes financial data of the combklsd govemmental funds. The table above presents the cost of major District activities. The table also shows each activity's net cost (total cost less fees generated by the activities and intergovernmental aid provided for specific programs). The $16,340,169 net cost represents the financial burden that was placed on the District's general revenues for providing the services listed. General 86% Program 14% Program revenues financed 14% of the total cost of providing the services listed above, while the remaining 86% was financed by the general revenues of the District. 8

15 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE FISCAL YEAR ENDED JUNE 30, 2011 (PREPARED BY DISTRICT MANAGEMENT) FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE (CONTINUED) GOVERNMENTAL ACTIVITIES (CONTINUED) Summary of Revenues For Governmental Functions FYE 2010 Percent of FYE Amount Tolal Amount PrQgram RSl:venue~ Charges for Services S 160, % $ 224,589 Operating Grants & Contributions 2,369, % 2,466,032!,2!iln!ilri!1 R!i!:v!ilnyeli Taxes Levied 15,797, % 15,798,859 Federal & State Aid 668, % 527,333 Interest 54, % 39,887 Transfers % (2,183) Miscellaneous % 843,459 Total Revenues $ 19,979, % $ 19,897,976 Percent of Tolal 1.13% 12.39% 79.40% 2.65% 0.20% (0.01%) 4.24% % Table includes financial data o( the combined governmental funds. Taxes Levied Operating Grants & Contributions Charges for Services - Federal & State A~ Miscellaneous 9

16 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE FISCAL YEAR ENDED JUNE 30, 2011 (PR EPARED BY DISTRICT MANAGEMENT) FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE (CONTINUED) GOVERNMENTAL ACTIVITIES (CONTINUED) Schedule of Exoenses For Governmental Functions FYE 2010 Percent of FYE Amount Total Amount Expenses Instruction $ 11,024, % S 11,047,546 Instruction-Related Services 1,562, % 1,671,197 Pupil Services 496, % 472,030 General Administration 1,581, % 1,292,236 Plant Services 2,527,806 12,94% 2,278,812 Interest on long-term Debt 2,151, % 2,022,285 Other Outgo 189, % 246,684 T alai Expenses $ 19,533, % $ 19,030,790 Percent of Total 58.05% 8.78% 2.48% 6,79% 11.97% 10.63% 1.30% % Table includes financial data of the combined governmental funds. Instruction Related Services Other "'90--- Interest on Long Term Debt Plant Services ~~ P'"p Bil Services General Administration 10

17 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE FISCAL YEAR ENDED JUNE 30, 2011 (PREPARED BY DISTRICT MANAGEMENT) FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE (CONTINUED) GOVERNMENTAL ACTIVITIES (CONTINUED) Comparative Schedule of Capital Assets Governmental Activities land $ Sites and Improvements Buildings and Improvements Furniture and Equipment Subtotals Less: Accumulated Depreciation Capital Assets, net $ 2,049,951 $ 2,049,951 9,039,585 9,039, , , , ,479 63,645,486 63,645,486 (13,626,974) (15,125,869) 50,018,512 $ 48,519,617 Capital assets, net of depreciation, decreased $1,498,895 due to the current year recognition of $1,498,895 of depreciation expense. Comparative Schedule of Long-Term Liabilities Governmental Activities Compensated Absences $ General Obligation Bonds Capital leases Early Retirement Incentives Other Post Employment Benefits Totals $ 46,839 43,885, ,145 32, ,511 44,687,760! 47,930 42,320, ,692 21, ,281 $ 43,514,413 Total long-term liabilities decreased $1,173,347 due primarily to the current year reduction of the District's obligation for general obligation bonds. 11

18 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE FISCAL YEAR ENDED JUNE 30, 2011 (PREPARED BY DISTRICT MANAGEMENT) FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE (CONCLUDED) GOVERNMENTAL ACTIVITIES (CONCLUDED) The general obligation bonds are financed by the local taxpayers and represent 97% of the District's total long-term liabilities, The District has satisfied all of its debt service requirements for its bonded debt and continues to maintain an excellent credit rating on all of its debt issues. The notes to the financial statements are an integral part of the financial presentation and contain more detailed information as to interest, principal, retirement amounts, and future debt retirement dates. FINANCIAL ANALYSIS OF DISTRICT'S FUNDS Comparative Schedule of Fund Balances Fund Balances Fund Balances Increase June 3D, 2010 June 30, 2011 (Decrease) General $ 3,851,573 $ 4,775,409 $ 923,836 Bond Interest & Redemption 2,272, 198 2,341,926 69,728 Capital Projects Special Reserve 1,318,795 1,297,174 (21,621) Deferred Maintenance 418, ,336 89,298 Cafeteria 9, ,322 8,209 Capital Facilities 168, ,184 24,647 Granada lease 740, ,527 63,256 Tolals $ 8,776,525 $ 9,935,678 $ 1,157,353 The fund balance of the General Fund increased $923,836, while the combined fund balances of all other District governmental funds increased $233,517. GENERAL FUND BUDGETARY HIGHLIGHTS The District's budget is prepared in accordance with Califomia law and is based on the modified accrual basis of accounting. Over the course of the year, the District revises its budget based on updated financial information. The original budget, approved at the end of June for July 1, is based on May Revise figures and updated 45 days after the State approves its final budget. In addition, the District revises its budget at First and Second Interim to reflect the most current financial information available at that point in time. The original budget presented on page 45 includes only new revenues for fiscal year

19 MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE FISCAL YEAR ENDED JUNE 30, 2011 (PREPARED BY DISTRICT MANAGEMENT) ECONOMIC FACTORS BEARING ON THE DISTRICT'S FUTURE )- The District is expected to maintain its basic aid status during fiscal year As a result, the anticipated increase in student enrollment wi ll likely reduce per pupil funding. }> Due to the unprecedented nature of the current State and Federal fiscal crisis, the amount of funding that will be available to the District remains uncertain. As a result, management will need to plan carefully and prudently to provide the resources to meet student needs over the next several years. The District has an excellent track record in meeting th is cha llenge in what has proven to be a cycle of lean years and prosperous years for education finances. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, parents, investors, and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions regarding this report or need additional financial information, contact the District Office, Reed Union School District, 277A Karen Way, Tiburon, California

20 STATEMENT OF NET ASSETS JUNE 30, 2011 Assets Deposits and Investments (Note 2) Receivables (Note 4) Capital Assets: (Note 6) Land Sites and Improvements Buildings and Improvements Furniture and Equipment Less: Accumulated Depreciation Total Assets Liabilities Accounts Payable and Other Current Liabilities Deferred Revenue (Note 1J) long-term liabilities: Portion Due or Payable Within One Year: Compensated Absences General Obligation Bonds Capital l eases Early Retirement Incentives Portion Due or Payable After One Year: General Obligation Bonds (Note 7) Capital leases (Note 8) Early Retirement Incentives (Note 9) Other Post Employment Benefits (Note 10) Total liabilities Net Assets Investment in Capital Assets, Net of Related Debt Restricted: For Capital Projects For Debt Service For Educational Programs For Other Purposes Unrestricted Tolal Net Assels Governmental Activities $ 10,644, ,030 2,049,951 9,039,585 52,410, ,479 (15,125,869) 59,805,666 1,342, ,490 47,930 1,635, ,072 10,755 40,685, ,620 10, ,281 45,514,917 5,831,119 1,490,358 2,341,926 67,477 2,000 4,557,869 S 14, THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS 14

