ANNUAL FINANCIAL REPORT KOMAREK SCHOOL DISTRICT NO. 94 NORTH RIVERSIDE, ILLINOIS JUNE 30, 2011

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1 ANNUAL FINANCIAL REPORT KOMAREK SCHOOL DISTRICT NO. 94 NORTH RIVERSIDE, ILLINOIS JUNE 30, 2011

2 TABLE OF CONTENTS JUNE 30, 2011 Exhibit Page Independent Auditors Report 1 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 3 Management s Discussion and Analysis 5 Basic Financial Statements: Government-wide Financial Statements Statement of Net Assets A 11 Statement of Activities B 12 Fund Financial Statements Balance Sheets Governmental Funds C 13 Statement of Revenue, Expenditures and Changes in Fund Balance Governmental Funds D 16 Statement of Fiduciary Assets and Liabilities E 19 Notes to the Basic Financial Statements 20 Required Supplementary Information: Illinois Municipal Retirement Fund 39 Other Post-Employment Benefits 40 Schedule Combining Balance Sheet General Fund 1 41 Combining Schedule of Revenue, Expenditures and Changes in Fund Balance General Fund 2 42 Schedule of Revenue, Expenditures and Changes in Fund Balance Budget and Actual Educational Account 3 48 Schedule of Revenue, Expenditures and Changes in Fund Balance Budget and Actual Tort Account 4 54 Schedule of Revenue, Expenditures and Changes in Fund Balance Budget and Actual Working Cash Account 5 55

3 TABLE OF CONTENTS JUNE 30, 2011 Schedule Page Schedule of Revenue, Expenditures and Changes in Fund Balance Budget and Actual Operations and Maintenance Fund 6 56 Schedule of Revenue, Expenditures and Changes in Fund Balance Budget and Actual Debt Service Fund 7 57 Schedule of Revenue, Expenditures and Changes in Fund Balance Budget and Actual Transportation Fund 8 58 Schedule of Revenue, Expenditures and Changes in Fund Balance Budget and Actual Municipal Retirement/Social Security Fund 9 59 Schedule of Revenue, Expenditures and Changes in Fund Balance Budget and Actual Fire Prevention and Safety Fund Supplementary Financial Information: Summary of Assessed Valuations, Tax Extensions and Collections Schedule of Bonded Debt Maturities Series 2003A Schedule of Bonded Debt Maturities Series Schedule of Bonded Debt Maturities Series 2009A Schedule of Bonded Debt Maturities Series 2009B Per Capita Operating Cost and Tuition Charge 16 67

4 Independent Auditors Report Board of Education Komarek School District No. 94 North Riverside, Illinois We have audited the accompanying basic financial statements of Komarek School District No. 94 as of and for the year ended June 30, 2011, as listed in the accompanying table of contents. These basic financial statements are the responsibility of the District s management. Our responsibility is to express an opinion 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 Government Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Komarek School District No. 94 at June 30, 2011, and the results of its operations for the year then ended, in conformity with accounting principles generally accepted in the United States of America. As described in Note 3 to the financial statements, the District adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, during the fiscal year ended June 30, In accordance with Government Auditing Standards, we have also issued our report on our consideration of the District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The Management s Discussion and Analysis, budgetary comparison information and the schedule of funding progress for the Illinois Municipal Retirement Fund are required supplementary information, and are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We did not audit the information and do not express an opinion on it. 1

5 Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying financial information listed as Supplementary Financial Information in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements of the District. Such information, except for enrollment data presented in various schedules, has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. No tests were performed on the enrollment data, and accordingly we express no opinion on it. September 29, 2011 Rolling Meadows, IL (20) Evans, Marshall & Pease, P.C. Evans, Marshall & Pease, P.C. Certified Public Accountants 2

6 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 Board of Education Komarek School District No. 94 North Riverside, Illinois We have audited the financial statements of Komarek School District No. 94 (the District ) as of and for the year ended June 30, 2011, and have issued our report thereon dated September 29, 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered Komarek School District No. 94 internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is reasonable possibility that a material misstatement of the school district s financial statements will not be prevented or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or be material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether Komarek School District No. 94 basic financial statements are free of material misstatement, we performed tests of the District s compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and 3

