OLEY VALLEY SCHOOL DISTRICT

Transcription

1 FINANCIAL AND COMPLIANCE REPORT Year Ended

2 TABLE OF CONTENTS INDEPENDENT AUDITOR'S REPORT Pages MANAGEMENT S DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position Statement of Activities Fund Financial Statements Balance Sheet - Governmental Funds Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position 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 Government-Wide Statement of Activities Statement of Net Position - Proprietary Fund Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Fund Statement of Cash Flows - Proprietary Fund Statement of Net Position - Fiduciary Funds Statement of Changes in Net Position - Fiduciary Fund Notes to Basic Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule for the General Fund Schedule of the District s Proportionate Share of the Net Pension Liability and Related Ratios - Pension Plan Schedule of District s Contributions - Pension Plan Schedule of Funding Progress - Other Postemployment Benefits Plan Note to Required Supplementary Information... 64

3 Pages SUPPLEMENTARY INFORMATION Food Service Fund Schedule of Revenues and Expenses Single Audit Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards 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 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE SCHEDULE OF FINDINGS AND QUESTIONED COSTS STATUS OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS

4 Herbein + Company, Inc Century Boulevard Reading, PA P: F: INDEPENDENT AUDITOR'S REPORT To the Board of School Directors Oley Valley School District Oley, Pennsylvania Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Oley Valley School District, as of and for the year ended, and the related notes to the financial statements, which collectively comprise Oley Valley School District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Oley Valley School District, as of, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Succeed With Confidence 1

5 Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, the budgetary comparison schedule for the general fund, and pension and other postemployment benefit information on pages 61 through 63, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Oley Valley School District s basic financial statements. The schedule of revenues and expenses - food service fund is presented for the purpose of additional analysis and is not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The schedule of revenues and expenses - food service fund and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of revenues and expenses - food service fund and the schedule of expenditures of federal awards are fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated, December 11, 2017, on our consideration of the District s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District s internal control over financial reporting and compliance. Reading, Pennsylvania December 11, 2017 Succeed With Confidence 2

6 December 11, 2017 OLEY VALLEY SCHOOL DISTRICT OLEY, BERKS COUNTY, PENNSYLVANIA Enter to Learn Leave to Serve Tracy S. Shank, Ed. D. 17 Jefferson Street Superintendent Oley, PA Telephone (610) Members of the Board of School Directors, The following is a discussion and analysis of the Oley Valley School District s annual financial performance during the fiscal year ended. This financial report is designed to provide the District s citizens, taxpayers, customers, investors and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. Financial Statements This annual audit consists of three parts: (1) management s discussion and analysis, (2) basic financial statements, and (3) required supplementary information. The basic financial statements include two types of financial statements that present different views of the District. The first type of financial statements includes two district-wide financial statements that provide both short-term and long-term information about the District s overall financial status. The remaining statements are the fund financial statements that focus on individual parts of the District. The governmental fund statements indicate how basic instructional services were financed in the short term, as well as future spending plans. Proprietary fund statements offer short-term and long-term financial information about food services. Fiduciary funds statements provide information about the financial relationships in which the District acts solely as a trustee or agent for the benefit of others, such as student activity funds and scholarship funds. The financial statements also include notes which explain the information in the audit statements, as well as more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. The Oley Valley School District is an Equal Opportunity Employer and Educator who fully and actively supports equal access for all people regardless of Race, Color, Religion, Gender, Age, National Origin, Veteran Status, Disability, Genetic Information or Testing, Sexual Orientation and Gender Identity or Expression and prohibits Retaliation against individuals who bring forth any complaint, orally or in writing, to the employer or the government, or against any individuals who assist or practice in the investigation of any complaint, or otherwise oppose discrimination. Compliance issues/questions should be directed to the Office of the Superintendent. 3

7 Figure A-1 summarizes the major features of the District s statements. Figure A-1 Major Features of the District-wide and Fund Financial Statements District-wide Statements Fund Financial Statements Governmental Funds Proprietary Funds Fiduciary Funds Scope Entire District (except fiduciary funds) Activities of the District that are not proprietary or fiduciary, such as general operating and capital projects. Activities the District operates similar to private businesses, such as food services. Instances in which the District administers resources on behalf of someone else, such as scholarship programs and student activities monies. Required financial statements Statement of net position Statement of activities Balance sheet Statement of revenues, expenditures, and changes in fund balances Statement of net position Statement of revenues, expenses, and changes in net position Statement of cash flows Statement of net position Statement of changes in net position Accounting basis and measurement focus Accrual accounting and economic resources focus Modified accrual accounting and current financial focus Accrual accounting and economic resources focus Accrual accounting and economic resources focus Type of asset/liability information All assets and liabilities, both financial and capital, current and noncurrent, and deferred inflows and outflows of resources. Generally, assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets or noncurrent liabilities included. All assets and liabilities, both financial and capital, and current and noncurrent. All assets and liabilities, both current and noncurrent; funds do not currently contain capital assets, although they can. Type of inflow/outflow information All revenues and expenses during year, regardless of when cash is received or paid. Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and the related liability is due and payable. All revenues and expenses during the year, regardless of when cash is received or paid. All additions and deductions during the year, regardless of when cash is received or paid. 4

8 Overview of Financial Statements The district-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities that indicate whether the District is better off or worse off as a result of this year s activities. These statements include all the District s assets, liabilities, and deferred inflows and outflows of resources, using the accrual basis of accounting. Revenue and expenses are taken into account regardless of when cash is received or paid. The Statement of Net Position presents all the District s assets and liabilities, deferred inflows and outflows of resources, with the difference reported as net position. Over time, increases and decreases in net position measure whether the District s financial position is improving or deteriorating. The Statement of Activities presents information showing how the District s net position changed during the year. Changes in net position are reported as soon as the underlying events giving rise to the change occur, regardless of the timing of related cash flows. Therefore, revenues and expenses are reported in these statements for some events that will result in cash flows in future periods: uncollected taxes, retirement incentives, and unused vacation leave. Both statements report activities divided into two categories: Governmental Activities - Most of the District s basic services, such as regular and special education, maintenance, and operation of plant services, are reported under this category. Taxes, basic education funding, and other local, state and federal sources fund these programs. Business-type Activities - These are services for which the District charges a fee. The only business-type activity in the District is food service operations. The sources of funding for operations consist of charges for food purchases and federal and state subsidies. Fund Financial Statements The fund financial statements provide more detailed information about the major individual funds of the District. A fund is a fiscal and accounting entity with a self-balancing set of accounts used to keep track of specific sources of funding and spending for particular programs. The District s funds are divided into three categories - (1) governmental, (2) proprietary, and (3) fiduciary. 5

9 Governmental Funds - Most of the District s basic instructional services are included in governmental funds that focus on how money flows into and out of these funds and the balances left at the year-end for future spending. The governmental fund financial statements provide a detailed short-term view of the general operations and the basic services provided, and provide some direction as to whether there will be more or fewer resources that can be spent in the future to finance the District s programs. These funds are reported using the modified accrual accounting method, which measures cash, and all other financial assets that can readily be converted to cash. Governmental funds include the general fund and the capital projects fund. Because this information does not encompass the additional long-term focus of the District-wide statements, additional information behind the governmental funds statement explains the relationship (or differences) between them. Proprietary Fund (Enterprise) - Services for which the District charges a fee, are generally reported in the proprietary fund and utilize the accrual accounting method, which is the same method used by the private sector businesses. Fiduciary Funds - The District acts as a trustee or fiduciary for assets that belong to others, such as scholarship funds or student activity funds. The District is responsible for ensuring that the assets reported in these funds are used only for the intended purposes and by those to whom the assets belong. These assets cannot be used to finance the District s operations. Financial Analysis of the District The District s net position for governmental activities as of was ($30,633,765). The District s net position for business type activities was ($743,653). Thus the District s total end of year combined net position was ($31,377,418). 6

10 The Following table reflects the condensed Statement of Net Position. Table 1 Condensed Statement of Net Position Fiscal years ended and 2016 Governmental Activities Business-type Total Current and other assets $9,046,301 $9,857,525 $74,278 $55,303 $9,120,579 $9,912,828 Capital assets $30,246,997 31,024,624 $35,141 30,436 $30,282,138 31,055,060 Total Assets $39,293,298 $40,882,149 $109,419 $85,739 $39,402,717 $40,967,888 Deferred Outflows of Resources $8,844,378 $3,977,411 $145,868 $83,152 $8,990,246 $4,060,563 Current Liabilities $5,304,395 $5,698,259 $29,719 $55,575 $5,334,114 $5,753,834 Non-Current Liabilities $72,214,939 67,825,704 $807, ,738 $73,022,668 68,717,442 Total Liabilities $77,519,334 $73,523,963 $837,448 $947,313 $78,356,782 $74,471,276 Deferred Inflows of Resources $1,252,107 $1,447,965 $161,492 $28,143 $1,413,599 $1,476,108 Net Position: Net Investment in Capital Assets $10,192,487 $9,015,644 $35,141 $30,436 $10,277,628 $9,046,080 Restricted for Capital Projects $1,537,478 1,695, $1,537,478 1,695,512 Unrestricted (Deficit) ($42,363,730) (40,823,524) ($778,794) (837,001) ($43,142,524) (41,660,525) Total Net Position (Deficit) ($30,633,765) ($30,112,368) ($743,653) ($806,565) ($31,377,418) ($30,918,933) At the close of the fiscal year 2017, the General Fund had ending fund balance of $3,911,601. The ending fund balance consists of $103,524 of non-spendable fund balance for prepaid expenditures, $1,048,709 of committed fund balance for future PSERS rate increases, assigned fund balance of $210,009 which was utilized for balancing the 2017/18 budget, and $2,549,359 of unassigned fund balance. All commitments and restrictions were authorized by the school board of directors motion to set aside resources for said expenses. The District also maintained a restricted fund balance of $1,537,478 comprised of surplus money transferred from the general fund and/or lease payments for the acquisition or construction of capital facilities and qualifying capital assets as authorized by Municipal Code P.L. 145 of April 30,

11 The District closely monitors and gives consideration to real estate and economic trends as it annually evaluates the financial position of the school district. These considerations are conservatively reflected in the annually approved general fund budget. A real estate tax increase of mills was enacted for the budget year due to the decrease in revenues and the continued increase in retirement costs, special education tuition, and health care costs. It is anticipated that due to changes in the new state funding formula, the District will experience flat or a decrease in State Basic Education Funding due to the District s decreasing student enrollment. Although the District claimed over $550,000 in extraordinary special education expenditures, the District did not receive any contingency funding for extraordinary special education costs in The District continues to regularly monitor the current year s monthly financial statements and makes ongoing adjustments as instructional needs change throughout the fiscal year. The District has also implemented a budget model which forecasts budgetary expenses and revenues three five fiscal years in advance to minimize the impact of balancing the annual budget on instructional programs, course offerings, class sizes, personnel, and the burden on local tax payers. The following table reflects the condensed statement of activities for the years ended June 30, 2016 and Table 2 Changes in Net Position for the years ended and 2016 Governmental Activities Business-type Total Revenues Program Revenues Charges for Services $99,638 $74,769 $405,322 $412,026 $504,960 $486,795 Operating grants and contributions 5,269,487 4,735, , ,613 5,607,888 5,054,425 Capital grants and contributions 701, , , ,554 General Revenues Property taxes and other taxes - - levied for general purposes 21,439,497 20,923, ,439,497 20,923,746 Grants, subsidies, non-restricted 4,000,749 3,929, ,000,749 3,929,430 Other 93,945 51, ,252 51,964 Total Revenues $31,604,733 $30,312,112 $744,030 $730,802 $32,348,763 $31,042,914 Expenses Instruction $18,898,010 $16,987,847 $- $- $18,898,010 $16,987,847 Instructional student support 3,056,524 2,956, ,056,524 2,956,664 Admin. & financial support services 2,574,437 2,493, ,574,437 2,493,741 Operation & maint. of plant services 2,642,430 2,525, ,642,430 2,525,089 Pupil transportation 1,691,415 1,583, ,691,415 1,583,400 Other 3,263,314 3,157, , ,695 3,944,432 3,897,668 Total Expenses $32,126,130 $29,704,714 $681,118 $739,695 $32,807,248 $30,444,409 Increase (Decr.) in Net Position ($521,397) $607,398 $62,912 ($8,893) ($458,485) $598,505 8