21 STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2011 Program Revenues Operating Grants Capital Grants Charges for,nd,nd Functions Expenses Services Contributions Contributions Net (Expense) Revenue and Changes in Net Assets Govemmental Activities Governmental Activities Instruction $ 11,047,546 $ 2,135,681 Instruction-Related Services: Supervision of Instruction 796,922 55,567 Inslructionallibrary and Technology 385,389 81,463 School Site Administration 488, Pupil Services: Home-Io-School Transportation 244,254 $ 145, Food Services 11,275 Other Pupil Services 216,501 36,243 General Administra tion: Data Processing Services 18,883 Other General Administration 1,273,353 43,036 Plant Services 2,278,812 6,663 Interest on long-term Debt 2,022,285 Other Outgo 246,684 79, ,932 Total Governmental Activities $ 19,030,790 $ 224,589 $ 2,466,032 $ General Revenues Taxes levied for General Purposes Taxes levied for Debt Service Taxes levied for Specific Purposes Federal and State Aid - Unrestricted Interest and Investment Earnings Transfers from Other Agencies Miscellaneous Total General Revenues Change in Net Assets Net Assets - July 1,2010 Net Assets June 30, $ (8,911,865) (741,355) (303,926) (488,682) (99,121) (11,275) (180,258) (18,883) (1,230,317) (2,269,949) (2,022,285) (62,253) (16,340,169) 10,723,912 3,663,001 1,411, ,333 39,887 (2,183) 843,459 17,207, ,186 13,423,563 $ 14,290,749 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS 15

22 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 3D, 2011 Bond Assets Deposits and Investments (Note 2) Receivables (Note 4) General $ 5, ,268 $ Interest aod Redemption ,926 Due from Other Funds (Note 5) Total Assets $ 6,107,813 $ 2,34 1,926 Liabilities and Fund Balances liabilities: Accounts Payable Due to Olher Funds (NOle 5) Deferred Revenue (Note 1J) S 688,060 $0, ,344 Total Liabilities 1,332,404 Fund Balances: (Note 12) Nonspendable Restricted Assigned Unassigned 2,000 67, ,179 4,483,753 $ 2,341,926 Total Fund Balances 4, ,341,926 Total Liabilities and Fund Balances $ 6,107,813 $ 2,341,926 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS 16

23 Capital Projects - Non-Major Total Special Governmental Governmental Reserve Funds Funds S 1,290,456 S 1,538,092 S 10,644,019 6,718 1, ,030 50,000 50,000 $ 1,297,174 S 1,589,136 S 11,336,049 $ 3,621 $ 691,681 50,000 64, ,490 67, ,171 2, ,184 2,602,587 S 1,297,174 1,328,185 2,847, ,753 1,297,174 1,521,369 9,935,878 $ 1,297,174 S 1,589,136 S 11,336,049

24 18

25 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2011 Total Fund Bala nces Governmental Funds s 9,935,878 Amounts reported for governmental activities in the statement of net assets are different due to the following: Capital assets used in governmental activities are nol financial resources and therefore are not reported as assets in governmental funds, The amount that capital assets exceeded accumulated depreciation was: Capital Assets Accumulated Depreciation In governmental funds, the unmatured interest on tong-term debt is nol recognized until the period in which il matures and is paid. In the governmentwide statement of activities, it is recognized in the period that it is incurred. The addilionalliability for unmatured interest owed althe end of the period was: $ 63,645,486 (15,125,869) 48,519,617 (650,333) Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in governmental funds. Long-term liabilities al year-end consist of: Compensated Absences General Obligation Bonds Capital Leases Ear1v Reliremenllncentives Other Post Employment Benefits s 47,930 42,320, ,692 21, ,281 (43,51 4,413) Total Net Assets - Governmental Activities $ ,749 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS 19

26 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 3D, 2011 General Fund Revenues District Revenue Limit Sources: Siale Apportionment $ (17,957) Local Taxes 10,723,912 Foundation Total Revenue Limit Sources 10,705,955 Federal Revenue 333,997 Stale Revenue 546,502 local Revenue 2,480,918 $ Total Revenues 14,067,372 1,430,000 1,430,000 Expenditures Instruction 9,765,625 Supervision of Instruction 725,659 Instructional Library and Technology 350,926 School Site Administration 445,168 Home-Te-School Transportation 222,412 Food Services Other Pupil Services 197,141 Dala Processing Services 17,194 Other General Administration 1,158,395 Plant Services 1,861,166 Facilities Acquisition and Construction Debt Service: Principal Retirement 206,947 Interest and Issuance Costs 23,113 Other Outgo 246,684 Total Expenditures 15,220,430 Excess of Revenues Over (Under) Expenditures (1,153,058) Other Financing Sources (Usesl Operating Transfers In 1,839,400 Operating Transfers Out (66,000) Other Sources 303,494 Total Other Financing Sources (Uses) 2,076,894 Net Change in Fund Balances 923,836 Fund Balances - July 1, ,851,573 Fund Balances - June 30, 2011 $ 4,775,409 $ 0 1,430,000 (1,430,000) (1,430,000) THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS 20

27 Bond Capital Interest Projects - Non-Majo r Total and Special Governmental Govemmental Redemption Reserve Funds Funds $ (17,957) 10,723,912 10,705, ,997 $ 13,651 $ 37, ,337 3,655,630 S 72, ,335 8,260,687 3,669,281 72, ,519 19,897,976 9,765, , , , , ,267 10, ,141 17,194 1,158,395 94, ,881 2,071,472 3,561 3,561 1,565,000 1,771,947 2,034,553 2,057, ,684 3,599,553 94, ,709 19,044,117 69,728 (21,621) 528, ,859 66,000 1,905,400 (409,400) (1,905,400) 303, (343,400) 303,494 69,728 (21,621) 185,4 10 1,157,353 2,272,198 1,318,795 1,335,959 8,778,525 S 2,341,926 $ 1,297,174 $ 1,521,369 $ 9,935,878

28 REED UNIDN SCHDDL DISTRICT RECDNCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2011 Net Change in Fund Balances - Governmental Funds $ 1,157,353 Amounts reported for govemmental activities in the statement of activities are different due to the following: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures. However, for governmental activities Ihose costs are shown in the slatement allocated over their estimated useful lives as annual depreciation expenses in the statement of activities. This is the amount by which depreciation expense exceeded capital outlays during the fiscal year: Depreciation Expense (1.498,895) In the statement of activities, certain operating expenses-compensated absences (vacations), are measured by the amounts earned during the fiscal year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). This year, the amounts used exceeded the amounts earned by: Postemployment benefits other than pensions (OPE B) : In governmental funds, OPEB costs are recognized when employer contributions are made. In the statement of activities, OPEB costs are recognized on the accrual basis. This year, the difference between OPEB costs and actual employer contributions was: (1,091) (304,770) Debt service: In governmental funds, repayments of long-term debt are reported as expenditures. In the government-wide statements, repayments of long-term debt are reported as reductions of liabilities. Expenditures for repayment of the principal portion of long-term debt were: General Obligation Bonds Capital leases Early Retirement Incentives Debt proceeds: In governmental funds, proceeds from debt are recognized as Other Financing Sources. In the government-wide statements, proceeds from debt are reported as increases to liabilities. Amounts recognized in governmental funds as proceeds from debt were: Interest on long-term debt in the statement of activities differs from the amounl reported in the governmental funds because interest is recorded as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the statement of activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. Accrued interest on long-term liabilities decreased by: $ 1,565, , ,782,702 (303,494) 35,381 Change in Net Assets of Governmental Activities s 867,186 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS 22