7 material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. In accordance with SAS No. 114 The Auditor s Communication With Those Charged With Governance we have issued a separate letter dated September 29, 2011 to the Board of Education addressing those required communications. This report is intended solely for the information and use of the Board of Education, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. September 29, 2011 Rolling Meadows, IL Evans, Marshall & Pease, P.C. Evans, Marshall & Pease, P.C. Certified Public Accountants 4

8 Komarek School District 94 Management s Discussion and Analysis For the Year Ended June 30, 2011 The management s discussion and analysis of Komarek School District 94 s (the District ) financial performance provides an overall review of the District s financial activities for the year ending June 30, The management of the District encourages readers to consider the information presented herein in conjunction with the basic financial statements to enhance their understanding of the District s financial performance. All amounts, unless otherwise indicated, are expressed in thousands of dollars. Financial Highlights Like most Illinois districts, Komarek District 94 is struggling with diminishing revenues and increasing expenditures. The District has been carefully reducing expenditures by making mild cuts in areas that do not significantly affect personnel or services to students. The District is dealing with late payments and reduced property tax revenue. The District has put a freeze on major building projects for the time being. We are focused on routine maintenance to keep the building running as efficiently as possible. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the District s basic financial statements. The basic financial statements are comprised of three components: Government-wide financial statements, Fund financial statements, and Notes to the financial statements This report also contains other supplementary information in addition to the basic financial statements. Government-wide financial statements The government-wide financial statements are designed to provide readers with a broad overview of the District s finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the District s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the District is improving or deteriorating. The statement of activities presents information showing how the government s net assets changed during the fiscal year being reported. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods. The government-wide financial statements present the functions of the District that are principally supported by taxes and intergovernmental revenues (governmental activities). The District has no business-type activities; that is, functions that are intended to recover all or a significant portion of their costs through user fees and charges. The District s governmental activities include instructional services (regular education, special education and other), supporting services, operation and maintenance of facilities and transportation services. 5

9 Komarek School District 94 Management s Discussion and Analysis For the Year Ended June 30, 2011 Fund financial statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the District can be divided into two categories: government funds and fiduciary funds (the District maintains no proprietary funds). Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a school district s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The District maintains eight individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures and changes in fund balances for the Educational Account, Operations & Maintenance Fund, Debt Service Fund, Transportation Fund, Municipal Retirement Fund, Working Cash Account, Tort Account and Fire Prevention & Safety Fund, all of which are considered to be major funds. The District considers all of its funds to be major funds. The District adopts an annual budget for each of the funds listed above. A budgetary comparison statement has been provided for each fund to demonstrate compliance with this budget. Fiduciary funds are used to account for resources held for the benefit of parties outside the school district, such as student activities funds. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the District s own programs. The accounting used for fiduciary funds is much like that for the government-wide financial statements. Notes to the financial statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Other information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the District s progress in funding its obligation to provide pension benefits to its non-certified employees. District-Wide Financial Analysis The District s net assets for FY11 and FY10 are as follows: 6

10 Komarek School District 94 Management s Discussion and Analysis For the Year Ended June 30, 2011 Condensed Statement of Net Assets: Current and Other Assets $ 4,975,216 $ 5,098,326 Capital Assets 2,583,125 2,673,432 Total Assets 7,558,341 7,771,758 Long Term Debt Outstanding 2,700,290 2,957,150 Other Liabilites 2,535,481 2,439,108 Total Liabilities 5,235,771 5,396,258 Net Assets Invested in Capital Assets Net of Related Debt 1,616,920 1,753,055 Restricted: 417, ,217 Unrestricted: 287, ,278 Total Net Assets $ 2,322,570 $ 2,375,550 Governmental Activities Revenue Property Taxes $ 3,941,830 $ 4,091,240 Corporate Personal Property Replacement 669, ,152 Proram Revnues 1,325,928 1,542,669 State Aid 202, ,417 Gain/(Loss) on Sale of Fixed Assets - (6,736) Unrestricted Investment Earnings 16,529 70,511 Total Received 6,155,881 6,333,253 Expenses Instruction 4,040,936 4,152,320 Support Services 1,692,230 2,202,866 Community Services 53,324 54,758 Payments to other LEAs and Govt. Units 319, ,170 Interest on Long-Term Debt 103, ,254 Total 6,208,861 6,847,368 Change in Net Assets $ (52,980) $ (514,115) 7

