CADILLAC AREA PUBLIC SCHOOLS CADILLAC, MICHIGAN JUNE 30, 2017

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1 JUNE 30, 2017 CERTIFIED PUBLIC ACCOUNTANTS 134 WEST HARRIS STREET PHONE: (231) FAX: (231)

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3 ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2017 TABLE OF CONTENTS PAGES Independent Auditor s Report Management s Discussion and Analysis i-iii iv-xi Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 1-2 Statement of Activities 3 Fund Financial Statements Balance Sheet - Governmental Funds 4 Reconciliation of the Balance Sheet of Governmental Funds to the 5 Statement of Net Position Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 6-7 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 8-9 Fiduciary Funds Statement of Fiduciary Net Position 10 Statement of Changes in Fiduciary Net Position 11 Notes to Financial Statements Required Supplementary Information Budgetary Comparison Schedule - General Fund Schedule of Proportionate Share of the Net Pension Liability Schedule of Contributions Notes to Required Supplementary Information Combining Financial Statements Nonmajor Governmental Fund Types Combining Balance Sheet 41 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 42 Financial Statements of Individual Funds General Fund Comparative Balance Sheet 43 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Combining Schedule of Assets, Liabilities and Fund Balance 46 Combining Schedule of Revenues, Expenditures and Changes in Fund Balance 47-48

4 ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2017 TABLE OF CONTENTS PAGES Special Revenue (School Service) Funds Combining Balance Sheet 49 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 50 Food Service Fund Comparative Balance Sheet 51 Comparative Statement of Revenues, Expenditures and Changes in Fund Balance 52 Cadillac Community Schools Recreation Fund Combining Schedule of Assets, Liabilities and Fund Balance 53 Combining Schedule of Revenues, Expenditures and Changes in Fund Balance Debt Retirement Funds Combining Balance Sheet 56 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 57 Capital Projects Fund Comparative Balance Sheet 58 Comparative Statement of Revenues, Expenditures and Changes in Fund Balance 59 Fiduciary Fund Types Combining Balance Sheet 60 Private Purpose Trust Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Net Position Agency Funds Combining Balance Sheet 69 Statement of Cash Receipts, Disbursements and Balance Elementary Schools Account 70 Junior High School Account 71 Mackinaw Trail Middle School Account 72 High School Account Cooley High School Account 75 Other Supplementary Information Schedule of Bonds Payable 2008 Refunding Bond Issue School Building and Site Bonds, Series I Refunding Bond Issue oo0oo

5 CERTIFIED PUBLIC ACCOUNTANTS 134 WEST HARRIS STREET PHONE: (231) FAX: (231) August 31, 2017 INDEPENDENT AUDITOR S REPORT To the Board of Education Cadillac Area Public Schools Cadillac, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Cadillac Area Public Schools, Cadillac, Michigan as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. 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 i

6 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, each major fund, and the aggregate remaining fund information of Cadillac Area Public Schools, Cadillac, Michigan as of June 30, 2017, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and required supplementary information, as identified in the table of contents, on pages iv-xi and 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. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Cadillac Area Public Schools basic financial statements. The combining and individual fund financial statements and other supplementary information are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements 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 combining and individual fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The other supplementary information, as identified in the table of contents, has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. ii

7 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated August 31, 2017, on our consideration of Cadillac Area Public Schools 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 solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Cadillac Area Public Schools 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 Cadillac Area Public Schools internal control over financial reporting and compliance. BAIRD, COTTER AND BISHOP, P.C. iii

8 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2017 This section of Cadillac Area Public Schools (the District ) annual report presents our discussion and analysis of the District s financial performance during the year ended June 30, Please read it in conjunction with the District s financial statements, which immediately follow this section. This discussion and analysis is intended to serve as an introduction to the District s basic financial statements. The basic financial statements consist of the following three components: the governmentwide financial statements, fund financial statements, and the notes to basic financial statements. This report also contains other supplementary information in addition to the basic financial statements. A. Government-Wide Financial Statements The government-wide statements provide short-term and long-term financial information about the District s overall financial status. These statements are required by generally accepted accounting principles (GAAP) as described in the Government Accounting Standards Board (GASB) Statement No. 34. The district-wide financial statements are compiled using full accrual basis of accounting and more closely represent financial statements presented by business and industry. The Statement of Net Position includes all of the District s assets and liabilities. All of the year s revenue and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. The two district-wide statements report the District s net position and how they have changed. Net position -the difference between the District s assets and liabilities are one way to measure the District s financial health or position. Over time, increases and decreases in the District s net position are indicators of whether its financial position is improving or deteriorating, respectively. To assess the overall health of the District requires consideration of additional non-financial factors, such as changes in the District s property tax base and the condition of school buildings and other facilities. In the government-wide financial statements, the District s activities are all shown in one category titled Governmental Activities. These activities, including regular and special education, transportation, administration, food services, athletic activities, and community services, are primarily financed with state and federal aids and property taxes. B. Fund Financial Statements The fund financial statements provide more detailed information about the District s funds, focusing on its most significant or major funds, rather than the District as a whole. Funds that do not meet the threshold to be classified as major funds are called non-major funds. Detailed financial information for non-major funds can be found in the combining and individual fund statements section. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs. Some funds are required by state law and by bond covenants. The District may establish other funds to control and manage money for particular purposes. iv