29 STATEMENT OF NET ASSETS FIDUCIARY FUNDS JUNE 30, 2011 Assets Deposits and Investments (Note 2) Total Assets Liabilities Due to Student Groups Total Liabilities Net Assets Restricted Tolal Net Assets Agency Funds $ 49,996 49,996 49,996 49,996 0 $ 0 Total Fiduciary Funds $ 49,996 49,996 49,996 49,996 0 $ 0 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS 23

30 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES A. Accounting Policies The Reed Union School District (the "Districn is a public educational agency operating under the applicable laws and regulations of the State of California. It is governed by a five member Board of Trustees elected by registered voters of the District, which comprises an area in Marin County. T he District serves students in kindergarten through grade eight. The District prepares its financial statements in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA) and complies with the policies and procedures of the Department of Education's California School Accounting Manual. The District is also required to follow the pronouncements of the Financial Accounting Standards Board (FASB) issued Ihrough November 30, 1989, when applicable, that do not conflict with or contradict GASB pronouncements. B. Reporting Entity The District has reviewed criteria to determine whether other entities with activities that benefit the District should be included within its financial reporting entity under GASB Statement No. 14 (GASB 14), The Financial Reporting Entity. The criteria include, but are not limited to, whether the entity exercises oversight responsibility (which includes financial interdependency, selection of governing authority, designation of management, ability to significanlly influence operalions and accountability for fiscal matters), the scope of public service, and a special financing relationship. The District has determined that there are no entities, with fi nancial activities that benefited the District, during fiscal year , which should be included w ithin its financial reporting entity under GASB 14. GASB Sialement No. 39 (GASB 39), Determining Whether Certain Organizations are Component Units, provides further guidance to determine whether certain organizations for which the District is not financially accountable should be reported as component units based on the nature and significance of the component unit's relationship with the District. The District has determined that the Foundation for Reed Schools (the ~ Found ation ~ ) meets the criteria set forth in the GASB 39. However, audited financial state ments of the Foundation were not available for inclusion in the District's financial statements. Accordingly, only the financial activity of the Foundation that flows th rough the District is shown on page 20. The District is not aware of any entity that would exercise such oversight responsibility that would result in the District being considered a component unit of that entity. 24

31 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Implementation of New Accounting Pronouncements In March of 2009, the GASB issued GASB Stalemenl No. 54 (GASB 54) Fund Balance Reporting and Governmental Fund Type Definition, with required implementation for the District during the year ended June 30, The objective of GASB 54 is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. GASB 54 provides for fund balance classifications such as restricted, committed, assigned, and unassigned based on the relative strength of the constraints that control how specific amounts can be spent. D. Basis of Presentation Government-wide Financial Statements: The government-wide financial statements (i.e., the Statement of Net Assets and the Statement of Activities) report information on all of the non-fiduciary activities of the District and its component units. The effect of interfund activity, within the governmental and business type activities columns, has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. likewise, the primary government is reported separately from certain legally separate component units fo r which the primary government is financially accountable. The government-wide financial statements are prepared using the economic resources measurement focus. This is the same approach used in the preparation of the proprietary fund and fiduciary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Governmental fund financial statements, therefore, include a reconciliation with brief explanations to better identify the relationship between the government-wide statements and the statements for the governmental funds. The government-wide statement of activities presents a comparison between direct expenses and program revenues for each function or program of the District's governmental activities. Direct expenses are those that are specifically associated with a service, program, or department and are therefore clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the statement of activities. Program revenues include charges paid by the recipients of goods or services offered by a program, as well as grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues which are not classified as program revenues are presented as general revenues of the District, with certain exceptions. The comparison of direct expenses with program revenues identifies the extent to which each govemmental function is self-financing or draws from the general revenues of the District. 25

32 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDEO JUNE 30, 2011 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) O. Basis of Presentation (Concluded) Fund Financial Statements: Fund financial statements report detailed inlonmation about the District. The locus of govemmental fund financial statements is on major funds rather than reporting funds by type. Each major governmental fund is presented in a separate column, and all non major funds are aggregated into one column. Fiduciary funds are reported by fund type. The accounting and financial treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets and current liabilities are generally included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balances for these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. Fiduciary funds are reported using the economic resources measurement focus. E. Basis of Accounting Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Fiduciary funds use the accrual basis of accounting. Revenues - Exchange and Non-exchange Transactions: Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded under the accrual basis when the exchange takes place. Under the modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. ~Avail able ~ means the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the District, uavailable" means collectible within the current period or within 45, 60, 90 days after year-end, depending on the revenue source. However, to achieve comparability of reporting among California Districts and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to state apportionments, the California Department of Education has defined available as collectible within one year. Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, grants, and entitlements. Under the accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants and entitlements is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are to be used or the fiscal year when use is first permitted; matching requirements, in which the District must provide local resources to be used for a specific purpose; and expenditure requirements, in which the resources are provided to the District on a reimbursement basis. Under the modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. 26

33 NOTES TO THE B ASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 3D, NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Basis of Accounting (Concluded) Deferred Revenue: Deferred revenue arises when assets are received before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are recorded as deferred revenue. On governmental fund financial statements, receivables associated with non-exchange transactions that will not be collected within the availability period have also been recorded as deferred revenue. Expenses/Expenditures: On an accrual basis of accounting, expenses are recognized at the time a liability is incurred. On the modified accrual basis of accounting, expenditures are generally recognized in the accounting period in which the related fund liability is incurred, as under the accrual basis of accounting. However under the modified accrual basis of accounting, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Allocations of cost, such as depreciation and amortization, are not recognized in the governmental funds. When both restricted and unrestricted resources are available for use, it is the District's policy to use restricted resources first, then unrestricted resources as they are needed. F. Fund Accounting The accounts of the District are organized on the basis of funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity or retained earnings, revenues, and expenditures or expenses, as appropriate. District resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent and the means by which spending activities are controlled. The District maintains the following fund types: General Fund - The general fund is used to account for and report all financial resources not accounted for and reported in another fund. Special Revenue Funds - Special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other Ihan debt service or capital projecls, Other resources also may be reported in the fund if those resources are restricted, committed, or assigned to the specified purpose of the fund. Debt Service Funds - Debt service funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest. Capital Projects Funds - Capital projects funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. The District's accounts are organized into major, non-major, and fiduciary funds as follows: 27