11 Komarek School District 94 Management s Discussion and Analysis For the Year Ended June 30, 2011 REVENUE FY11 Personal property replacement tax 11% State aid - formula 3% Investment earnings 0% Charges for services 3% Operating grants and contributions 19% Property taxes 64% EXPENDITURES FY11 Community service 1% Payments to other Govt's 5% Debt service - interest 2% Support 27% Instruction 65% 8

12 Komarek School District 94 Management s Discussion and Analysis For the Year Ended June 30, 2011 Financial Analysis of the District s Funds As the District completed the year, its governmental funds reported combined fund balances of $2,485,072 which was a $142,045 decrease over FY10. The General Fund revenues totaled $4,849,562, added to a beginning balance of $1,470,509 gave an available fund total of $6,320,071 for the year. Expenses and other uses totaled $5,286,610, which left the General fund with a balance of $1,033,461 for the year. The district instituted several cost saving strategies at the end of FY11. Several staff positions were reduced or eliminated to help lessen the impact of a 3.58% salary increase that was dictated by the collective bargaining agreement. The district has to make careful use of its levy in order to capture the maximum amount of revenue for the district. In the O & M Fund, revenues exceeded expenses by $219,713. We will be starting FY12 with a fund balance of $828,357. The district paid for several construction projects completed during the summer of 2011 directly from this fund. The construction work completed in the summer of 2009 related to new windows and boilers for the building has paid off in significantly reduced energy usage and costs. The Transportation Fund has finally begun to stabilize after many years of running a deficit. We began the year with a fund balance of $87,240, and through careful levying, was able to maintain and build on this balance throughout the year. The fund ended the year with a healthy balance of $193,028. The Municipal Retirement Fund has been in the positive since careful work with the Levy in The year ended with a healthy $91,638 as a fund balance. General Fund Budgetary Highlights Like most Illinois school districts, Komarek 94 is dealing with an uncertain financial future. The State of Illinois continues to push costly mandates without proper funding. Disagreement and uncertainty within the legislative process has affected the funding that the district has relied on for years. The district is faced with the option of stagnant programs or spending uncertain dollars to remain progressive. Through careful planning and leasing, the district has improved its technology infrastructure for FY12. This program of adding computers and classroom technology is one the district needs to commit to pending proper planning and funding. The district is facing a growing enrollment and limited building space. If the trend continues, the future school board and administration will need to face the possibility of classroom and school space expansion. The current Board of Education has begun to consider options for the future. The district is committed to working within its budgetary means. Careful planning and a frugal approach to spending is necessary for the district to continue with positive fund balances. Unfortunately, relief from the State does not seem to be forthcoming and a referendum would be doomed to failure in this financial climate. Factors Bearing on the District s Future The biggest factor affecting the District in the near future is funding sources that we rely on for solid revenue. The ARRA money that the District received in 2010 has been used toward new and existing programs. There is a small amount of ARRA money for salaries available this year, and the District is taking advantage of that. The District s population has again risen after a one year decline. It is now at its highest mark in over 50 years. The District is challenged with space issues, trying to accommodate all the necessary classrooms within existing buildings. At some point, if the population continues to increase, the District will need to consider expanding the building to add classroom space. 9