12 For the year ending, the General fund experienced total revenues of $31,522,141 and expenditures of $31,931,444. The technology and athletic fund reserves of $85,284 were transferred to Capital Projects to provide funding for capital improvements including the demolition of the administration building. For the year ending, the Capital Projects fund had $103,448 in revenue and expenditures totaling $346,766. These expenses were for asbestos removal, sprinkler repair, high school and middle school HVAC system repairs, and high school auditorium lighting and sound upgrades. For the year ending, the District s investments were rated by Standard & Poor s with a rating of AAA. The Districts investments are maintained by the PA School District Liquid Asset Fund. For the year ending June 2017, the District s pension liability was $48,367,000. The June 30, 2016 balance was $41,670,000 resulting in an increase in pension liability of $6,697,000. For the year ending, the District had a total for Bonds and Loans payable of $25,280,351. GOB Series 1993 with an outstanding balance of $550,297 with payment due through GOB Series A of 2012 with a balance of $7,175,000 payable through May 2028 with a variable interest rate. GOB Series B of 2012 with a balance of $15,740,000 payable through 2027 with a variable interest rate. Embedded Hedge Contract Loan with a balance of $1,815,054 being paid through swap payments with a variable interest rate consistent with the GOB Series B of For the year ending, the Proprietary Fund, Food Service, had a total operating expense of $681,118, $405,322 in operating revenues, and $388,708 in non-operating revenues for a positive year-end balance of $62,912. Applying GASB 68 and 71 for the year was a decrease in expense of $13,376. The ending net income before the current effect of GASB 68 and 71 was $49,536. During the fiscal year, the District utilized $41,185 of commodities from the U.S. Department of Agriculture. The District is experiencing a significant increase in special education costs due to out of district placements for severe autism, mental health, and behavioral issues. The District has implemented a program to provide a trauma-based classroom within the Elementary School for and is investigating a Restorative Practices discipline philosophy for the High School to help minimize the rising costs of special education services. 9

13 The Pennsylvania School Employees Retirement System (PSERS) continues to establish the percentage of payroll that school districts must pay into the retirement fund as the actuarial projections based on required investment returns are being met. As of October 2017, the following PSERS rates are projected to be: % % % % % During the fiscal year the district administration and school board will continue to plan for needed renovations to the District s school buildings. The District has completed a feasibility study and will prioritize the needs of the facilities to formalize a long range capital plan. The current administration building will be demolished in 2018 and the administrative offices will be relocated to the high school. If you have any questions about this report, or need additional financial information, contact the Office of the Superintendent, Oley Valley School District, 17 Jefferson Street, Oley, PA 19547, Ext

14 STATEMENT OF NET POSITION Business Governmental Type Activities Activities Total ASSETS Cash and Investments $ 6,973,877 $ 141,847 $ 7,115,724 Taxes Receivable, Net 714, ,902 Internal Balances 88,187 (88,187) Intergovernmental Receivables 1,047,048 3,534 1,050,582 Other Current Assets 118, ,055 Inventories and Prepaid Expenses 103,524 16, ,316 Capital Assets Not Being Depreciated: Land 328, ,284 Capital Assets, Net of Accumulated Depreciation: Building and Building Improvements 28,962,238 28,962,238 Machinery and Equipment 906,481 35, ,622 Vehicles 49,994 49,994 TOTAL ASSETS 39,293, ,419 39,402,717 DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows of Resources for Pension Expense 5,113,605 85,337 5,198,942 Pension Contributions Made Subsequent to the Measurement Date 3,628,539 60,531 3,689,070 Interest Rate Swap 102, ,234 TOTAL DEFERRED OUTFLOWS OF RESOURCES 8,844, ,868 8,990,246 LIABILITIES Accounts Payable 268,230 5, ,095 Accrued Salaries and Benefits 1,648, ,649,687 Payroll Deductions and Withholdings 1,053,176 1,053,176 Accrued Interest 106, ,069 Unearned Revenues ,651 18,935 Long term Liabilities Due Within One Year 2,227,814 4,338 2,232,152 Noncurrent Liabilities: Bonds Payable, Net 21,445,542 21,445,542 Embedded Hedge Loan Payable 1,653,298 1,653,298 Derivative Instrument Liability Interest Rate Swap 102, ,234 Long Term Portion of Compensated Absences 319, ,283 Net Pension Liability 47,559, ,729 48,367,000 Other Postemployment Benefits Obligation 1,135,311 1,135,311 TOTAL LIABILITIES 77,519, ,448 78,356,782 DEFERRED INFLOWS OF RESOURCES Deferred Inflows of Resources for Pension Expense 1,252, ,492 1,413,599 NET POSITION Net Investment in Capital Assets 10,192,487 35,141 10,227,628 Restricted for Capital Projects 1,537,478 1,537,478 Unrestricted (Deficit) (42,363,730) (778,794) (43,142,524) TOTAL NET POSITION (DEFICIT) $ (30,633,765) $ (743,653) $ (31,377,418) See accompanying notes. 11

15 STATEMENT OF ACTIVITIES For the Year Ended Net (Expense) Revenue and Program Revenue Changes in Net Position Operating Capital Charges for Grants and Grants and Governmental Business Type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental Activities Instructional Services: Regular Programs Elementary/Secondary $ 12,708,998 $ $ 1,791,673 $ $ (10,917,325) $ $ (10,917,325) Special Programs Elementary/Secondary 5,208,226 1,748,284 (3,459,942) (3,459,942) Vocational Education 964,486 82,393 53,802 5,317 (822,974) (822,974) Other Instructional Programs Elementary/Secondary 7,721 (7,721) (7,721) Nonpublic School Programs 8,579 8,579 Total Instructional Services 18,898,010 82,393 3,602,338 5,317 (15,207,962) (15,207,962) Support Services: Students 1,249, ,573 (1,103,560) (1,103,560) Instructional Staff 923,830 59,611 (864,219) (864,219) Administration 2,244, ,916 (2,041,128) (2,041,128) Pupil Health 534,612 75,199 (459,413) (459,413) Business 330,393 27,829 (302,564) (302,564) Operation and Maintenance of Plant Services 2,642, ,214 (2,518,216) (2,518,216) Student Transportation Services 1,691, ,042 (774,373) (774,373) Central 322,308 34,597 (287,711) (287,711) Other Support Services 26,641 (26,641) (26,641) Total Support Services 9,964,806 1,586,981 (8,377,825) (8,377,825) Noninstructional Services: Student Activities 857,904 17,245 80,168 (760,491) (760,491) Community Services 11,029 (11,029) (11,029) Interest on Long Term Debt 833, ,100 (137,750) (137,750) Unallocated Depreciation Expense 1,560,531 (1,560,531) (1,560,531) Total Noninstructional Services 3,263,314 17,245 80, ,100 (2,469,801) (2,469,801) Total Governmental Activities 32,126,130 99,638 5,269, ,417 (26,055,588) (26,055,588) Business Type Activities: Food Services 681, , ,401 62,605 62,605 Total Primary Government $ 32,807,248 $ 504,960 $ 5,607,888 $ 701,417 (26,055,588) 62,605 (25,992,983) General Revenues Taxes: Property Taxes 19,247,716 19,247,716 Public Utility Realty, Earned Income, and Mercantile Taxes 2,191,781 2,191,781 Grants, Subsidies, and Contributions Not Restricted for Specific Programs 4,000,749 4,000,749 Investment Earnings 39, ,106 Miscellaneous Income 54,146 54,146 Total General Revenues 25,534, ,534,498 Change in Net Position (521,397) 62,912 (458,485) Net Position (Deficit) Beginning of year (30,112,368) (806,565) (30,918,933) Net Position (Deficit) End of year $ (30,633,765) $ (743,653) $ (31,377,418) See accompanying notes. 12

16 Total Capital Governmental General Projects Funds ASSETS Cash and Investments $ 5,647,043 $ 1,326,834 $ 6,973,877 Interfund Receivables 62, , ,546 Taxes Receivable 724, ,711 Intergovernmental Receivables 1,047,048 1,047,048 Other Receivables 18, , ,688 Inventories and Prepaid Expenditures 103, ,524 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES OLEY VALLEY SCHOOL DISTRICT BALANCE SHEET GOVERNMENTAL FUNDS TOTAL ASSETS $ 7,603,916 $ 1,537,478 $ 9,141,394 LIABILITIES Interfund Payables $ 85,284 $ $ 85,284 Accounts Payable 268, ,230 Accrued Salaries and Benefits 1,648,822 1,648,822 Payroll Deductions and Withholdings 1,053,176 1,053,176 Unearned Revenues Current Portion of Compensated Absences 146, ,058 TOTAL LIABILITIES 3,201,854 3,201,854 DEFERRED INFLOWS OF RESOURCES Unavailable Revenue Taxes 490, ,461 FUND BALANCES Nonspendable 103, ,524 Restricted 1,537,478 1,537,478 Committed: Retirement Rate Increases 1,048,709 1,048,709 Assigned 210, ,009 Unassigned 2,549,359 2,549,359 TOTAL FUND BALANCES 3,911,601 1,537,478 5,449,079 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES $ 7,603,916 $ 1,537,478 $ 9,141,394 See accompanying notes. 13

17 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE GOVERNMENT WIDE STATEMENT OF NET POSITION Amounts reported for governmental activities in the statement of net position are different because: TOTAL FUND BALANCES GOVERNMENTAL FUNDS $ 5,449,079 Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of the assets is $56,178,212 and the accumulated depreciation is $25,931, ,246,997 Taxes receivable will be collected this year, but are not available soon enough to pay for the current period's expenditures and, therefore, are reported as unavailable revenue in the funds adjusted for allowance for doubtful accounts. 480,652 The net pension and other postemployment benefits obligations are not reflected on the fund financial statements. (48,694,582) Deferred outflows and inflows of resources for pensions are recorded and amortized in the statement of net position. 7,490,037 Long term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. Long term liabilities at year end consist of: Bonds Payable $ (23,495,000) Accrued Interest on Bonds (106,069) Unamortized Bond Interest 29,703 Unamortized Bond Discount 99,755 Embedded Hedge Loan Payable (1,815,054) Long Term Portion of Compensated Absences (319,283) (25,605,948) TOTAL NET POSITION (DEFICIT) GOVERNMENTAL ACTIVITIES $ (30,633,765) See accompanying notes. 14

18 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended Total Capital Governmental General Projects Funds REVENUES Local Sources $ 21,317,098 $ 103,448 $ 21,420,546 State Sources 9,838,208 9,838,208 Federal Sources 366, ,835 TOTAL REVENUES 31,522, ,448 31,625,589 EXPENDITURES Current: Instructional Services 18,089,706 18,089,706 Support Services 9,922, ,006 10,188,277 Operation of Noninstructional Services 862, ,398 Capital Outlay 80,760 80,760 Debt Service: Principal 2,257,759 2,257,759 Interest 714, ,026 TOTAL EXPENDITURES 31,846, ,766 32,192,926 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (324,019) (243,318) (567,337) OTHER FINANCING SOURCES (USES) Transfers In 85,284 85,284 Transfers Out (85,284) (85,284) TOTAL OTHER FINANCING SOURCES (USES) (85,284) 85,284 NET CHANGE IN FUND BALANCES (409,303) (158,034) (567,337) FUND BALANCES BEGINNING OF YEAR 4,320,904 1,695,512 6,016,416 FUND BALANCES END OF YEAR $ 3,911,601 $ 1,537,478 $ 5,449,079 See accompanying notes. 15