34 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED> F. Fund Accounting (Concluded) Major Governmental Funds: General Fund is the general operating fund of the District. It is used to account for all transactions except those required or permitted by law to be accounted for in another fund. The financial activities of the General Fund have been divided into two separate columns on the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances. The first column reflects revenues received from District sources along with all expenditures of the General Fund. The second column reflects revenues received for General Fund purposes that are provided by Foundation sources. This presentation has been included to reflect the District's heavy reliance on the Foundation for Reed Schools as a funding source for its school programs. Bond Interest and Redemption Fund is used to account for the accumulation of resources for the repayment of District bonds, interest, and related costs. Capital Projects - Special ReselVe Fund is used to account for proceeds realized from the sale of District property. Amounts held in this fund are used for capital outlay purposes. Non-major Governmental Funds: Deferred Maintenance Fund is used for the purpose of major repairs or replacement of District property. Cafeteria Fund is used to account for revenues received and expenditures made to operate the District's cafeteria program. Capital Facilities Fund is used to account for resources received from developer impact fees assessed under provisions of the California Environmental Quality Act (CEQA). Granada Lease Fund is used to account for proceeds realized from the leasing of Granada School, a surplus facility. The net income derived from the leasing operation is transferred to the General Fund. Fiduciary Funds: Agency Funds are used to account for assets of others for which the District acts as an agent. The District maintains an agency fund to account for the student body activities at Bel Aire Elementary School and Del Mar Middle School. The student body funds are used to account for the raising and expending of money to promote the general welfare, and educational experience of the student body. G. Budgets and Budgetary Accounting Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America for all governmental funds. By state law, the District's governing board must adopt a final budget no later than July 1. A public hearing must be conducted to receive comments prior to adoption. The District's governing board satisfied these requirements. 28

35 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) G. Budgets and Budgetary Accounting (Concluded) These budgets are revised by the District's Governing Board and Superintendent during the year to give consideration to unanticipated income and expenditures. T he original and final revised budget is presented for the General Fund as required supplementary information on page 45. Formal budgetary integration was employed as a management control device during the year for all budgeted funds. The District employs budget control by minor object and by individual appropriation accounts. Expenditures cannot legally exceed appropriations by major object account (See Note 3). H. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. I. Encumbrances Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. All encumbrances are liquidated at June 30. J. Assets. Liabilities and Equity 1. Deposits and Investments The District is authorized to maintain cash in banks and revolving funds that are insured to $250,000 by Ihe Federal Deposilory Insurance Corporalion (FDIC). The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The County is authorized to deposit cash and invest excess funds by California Government Code Section et seq. The funds maintained by the County are either secured by the FDIC or are collateralized. The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies; certificates of participation; obligations with first priority security; and collateralized mortgage obligations. Investments wit h original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost. 29

36 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) J. Assets. Liabilities and Equity (Continued) 2. Prepaid Expenses The District has the option of reporting expenditures in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditure during the period benefited. Reported prepaid expenditures are equally offset by a net assets reserve, which indicates that these amounts are not ~ available for appropriation and expenditure- even though they are a component of net current assets. 3. Capital Assets Capital assets purchased or acquired with an original cost of $5,000 or more are reported at historical cost or estimated historical cost. Contributed assets are reported at fair market value as of the dale received. Additions, improvements, and other capital outlays that significantly extend the useful life of an asset are capitalized. The costs of normal maintenance and repairs that do not add to the value of the assets or materially extend the asset's lives are not capitalized, but are expensed as incurred. Depreciation on all capital assets is computed using a straight-line basis over the follow ing estimated useful lives: Asset Class Sites and Improvements Buildings and Improvements Furniture and Equipment Deferred Revenue Cash received for federal and state special projects and programs is recognized as revenue to the extent that qualified expenditures have been incurred. Deferred revenue is recorded to the extent that cash received on specific projects and programs exceeds qualified expenditures. Deferred revenue includes premiums associated with bonds, when applicable, which are amortized over the life of the bond obligation. 5. Compensated Absences All vacation pay is accrued when incurred in the government-wide financial statements. Accumulated sick leave benefits are not recognized as liabilities of the District. The District's policy is to record sick leave as an operating expense in the period taken, since such benefits do not vest, nor is payment probable; however, unused sick leave is added to the creditable service period for calculation of retirement benefrts when the employee retires. 30

37 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) J. Assets, liabilities and Equity (Continued) 6. Long term liabilities In the government-wide financial statements, long-term debt and other long-term obligations are reported as long-term liabilities in the Statement of Net Assets. Premiums and discounts, as well as issuance costs are deferred and amortized over the life of the debt. Long-term debt is reported net of applicable premiums or discounts. In the fund financial statements, governmental funds recognize premiums and discounts as well as bond issuance costs, during the current period. The face amount of the debt issued, premiums, or discounts are reported as other financing sources or uses. 7. Fund Balance Classification The governmental fund financial statements present fund balances based on classifications that comprise a hierarchy that is based primarily on the extent to which the District is bound to honor constraints on the specific purposes for which amounts in the respective governmental funds can be spent. The classifications used in the governmental fund financial statements are as follows: Nonspendable Fund Balance consists of fu nds that cannot be spent due to their form (e.g. inventories and prepaids) or funds that legally or contractually must be maintained intact. Restricted Fund Balance consists of funds that are mandated for a specific purpose by external parties, constitutional provisions or enabling legislation. Committed Fund Balance consists of funds that are set aside for a specific purpose by the district's highest level of decision making authority (governing board). Formal action must be taken prior to the end of the fiscal year. The same formal action must be taken to remove or change the limitations placed on the funds. Assigned Fund Balance consists of funds that are set aside with the intent to be used for a specific purpose by the district's highest level of decision making authority or a body or official that has been given the authority to assign funds. Unassigned Fund Balance consists of excess funds that have not been cl assified in the previous four categories. All funds in this category are considered spendable resources. This category also provides the resources necessary to meet unexpected expenditures and revenue shortfalls. The District considers restricted fund balances to have been spent first when an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available. Similarfy I when an expenditure is incurred for purposes for which amounts in any of the unrestricted classifications of fund balance could be used, the District considers committed amounts to be reduced first, followed by assigned amounts and then unassigned amounts. 31

38 REED UNIDN SCHOOL DISTRICT NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONCLUDED> J. Assets Liabilities and Equity (Concluded) 8. Revenue LimiUProoerty Tax The District's revenue limrt is received from a combination of local property taxes, state apportionments, and other local sources. The County of Marin is responsible for assessing, collecting and apportioning property taxes. Taxes are levied for each fiscal year on taxable real and personal property in the county. The levy is based on the assessed values as of the preceding January 1, which is also the lien date. Property taxes on the secured roll are due on November 1 and February 1, and taxes become delinquent after December 10 and April 10, respectively. Property taxes on the unsecured roll are due on the lien date (January 1), and become delinquent if unpaid by August 31. Secured property taxes are recorded as revenue when apportioned, in the fiscal year of the levy. The county apportions secured property tax revenue in accordance with the alternative method of distribution prescribed by Section 4705 of the California Revenue and Taxation Code. This alternate method provides for crediting each applicable fund with its total secured taxes upon com pletion of the secured tax roll, approximately October 1 of each year. The County Auditor reports the amount of the District's allocated property tax revenue to the California Department of Education. Property taxes are recorded as local revenue limit sources by the District. The California Department of Education reduces the District's entitlement by the District's local property tax revenue. The balance is paid from the State General Fund, and is known as the state apportionment. The District's Base Revenue Limit is the amount of general purpose tax revenue, per average daily attendance (ADA), that the District is entitled to by law. This amount is multiplied by the applicable attendance period ADA to derive the District's total entitlement. Since the total computed entitlement is generally less than the allocated property tax revenues, the District continues to be funded under the basic aid provision. NOTE 2 - DEPOSITS AND INVESTMENTS Summary of Deposits and Investments DepOSits and investments as of June 30, 2011, consist of the following: Cash on Hand and in Banks Cash in Revolving Fund County Pool Investments Total Oeposits and Investments 32 Governmental Activities $ 2,000 10,642,019 $ Fiduciary Activities $ 49,996 $ 49996