13 Komarek School District 94 Management s Discussion and Analysis For the Year Ended June 30, 2011 The Board and teacher association concluded contract negotiations in July, The school day was expanded as a result, but the Board had to concede some insurance issues as a result. With insurance costs increasing in double digit percentages each year, this may be an issue in subsequent years. Salary increases for the three year term of the contract are within reason. TIF districts, mostly established by the Village of Broadview, continue to impact the District. The new 19 th Avenue TIF is in effect which will affect District tax revenues for the next 21 years. The Broadview Mall TIF is scheduled to come off in With the uncertain funding situation, the Board has begun to look at options to further save in all areas. Staffing for future years becomes very important when looking to save money. The Board may need to make some very difficult decisions that will affect staff numbers and established programs. Requests for Information This financial report is designed to provide the District s citizens, taxpayers, and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. If you have questions about this report, or need additional financial information, contact the Business Office: Mrs. Kathy Gibson 8940 W. 24 th Street North Riverside, IL (708) , ext

14 BASIC FINANCIAL STATEMENTS

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16 STATEMENT OF NET ASSETS JUNE 30, 2011 EXHIBIT A Governmental Activities ASSETS Current assets: Cash and investments $ 2,688,781 Receivables (net of allowance for uncollectibles): Interest 6,296 Property taxes 2,071,470 Replacement taxes 20,597 Intergovernmental receivable 165,594 Prepaid items 22,478 Total Current Assets 4,975,216 Non-Current assets: Capital Assets, not being depreciated: Land 36,050 Depreciable Capital Assets, net of accumulated depreciation: Land improvements 718 Buildings and improvements 2,181,000 Equipment 365,357 Total Depreciable Capital Assets, net of depreciation 2,547,075 Total Non-Current Assets 2,583,125 Total Assets 7,558,341 LIABILITIES Current liabilities: Accounts payable 41,717 Salaries and wages payable 467,415 Interest payable 6,296 Unearned revenue 2,009,678 Teacher pension payable 10,375 Total Current Liabilities 2,535,481 Non-Current liabilities: Due within one year 223,039 Due in more than one year 2,477,251 Total Non-Current Liabilities 2,700,290 Total Liabilities 5,235,771 NET ASSETS Invested in capital assets, net of related debt 1,616,920 Restricted 417,947 Unrestricted 287,703 Total Net Assets $ 2,322,570 The accompanying notes to the financial statements are an integral part of this statement. 11

17 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2011 EXHIBIT B Excess (Deficiency) of Revenues over Expenses and Program Revenues Received Changes in Net Assets Operating Capital Charges for Grants and Grants and Governmental Functions/ Programs Expenses Services Contributions Contributions Activities Governmental Activities: Instruction $ 4,040,936 $ 109,544 $ 1,027,113 $ - $ (2,904,279) Support 1,692,230 31, ,837 - (1,502,959) Community service 53, (53,324) Payments to other LEAs and governmental units 319, (319,306) Debt service: Interest and fees 103, (103,065) Total Governmental Activities $ 6,208,861 $ 140,978 $ 1,184,950 $ - (4,882,933) General Revenues Received: Taxes: Personal property replacement taxes 669,355 Property taxes, levied for general purposes 2,858,649 Property taxes, levied for debt service 319,113 Property taxes, levied for specific purposes 764,068 State aid - formula grants 202,239 Investment earnings 16,529 Total General Revenues Received 4,829,953 Change in Net Assets (52,980) Net Assets, July 1, ,375,550 Net Assets, June 30, 2011 $ 2,322,570 The accompanying notes to the financial statements are an integral part of this statement. 12

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19 GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2011 Operations and Municipal General Maintenance Transportation Retirement Fund Fund Fund Fund ASSETS Cash and investments $ 1,279,326 $ 841,906 $ 161,349 $ 90,662 Receivables (net of allowance): Interest 3,874 1, Property taxes 1,534, ,997 49,830 53,009 Replacement taxes - 20, Intergovernmental receivable 123,992-41,602 - Prepaid items 7,721 14, Total Assets $ 2,949,665 $ 1,151,492 $ 252,970 $ 143,914 LIABILITIES Accounts payable $ 25,737 $ 5,157 $ 10,823 $ - Salaries and wages payable 438,517 28, Deferred revenue 1,451, ,103 49,119 52,253 Total Liabilities 1,916, ,135 59,942 52,276 FUND EQUITY Fund Balances: Nonspendable 7, Restricted - 848, ,028 91,638 Unassigned 1,025, Total Fund Balances 1,033, , ,028 91,638 Total Liabilities and Fund Balances $ 2,949,665 $ 1,151,492 $ 252,970 $ 143,914 The accompanying notes to the financial statements are an integral part of this statement. 13