19 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE GOVERNMENT WIDE STATEMENT OF ACTIVITIES For the Year Ended Amounts reported for governmental activities in the statement of activities are different because: NET CHANGE IN FUND BALANCES GOVERNMENTAL FUNDS $ (567,337) Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. Capital Outlays $ 782,904 Less: Depreciation Expense (1,560,531) (777,627) Because some taxes will not be collected for several months after the District's year end, they are not considered as "available" revenues in the governmental funds. (20,856) Issuance of long term debt provides current financial resources to governmental funds, while the repayment of the principal of long term debt consumes the current financial resources of governmental funds. Repayment of Bond Principal 2,100,000 Repayment of Embedded Hedge Loan Principal 157,759 Amortization of Bond Discount (9,173) 2,248,586 Interest expense incurred on long term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. (110,651) In the statement of activities, certain operating expenses compensated absences (vacations and sick days) are measured by the amounts earned during the year. (9,011) The change in net pension liability and other postemployment benefits obligation and related deferred outflows and inflows of resources are reflected as an adjustment to expense on the statement of activities, but not included in the fund statements. (1,284,501) CHANGE IN NET POSITION (DEFICIT) OF GOVERNMENTAL ACTIVITIES $ (521,397) See accompanying notes. 16

20 STATEMENT OF NET POSITION PROPRIETARY FUND ASSETS Enterprise Fund Food Service CURRENT ASSETS Cash and Investments $ 141,847 Intergovernmental Receivables 3,534 Other Receivables 292 Inventories 16,792 TOTAL CURRENT ASSETS 162,465 NONCURRENT ASSETS Machinery and Equipment, Net 35,141 TOTAL ASSETS 197,606 DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows of Resources for Pension 85,337 Pension Contributions Made Subsequent to the Measurement Date 60,531 LIABILITIES TOTAL DEFERRED OUTFLOWS OF RESOURCES 145,868 CURRENT LIABILITIES Interfund Payables 88,187 Accounts Payable 5,865 Accrued Salaries and Benefits 865 Unearned Revenues 18,651 Current Portion of Compensated Absences 4,338 TOTAL CURRENT LIABILITIES 117,906 NONCURRENT LIABILITY Net Pension Liability 807,729 TOTAL LIABILITIES 925,635 DEFERRED INFLOWS OF RESOURCES Deferred Inflows of Resources for Pension 161,492 NET POSITION (DEFICIT) Net Investment in Capital Assets 35,141 Unrestricted (Deficit) (778,794) TOTAL NET POSITION (DEFICIT) $ (743,653) See accompanying notes. 17

21 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUND For the Year Ended Enterprise Fund Food Service OPERATING REVENUES Food Service Revenue $ 405,322 OPERATING EXPENSES Salaries 217,983 Employee Benefits 88,464 Other Purchased Services 61,937 Supplies 286,674 Depreciation 6,390 Other Expenses 19,670 TOTAL OPERATING EXPENSES 681,118 OPERATING LOSS (275,796) NONOPERATING REVENUES Local Sources Earnings on Investments 307 State Sources 57,467 Federal Sources 280,934 TOTAL NONOPERATING REVENUES 338,708 CHANGE IN NET POSITION 62,912 NET POSITION (DEFICIT) BEGINNING OF YEAR (806,565) NET POSITION (DEFICIT) END OF YEAR $ (743,653) See accompanying notes. 18

22 STATEMENT OF CASH FLOWS PROPRIETARY FUND For the Year Ended Enterprise Fund Food Service CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Users $ 408,385 Payments to Employees for Services (321,110) Payments to Suppliers for Goods and Services (551,581) NET CASH USED FOR OPERATING ACTIVITIES (464,306) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Sources 59,814 Federal Sources 242,477 NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES 302,291 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of Capital Assets (11,095) CASH FLOWS FROM INVESTING ACTIVITIES Earnings on Investments 307 NET DECREASE IN CASH AND CASH EQUIVALENTS (172,803) CASH AND CASH EQUIVALENTS BEGINNING OF YEAR 314,650 CASH AND CASH EQUIVALENTS END OF YEAR $ 141,847 See accompanying notes. 19

23 STATEMENT OF CASH FLOWS CONTINUED PROPRIETARY FUND For the Year Ended Reconciliation of Operating Loss to Net Cash Used for Operating Activities: Enterprise Fund Food Service Operating Loss $ (275,796) Adjustments to Reconcile Operating Loss to Net Cash Used for Operating Activities: Depreciation 6,390 Donated Commodities Used 41,185 Changes in Assets, Deferred Outflows of Resources, Liabilities, and Deferred Inflows of Resources: Intergovernmental Receivable (292) Inventories (5,036) Deferred Outflows of Resources for Pension (55,391) Pension Contributions Subsequent to the Measurement Date (7,325) Interfund Payables (191,525) Accounts Payable (27,924) Accrued Salaries and Benefits (1,650) Unearned Revenues 3,355 Compensated Absences Payable 363 Net Pension Liability (84,009) Deferred Inflows of Resources for Pension 133,349 Total Adjustments (188,510) NONCASH NONCAPITAL FINANCING ACTIVITIES During the year, the District used $41,185 of commodities from the U.S. Department of Agriculture. NET CASH USED FOR OPERATING ACTIVITIES $ (464,306) See accompanying notes. 20

24 STATEMENT OF NET POSITION FIDUCIARY FUNDS Private Purpose Trust Fund (Scholarships) Agency Fund (Student Activities) ASSETS CURRENT ASSETS Cash and Investments $ 65,247 $ 48,483 LIABILITIES TOTAL ASSETS 65,247 $ 48,483 CURRENT LIABILITIES Interfund Payables 75 Accounts Payable 306 Other Current Liabilities 48,102 TOTAL LIABILITIES $ 48,483 NET POSITION HELD IN TRUST FOR SCHOLARSHIPS $ 65,247 See accompanying notes. 21

25 STATEMENT OF CHANGES IN NET POSITION FIDUCIARY FUNDS For the Year Ended Private Purpose Trust Fund (Scholarships) ADDITIONS Contributions $ 200 Earnings on Investments 1 TOTAL ADDITIONS 201 DEDUCTIONS Scholarships 500 CHANGE IN NET POSITION (299) NET POSITION BEGINNING OF YEAR 65,546 NET POSITION END OF YEAR $ 65,247 See accompanying notes. 22

26 NOTES TO BASIC FINANCIAL STATEMENTS The Oley Valley School District ( School District or the District ) is located in Berks County, Pennsylvania. The District tax base consists of four townships: Alsace, Oley, Pike, and Ruscombmanor. The Oley Valley School District is governed by a board of nine school directors who are residents of the School District and who are elected every two years, on a staggered basis, for a four-year term. The board of school directors has the power and duty to establish, equip, furnish, and maintain a sufficient number of elementary, secondary, and other schools necessary to educate every person, residing in such district, between the ages of six and 21 years, who may attend. In order to establish, enlarge, equip, furnish, operate, and maintain any school herein provided, or to pay any school indebtedness which the School District is required to pay, or to pay an indebtedness that may at any time hereafter be created by the School District, the board of school directors are vested with all the necessary authority and power annually to levy and collect the necessary taxes required and granted by the legislature, in addition to the annual state appropriation, and are vested with all necessary power and authority to comply with and carry out any or all of the provisions of the Public School Code of NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity As required by generally accepted accounting principles, the financial statements of the reporting entity include those of the District (the primary government) and its component units. The District used guidance contained in generally accepted accounting principles to evaluate the possible inclusion of related entities (authorities, boards, etc.) within its reporting entity. The criteria used by the District for inclusion are financial accountability and the nature and significance of the relationships. In determining financial accountability in a given case, the District reviews the applicability of the following criteria. The District is financially accountable for: Organizations that make up the legal District entity. Legally separate organizations if District officials appoint a voting majority of the organization s governing body and the District is able to impose its will on the organization, or if there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on the District as defined below. Impose its will - If the District can significantly influence the programs, projects, or activities of, or the level of services performed or provided by the organization. 23

27 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED A. Reporting Entity - continued Financial benefit or burden - exists if the District (1) is entitled to the organization's resources; (2) is legally obligated or has otherwise assumed the obligation to finance the deficits of, or provide support to, the organization; or (3) is obligated in some manner for the debt of the organization. Organizations that are fiscally dependent on the District. Fiscal dependency is established if the organization is unable to adopt its budget, levy taxes, set rates or charges, or issue bonded debt without approval by the District. Based on the foregoing criteria, the District has determined it has no component units. Governments commonly enter into special arrangements with each other to provide or obtain needed services. A common type of such an arrangement is a joint venture. In addition to joint ventures, governments also enter into contracts to plan for and address certain activities for their mutual benefits, i.e., a jointly governed organization. The District has one of each of these relationships: Joint Venture: The District is a participating member of the Berks Career & Technology Center. See Note 10 for details of involvement and financial information of the joint venture. Jointly Governed Organizations: The District is a participating member of the Berks County Intermediate Unit (BCIU). The BCIU is run by a joint committee consisting of members from each participating district. No participating district appoints a majority of the joint committee. The board of directors of each participating district must approve BCIU s annual operating budget. The BCIU is a self-sustaining organization that provides services for fees to participating districts. As such, the District has no ongoing financial interest or responsibility in the BCIU. The BCIU contracts with participating districts to supply special education services, computer services, and to act as a conduit for certain federal programs. 24

28 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED B. Basis of Presentation - Government-Wide Financial Statements Government-wide financial statements (i.e., the statement of net position and the statement of activities) display information about the reporting entity, except for its fiduciary activities. All fiduciary activities are reported only in the fund financial statements. The government-wide statements include separate columns for the governmental and business-type activities of the primary government, as well as any discretely presented component units. Governmental activities, which normally are supported by taxes, intergovernmental revenues, and other nonexchange transactions, are reported separately from businesstype activities which rely, to a significant extent, on fees and charges for support. Likewise, the primary government is reported separately from the legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function to the District are offset by the program revenues related to that function. Direct expenses are those that are directly related to and clearly identified with a function. Program revenues include 1) charges to customers or others who purchase, use, or directly benefit from services or goods provided by a given function, or 2) grants and contributions that are restricted to meet the operational or capital requirements of a function. Taxes and other items properly not included in program revenues are reported as general revenues. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are the transfers between governmental funds and businesstype and fiduciary funds. Elimination of these transfers would distort the direct costs and program revenues reported for the various functions concerned. C. Basis of Presentation - Fund Financial Statements The fund financial statements provide information about the government s funds, including its fiduciary funds. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. The District Reports the Following Major Governmental Funds: General Fund: This fund is established to account for resources devoted to financing the general services that the District performs. Intergovernmental revenues and other sources of revenue used to finance the fundamental operations of the District are included in this fund. The fund is charged with all costs of operating the District for which a separate fund has not been established. 25

29 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED C. Basis of Presentation - Fund Financial Statements - continued The District Reports the Following Major Governmental Funds - continued: Capital Projects Fund: This fund is established to account for financial resources to be used for the acquisition or construction of major capital equipment and facilities (other than those financed by proprietary funds). The District has the Following Major Enterprise Fund: Food Service Fund: This fund accounts for all revenues, food purchases, and costs and expenses for the food service program. The food service fund is the District s only major enterprise fund where the intent of the governing body is that the costs of providing food services are covered by user charges and subsidies received. Additionally, the District Reports the Following Fund Type: Fiduciary Funds: The District s fiduciary funds are trust funds and agency funds. Trust funds are used to account for assets held by the District under a trust agreement for individuals, private organizations, or other governments and are, therefore, not available to support the District s own programs. The District s only trust fund is a private-purpose trust fund. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The District s student activity fund is an agency fund. During the course of operations, the government has activity between funds for various purposes. Any residual balances outstanding at year end are reported as interfund receivables and payables. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Balances between the funds included in governmental activities are eliminated so that only the net amount is included as internal balances in the governmental activities column. Similarly, balances between the funds included in business-type activities (i.e., the enterprise funds) are eliminated so that only the net amount is included as internal balances in the business-type activities column. Further, certain activity occurs during the year involving transfers of resources between funds. In the fund financial statements, these amounts are reported at gross amounts as transfers in/out. While reported in the fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. Similarly, balances between the funds included in business-type activities are eliminated so that only the net amount is included as transfers in the business-type activities column. 26