39 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, NOTE 2 DEPOSITS AND INVESTMENTS (CONTINUED) Cash on Hand and in Banks Cash on hand and in banks consists of au cash held by the District and all cash maintained in commercial bank accounts owned by the District, exclusive of amounts held in revolving funds. Cash in Revolving Fund Cash in revolving fund consists of all cash maintained in commercial bank accounts that are used as revolving funds. County Pool Investments County pool investments consist of District cash held by the Marin County Treasury that is invested in the county investment pool. The fair value of the District's investment in the pool is reported in the financial statements at amounts that are based upon the District's pro-rata share of the fa ir value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). General Authorization limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedule below: Maximum Maximum Maximum Authorized Remaining Percentage Investment Investment T~pe Maturity of Portfolio in One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20% of base None Medium-Term Notes 5 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None Joint Powers Authority Pools N/A None None 33

40 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, NOTE 2 - DEPOSITS AND INVESTMENTS (CONTINUED) Interest Rate Risk Interest rate risk is the risk that changes in market interest rate will adversely affect the fair value of an investment. Generally, as the length of the maturity of an investment increases, the greater the sensitivity of its fair value to changes in market interest rates. The District manages its exposure to interest rate risk by investing in the County Treasury that purchases a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion afthe portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash ftow and liquidity needed for operations. Segmented Time Distribution Information about the sensitivity of the fair value of the District's investment to market interest rate fluctuations is provided by the following schedule that shows the distribution of the District's investment by maturity: Investment Type Carrying Value Fair Value Less Than 1 Year More Than 1 Year County Pool Investments $10,642,019 $ 10,644,019 $ 8,156,800 $ 2,485,219 Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. T his is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by the California Government Code, the District's investment policy, or debt agreements, and the actual rating as of the year-end for each investment type. Investment Type Carrying Value Fair Value Rating as of Year End AAA Aa Unrated County Pool Investments $10,642,019 $ 10,644,019 $10,642,019 Concentration of Credit Risk The investment policy of the District contains no limitations on the amount that can be invested in anyone issuer beyond the amount stipulated by the California Government Code. However, the District does not hold any investments in anyone issuer, at year~end, that represents five percent or more of the total investments held by the District. Custodial Credit Risk ~ Investments This is the risk that in the event of the failure of the counterparty, the District will not be able to recover the value of its investments or collateral securities that are in possession of an outside party. The District does not have a policy limiting the amount of securities that can be held by counterparties. As of June 30, 2011, the District does not have any investments that are held by counterparties. 34

41 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 NOTE 2 - DEPOSITS AND INVESTMENTS (CONCLUDEDI Custodial Credit Risk - Deposits This is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agencies. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. As of June 3D, 2011, the District does not have a bank balance that is exposed to custodial credit risk because it was uninsured and collateralized with securities held by the pledging financial institution's trust department or agent, but not in the name of the District. Derivative Investments The District does not directly invest in any derivative investments. Information relating to the use of derivative investments by the Marin County Treasury was not available. NOTE 3 - EXCESS OF EXPENDITURES OVER APPROPRIATIONS Excess of expenditures over appropriations in the General Fund were as follows: Fund Expenditures General Fund: Other Expenditures $ 17,490 The District incurred unanticipated expenditures in excess of appropriations in the above expenditure classification for which the budget was not revised, NOTE 4 - RECEIVABLES Receivables at June 30, 2011 consist of the fonowing: General Fund Capital Projects - Special Reserve Non-Major Governmental Federal Government $ 132,262 $ 132,262 Slate Government 311, ,709 Local Governments 91,098 91,098 Miscellaneous 99, ,718 $ 1, ,961 Totals $ 634,268 $ 6,718 $ 1,044 S 642,030 35

42 NOTES TO THE B ASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, NOTE 5 -INTERFUND ACTIVITIES Interfund transactions are reported as either loans, services provided, reimbursements, or transfers. Loans are reported as interfund receivables and payables, as appropriate, and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. A. Due From/Due To Other Funds Individual fund interfund receivable and payable balances at June 30, 2011 are as follows: Interfund Intertund Funds Receivables Payables General $ Deferred Maintenance $ Totals } ~QQQQ $ 5QQQQ AU interfund receivables and payables are scheduled to be pa id within one year. B. Interiund Transfers Interiund transfers consist of operating transfers from funds receiving revenue to funds through which the resources are to be expended. Interfund transfers for fiscal year were a s follows: Funds Transfers In Transfers Out General - District $1,839,400 $ 66,000 General - Foundation 1,430,000 Deferred Maintenance 50,000 Cafeteria 16,000 Granada Lease Totals $ $ J 9Q5!lQQ Transfer of $1,430,000 from General Fund - Foundation to General Fund - District to support educational programs. Transfer of $409,400 from Granada Lease Fund to General Fund to transfer excess income derived from leasing operations. Transfer of $50,000 from General Fund to Deferred Maintenance Fund to provide funding for future deferred maintenance projects. Transfer of $16,000 from General Fund to Cafeteria Fund to support child nutrition program. 36

43 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 NOTE 6 - CAPITAL ASSETS AND DEPRECIATION Capital asset activity for the year ended June 30, 2011, are shown below: Balances Jul~ Additions Deletions land $ 2,049,951 $ Sites and Improvements 9,039,585 Buildings and Improvements 52,410,471 Furniture and Equipment 145,479 Totals at Historical Cost 63,645,486 $ 0 $ 0 Balances June ,049,951 9,039,585 52,410, ,479 63,645,486 less Accumulated Depreciation for: Sites and Improvements 4,092, ,516 Buildings and Improvements 9,412,941 1,181,440 Furniture and Equipment 121,063 4,939 T alai Accumulated Depreciation 13,626,974 1,498,895 0 Governmental Activities Capital Assets, net $ 50,018,512 $ (1,498,895) $ 0 $ 4,405,486 10,594, ,002 15,125,869 48,519,617 Depreciation expense was charged to governmental activities as follows: Instruction $ 987,906 Supervision of Instruction 71,263 Instructional Libra ry and Technology 34,463 School Site Administration 43,718 Home-To-School Transportation 21,842 Food Services 1,008 Other Pupil Services 19,360 Data Processing Services 1,689 Other General Administration 113,867 Plant Services Total $ J ~

44 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 NOTE 7 GENERAL OBLIGATION BONDS The outstanding general obligation debt of the District as of June 30, 2011 is as follows: Date Amount of Issued Redeemed of Interest Maturity Original Outstanding Current Current Outstanding Issue Rate % Date Issue July Year Year June / $ 22,000,000 $ 17,855,000 $ 725,000 $ 17,130,000 6/ ,000,000 14,050, ,000 13,575,000 6/6/ Totals $ DOq $ $ 0 $ $ The annual requirements to amortize the bonds payable, outstanding as of June 30, 201" are as follows: Year Ended June $ Princil2al 1,635,000 1,700,000 1,770,000 1,845,000 1,920,000 10,980,000 13, ,565,000 Interest $ 1,948, ,684 1,794,836 1,720, ,819, , ,794 Totals $ 3,583,81 1 3,564,684 3,564, , , ,800,241 9,403,794 Totals $ 42, $ 20,524,239 $ 62,644,239 NOTE 8 CAPITAL LEASES The District has entered into lease-purchase agreements for technology equipment, valued at $1,181,278. The agreements provide for title to pass upon expiration of the lease periods. Future minimum lease payments under these agreements are as follows: Year Ended June Less amounts representing interest Lea se Payments $ 406,203 88, (28,91 8) Present value of net minimum lease payments $ The District will receive no sublease rental revenues nor pay any contingent rentals for these leased assets. 38