20 EXHIBIT C Fire Prevention Total Debt Service & Safety Governmental Fund Fund Funds $ 313,436 $ 2,102 $ 2,688, , ,882-2,071, , , ,478 $ 475,058 $ 2,117 $ 4,975,216 $ - $ - $ 41, , ,587-1,981, ,587-2,490, , ,471 2,117 1,451, ,025, ,471 2,117 2,485,072 $ 475,058 $ 2,117 $ 4,975,216 14

21 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS EXHIBIT C (CONT'D) Total fund balances-governmental funds (Exhibit C) $ 2,485,072 Amounts reported for governmental activities in the statement of assets and liabilities arising from cash transactions are different because: When capital assets that are to be used in governmental activities are purchased or constructed, the cost of those assets are reported as expenditures in governmental funds. However, the statement of net assets includes those capital assets among the assets of the District as a whole. Cost of capital assets: $ 4,379,970 Accumulated depreciation (1,796,845) 2,583,125 For modified accrual purposes tax collections made within 60 days after year end are included as revenue in the fiscal year. However, for accrual basis these collections are not recognized until the subsequent year end. (28,666) Long-term liabilities are not due and payable in the current period and therefore are not reported as liabilities in the governmental funds. Long-term liabilities at year-end consist of: Long term liabilities payable (2,709,040) Teacher pension payable (10,375) Unamortized bond premium (31,667) Deferred refunding charge and issuance costs 34,121 (2,716,961) Total net assets-governmental activities (Exhibit A) $ 2,322,570 The accompanying notes to the financial statements are an integral part of this statement. 15

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23 GOVERNMENTAL FUNDS STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED JUNE 30, 2011 Operations & Municipal General Maintenance Transportation Retirement Fund Fund Fund Fund Revenue: Property taxes $ 2,887,315 $ 533,174 $ 95,325 $ 105,553 Replacement taxes 481, ,358-27,923 State aid 1,160,969-83,232 - Federal aid 142, Interest 7,572 3, Other 169, Total Revenue 4,849, , , ,997 Expenditures: Instruction: Regular programs 2,968, ,835 Pre-K programs 79, ,211 Special programs 674, ,150 Other instructional programs 176, Support services: Pupils 148, Instructional staff 109, ,188 General administration 280, ,490 School administration 261, ,053 Business 191, ,613 Transportation ,248 - Operations and maintenance - 449, Community services 50, ,253 Payments to other LEAs and governmental units 319, Debt service: Principal Interest and other Capital Outlay 20,485 27, Total Expenditures 5,279, ,466 92, ,460 Excess (Deficiency) of Revenue Over Expenditures Before Other Financing Sources (Uses) (430,328) 219,713 87,240 (21,463) Other Financing Sources (Uses) Transfer of debt service principal (6,720) Total Other Financing Sources (Uses) (6,720) Net Change in Fund Balances (437,048) 219,713 87,240 (21,463) Fund Balance, Beginning of Year 1,470, , , ,101 Fund Balance, End of Year $ 1,033,461 $ 848,357 $ 193,028 $ 91,638 The accompanying notes to the financial statements are an integral part of this statement. 16

24 EXHIBIT D Total Debt Service Fire Prevention Governmental Fund & Safety Fund Funds $ 319,113 $ 1,350 $ 3,941, , ,244, , ,909 16, , ,062 4,259 6,184, ,006, , , , , , , , , , , , , , ,720 99,808-99, , ,528-6,326,592 (1,466) 4,259 (142,045) 6, , ,254 4,259 (142,045) 311,217 (2,142) 2,627,117 $ 316,471 $ 2,117 $ 2,485,072 17