30 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED D. Measurement Focus and Basis of Accounting The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The government-wide financial statements are reported using the economic resources measurement focus, and 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. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Property taxes and interest associated with the current fiscal period are considered to be susceptible to accrual and so have been recognized as revenue of the current fiscal period. Expendituredriven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met. If time eligibility requirements are not met, deferred inflows of resources would be recorded. All other revenue items are considered to be measurable and available only when cash is received by the government. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, and claims and judgments, are recorded only when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources. The proprietary fund is reported using the economic resources measurement focus and the accrual basis of accounting. The trust fund is reported using the accrual basis of accounting. The agency fund has no measurement focus but utilizes the accrual basis of accounting for reporting its assets and liabilities. 27

31 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED E. Budgetary Process An operating budget is adopted prior to the beginning of each year for the General Fund on the modified accrual basis of accounting. The General Fund is the only fund for which a budget is legally required. In accordance with Act 1 of 2006, the board shall annually, but not later than 110 days before the primary election, decide the budget option to be used for the following fiscal year. The board shall approve either the Accelerated Budget Process Option or the Board Resolution Option. Accelerated Budget Process Option Under this option, a preliminary budget must be prepared 110 days prior to the primary election, and must be available for public inspection at least 20 days prior to the preliminary budget adoption. The board shall give public notice of its intent to adopt the preliminary budget at least 10 days prior to the adoption. The adoption must occur at least 90 days prior to the primary election. If the primary budget exceeds the increase authorized by the Index, an application for an exception may be filed with the Pennsylvania Department of Education and made available for public inspection. The board may opt to forego applying for an exception by submitting a referendum question seeking voter approval for a tax increase, in accordance with Act 1. The final budget shall include any necessary changes from the adopted preliminary budget. Any reduction required as the result of the failure of referendum shall be clearly stated. The final budget shall be made available for public inspection at least 20 days prior to final adoption. The board shall annually adopt the final budget by a majority vote of all members of the board prior to June 30. Board Resolution Option Under the Board Resolution Option, the board shall adopt a resolution that it will not raise the rate of any tax for the following fiscal year by more than the Index. Such resolution shall be adopted no later than 110 days prior to the primary election. At least 30 days prior to adoption of the final budget, the board shall prepare a proposed budget. The proposed budget shall be available for public inspection at least 20 days prior to adoption of the budget. The board shall give public notice of its intent to adopt at least 10 days prior to adoption of the proposed budget. The board shall annually adopt the final budget by a majority vote of all members of the board by June 30. Legal budgetary control is maintained at the sub-function/major object level. The PA School Code allows the school board to make budgetary transfers between major function and major object codes only within the last nine months of the fiscal year, unless there is a two-thirds majority of the board approving the transfer. Appropriations lapse at the end of the fiscal period. Budgetary information reflected in the financial statements is presented at or below the level of budgetary control and includes the effect of approved budget amendments. 28

32 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED E. Budgetary Process - continued The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts in the PDE 2028 when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all 2016/2017 budget transfers. F. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance 1. Cash and Investments For purposes of the statement of cash flows, the proprietary fund type considers all highly-liquid investments with a maturity of three months or less when purchased to be cash equivalents. Investments are valued at fair value in accordance with Governmental Accounting Standards Board Statement No. 72, Fair Value Measurement and Application, except for investments in external investment pools, which are valued at amortized costs if required criteria are met as outlined in Governmental Accounting Standards Board Statement No. 79, Certain External Investment Pools and Pool Participants. The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. 2. Receivables/Payables Activity between funds that is representative of lending/borrowing arrangements outstanding at the end of the year are referred to as interfund receivables/payables. Any residual balances outstanding between the governmental and business-type activities are reported in the government-wide financial statements as internal balances. 3. Inventories and Prepaid Expenses/Expenditures On government-wide financial statements, inventories are presented at the lower of cost or market on a first-in, first-out basis and are expensed when used. Inventories of the governmental funds, consisting principally of textbooks and instructional supplies, are carried at the lower of cost or market, using the first-in, first-out method. Inventories of the Governmental Fund and Enterprise Fund consisting of text books and food and paper supplies, respectively, are carried at cost using the first-in, first-out method. Federal donated commodities are valued at their fair market value as determined by the U.S. Department of Agriculture at the date of donation. 29

33 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED F. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance - continued 3. Inventories and Prepaid Expenses/Expenditures - continued The inventories on hand at, consist of the following: Governmental Funds Enterprise Fund Textbooks $ 73,141 $ - Purchased food and supplies - 8,261 Donated commodities - 8,531 $ 73,141 $ 16,792 Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid expenses in the government-wide and proprietary fund financial statements and prepaid expenditures in the governmental fund financial statements. The cost of prepaid items is recorded as expenses/expenditures when consumed rather than when purchased. 4. Capital Assets, Depreciation, and Amortization The District s property, plant, and equipment, with useful lives of more than one year, are stated at historical cost and comprehensively reported in the government-wide financial statements. Proprietary capital assets are also reported in their respective financial statements. The reported value excludes normal maintenance and repairs which are essentially amounts spent in relation to capital assets that do not increase the capacity or efficiency of the item or extend its useful life beyond the original estimate. In the case of donations, the government values these capital assets at the estimated fair value of the item at the date of its donation. The District generally capitalizes assets with cost of $4,000 or more as purchase and construction outlays occur. Management has elected to include certain homogeneous asset categories with individual assets less than $4,000 as composite groups for financial reporting purposes. Assets purchased or constructed with long-term debt may be capitalized regardless of the threshold established. The costs of normal maintenance and repairs that do not add to the asset value or materially extend useful lives are not capitalized. Capital assets, including those of component units, are depreciated using the straight-line method. When capital assets are disposed, the cost and applicable accumulated depreciation are removed from the respective accounts, and the resulting gain or loss is recorded in operations. 30

34 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED F. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance - continued 4. Capital Assets, Depreciation, and Amortization - continued Estimated useful lives, in years, for depreciable assets are as follows: Assets Years Building and building improvements Machinery and equipment 5-15 Vehicles 10 Interest costs incurred during the construction phase of capital assets are capitalized when incurred by proprietary funds and similar component units on debt where proceeds were used to finance the construction of assets. 5. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District has three items that qualify for reporting in this category, which are an interest rate swap, a deferred pension contribution, and deferred outflows of resources for pension, which are reported in the governmentwide statement of net position. The interest rate swap results from the swap being deemed a hedge instrument. The fair value of the swap is reported as a deferred outflow of resources on the government-wide statement of net position. A deferred pension contribution results from contributions made to the pension plan subsequent to the measurement date and prior to the District s year end. The contributions will be recognized as a reduction in net pension liability in the following year. Deferred outflows of resources for pension relates to the District s net pension liability and pension expense and arises from changes in assumptions, actual versus expected results, changes in benefits, variances in expected versus actual investment earnings, changes in the employer s proportion, differences between employer contributions and the proportionate share of total contributions reported by the pension plan, or changes in the internal allocation of the net pension liability between governmental and businesstype activities. These amounts are deferred and amortized over either a closed five-year period or the average remaining service life of all employees depending on what gave rise to the deferred outflow. 31

35 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED F. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance - continued 5. Deferred Outflows/Inflows of Resources- continued In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The government has two types of items that qualify for reporting in this category. The first item, deferred inflows of resources for pension, relates to the District s net pension liability and pension expense and arises from changes in assumptions, actual versus expected results, changes in benefits, variances in expected versus actual investment earnings, changes in the employer s proportion, differences between employer contributions and the proportionate share of total contributions reported by the pension plan, or changes in the internal allocation of the net pension liability between governmental and business-type activities. These amounts are deferred and amortized over either a closed five-year period or the average remaining service life of all employees depending on what gave rise to the deferred inflow. The second item, unavailable revenue, arises only under a modified accrual basis of accounting and is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues from one source - property taxes. The amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. 6. Unearned Revenues Revenues that are received but not earned are reported as unearned revenues in the government-wide, governmental funds, and enterprise funds financial statements. Unearned revenues arise when resources are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has legal claim to the resources, the liability for unearned revenue is removed from the respective financial statements and revenue is recognized. 7. Net Position Net position represents the difference between assets and deferred outflows of resources less liabilities and deferred inflows of resources. Net investment in the capital assets component of net position is comprised of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction, or improvement of those assets. In addition, any deferred outflows of resources and/or deferred inflows of resources related to such capital assets or liabilities associated with the capital assets should also be added to or deducted from the overall net investment in capital assets. The restricted component of net position is used when there are limitations imposed on their use either through the enabling legislation adopted by a higher governmental authority or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The remaining component of net position is unrestricted. 32

36 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED F. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance - continued 7. Net Position - continued The District applies restricted resources first when an expense is incurred for purposes for which both the restricted and unrestricted components of net position are available. 8. Fund Balance Policies and Flow Assumptions Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The government itself can establish limitations on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance). The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the government s highest level of decision-making authority. The board of school directors is the highest level of decision-making authority for the government that can, by adoption of a resolution prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the resolution remains in place until a similar action is taken (the adoption of another resolution) to remove or revise the limitation. Amounts in the assigned fund balance classification are intended to be used by the government for specific purposes but do not meet the criteria to be classified as committed. The finance committee of the board of school directors may assign fund balance. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. The District s unassigned fund balance of the General Fund should not be less than four percent of the following year s budgeted expenditures. Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the District s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when components of unrestricted fund balance can be used for the same purpose, it is the District s policy to use committed fund balance first, followed by assigned fund balance, and lastly unassigned fund balance. 33

37 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED G. Revenues and Expenditures/Expenses 1. Program Revenues Amounts reported as 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 or segment, and 2) grants and contributions (including special assessments) that are restricted to meeting the operations or capital requirements of a particular function or segment. All taxes and other internally dedicated resources are reported as general revenues rather than as program revenues. 2. Compensated Absences Sick Day Termination Benefit Under the District s administrative regulations, professional and eligible support personnel accumulate unused sick days from year to year based on their classification. These accumulated sick days are nonvesting during the employee s tenure. Upon retirement, these employees are eligible for remuneration for unused sick days as follows: a. Professional employees - $30 per day for every unused sick day. b. Full-time clerical and custodial - $25 per day up to 150 days. c. Full-time cafeteria workers, aides, bus drivers and nine-month clerical - $25 per day up to 100 days. Full-time 10-month clerical - $25 per day up to 125 days. d. Administrators - $32 per day for every unused sick day. e. Supervisors - $30 per day for every unused sick day. The District maintains records of each employee s accumulated sick days and the District has valued the accumulated sick days that are vested with employees who are eligible to retire. Vacation Leave Vacation is earned by all eligible administrators, supervisors, support staff/aides, clerical, and custodial employees. The amount of vacation earned varies based on employment classification and years of service. In the event of termination, an employee is reimbursed for any unused accumulated vacation. Vacation is generally required to be used within one year of being earned. 34

38 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED G. Revenues and Expenditures/Expenses - continued 2. Compensated Absences - continued Retirement Benefits Professional employees with at least 25 years of service who retire are eligible for a retirement incentive payment of $4,000. In accordance with generally accepted accounting principles, the expense is recorded when the employees accept the offer. 3. Proprietary Funds Operating and Nonoperating Revenues and Expenses Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the food service fund are charges to customers for meals and services provided. Operating expenses for proprietary funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. H. Other Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 - STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. Compliance with Finance Related Legal and Contractual provisions The District has no material violations of finance related legal and contractual provisions. B. Deficit Fund Balance or Net Position of Individual Funds Deficit Fund Balance - Proprietary Fund For the year ended, the accounting under GASB No. 68, Accounting and Financial Reporting for Pensions, and GASB No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, created a deficiency in net position at year end of $743,653. The District will fund this deficiency in future years through contributions to the Pennsylvania Public School Employees Retirement Plan (PSERS) at a rate required by PSERS. 35