45 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 NOTE 9 - EARLY RETIREMENT INCENTIVES In prior fiscal years, the District adopted an early retirement incentive program, pursuant to Education Code and 44929, whereby the service credit for eligible employees is increased by two years. Future estimated payments relating to individuals currently receiving these benefits are as follows: Year Ended June 30 STRS Golden Handshake Payments Total paymenls Less amount representing interest Present value of net minimum payments NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) $ ~ 11, ,226 (1 716) 2151Q From an accrual accounting perspective, the cost of post employment healthcare benefits (OPES), like the cost of pension benefits, generally should be associated with the periods in which the cost occurs, rather than in the future year when the benefits are paid or provided. Governmental Accounting Standards Board Statement No. 45 requires an accrual basis measurement and recognition of OPEB cost over a period that approximates employees' years of service and provides information about actuarial accrued liabilities associated with OPEB and to what extent progress is being made in funding the plan. Plan Descriptions: The Districl provides medical and dental plan coverage to retirees who satisfy the requirements for retirement under the California State Teachers' Retirement System (CaISTRS) or California Public Employees' Retiremenl Syslem (CaIPERS). Generally, a service retirement requires attainment of age 55 for CalSTRS and age 50 for CalPERS and completion of 5 years of State or public agency service. The District participates in the CalPERS medical program as permitted under the Public Employees' Medical and Hospital Care Act (PEMHCA). The District is obligated to contribute toward the cost of retiree medical coverage for the retiree's lifetime or until coverage is discontinued. The District subsidy is a combination of (1) PEMHCA required lifetime premium subsidy, which varies based on the date an employee was hired, plus (2) a higher temporary benefil, dependent on the employee's hire date, years of service and date of reti rement. All contracts with District employees will be renegotiated at various times in the future and, thus, costs and benefits are subject to change. Benefits and contribution requirements (both employee and employer) for the OPES Plan are established by labor agreements. 39

46 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED J UNE 30, NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED) The District had 27 retired employees receiving benefits and 152 active employees, of which 129 were currently participating in the medical program while 23 employees were waiving coverage, as of July 1, 2009, the effective date of the triennial OPES valuation. For the District, OPES benefits are administered by District personnel. No separate financial statements are issued. Funding Policy. The District currently pays for post employment healthcare benefits on a pay-as-you-go basis, and these financial statements assume that pay-as-you-go funding will continue. Annual OPEB Cost and Net OPEB Obligation: The following table shows the components of the District's Annual OPES Cost for the fiscal year ended June 30, 2011, the amount actually contributed to the plan, and changes in the District's Net OPES Obligation that resulted in a Net OPEB Obligation of $603,281 for the year ended June 30, Normal service cost at end of year Amortization of UAAL with interest to end of year Annual required contribution (ARC) Interest on Net OPES Obligation Adjustment to ARC Annual OPES cost (expense) Contributions for the fiscal year Increase in Net OPES Obligation Net OPEB Obligation - June 30, 2010 Net OPEB Obligation - June 30, 2011 $ $ 238, , ,030 13,433 (12,666) 378,797 (74027) 304, , The District's annual OPES cost, the percentage of annual OPES cost contributed to the Plan, and the net OPES obligation for the last three fiscal years was as follows: Annual Percentage Net OPEB Fiscal Year Ended OPEB Cost Contributed Obligation June 30, 2011 $ 378, % $ 603,281 June 30, , % 298,511 June 30, 2009 nla nla nla 40

47 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONCLUDED) Actuarial Methods and Assumptions: Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing benefit costs between the employer and plan members to that point. The projection of future benefits for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of future events far into the future. Examples include mortality, turnover, disability, retirement and other factors that affect the number of people eligible to receive future retiree benefits. Actuarially determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1, 2009, actuarial valuation, the liabilities were computed using the entry age normal cost method and the District's unfunded actuarial accrued liability is being amortized using the level percentage of payroll method over 30 years. The val uation utilized a 4.5% discount rate, the expected long-term rate of return on District assets, and assumes a compensation increase rate of 3.25% per year. The valuation assumes an initial medical rate increase of 9% which grades down to an ultimate rate of 4.5% in year 2017 and thereafter. Dental premiums are assumed to increase by 4.5% per year. The additional temporary health care subsidy is assumed to increase by 4% per year. NOTE 11 - LONG-TERM LlABILITES A schedule of changes in long-term liabilities for the year ended June 30, 2011, is shown below: Balances Balances Due within July 1, 2010 Additions Deductions June 30, 2011 One Year Compensated Absences $ 46,839 $ 47,930 $ $ 47,930 $ 47,930 General Obligation Bonds 43,885,000 1,565,000 41,310,000 1,635,000 Capita l Leases 425, , , ,072 Early Retirement Incentives 32,265 10,755 21,510 10,755 Other Post Employment Benefits 298, , ,281 Totals $ 44,687,760 $ 730,221 $ 1, $ 43,51 4,413 S 2,078,757 41

48 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 NOTE 12 - FUND BALANCES The District's fund balances at June 30, 2011 consisted of the following: Nonspendable $ 2,000 Bond Interest Capital Projects- Non-Major General & Redemption Special Reserve Governmental Fund Elm<! Fuod Funds Restricted 67,477 $ 2,341,926 $ 193,184 Assigned 222,179 $ 1,297,174 1,328,185 Totals S 2,000 2,602,587 2,847,538 Unassigned: Economic Uncertainties 458,593 Other 4,025,160 Total Fund Balances S 4,775,409 S 2,341,926 S 1,297,174 $ 1,521, ,593 4,025,160 S 9,935,878 NOTE 13 - ON-BEHALF PAYMENTS MADE BY THE STATE OF CALIFORNIA The District was the recipient of on-behalf payments made by the State of California to the Califomia State Teachers' Retirement System (CaISTRS) for K-12 education. These payments consist of state general fund contributions of $325,773 to CalSTRS (4.267% of salaries subject to CaISTRS). NOTE 14 - EMPLOYEE RETIREMENT SYSTEMS Qualified employees are covered under multiple-employer contributory retirement plans maintained by agencies of the State of California. Certificated employees are members of the California State Teachers' Retirement System (CaISTRS) and classified employees are members of the California Public Employees' Retirement System (CaIPERS). A. California State Teachers' Retirement System (CaISTRS) Plan Description The District contributes to the California State Teachers' Retirement System (CaISTRS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CaISTRS. The plan provides retirement, disability, and survivor benefits to plan members and beneficiaries, Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers' Retirement Law. CalSTRS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalSTRS annual financial report may be obtained from the CalSTRS, 100 Waterfront Place, West Sacramento, California