25 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES EXHIBIT D (CONT'D) Total net change in fund balances-governmental funds (Exhibit D) $ (142,045) For modified accrual purposes tax collections made within 60 days after year end are included as revenue in the fiscal year. However, for accrual basis these collections are not recognized until the subsequent year end. (28,666) When capital assets that are to be used in governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. As a result, fund balance decreases by the amount of financial resources expended, whereas net assets decreases by the amount of depreciation expense charged for the year. Capital outlays for items below the District's capitalization policy limits and repairs and maintenance are expensed. Depreciation expense $ (138,742) Capital outlay 48,385 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. The expenses include the changes in: (90,357) Teacher pension payable (10,375) Interest payable used in the governmental activities are not payable from current resources resources and therefore are not reported in the governmental funds. Interest payable 1,603 Repayment of debt principal is reported as an expenditure in governmental funds and thus, has the effect of reducing fund balance because current financial resources have been used. For the District as a whole, however, the principal reduces the liabilities in the statement of net assets and does not result in an expense in the statement of activities. The District's debt was reduced by principal payments made to bond holders. Principal payments made 221,720 Interest and other (3,039) Premiums, deferred refunding charges, and issuance costs on debt are recorded as financing sources and expenditures in the governmental funds respectively. However, in governmentwide statements they are capitalized and amortized. This is the amount by which the amounts of discount and issuance costs exceeded their amortization. Discount/Premium amortization 4,058 Issuance cost and deferred refunding charge (5,879) 218,681 (1,821) Change in net assets of governmental activities (Exhibit B) $ (52,980) The accompanying notes to the financial statements are an integral part of this statement. 18

26 AGENCY FUNDS STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES JUNE 30, 2011 EXHIBIT E Total Agency Funds ASSETS Cash and investments $ 22,188 Total Assets $ 22,188 LIABILITIES Due to student groups $ 22,188 Total Liabilities $ 22,188 The accompanying notes to the financial statements are an integral part of this statement. 19

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28 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the Komarek School District 94 (the District ) conform to accounting principles generally accepted in the United States of America, as applicable to local governmental units of this type. The following is a summary of the more significant accounting policies of the District. A. The Reporting Entity In evaluating how to define the District for financial reporting purposes, management has considered all potential component units. The decision to include or exclude a potential component unit in the reporting entity is made by applying the criteria established by the Governmental Accounting Standards Board (GASB). The definition of a component unit is a legally separate organization for which the District is financially accountable and other organizations for which the nature and significance of their relationship with the District are such that exclusion would cause the reporting entity s financial statements to be misleading or incomplete. The District is financially accountable if it appoints a voting majority of the organization s governing body and (1) it is able to impose its will on that organization or (2) there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the District. The District also may be financially accountable if an organization is fiscally dependent on the District regardless of whether the organization has (1) a separately elected governing board, (2) a governing board appointed by a higher level of government or (3) a jointly appointed board. There are no component units, as defined by GASB, which are included in the District s reporting entity. Even though there are local government agencies within the geographic area served by the District, such as the municipality, library and park district, these agencies have been excluded from the report because they are legally separate and the District is not financially accountable for them. Also, the District is not included as a component unit in any other governmental reporting entity, as defined by GASB pronouncements. B. 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. The effect of interfund activity has been removed from these statements. All of the District s operating activities are considered governmental activities, that is, activities that are normally supported by taxes and intergovernmental revenues. The District has no operating activities that would be considered business activities. The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program revenues include (1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported as general revenues instead. 20

29 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont d) Fund Financial Statements The accounts of the District in the governmental fund financial statements are organized and operated on the basis of funds. A fund is an independent fiscal and accounting entity with a self-balancing set of accounts that comprise its assets, liabilities, reserves, fund balance, revenues and expenditures. Fund accounting segregates funds according to their intended purpose, and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The minimum number of funds is maintained consistent with legal and managerial requirements. Separate financial statements are provided for all governmental funds and fiduciary funds even though the fiduciary funds are excluded from the government-wide financial statements. C. Measurement Focus and Basis of Accounting The government-wide financial statements and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements have been met. Governmental funds are used to account for the District s general government activities. Governmental fund financial statements are reported using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual, i.e., when they are both measurable and available. Measurable means that the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The District considers all revenues available if they are collected within 60 days after year-end. Expenditures are recorded when the related fund liability is incurred, except for unmatured principal and interest on general long-term debt which is recognized when due, and certain compensated absences, claims and judgments which are recognized when the obligations are expected to be liquidated with expendable available financial resources. Also, in accordance with GASB No. 24, on-behalf payments (payments made by a third party for the benefit of the District, such as payments made by the state to the Teachers Retirement System) have been recognized in the financial statements. Property taxes, replacement taxes, certain state and federal aid, and interest on investments are susceptible to accrual. Other receipts become measurable and available when cash is received by the District and are recognized as revenue at that time. Grant funds are considered to be earned to the extent of expenditures made under the provisions of the grant and accordingly, when such funds are received they are recorded as deferred revenues until earned. The District s governmental funds include the following major funds: 21