39 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 2 - STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY - CONTINUED C. Excess of Expenditures Over Appropriations in Individual Funds For the year ended, the general fund has an excess of expenditures over appropriations of $687,386. The District used revenues in excess of budgeted amounts and existing fund balance to fund the excess expenditures. D. Budgetary Compliance The District s only legally adopted budget is for the General Fund. All budgetary transfers were made within the last nine months of the fiscal year. The District cancels all purchase orders open at year end; therefore, it does not have any outstanding encumbrances at. In addition, the District includes a portion of the prior year s fund balance represented by unappropriated liquid assets remaining in the fund as budgeted revenue in the succeeding year. The results of operations on a GAAP basis do not recognize the fund balance allocation as revenue as it represents prior period s excess of revenues over expenditures. NOTE 3 - CASH AND INVESTMENTS The deposit and investment policy of the District adheres to state statutes. There were no deposits or investment transactions during the year that were in violation of either the state statutes or the policy of the District. The breakdown of total cash and investments at, was as follows: Petty Cash $ 164 Cash 2,358,926 Pooled Cash and Investments 4,870,364 $ 7,229,454 Deposits Custodial Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the government s deposits may not be returned to it. The District does have a policy for custodial credit risk on deposits. At, the carrying amount of the District s deposits was $2,358,926 and the bank balance was $2,477,039. Of the bank balance, $255,393 was covered by federal depository insurance, and $2,221,646 was exposed to custodial credit risk, but covered by collateralization requirements in accordance with Act 72 of the 1971 Session of the General Assembly. 36

40 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 3 - CASH AND INVESTMENTS - CONTINUED Investments Under Section of the Public School Code of 1949, as amended, the District is permitted to invest funds in the following types of investments: Obligations of (a) the United States of America or any of its agencies or instrumentalities backed by the full faith and credit of the United States of America, (b) the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the Commonwealth, or (c) any political subdivision of the Commonwealth of Pennsylvania or any of its agencies or instrumentalities backed by the full faith and credit of the political subdivision. Deposits in savings accounts, time deposits, or share accounts of institutions insured by the Federal Deposit Insurance Corporation to the extent that such accounts are so insured, and for any amounts above the insured maximum, provided that approved collateral as provided by law, therefore, shall be pledged by the depository. Pennsylvania Act 10 of 2016 became effective May 25, 2016, and expanded the permitted investment types to include commercial paper, bankers acceptances, negotiable certificates of deposit, and insured bank deposit reciprocals as long as certain safeguards related to credit quality and maturity are met. As of, the District had the following pooled cash and investments: Fair Reconciling Carrying Maturities Value Items Value PA School District Liquid Asset Fund (PSDLAF): Full Flex Pool < 1 year $ 2,500,000 $ - $ 2,500,000 MAX Account Balance 2,315,698 (5,186) 2,310,512 Certificate of Deposit 59,852-59,852 Total Pooled Cash and Investments $ 4,875,550 $ (5,186) $ 4,870,364 Certain external investments held by the District, based on portfolio maturity, quality, diversification, and liquidity measures, qualify for measurement at amortized cost at both the pool and participating government level consistent with GASB Statement No. 79. The District measures those investments, which include $4,815,698 (PSDLAF) at amortized cost. There are no limitations or restrictions on withdrawals from these accounts. 37

41 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 3 - CASH AND INVESTMENTS - CONTINUED A portion of the District s deposits are in the Pennsylvania School District Liquid Asset Fund (PSDLAF). Although not registered with the Securities and Exchange Commission and not subject to regulatory oversight, the funds act like money market mutual funds in that their objective is to maintain a stable net asset value of $1 per share, are rated by a nationally recognized statistical rating organization, and are subject to an independent annual audit. The District s cash equivalent investments in PSDLAF cannot be classified by risk category because they are not evidenced by securities that exist in physical or book entry form. The fair value of the District s position in the external investment pool is the same as the value of the pool shares. All investments in external investment pools that are not registered with the Securities and Exchange Commission are subject to oversight by the Commonwealth of Pennsylvania. As of, the entire PSDLAF book balance of $4,810,512 is considered to be a cash equivalent for presentation on the government-wide and fund financial statements. Interest Rate Risk The District does have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk The District has an investment policy that limits its investment choices to certain credit ratings. As of June 30, 2017, the District s investments were rated as: Investments PA School District Liquid Asset Fund Standard & Poor's AAA Concentration of Credit Risk The District does have a policy that limits the amount they may invest in any one issue. All of the District s investments are issued or guaranteed by the U.S. Government and investments in mutual pools and excluded from this risk. Custodial Credit Risk For an investment, custodial credit 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 security that are in the possession of an outside party. The District has no investment subject to custodial credit risk. 38

42 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 4 - TAXES RECEIVABLE AND UNAVAILABLE REVENUE The District has four independently elected tax collectors who are responsible for the collection of taxes. Assessed values are established by the County Board of Assessment. All taxable real property was assessed at $733,437,600. In accordance with Act 1 of 2006, the District received $628,082 in property tax reduction funds for the 2016/2017 fiscal year. The District s tax rate for the year ended, was mills ($ per $1,000 of assessed valuation) as levied by the board of school directors. The schedule for real estate taxes levied for each fiscal year is as follows: July 1 July 1 - August 31 September 1 - October 31 November 1 - January 14 January 15 Levy date 2% discount period Face payment period 10% penalty period Lien date The District, in accordance with generally accepted accounting principles, recognized the delinquent and unpaid taxes receivable reduced by an allowance for uncollectible taxes as determined by administration. A portion of the net amount estimated to be collectible which was measurable and available within 60 days was recognized as revenue and the balance reported as unavailable under deferred inflows of resources in the fund financial statements. The balances at, are as follows: Allowance Net Gross for Estimated Tax Taxes Uncollectible to be Revenue Unavailable Receivable Taxes Collectible Recognized Revenue Real Estate $ 567,988 $ 9,809 $ 558,179 $ 77,527 $ 490,461 Real Estate Transfer 28,801-28,801 28,801 - Earned Income 127, , ,922 - $ 724,711 $ 9,809 $ 714,902 $ 234,250 $ 490,461 39

43 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 5 - INTERGOVERNMENTAL RECEIVABLES The following schedule represents intergovernmental receivables at : General Fund Proprietary Fund Local Sources Berks County Intermediate Unit - Special Education - Grants to States $ 165,033 $ - State Sources Commonwealth of Pennsylvania: Social Security 163,401 - Retirement 655,060 - Transportation 61,798 - School Breakfast and Lunch Program Total State Sources 880, Federal Sources Access 1,756 - School Breakfast or Lunch Program - 3,306 Total Federal Sources 1,756 3,306 Total Intergovernmental Receivables $ 1,047,048 $ 3,534 40

44 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 6 - CHANGES IN CAPITAL ASSETS Capital asset activity for the year ended, was as follows: Governmental Activities Beginning (Reclass) Ending Balance Increase Decrease Balance Capital assets not being depreciated: Land $ 328,284 $ - $ - $ 328,284 Total assets not being depreciated: 328, ,284 Capital assets being depreciated: Buildings and improvements 51,543, ,821-51,817,762 Machinery and equipment 5,335, ,083 (1,950,839) 3,894,021 Vehicles 145,662 - (7,517) 138,145 Total assets being depreciated: 57,025, ,904 (1,958,356) 55,849,928 Less accumulated depreciation for: Buildings and improvements 21,531,242 1,324,282-22,855,524 Machinery and equipment 4,716, ,943 (1,950,839) 2,987,540 Vehicles 81,362 14,306 (7,517) 88,151 Total accumulated depreciation: 26,329,040 1,560,531 (1,958,356) 25,931,215 Business-Type Activities TOTAL CAPITAL ASSETS BEING DEPRECIATED, NET 30,696,340 (777,627) - 29,918,713 GOVERNMENTAL ACTIVITIES, CAPITAL ASSETS, NET $ 31,024,624 $ (777,627) $ - $ 30,246,997 Capital assets being depreciated: Equipment $ 96,064 $ 11,095 $ - $ 107,159 Less accumulated depreciation for: Equipment 65,628 6,390-72,018 BUSINESS-TYPE ACTIVITIES CAPITAL ASSETS, NET $ 30,436 $ 4,705 $ - $ 35,141 Depreciation expense of $1,560,531 in governmental activities was unallocated for the year ended June 30,

45 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7 - LONG-TERM LIABILITIES General Obligation Bonds and Loans at, were as follows: General Obligation Bonds - Series of 1993: In May 1993, the District issued the General Obligation Bonds - Series of 1993 of $17,480,035, consisting of $13,025,000 of Current Interest Bonds and $14,450,000 of Capital Appreciation Bonds with an original principal amount of $4,455,035. On February 18, 1998, the District refunded and defeased the Current Interest Bonds. Only the Capital Appreciation Bonds are outstanding at, with payment due through $ 580,000 General Obligation Bonds - Series A of 2012 In May 2012, the District issued the General Obligation Bonds - Series A of 2012 in the aggregate principal amount of $8,535,000. The purpose of this issue was to provide funds to currently refund a portion of the General Obligation Bonds - Series A of 2002, to currently refund all of the General Obligation Bonds - Series AA of 2002, to pay a portion of the costs of terminating an interest rate management agreement relating to the 2002A Bonds, and to pay costs associated with the bond issuance. The bonds mature from May 2012 through May 2028 with interest rates from 0.45% to 3.63%. 7,175,000 General Obligation Bonds - Series B of 2012 In May 2012, the District issued the General Obligation Bonds - Series B of 2012 in the aggregate principal amount of $18,090,000. The purpose of this issue was to provide funds to currently refund a portion of the General Obligation Bonds - Series A of 2002, to pay a portion of the costs of terminating an interest rate management agreement relating to the 2002A Bonds, and to pay costs associated with the bond issuance. The bonds mature from May 2012 through May 2027 with a variable interest rate. The interest rate at June 30, 2017, was 0.87%. This bond is part of a hedging derivative off-market swap agreement and contains a put-option at the five-year anniversary of the credit facility and at each five-year point thereafter to the extent not previously exercised. In the event a put option is exercised by the bank and the school is unable to refinance the existing principal balance, all outstanding principal will amortize equally over a thirty-six month period commencing on the put date at an interest rate of Bank Base Rate plus 2.5% or 7.00%. 15,740,000 Total Bonds Payable 23,495,000 42

46 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7 - LONG-TERM LIABILITIES - CONTINUED Embedded Hedge Loan Payable In May 2012, the District issued the General Obligation Bonds - Series A and B of 2012, which refunded the General Obligation Bonds - Series A and AA of 2002 and partially terminated the interest rate swap associated with the General Obligation Bonds - Series A To complete the swap termination, the District entered into a new interest rate swap hedge contract relating to the General Obligation Bonds - Series B of 2012 which included an embedded hedge loan. A total of $2,560,730 was advanced on the District s behalf, consisting of $2,515,730 to complete the termination of the swap relating to the GOB Series A of 2002 and $45,000 in swap issuance costs. This embedded hedge contract loan is being repaid through the swap payments with variable interest rates consistent with the repayment of the General Obligation Bonds - Series B of The effective interest rate at, was 2.51%. 1,815,054 Total Loan Payable 1,815,054 Total Bonds and Loan Payable $ 25,310,054 The future annual payments required to amortize all outstanding bonds and loans payable for the years ending June 30 are as follows: General General General Obligation Obligation Obligation Total Bonds - Bonds - Bonds - General Year Ended Series of Series A Series B Loan Long-Term Total June of 2012 of 2012 Payable Debt Interest 2018 $ 580,000 $ 80,000 $ 1,260,000 $ 161,756 $ 2,081,756 $ 690, ,000 1,385, ,855 2,005, , ,000 1,430, ,058 2,070, , ,000 1,475, ,368 2,134, , ,000 1,525, ,786 2,208, , ,680,000 8,665, ,231 12,309, , ,500, ,500,000 90,625 Subtotal 580,000 7,175,000 15,740,000 1,815,054 25,310,054 3,721,160 Less: Unamortized Interest (29,703) (29,703) - TOTAL $ 550,297 $ 7,175,000 $ 15,740,000 $ 1,815,054 $ 25,280,351 $ 3,721,160 43