49 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, NOTE 14 - EMPLOYEE RETIREMENT SYSTEMS (CONCLUDED) A. California State Teachers' Retirement System (CaISTRS) (Concluded) Funding Policy Active plan members are required to contribute 8.0% of their salary and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CalSTRS Teachers' Retirement Board. The required employer contribution rate for fiscal year was 8.25% of annual payroll. The contribution requirements of the plan members are established by Slate stalute, The District's contributions to CalSTRS for the fiscal years ended June 30, 2011, 2010, and 2009, were $629,864, $614,051, and $614,326, respectively, and equal 100% of the required contributions for each year. B. California Public Employees' Retirement System (CaIPERS) Plan Description The District contributes to the School Employer Pool under the California Public Employees' Retirement System (CaIPERS). a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CaIPERS. The plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the Public Employees' Retirement Law. CalPERS issues a separate comprehensive annual financial report that includes financial statements and required supplementary information. Copies of the CalPERS annual financial report may be obtained from the CalPERS Executive Office, 400 Q Street, Sacramento, CA 95811, Funding Policy Active plan members are required to contribute 7. 0% of their salary and the District is required to contribute an actuarially determined rate. The actuarial methods and assumptions used for determining the rate are those adopted by the CalPERS Board of Administration. T he required employer contribution rate for fiscal year was %. The contribution requirements of the plan members are established by State statute. The District's contributions to CalPERS for the fiscal years ended June 30, 2011, 2010, and 2009, were $244,681, $240,028, and $238,274, respectively, and equal 100% of the required contributions for each year. C. Social Security As established by Federal law, all public sector employees who are not members of their employer's existing retirement system (CaISTRS or CaIPERS) must be covered by social security or an alternative plan. The District has elected to use Social Security as its alternative plan. Contributions made by the District and participating employees vest immediately. The District contributes 6.2% of an employee's gross earnings. In addition, the employees were req uired to contribute 6.2% of their gross earnings from July 2010 through December 2010 and 4.2% from January 2011 through June

50 NOTES TO THE BASIC FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 3D, 2011 NOTE 15 - RISK MANAGEMENT The District is exposed to various risks of loss related to theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. During fiscal year , the District pa rticipated in one joint powers authority (JPA) for purposes of pooling for risk. There were no significant reductions in coverage during the year. Settlements have not exceeded coverage in any of the past three years. NOTE 16 - JOINT VENTURES The District participates in two joint ventures under joint powers agreements with Marin School Insurance Authority (MSIA) for workers' compensation and property and liability insurance, and Marin Pupils Transportation Agency (MPTA) for pupil transportation services for special education children. The relationships between the District and the JPAs are such that the JPAs are not component units of the District for financial reporting purposes. The JPAs arrange for and/or provide coverage or services for its members. The JPAs are governed by a board consisting of a representative from each member district. Each board controls the operations of their JPAs, including selection of management and approval of operating budgets independent of any influence by the member districts beyond their representation on the Board. Each member district pays a premium commensurate with the level of coverage or service requested and shares surpluses and deficits proportionately to their participation in the JPAs. The JPAs are audited on an annual basis. Audited financial statements can be obtained by contacting each JPA's management. NOTE 17 - COMMITMENTS AND CONTINGENCIES A. State and Federal Allowances Awards and Grants The District has received state and federal funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursements will not be material. 8. litigation The District is subject to various legal proceedings and claims. In the opinion of management, the ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the District. NOTE 18 - ECONOMIC DEPENDENCY During the year, the District received $1,411,946 of parcet tax revenue that is subject to voter approval, and $1,430,000 from the Foundation for Reed Schools, a non-profit charitable organization, that is subject to voluntary public contributions to the organization. NOTE 19 - SUBSEQUENT EVENT General Obligation Refunding Bonds On September 27, 2011, the District issued $26,900,000 of general obligation refunding bonds for purposes of refunding a portion of the District's outstanding general obligation bonds. The refunding bonds were issued to decrease the tax burden on the individuals who own property within the District. 44

51 SUPPLEMENTARY INFORMATION SECTION

52

53 SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL - GENERAL FUND FOR THE FISCAL YEAR ENDED JUNE 30, 2011 Revenues Revenue limit Sources: Origina l Final Budget Budget Actual State Apportionment S (16,669) S (16,669) $ (17,957) Local Sources 10,960,877 10,728,087 10,723,912 Total Revenue Limit Sources 10,944,208 10,711,418 10,705,955 Federal Revenue 274, , ,997 Other Siale Revenue 338, , ,502 Other Local Revenue 3,755,412 3,785,412 3,910,918 Total Revenues 15,312,219 15,554,842 15,497,372 Ex penditures Cerlificated Salaries 7,700,379 7,742,379 7,689,823 Classified Salaries 2,443,058 2,446,058 2,341,217 Employee Benefits 2,831,565 2,878,495 2,635,231 Books and Supplies 375, , ,449 Services and Other Operating Expenditures 1,668,821 1,74 1,278 1,484,965 Debt Service: Principal Retirement 206, , ,947 tnterest and Fiscal Charges 23,113 23,113 23,113 Other Expenditures 229, , ,685 Total Expenditures 15,478,977 16,049,625 15,220,430 Excess of Revenues Over (Under) Expenditures (166,758) (494,783) 276,942 Other Financing Sources (Us e sl Operating Transfers In 409, ,400 Operating Transfers Out (66,000) (66,000) (66,000) Other Sources 303,494 Total Other Financing Sources (Uses) 343, , ,894 Net Change in Fund Balances 176,642 (151,383) 923,836 Variance with Final Budget Favorable (Unfavorable) $ (1,288) (4,175) (5,463) (175,470) (2,043) 125,506 (57,470) 52, , , , ,313 (17,490) 829, , , ,494 $ 1,075,219 Fund Balances July I, ,851,573 3,851,573 3,851,573 Fund Balances June 3D, 2011 $ 4,028,215 $ 3,700,190 $ 4,775,409 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS 45

54 COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS JUNE 30, Assets Deposits and Investments Receivables Due from Other Funds Deferred Capital Maintenance Cafeteria Facilities $ 457,336 $ 17,322 $ 193,214 50,000 Granada Lease $ 870,220 1,044 Total Non.Major Governmental Funds $ 1,538,092 1,044 50,000 Total Assets $ 507,336 $ 17,322 $ 193,214 $ 871,264 $ 1,589, 136 Liabilities and Fund Balances liabilities : Accounts Payable Deferred Revenue $ 30 $ 3,591 64,146 $ 3,621 64,146 Total Liabilities 30 67,737 67,767 Fund Balances: Restricted Assigned $ 507,336 $ 17, , , , ,185 Total Fund Balances 507,336 17, , ,527 1,521,369 Total liabilities and Fund Balances $ 507,336 $ $ '93,214 $ 871,264 S 1,589,136 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS 46

55 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 Revenues Slate Revenue S 37,184 Deferred Ca pital Granada Maintenance Cafeleria Facilities Lease Local Revenue 2,114 $ 2,476 $ 28,208 $ Total Revenues 39,298 2,476 28, ,537 Expenditures Food Services 10,267 Plant Services 115,881 Facilities Acquisition and Construction 3,561 Total Expenditures a 10,267 3, ,861 Excess of Revenues Over (Under) Expenditures 39,298 (7,791) 24, ,656 Other Financing Sources (Usesl Operating Transfers In 50,000 16,000 Operating Transfers Out (409,400) Total Other Financing Sources (Uses) 50,000 16,000 0 (409,400) Net Change in Fund Balances 89,298 8,209 24,647 63,256 Fund Balances - July 1, ,038 9, , ,271 Fund Balances - June 30, 2011 S 507,336 $ 17,322 $ 193,184 $ 803,527 Total Non Maj or Governmental Fun ds S 37, , ,519 10, ,881 3, , ,810 66,000 (409,400) (343,400) 185,4 10 1,335,959 $ 1,521,369 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART Of THESE STATEMENTS 47