30 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont d) General Fund (consisting of the Educational Account, Tort Account and Working Cash Account) is the general operating fund of the District. It is used to account for all financial resources except those required to be accounted for in another fund. This fund is primarily used for most of the instructional and administrative aspects of the District s operations. The revenue consists largely of local property taxes and state government aid. Tort Account accounts for revenues and expenses related to District liability issues. Working Cash Account accounts for financial resources held by the District to be used as temporary interfund loans for working capital requirements to the General Fund and the Special Revenue Fund s Operation and Maintenance and Transportation Funds. Money loaned by the Working Cash Account to other funds must be repaid within one year. As allowed by the School Code of Illinois, this fund may be permanently abolished and become a part of the General Fund or it may be partially abated to the General Fund, Special Revenue Funds, Debt Service Funds, or the Fire Prevention and Life Safety Fund. Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than those accounted for in the Debt Service Fund, Capital Projects Funds, or Fiduciary Funds) that are legally restricted to expenditures for specified purposes. Each of the District s Special Revenue Funds has been established as a separate fund in accordance with the fund structure required by the State of Illinois for local educational agencies. These funds account for local property taxes restricted to specific purposes. A brief description of the District s Special Revenue Funds follows: Operations and Maintenance Fund is used for expenditures made for repair and maintenance of the District s building and land. Revenue consists primarily of local property taxes. Transportation Fund accounts for all revenue and expenditures made for student transportation. Revenue is derived primarily from local property taxes and state reimbursement grants. Municipal Retirement/Social Security Fund accounts for the District s portion of pension contributions to the Illinois Municipal Retirement Fund, payments to Medicare and payments to the Social Security System for non-certified employees. Revenue to finance the contributions is derived primarily from local property taxes and personal property replacement taxes. Debt Service Fund is used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs. The primary revenue source is local property taxes levied specifically for debt service. Capital Projects Funds is used to account for the financial resources to be used for the acquisition or construction of, and/or additions to, major capital facilities. Fire Prevention and Life Safety Fund is used to account for State-approved life safety projects financed through serial bond issues. 22

31 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont d) Fiduciary Fund - is used to account for assets held by the District in a trustee capacity or as an agent for individuals, private organizations, other governments, or other funds. Agency Funds include Student Activity Funds, Convenience Accounts and Other Agency Funds. These funds are custodial in nature and do not involve the measurement of the results of operations. Although the Board of Education has the ultimate responsibility for Activity Funds, they are not local education agency funds. Student Activity Funds account for assets held by the District which are owned, operated and managed generally by the student body, under the guidance and direction of adults or a staff member, for educational, recreational or cultural purposes. Convenience Accounts account for assets that are normally maintained by a local education agency as a convenience for its faculty, staff, etc. When both restricted and unrestricted resources are available for use, it is the District s policy to use restricted resources first, and then unrestricted resources as they are needed. D. Assets, Liabilities and Net Assets or Equity Deposits and Investments State statutes authorize the District to invest in obligations of the U.S. Treasury, certain highly-rated commercial paper, corporate bonds, repurchase agreements, and the State Treasurer s Investment Pool. Investments are stated at fair value. Changes in fair value of investments are recorded as investment income. Receivables and Payables Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either interfund receivables/payables (i.e., the current portion of interfund loans) or advances to/from other funds (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as due to/from other funds. These amounts are eliminated in the governmental activities column in the statement of net assets. Property Tax Revenues The District must file its tax levy ordinance by the last Tuesday in December of each year. The District s 2009 levy ordinance was approved during the December 14, 2010 board meeting. The District s property tax is levied each year on all taxable real property located in the District and it becomes a lien on the property on January 1 of that year. The owner of real property on January 1 in any year is liable for taxes of that year. The District s annual property tax levy is subject to two statutory limitations: Individual fund rate ceilings and the Property Tax Extension Limitation Act (PTELA). The tax rate ceilings are applied at the fund level. These ceilings are established by state law subject to change only by the approval of the voters of the District. The District s current rate ceilings are as follows: Educational - $3.500; Operations and Maintenance - $0.550; Transportation - $0.000; Working Cash - $0.050; and, Special Education - $ (The rates are stated per hundred dollars of equalized assessed valuation.) 23