47 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 7 - LONG-TERM LIABILITIES - CONTINUED Long-term liability balance and activity, except for the net pension liability and other postemployment benefit obligation, for the year ended, was as follows: Governmental Activities General Obligation Debt: Bonds Payable 25,595,000 Due Beginning Ending Within Balance Additions Reductions Balance One Year $ $ - $ 2,100,000 $ 23,495,000 $ 1,920,000 Discounts (108,928) - (9,173) (99,755) - Unamortized Bond Interest (138,372) - (108,669) (29,703) - Total Bonds Payable 25,347,700-1,982,158 23,365,542 1,920,000 Other Liabilities: Loan Payable 1,972, ,759 1,815, ,756 Compensated Absences 466,982 57,665 59, , ,058 Total Governmental Long-Term Liabilities $ 27,787,495 $ 57,665 $ 2,199,223 $ 25,645,937 $ 2,227,814 Business-Type Activities Compensated Absences $ 3,975 $ 1,000 $ 637 $ 4,338 $ 4,338 Payment for bonds and loan payable are made by the general fund. The compensated absences liabilities will be liquidated by the general and the proprietary funds. Total interest paid during the year ended, was $714,026. Subsequent Event Subsequent to year end, the District issued General Obligation Bonds, Series of 2017 in the amount of $7,075,000 to advance refund a portion of the General Obligation Bonds, Series A of

48 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 8 - EMPLOYEE RETIREMENT PLANS Employee Defined Benefit Pension Plan Summary of Significant Accounting Policies Pension Plan For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Public School Employees Retirement System (PSERS) and additions to/deductions from PSERS s fiduciary net position have been determined on the same basis as they are reported by PSERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. General Information about the Pension Plan Plan Description PSERS is a governmental cost-sharing multi-employer defined benefit pension plan that provides retirement benefits to public school employees of the Commonwealth of Pennsylvania under Title 24 Part IV of the Pennsylvania General Assembly. The members eligible to participate in the System include all full-time public school employees, part-time hourly public school employees who render at least 500 hours of service in the school year, and part-time per diem public school employees who render at least 80 days of service in the school year in any of the reporting entities in Pennsylvania. PSERS issues a publicly available financial report that can be obtained at Benefits Provided PSERS provides retirement, disability, and death benefits. Members are eligible for monthly retirement benefits upon reaching (a) age 62 with at least one year of credited service; (b) age 60 with 30 or more years of credited service; or (c) 35 or more years of service regardless of age. Act 120 of 2010 (Act 120) preserves the benefits of existing members and introduced benefit reductions for individuals who become new members on or after July 1, Act 120 created two new membership classes, Membership Class T-E (Class T-E) and Membership Class T-F (Class T-F). To qualify for normal retirement, Class T-E and Class T-F members must work until age 65 with a minimum of three years of service or attain a total combination of age and service that is equal to or greater than 92 with a minimum of 35 years of service. Benefits are generally equal to 2.0 percent or 2.5 percent, depending upon membership class, of the member s final average salary (as defined in the Code) multiplied by the number of years of credited service. For members whose membership started prior to July 1, 2011, after completion of five years of service, a member s right to the defined benefits is vested and early retirement benefits may be elected. For Class T-E and Class T-F members, the right to benefits is vested after 10 years of service. 45

49 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 8 - EMPLOYEE RETIREMENT PLANS - CONTINUED Employee Defined Benefit Pension Plan - continued General Information about the Pension Plan - continued Participants are eligible for disability retirement benefits after completion of five years of credited service. Such benefits are generally equal to 2.0 percent or 2.5 percent, depending upon membership class, of the member s final average salary (as defined in the Code) multiplied by the number of years of credited service, but not less than one-third of such salary nor greater than the benefit the member would have had at normal retirement age. Members over normal retirement age may apply for disability benefits. Death benefits are payable upon the death of an active member who has reached age 62 with at least one year of credited service (age 65 with at least three years of credited service for Class T-E and Class T-F members) or who has at least five years of credited service (10 years for Class T-E and Class T-F members). Such benefits are actuarially equivalent to the benefit that would have been effective if the member had retired on the day before death. Contributions The contribution policy is set by the state statute and requires contributions by active members, employers, and the Commonwealth of Pennsylvania. Member Contributions: Active members who joined the System prior to July 22, 1983, contribute at 5.25 percent (Membership Class T-C) or at 6.50 percent (Membership Class T-D) of the member s qualifying compensation. Members who joined the System on or after July 22, 1983, and who were active or inactive as of July 1, 2001, contribute at 6.25 percent (Membership Class T-C) or at 7.50 percent (Membership Class T-D) of the member s qualifying compensation. Members who joined the System after June 30, 2001, and before July 1, 2011, contribute at 7.50 percent (automatic Membership Class T-D). For all new hires and for members who elected Class T-D membership, the higher contribution rates began with service rendered on or after January 1, Members who joined the System after June 30, 2011, automatically contribute at the Membership Class T-E rate of 7.5 percent (base rate) of the member s qualifying compensation. All new hires after June 30, 2011, who elect Class T-F membership, contribute at 10.3 percent (base rate) of the member s qualifying compensation. Membership Class T-E and Class T-F are affected by a shared risk provision in Act 120 of 2010 that in future fiscal years could cause the Membership Class T-E contribution rate to fluctuate between 7.5 percent and 9.5 percent and Membership Class T-F contribution rate to fluctuate between 10.3 percent and 12.3 percent. 46

50 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 8 - EMPLOYEE RETIREMENT PLANS - CONTINUED Employee Defined Benefit Pension Plan - continued General Information about the Pension Plan - continued Employer Contributions: The District s contractually required contribution rate for fiscal year ended, was percent of covered payroll, actuarially determined as an amount that, when combined with employee contributions, is expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The rate was certified by the PSERS board of trustees. Contributions to the pension plan from the District were $3,689,070 for the year ended. The District is also required to contribute a percentage of covered payroll to PSERS for healthcare insurance premium assistance. For the year ended, the contribution rate was 0.83 percent of covered payroll and the District contributed $104,861. Under the current legislation, the Commonwealth of Pennsylvania reimburses the District for approximately one-half of the employer contributions made, including both contributions related to pension and to healthcare. This arrangement does not meet the criteria of a special funding situation in accordance with GASB standards. Therefore, the net pension liabilities and related pension expense represent 100 percent of the District s share of those amounts. The total reimbursement recognized by the District for the year ended, was $1,919,368. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At, the District reported a liability of $48,367,000 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by rolling forward the System s total pension liability as of June 30, 2015, to June 30, The District s proportion of the net pension liability was calculated utilizing the employer s one-year reported covered payroll as it relates to the total one-year reported covered payroll. At June 30, 2016, the District s proportion was percent, which was an increase of percent from its proportion measured as of June 30,

51 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 8 - EMPLOYEE RETIREMENT PLANS - CONTINUED Employee Defined Benefit Pension Plan - continued Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions - continued For the year ended, the District recognized pension expense of $4,743,422. At, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Net difference between projected and actual investment earnings $ 2,696,000 $ - Difference between expected and actual experience - 403,000 Changes in proportions - plan level 488, ,000 Changes in proportions - internal 135, ,599 Changes of assumptions 1,746,000 - Difference between employer contributions and proportionate share of total contributions 133,343 - Contributions made subsequent to the measurement date 3,689,070 - $ 8,888,012 $ 1,413,599 The $3,689,070 reported as deferred outflows of resources resulting from District pension contributions made subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows for the years ending June 30: 2018 $ 624, , ,380, ,155,522 $ 3,785,343 48

52 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 8 - EMPLOYEE RETIREMENT PLANS - CONTINUED Employee Defined Benefit Pension Plan - continued Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions - continued Actuarial Assumptions The total pension liability as of June 30, 2016, was determined by rolling forward the System s total pension liability as of the June 30, 2015 actuarial valuation to June 30, 2016, using the following actuarial assumptions, applied to all periods included in the measurement: Changes in assumptions used in measurement of the total pension liability beginning June 30, 2016: The investment rate of return was adjusted from 7.50% to 7.25%. The inflation assumption was decreased from 3.0% to 2.75%. Salary growth changed from an effective average of 5.50%, which was comprised of inflation of 3.00%, real wage growth and for merit or seniority increases of 2.50%, to an effective average of 5.00%, comprised of inflation of 2.75% and 2.25% for real wage growth and for merit or seniority increases. Mortality rates were modified from the RP-2000 Combined Healthy Annuitant Tables (male and female) with age set back 3 years for both males and females to the RP-2014 Mortality Tables for Males and Females, adjusted to reflect PSERS experience and projected using a modified version of the MP-2015 Mortality Improvement Scale. For disabled annuitants the RP-2000 Combined Disabled Tables (male and female) with age set back 7 years for males and 3 years for females to the RP-2014 Mortality Tables for Males and Females, adjusted to reflect PSERS experience and projected using a modified version of the MP-2015 Mortality Improvement Scale. The actuarial assumptions used in the June 30, 2016 valuation were based on the experience study that was performed for the five-year period ended June 30, The recommended assumption changes based on this experience study were adopted by the PSERS Board of Trustees at its June 10, 2016 board meeting, and were effective beginning with the June 30, 2016 actuarial valuation. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. 49

53 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 8 - EMPLOYEE RETIREMENT PLANS - CONTINUED Employee Defined Benefit Pension Plan - continued Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions - continued The pension plan s policy in regard to the allocation of invested plan assets is established and may be amended by the PSERS board. Plan assets are managed with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the pension. Long-Term Target Expected Real Asset Class Allocation Rate of Return Global public equity 22.5% 5.3% Fixed income 28.5% 2.1% Commodities 8.0% 2.5% Absolute return 10.0% 3.3% Risk parity 10.0% 3.9% Infrastructure/MLPs 5.0% 4.8% Real estate 12.0% 4.0% Alternative investments 15.0% 6.6% Cash 3.0% 0.2% Financing (LIBOR) (14.0%) 0.5% 100.0% The above was the PSERS board s adopted asset allocation policy and best estimates of geometric real rates of return for each major asset class as of June 30, Discount Rate The discount rate used to measure the total pension liability was 7.25 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and that contributions from employers will be made at contractually required rates, actuarially determined. Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 50

54 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 8 - EMPLOYEE RETIREMENT PLANS - CONTINUED Employee Defined Benefit Pension Plan - continued Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions - continued Sensitivity of the District s Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability, calculated using the discount rate of 7.25 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is one percentage point lower (6.25%) or one percentage point higher (8.25%) than the current rate: 1% Decrease Discount Rate 1% Increase 6.25% 7.25% 8.25% District's proportionate share of the net pension liability $ 59,166,000 $ 48,367,000 $ 39,293,000 Pension Plan Fiduciary Net Position Detailed information about PSERS fiduciary net position is available in PSERS Comprehensive Annual Financial Report which can be found on the System s website at Payables to the Pension Plan At, the District had an accrued balance due to PSERS of $1,311,714. This amount represents the District s contractually obligated contributions for wages earned in April 2017 through June The balance will be paid in September (b) Tax Shelter Plan The District has established a 403(b) tax shelter plan permitting the establishment of accounts for school employees to voluntarily set aside monies to supplement their retirement income. All school employees are eligible to participate. The District does not contribute to the Plan. 51

55 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 9 - INTERFUND RECEIVABLES/PAYABLES AND TRANSFERS The following is a summary of interfund receivables and payables at : Interfund Interfund Receivables Payables General Fund $ 62,902 $ 85,284 Capital Projects Fund 110,644 - Enterprise Fund - Food Service - 88,187 Agency Fund - Student Activities - 75 $ 173,546 $ 173,546 Interfund receivables and payables exist as a result of the time lag between dates when goods and services were provided and payments between funds are made. All balances will be repaid within one year. Interfund transfers are summarized as follows at : Transfers In Transfers Out General Fund $ - $ 85,284 Capital Projects Fund 85,284 - $ 85,284 $ 85,284 Interfund transfers from the general fund are made to reserve for future capital needs. NOTE 10 - JOINT VENTURE The District is a participating member of the Berks Career & Technology Center. The Berks Career & Technology Center is controlled and governed by a joint board, which is composed of representative school board members of the participating schools. Direct oversight of Berks Career & Technology Center s operations is the responsibility of the joint board. The board of directors of each participating district must approve the Center s annual operating budget. The District s share of annual operating and capital costs for Berks Career & Technology Center fluctuates based on the percentage of enrollment. The District s share for the 2016/2017 year was $658,