56 SCHEDULE OF FUNDING PROGRESS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 Actuarial Valuation Date Value of Assets Accrued Unfunded Liability AAL Funded (AAL) (UAAl) Ratio Covered Payroll Percentage of Covered Payroll 7/1/09 $ 0 $ 2,730,767 $ 2,730,767 0% $ 9,587, % see NOTES TO SUPPLEMENTARY INFORMATION 48

57 ORGANIZATION/BOARD OF TRUSTEES/ADMINISTRATION FOR THE FISCAL YEAR ENDED JUNE 30, 2011 ORGANIZATION The Reed Union School District is located in Tiburon, California. There were no changes in the boundaries of the District during the current year. The District is currently operating two elementary schools and one middle school. BOARD OF TRUSTEES Name Merrill Boyce Howard Block Nancy O'Neill Robert Scannell Lisa Mathews Office President Vice President Clerk Member Member Term Expires December 2011 December 2013 December 2013 December 2013 December 2011 ADMINISTRATION Steven Herzog Superintendent John C. Frick Business Manager 49

58 SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE FISCAL YEAR ENDED JUNE Elementary Second Period Report Kindergarten First through Third Fourth through Sixth Seventh and Eighth Special Education - SOC 6.70 Special Education - Nonpublic 2.01 Extended Year 0.72 Totals Annual Report see NOTES TO SUPPLEMENTARY INFORMATION 50

59 SCHEDULE OF INSTRUCTIONAL TIME FOR THE FISCAL YEAR ENDED JUNE 30, 2011 Adjusted Adjusted Number of Days Actual Actual Minutes Minutes Actual Traditional Grade Level Minutes Minutes Required Required Minutes Calendar Number of Days Multitrack Calendar Status Kindergarten NIA 36,000 35,000 47, NIA In Compliance Grade 1 NIA 50,400 49,000 52, NIA In Compliance Grade 2 NIA 50,400 49,000 52, NIA In Compliance.. Grade 3 NIA 50,400 49,000 57, NIA In Compliance.. Grade 4 NIA 54,000 52,500 57, NIA In Compliance.. Grade 5 NIA 54,000 52,500 57, NIA In Compliance.. Grade 6 NIA 54,000 52,500 60, NIA In Compliance.. Grade 7 NIA 54,000 52,500 60, NIA In Compliance.. Grade 8 NIA 54,000 52,500 60, NIA In Compliance.. Current year instructional minutes exceed the adjusted minutes requirement. Instructional time records for fiscal year were not maintained. SEE NOTES TO SUPPLEMENTARY INFORMATION 51

60 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 Program Name Federal Catalog Number Pass-Through Identification Number Federal Program Expendltul"es U.S. Department of Education: Passed through California Passed through CDE: Education Jobs Fund NelS: Title II Improving Teacher Quality NeLS: T itle II I Li mited English Proficient NelS: Title I Basic Grant Low-Income & Neglected Passed through Marin County SElPA: Special Education Cluster: IDEA Part B Basic Local Assistance ARRA IDEA Part 8 l ocal Assistance Total $ 36,927 31,4 13 2,950 64, ,308 86,893 $ 333,997 SEE NOTES TO SUPPLEMENTARY INFORMATION 52

61 RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, Auditor's Comments The audited financial statements of all funds were in ag reement with the Annual Financial and Budget Report for the fiscal year ended June 30, SEE NOTES TO SUPPLEMENTARY INFORMATION 53

62 SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2011 GENERAL FUND (Budgel)' Revenues and Other Financial Sources $ 15,659,461 $ 16,210,266 $ 16,054,694 S 15,453,411 Expenditures 16,016,102 15,220,430 15,297,655 14,870,636 Other Uses and Transfers Out 0 66,000 50, Total Outgo 16,016, ,286,430 15,347,655 14,920,636 Change in Fund Balance (356,641) 923, , Ending Fund Balance S 4,418,768 $ 4,775,409 $ 3.851,573 $ 3,144,534 Available Reserves $ 4,320,638 $ 4,483,753 $ 479,52 1 S 953,702 Reserve for Economic Uncertainties ** $ 480,483 $ $ 479,521 S 466,564 Available Reserves as a Percentage of Total Outgo 27,0% 29.33% 3.12% 6.4% Average Daily Attendance at P-2 1,361 1,273 1,193 1,124 TOlallong-Term liabilities $ 41,435,656 $ 43,514,413 $ 44,687,760 $ 46,159,130 Amounts reported for the budget are presented for analytical purposes only and have not been audited, Reported balances are a component of available reserves. The significant increase in available reserves during the current year is due primarily to the change in financial statement presentation resulting from the implementation of GASB Statement No. 54. The fund balance of the General Fund increased $1,630,875 (51.9%) over the past two years. The fiscal year budget projects a decrease of $356,641 (7.5%). F or a district this size, the stale recommends available reserves of at least 3% of tolal general fund expenditures, transfers out, and other uses (tolal outgo). The District produced operating surpluses of $532,775, $707,039, and $923,836 during fiscal years , , and respectivel y. Average daily attendance has increased 149 AOA over the past two years. The District projects an increase of 88 ADA during fiscal year Totallong term liabilities decreased $2,644,717 over the past two years. SEE NOTES TO SUPPLEMENTARY INFORMATION 54

63 NOTES TO SUPPLEMENTARY INFORMATION FOR THE FISCAL YEAR ENDED JUNE 3D, 2011 NOTE 1 - PURPOSE OF STATEMENTS AND SCHEDULES A. Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual In accordance w ith Governmental Accounting Standards Board (GASS) Statement No. 34, the District is required to present a Schedule of Revenues, Expenditures, and Changes in Fund Balance budgetary comparison for the General Fund and each Major Special Revenue Fund that has an adopted budget. This schedule presents the original adopted budget, final adopted budget, and the actual revenues and expenditures of each of these funds by object 8. Combining Statements Combining statements are presented for purposes of additional analysis, and are not a required part of the District's basic financial statements. These statements present more detailed information about the financial position and financial activities of the District's individual funds. C. Schedule of Funding Progress In accordance with Governmental Accounting Standards Board (GASB) Statement No. 45, the District is required to present a Schedule of Funding Progress which shows the funding progress of the District's OPES plan for the most recent valuation and the two preceding valuations. The information required to be disclosed includes the valuation date, the actuarial value of assets, the actuarial accrued liability, the total unfunded actuarial liability (or funding excess), the actuarial value of assets as a percentage of the actuarial accrued liability (funded ratio), the annual covered payroll and the ratio of the unfunded actuarial liability (or funding excess) to annual covered payroll. D. Schedule of Average Daily Attendance Average daily attendance is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of state funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs. E. Schedule of Instructional Time The District received state funding under the Basic Aid Provision and therefore did not receive incentive funding for increasing instructional time as provided by the incentive for longer day instructional day. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections through F. Schedule of Expenditures of Federal Awards The accompanying schedule of expenditures of federal awards includes the federal grant activities of the District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. 55