32 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont d) The PTELA limitation is applied in the aggregate to the total levy (excluding certain levies for the repayment of debt). PTELA limits the increase in total taxes billed to the lower of 5% or the percentage increase in the Consumer Price Index (CPI) for the preceding year. The amount can be exceeded to the extent there is new growth in the District s tax base. The new growth consists of new construction, annexations and tax increment finance district property becoming eligible for taxation. Property taxes are collected by the Cook County Collector/Treasurer, who remits to the District its share of collections. Taxes levied in one year become due and payable in two installments: the first due on March 1 and the second due on the later of August 1 or 30 days after the second installment tax bill is mailed (typically, this is due in late August or early September). The first installment is an estimated bill, and is one-half of the prior year s total tax. The second installment is based on the current levy, assessment and equalization, and any changes from the prior year will be reflected in the second installment bill. The District collects taxes shortly after the due dates, usually within 45 days. The 2010 property tax levy is recognized as a receivable in fiscal 2011, net of estimated uncollectible amounts approximately 1%. The District considers that the first installment 2010 levy is to be used to finance operations in fiscal The District has determined that the second installment of the 2010 levy is to be used to finance operations in fiscal 2012 and has deferred the corresponding receivable. Personal Property Replacement Taxes Personal property replacement taxes are first allocated to the Municipal Retirement/Social Security Fund, with the balance allocated to the remaining funds at the discretion of the District. Prepaid Items Certain payments to vendors that reflect costs applicable to future accounting periods are recorded as prepaid items in both government-wide and fund financial statements. Capital Assets Capital assets, which include land, land improvements, buildings, building improvements, vehicles, equipment, and construction in progress are reported in the government-wide financial statements. Capital assets are defined by the District as assets with an initial individual cost of more than $300 and an estimated useful life of 5 years or more. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Depreciation of capital assets is provided using the straight-line method over the following estimated useful lives: Assets Years Land improvements Buildings and Improvements Equipment

33 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont d) The District does not depreciate land and construction in progress. Long-Term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the statement of net assets. Bond premiums and discounts, as well as issuance costs are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental funds recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Comparative Data Comparative totals for the prior year have been presented in selected sections of the accompanying financial statements in order to provide an understanding of the changes in the District s financial position and operations. Eliminations and Reclassifications In the process of aggregating data for the government-wide financial statements, some amounts reported as interfund activity and balances were eliminated or reclassified. NOTE 2 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary Data Except for the exclusion of on-behalf payments from other governments, discussed below, the budgeted amounts for the Governmental Funds are adopted on the modified accrual basis, which is consistent with accounting principles generally accepted in the United States of America. The Board of Education follows these procedures in establishing the budgetary data reflected in the general purpose financial statements. 1. The Administration submits to the Board of Education a proposed operating budget for the fiscal year commencing on July 1. The operating budget includes proposed expenditures and the means of financing them. 2. Public hearings are conducted and the proposed budget is available for inspection to obtain taxpayer comments. 3. Prior to September 30, the budget is legally adopted through passage of an ordinance. By the last Tuesday in December, a tax levy ordinance is filed with the county clerk to obtain tax revenues. 25