56 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 10 - JOINT VENTURE - CONTINUED During the year ended June 30, 1998, Berks Career Vocational Technical School Authority issued $34,850,000 of General Obligation Bonds and lent the proceeds to Berks Career & Technology Center. The proceeds are being used to renovate and build an addition to Berks Career & Technology Center s facilities. Each member district adopted a resolution approving the project and the project s maximum cost. Under the amended Articles of Agreement, each member district is required to pay from current revenues its annual share of the sublease rental based on the District s share of taxable real estate to the total market valuation of the taxable real estate of all participating school districts. The District s share for the 2016/2017 year was $104,227. Summary financial information as of June 30, 2016 (most recent available) was as follows: Berks Career & Technology Center - Governmental Activities Total Assets and Deferred Outflows of Resources $ 31,220,549 Total Liabilities and Deferred Inflows of Resources 30,687,936 Total Net Position (Deficit) $ 532,613 Separate financial statements of the Berks Career & Technology Center have been prepared and are available. NOTE 11 - OTHER POSTEMPLOYMENT BENEFITS Plan Description The Oley Valley School District administers a single-employer defined benefit healthcare plan (the Retiree Health Plan). The Plan provides healthcare insurance for eligible retirees and their spouses through the District s health insurance plan, which covers both active and retired members until the member reaches Medicare age. Benefit provisions are established through negotiation with the District and the unions representing the District s employees. The Retiree Health Plan does not issue a publicly available financial report. Funding Policy Contribution requirements are negotiated between the District and union representatives. The required contribution is based on pay as you go financing. The District currently provides medical and prescription drug coverage to the superintendent at 100 percent of the single premium for two years following retirement (or until Medicare age, if earlier) if the superintendent has completed eleven consecutive years of service as a district administrator. The superintendent s spouse may elect coverage by paying the full premiums. For all other employees eligible for PSERS retirement (age 60 with 30 years of service, age 62 with one year of service, or 35 years of service regardless of age), the retiree and spouse may elect medical and prescription drug coverage until the member reaches Medicare age, by paying the full premiums. For the fiscal year ended, the District contributed $77,053 to the plan related to retirees. 53

57 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 11 - OTHER POSTEMPLOYMENT BENEFITS - CONTINUED Annual OPEB Cost and Net OPEB Obligation The District s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District s annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the District s net OPEB obligation: Annual required contribution $ 368,576 Interest on net OPEB obligation 41,334 Adjustment to annual required contribution (116,084) Annual OPEB Cost 293,826 Contributions made (estimated) (77,053) Estimated increase in net OPEB obligation 216,773 Net OPEB obligation - beginning of year 918,538 Net OPEB obligation - end of year $ 1,135,311 The District s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation as of June 30 is as follows: Fiscal Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 6/30/2017 $ 293, % $ 1,135,311 6/30/ , % 918,538 6/30/ , % 792,314 Funded Status and Funding Progress As of July 1, 2016, the most recent actuarial valuation date, the Plan was unfunded. The actuarial accrued liability for benefits was $1,967,964, and the actuarial value of assets was $0, resulting in an unfunded actuarial accrued liability (UAAL) of $1,967,964. The covered payroll (annual payroll of active employees covered by the Plan) was $11,547,123, and the ratio of the UAAL to the covered payroll was percent. 54

58 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 11 - OTHER POSTEMPLOYMENT BENEFITS - CONTINUED Funded Status and Funding Progress - continued Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents information about actuarial value of plan assets and actuarial accrued liabilities for benefits. 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 the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. 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, 2016 actuarial valuation, the entry age normal actuarial cost method was used. The actuarial assumptions included a 4.5 percent investment rate of return (net of administrative expenses) and an annual healthcare cost trend rate of 6.5 percent in 2016, decreasing 0.5 percent per year to 5.5 percent in 2018 through Rates gradually decrease from 5.4 percent in 2021 to 3.8 percent in 2075 and later based on the Society of Actuaries Long-Run Medical Cost Trend Model. The unfunded actuarial accrued liability is being amortized using single period amortization as of the end of the year based on level dollar, 10-year open period. NOTE 12 - RISK MANAGEMENT The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Significant losses are covered by commercial insurance for all major programs. The District s worker s compensation policy is a retrospectively rated policy; the final total premium is based on the actual payroll for the policy year and is determined by the insurance carrier. For insured programs, there were no significant reductions in insurance coverages for the 2016/2017 year. Settlement amounts have not exceeded insurance coverage for the current year or the three prior years. 55

59 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 13 - CONTINGENT LIABILITIES AND COMMITMENTS Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time, although the District expects such amounts, if any, to be immaterial. NOTE 14 - DERIVATIVE INSTRUMENT Introduction The District follows accounting guidance for recognizing, measuring and disclosing derivative instruments. All derivatives are to be reported on the statement of net position at fair value, and depending on whether a derivative is deemed a hedge or an investment instrument, the changes in fair value are either reported on the statement of net position as a deferral, or in the statement of activities as investment revenue or loss. The District has one off-market interest rate swap agreement in effect at, for its $18,090,000 General Obligation Bonds - Series B of The District engaged an independent party to perform the valuation on the swap. Under accounting guidance, the District s swap is deemed a hedge instrument; therefore, the change in fair value is reported in the statement of net position as a deferral. At, the fair value of the hedge was $(102,234). Terms and Fair Value The terms as of, were as follows: Oley Valley School District Credit Rating by Governmental Moody's/ Issuer Issuer Initial Effective Date/ Present Activities Counter Party S&P/Fitch Pays Receives Notional Maturity Date Value Hedging Derivatives Off-Market Swap Series B of 2012 PNC Bank A2/A/A % of USD-Libor $ 18,090,000 05/01/2012 $ (102,234) 05/15/

60 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 14 - DERIVATIVE INSTRUMENT - CONTINUED Terms and Fair Value - continued This fair value takes into consideration the prevailing interest rate environment, the specific terms and conditions of a given transaction and any upfront payments that may have been received. The fair value was estimated on a mid market basis and does not include bid/offered spread that would be reflected in an actual price quotation. The valuation shown is not actual market prices at which an offer would be made for unwinding any transactions, but rather calculated mathematical approximations of market values derived from proprietary models as of a given date. As the off-market interest rate swap is considered to be an effective hedge type derivative instrument per accounting standards, it is reported as a derivative liability. Through the use of derivative instruments, the District is exposed to a variety of risks, including credit risk, interest rate risk, termination risk, and basis risk. Risks Credit Risk. As of, the District was exposed to credit risk on its outstanding swap. The District is exposed to credit risk in the amount of the derivative s fair value. This amount may increase if interest rates increase in the future. However, if interest rates decline and the fair value of the swap is negative, the District would no longer be exposed to credit risk. The current credit ratings of PNC Bank are A2, A, and A+ by Moody s, Standard & Poor s, and Fitch, respectively. The District will be exposed to interest rate risk only if the counterparty to the swap defaults or if the swap is terminated. The swap agreement contains a collateral agreement with the counterparty. The swap requires collateralization of the fair value of the swap should the counterparty s credit rating fall below the applicable thresholds. Basis Risk. Basis risk is the risk that the interest rate paid by the District on underlying variable rate bonds to bondholders temporarily differs from the variable swap rate received from the applicable counterparty. The District bears basis risk on its swap. The swap has basis risk since the District will receive a percentage of LIBOR to offset the actual fixed bond rate the District pays on its bonds if the option is exercised. The District is exposed to basis risk should the floating rate that it receives on a swap be less than the actual fixed rate the District pays on the bonds. Depending on the magnitude and duration of any basis risk shortfall, the expected cost of the basis risk may vary and could be significant. Tax Risk. Tax risk is a specific type of basis risk. Tax risk is a permanent mismatch between the interest rate paid on the District s underlying variable-rate bonds and the rate received on the swap caused by a reduction or elimination in the benefits of the tax exemption for municipal bonds, e.g., a tax cut that results in an increase in the ratio of tax-exempt to taxable yields. Termination Risk. The District or the counterparty may terminate the swap if the other party fails to perform under the term of the respective contracts. If at the time of termination the swap has a negative fair value, the District would be liable to the counterparty for a payment equal to the swap s fair value which could be significant. 57

61 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 14 - DERIVATIVE INSTRUMENT - CONTINUED Terms and Fair Value - continued Rollover Risk. The risk that the District is obligated to terminate or amend the Swap if it decides to refinance its General Obligation Note Series B of NOTE 15 - LEASE COMMITMENT The District has several operating-type lease agreements with two companies to lease computers and office equipment. Future annual minimum lease payments under the noncancelable operating leases are as follows for the years ending June 30: 2018 $ 443, , , ,156 $ 1,176,247 Expenses under these operating leases were $208,633 for the year ended. NOTE 16 - FUND BALANCE Details of the District s governmental fund balance reporting and policy can be found in Note 1, Summary of Significant Accounting Policies. Fund balance classifications for the year ended, were as follows: General Fund The general fund has nonspendable funds of $103,524 for inventories and prepaid expenditures, committed funds of $1,048,709 for retirement rate increases, assigned fund balance of $210,009 for balancing the 2017/18 budget, and unassigned fund balance of $2,549,359. All commitments were authorized by the school board of directors motion to set aside resources. Capital Projects The capital projects fund has restricted funds of $1,537,478 comprised of surplus moneys transferred from the general fund for the acquisition or construction of capital facilities and qualifying capital assets as authorized by Municipal Code P.L.145 Act of April 30,

62 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 17 - NEW ACCOUNTING PRONOUNCEMENTS The Government Accounting Standards Board (GASB) has issued the following standards which have not yet been implemented: Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions - This statement replaces the requirements of Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. The scope of this statement addresses accounting and financial reporting for OPEB that is provided to the employees of state and local governmental employers. This statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. This statement is effective for the year ending June 30, Statement No. 84, Fiduciary Activities - This statement establishes criteria for identifying fiduciary activities and describes four types of fiduciary funds, as well as provides for recognition of a liability to the beneficiaries in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources. This statement is effective for the District s fiscal year ending June 30, Statement No. 87, Leases - This statement requires recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources. This statement is effective for the District s fiscal year ending June 30, The District has not yet completed the analysis necessary to determine the actual financial statement impact of these new pronouncements. 59

63 REQUIRED SUPPLEMENTARY INFORMATION

64 BUDGETARY COMPARISON SCHEDULE FOR THE GENERAL FUND For the Year Ended BUDGET ACTUAL VARIANCE Original Final (GAAP) Basis Final to Actual REVENUES Local Sources $ 20,999,435 $ 21,011,205 $ 21,317,098 $ 305,893 State Sources 9,549,239 9,549,239 9,838, ,969 Federal Sources 332, , ,835 33,221 TOTAL REVENUES 30,881,608 30,894,058 31,522, ,083 EXPENDITURES INSTRUCTIONAL SERVICES: Regular Programs Elementary/Secondary 11,833,251 12,093,355 12,196,487 (103,132) Special Programs Elementary/Secondary 5,126,284 4,904,039 4,916,014 (11,975) Vocational Education 936, , ,867 7 Other Instructional Programs Elementary/Secondary 60,186 7,762 7,759 3 Nonpublic School Programs 8,579 8,579 TOTAL INSTRUCTIONAL SERVICES 17,956,657 17,974,609 18,089,706 (115,097) SUPPORT SERVICES: Students 1,185,190 1,197,064 1,197,373 (309) Instructional Staff 922, , ,937 2,639 Administration 2,141,476 2,100,002 2,105,824 (5,822) Pupil Health 504, , ,987 8 Business 414, , ,659 4,416 Operation and Maintenance of Plant Services 2,478,392 2,327,507 2,814,588 (487,081) Student Transportation Services 1,541,002 1,688,936 1,688, Central 320, , ,434 (2,704) Other Support Services 27,181 26,642 26,641 1 TOTAL SUPPORT SERVICES 9,534,752 9,433,527 9,922,271 (488,744) OPERATION OF NONINSTRUCTIONAL SERVICES: Student Activities 740, , ,369 1,736 Community Services 11,500 11,029 11,029 TOTAL OPERATION OF NONINSTRUCTIONAL SERVICES 751, , ,398 1,736 DEBT SERVICE 2,988,363 2,971,788 2,971,785 3 TOTAL EXPENDITURES 31,231,608 31,244,058 31,846,160 (602,102) EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (350,000) (350,000) (324,019) 25,981 OTHER FINANCING SOURCES (USES) Transfers Out (85,284) (85,284) REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER FINANCING USES $ (350,000) $ (350,000) (409,303) $ (59,303) FUND BALANCE BEGINNING OF YEAR 4,320,904 FUND BALANCE END OF YEAR $ 3,911,601 See note to required supplementary information. 60

65 SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY AND RELATED RATIOS PENSION PLAN District's proportion of the net pension liability % % % % District's proportionate share of the net pension liability $ 48,367,000 $ 41,670,000 $ 39,146,000 $ 40,936,000 District's covered employee payroll $ 12,644,368 $ 12,375,291 $ 12,623,906 $ 12,838,234 District's proportionate share of the net pension liability as a percentage of its covered employee payroll % % % % Plan fiduciary net position as a percentage of the total pension liability 50.14% 54.36% 57.24% 54.50% The District's covered employee payroll noted above is as of the measurement date of the net pension liability (June 30, 2016, 2015, 2014, and 2013). Note: This schedule is to present the requirement to show information for 10 years. However, until a full 10 year trend is compiled, information is only shown for the years for which it is available. See note to required supplementary information. 61

66 SCHEDULE OF DISTRICT'S CONTRIBUTIONS PENSION PLAN LAST 10 FISCAL YEARS Contractually required contribution $ 3,689,070 $ 3,192,611 $ 2,561,315 $ 2,012,174 $ 1,473,222 $ 1,074,122 $ 666,010 $ 512,664 $ 509,498 $ 787,716 Contributions in relation to the contractually required contribution 3,689,070 3,192,611 2,561,315 2,012,174 1,473,222 1,074, , , , ,716 Contribution deficiency (excess) $ $ $ $ $ $ $ $ $ $ District's covered employee payroll $ 12,808,258 $ 12,644,368 $ 12,375,291 $ 12,623,906 $ 12,838,234 Contributions as a percentage of covered employee payroll 28.80% 25.25% 20.70% 15.94% 11.48% Note: This schedule is to present the requirement to show information for 10 years. However, until a full 10 year trend is compiled information is only shown for the years for which it is available. See note to required supplementary information. 62

67 SCHEDULE OF FUNDING PROGRESS OTHER POSTEMPLOYMENT BENEFITS PLAN Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage Actuarial Value of (AAL) AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (a) (b) (b a) (a / b) (c) ((b a) / c) Eligible Employees 7/1/2016 $ $ 1,967,964 $ 1,967, % $ 11,547, % Eligible Employees 11/1/2013 1,615,896 1,615, % 11,081, % Eligible Employees 11/1/2011 1,719,831 1,719, % 12,079, % See note to required supplementary information. 63

68 NOTE TO REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY DATA The budget for the general fund is adopted on the modified accrual basis of accounting which is consistent with generally accepted accounting principles. 64

69 SUPPLEMENTARY INFORMATION

70 SCHEDULE OF REVENUES AND EXPENSES FOOD SERVICE FUND For the Year Ended REVENUES Children's Payments $ 251,475 Adult's Payments/A la Carte 137,504 Federal Subsidies 239,749 State Subsidies 57,467 Commodities Received 41,185 Earnings on Investments 307 Special Events 13,757 Miscellaneous 2,586 TOTAL REVENUES 744,030 COST OF GOODS SOLD Inventory Beginning of Year 11,756 Purchases Commodities 45,896 Purchases Food and Milk 245,814 Less: Inventory End of Year (16,792) TOTAL COST OF GOODS SOLD 286,674 GROSS PROFIT 457,356 OPERATING EXPENSES Salaries 217,983 Employee Benefits 88,464 Repairs and Maintenance 13,981 Depreciation 6,390 Other Purchased Services 61,937 Dues and Fees 629 Miscellaneous Expense 5,060 TOTAL OPERATING EXPENSES 394,444 CHANGE IN NET POSITION 62,912 NET POSITION (DEFICIT) BEGINNING OF YEAR (806,565) NET POSITION (DEFICIT) END OF YEAR $ (743,653) 65

71 Accrued Accrued Federal Pass Through Program or Grant Period Receipts (Unearned) (Unearned) Federal Grantor/Pass Through Source CFDA Grantor's Award Beginning/ For the Revenue at Revenue Revenue at Grantor/Program Title Code Number Number Amount Ending Dates Year July 1, 2016 Recognized Expenditures U.S. DEPARTMENT OF EDUCATION Passed through the State Department of Education: Title I Grants to Local Educational Agencies I $ 234,111 08/26/16 09/30/17 $ 234,111 $ $ 234,111 $ 234,111 $ Supporting Effective Instruction State Grant I ,657 08/26/16 09/30/17 45,941 45,657 45,657 (284) Passed through the Berks County Intermediate Unit: Special Education Cluster (IDEA) Special Education Grants to States I N/A 281,636 07/01/16 09/30/17 116, , , ,033 Special Education Grants to States I N/A 255,788 07/01/15 09/30/16 13,196 13,196 Special Education Preschool Grants I N/A 1,309 07/01/16 06/30/17 1,309 1,309 1,309 Total Special Education Cluster (IDEA) 131,108 13, , , ,033 U.S. DEPARTMENT OF HUMAN SERVICES TOTAL U. S. DEPARTMENT OF EDUCATION 411,160 13, , , ,749 Passed through the Pennsylvania Department of Human Services: Medical Assistance Program I N/A 2,978 07/01/16 06/30/17 1,222 2,978 2,978 1,756 Medical Assistance Program I N/A 2,888 07/01/15 06/30/16 1,853 1,853 TOTAL U.S. DEPTARTMENT OF HUMAN SERVICES 3,075 1,853 2,978 2,978 1,756 U.S. DEPARTMENT OF AGRICULTURE Child Nutrition Cluster Passed through the State Department of Education: National School Lunch Program I N/A N/A 07/01/16 06/30/17 216, , ,407 3,027 National School Lunch Program I N/A N/A 07/01/15 06/30/16 5,408 5,408 School Breakfast Program I N/A N/A 07/01/16 06/30/17 20,062 20,341 20, School Breakfast Program I N/A N/A 07/01/15 06/30/ Passed through the State Department of Agriculture: National School Lunch Program I N/A N/A 07/01/16 06/30/17 45,896 (3,820) 41,185 41,185 (8,531) U.S. DEPARTMENT OF HOMELAND SECURITY TOTAL CHILD NUTRITION CLUSTER AND U. S. DEPARTMENT OF AGRICULTURE 288,372 2, , ,933 (5,225) Passed through Pennsylvania Emergency Management Agency: Disaster Grants Public Assistance I N/A 4,089 03/23/16 09/23/16 4,089 4,089 4,089 TOTAL FEDERAL AWARDS $ 706,696 $ 17,263 $ 850,713 $ 850,713 $ 161,280 I = Indirect Source of Funding NOTE: No funds were passed through to subrecipients in the year ended. OLEY VALLEY SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For Year Ending See notes to schedule of expenditures of federal awards. 66

72 NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the Year Ended NOTE 1 - BASIS OF ACCOUNTING The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal awards activity of the Oley Valley School District under programs of the federal government for the year ended June 30, The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the Oley Valley School District, it is not intended to and does not present the financial position, changes in net position, or cash flows of the Oley Valley School District. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to the reimbursement. Negative amounts shown on the Schedule represent adjustment or credits made in the normal course of business amounts reported as expenditures in prior years. NOTE 3 - DE MINIMUS RATE FOR INDIRECT COSTS The District did not elect to use the De Minimus rate for indirect costs. NOTE 4 - FOOD COMMODITIES Nonmonetary assistance is reported in the Schedule at the fair market value of the commodities received and disbursed. At, the District has $8,531 of food commodity inventory. 67

73 Herbein + Company, Inc Century Boulevard Reading, PA P: F: 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 To the Board of School Directors Oley Valley School District Oley, Pennsylvania We have audited, in accordance with the 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, the financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of Oley Valley School District, as of and for the year ended, and the related notes to the financial statements, which collectively comprise Oley Valley School District s basic financial statements and have issued our report thereon dated December 11, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Oley Valley School District s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Oley Valley School District s internal control. Accordingly, we do not express an opinion on the effectiveness of Oley Valley School District s internal control. 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 a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Succeed With Confidence 68

74 Compliance and Other Matters As part of obtaining reasonable assurance about whether Oley Valley School District s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and 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 or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Reading, Pennsylvania December 11, 2017 Succeed With Confidence 69

75 Herbein + Company, Inc Century Boulevard Reading, PA P: F: INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of School Directors Oley Valley School District Oley, Pennsylvania Report on Compliance for Each Major Federal Program We have audited Oley Valley School District s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Oley Valley School District s major federal programs for the year ended. Oley Valley School District s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Oley Valley School District s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Oley Valley School District s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Oley Valley School District s compliance. Opinion on Each Major Federal Program In our opinion, Oley Valley School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended. Succeed With Confidence 70

76 Report on Internal Control over Compliance Management of Oley Valley School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Oley Valley School District s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Oley Valley School District s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance 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 compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Reading, Pennsylvania December 11, 2017 Succeed With Confidence 71

77 SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended Section I - Summary of Auditor's Results Financial Statements Type of Auditor's Report Issued: Unmodified Internal Control Over Financial Reporting: Material weakness(es) identified? yes X no Significant deficiency(ies) identified not considered to be material weaknesses? yes X none reported Noncompliance material to financial statements noted? yes X no Federal Awards Internal Control Over Major Programs: Material weakness(es) identified? yes X no Significant deficiency(ies) identified not considered to be material weaknesses? yes X none reported Type of Auditor's Report Issued on Compliance for Major Programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with 2 CFR, Section (a)? yes X no Identification of Major Program(s): CFDA Number(s) Name of Federal Program or Cluster Title I: Grants to Local Education Agencies Special Education Cluster (IDEA) Special Education - Grants to States Special Education - Preschool Grants Dollar Threshold used to distinguish between Type A and Type B Programs: $750,000 Auditee qualified as low-risk auditee? yes X no 72

78 SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended Section II - Financial Statement Findings There were no financial statement findings. Section III - Federal Awards Findings and Questioned Costs There were no federal awards findings or questioned costs reported. 73

79 OLEY, BERKS COUNTY, PENNSYLVANIA Enter to Learn Leave to Serve Tracy S. Shank, Ed. D. 17 Jefferson Street Superintendent Oley, PA Telephone (610) OLEY VALLEY SCHOOL DISTRICT STATUS OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS For the Year Ended Section II - Financial Statement Findings PREPARATION OF BANK RECONCILIATIONS - MATERIAL WEAKNESS Criteria Cash is a material account for the District with a large amount of activity. During our testing we noted that reconciliations for bank accounts were not being performed timely. Performing timely and accurate bank reconciliations is a key control in properly reporting activity and detecting misappropriation of assets. Condition The District did not complete the bank reconciliations for their cash accounts timely throughout the year. Many of the 2015/2016 school year reconciliations were not completed until October Cause There was significant turnover in the business manager position in the 2015/2016 year. A disregard of the standard operating procedures for reconciling bank accounts and lack of oversight allowed this to occur. Effect Without accurate bank reconciliations, the District cannot be sure that all activity is being captured properly within the general ledger. A lack of timely and accurate reconciliations also increases the risk for misappropriation of assets to go undetected. Recommendation We recommend the District revisit standard operating procedures for reconciling bank accounts. The procedures should assign responsibility for the reconciliation, establish feasible deadlines, and include procedures for the proper review of the reconciliation by a member of management. Current Status of Corrective Action Plan There is no longer a finding in the current year. 74