9 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2017 The District maintains the following kinds of funds: Governmental Funds The District s basic services are included in governmental funds, which generally focus on 1) how cash and other financial assets that can be readily be converted to cash flow in and out, and 2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps to determine whether there are more or less financial resources that can be spent in the near future to finance the District s programs. Because this information does not encompass the additional long-term focus of the government-wide statements, we provide additional information (reconciliation schedules) immediately following the governmental funds statements that explain the relationship (or differences) between these two types of financial statement presentations. Fiduciary Funds The District is a trustee, or fiduciary, for assets that belong to other organizations. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The District s fiduciary activities are reported in a separate Statement of Fiduciary Net Position and a Statement of Changes in Fiduciary Net Position. We exclude these activities from the government-wide financial statements because the District cannot use these assets to finance its operations. Notes to Financial Statements The notes provide additional information that is necessary to acquire a full understanding of the data provided in both the government-wide and the fund financial statements. Other Information In addition to the basic financial statements and accompanying notes, this report further presents Required Supplementary Information (RSI) that explains and supports the information presented in the financial statements. C. Summary of Net Position The following schedule summarizes the net position at fiscal year ended June 30: Assets Current Assets $ 10,377,463 $ 9,399,918 Non Current Assets Capital Assets 42,517,451 43,139,261 Less Accumulated Depreciation (20,259,356) (20,112,318) Total Non Current Assets 22,258,095 23,026,943 Total Assets 32,635,558 32,426,861 Deferred Outflows of Resources 6,504,432 5,745,416 v

10 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, Liabilities Current Liabilities 5,244,210 5,316,489 Non Current Liabilities 51,691,184 53,577,283 Total Liabilities 56,935,394 58,893,772 Deferred Inflows of Resources 2,005,439 1,245,141 Net Position Net Investment in Capital Assets 10,373,566 9,517,649 Restricted for Debt Service 173,855 14,490 Restricted for Food Service 268, ,926 Unrestricted (Deficit) (30,616,505) (31,764,701) Total Net Position (Deficit) $ (19,800,843) $ (21,966,636) D. Analysis of Financial Position During the fiscal year ended June 30, 2017, the District s net position increased by $2,165,793. A few of the more significant factors affecting net position during the year are discussed below: 1. Depreciation Expense GASB 34 requires school districts to maintain a record of annual depreciation expense and the accumulation of depreciation expense over time. The net increase in accumulated depreciation expense is a reduction in net position. Depreciation expense is recorded on a straight-line basis over the estimated useful lives of the assets. In accordance with GAAP, depreciation expense is calculated based on the original cost of the asset less an estimated salvage value, where applicable. For the fiscal year ended June 30, 2017, $944,822 was recorded for depreciation expense. 2. Capital Outlay Acquisitions For the fiscal year ended June 30, 2017, $175,974 of expenditures for building improvements and equipment were capitalized and recorded as assets of the District. These additions to the District s capital assets will be depreciated over time as explained above. The net effect of the new capital assets and the current year s depreciation is a decrease to capital assets in the amount of $768,848 for the fiscal year ended June 30, vi

11 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, Pension Expense GASB 68 now requires the District to account for its payments to the Michigan Public School Employees Retirement System in a manner that has a significant effect on the District s change in net position. Based on various factors, the District may report an increase or decrease in net position depending on whether the District s proportionate share of the net pension liability increases or decreases in any given year. For the year ended June 30, 2017, the District reported a decrease in net position related to GASB 68, which indicates that the District s proportionate share of the net pension liability has increased. E. Results of Operations The following schedule summarizes the results of operations, on a district-wide basis, for the fiscal year ended June 30: General Revenues Property Taxes $ 7,038,065 $ 7,006,086 Investment Earnings 11,985 2,875 State Sources 19,946,238 19,053,426 Other 503, ,248 Total General Revenues 27,500,283 26,481,635 Program Revenues Charges for Services 2,171,843 1,214,220 Operating Grants 4,433,254 4,906,912 Total Program Revenues 6,605,097 6,121,132 Total Revenues 34,105,380 32,602,767 Expenses Instruction 17,671,775 18,642,266 Supporting Services 10,750,363 10,331,606 Food Service Activities 1,701,928 1,578,902 Community Services 399, ,985 Other Transactions 9,609 12,153 Interest on Long-Term Debt 461, ,289 Unallocated Depreciation 944,822 1,013,342 Total Expenses 31,939,587 32,475,543 Change in Net Position $ 2,165,793 $ 127,224 vii

12 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2017 F. Financial Analysis of the District s Funds The financial performance of the District as a whole is also reflected in its governmental funds. The following table shows the change in total fund balances of each of the District s governmental funds: Increase (Decrease) Major Fund General Fund $ 4,988,109 $ 4,340,063 $ 648,046 Nonmajor Funds Food Service Fund 468, ,445 44,053 Cadillac Community School Recreation Fund 299, ,235 (2,030) 2008 Debt Retirement Fund 114,795 45,926 68, Debt Retirement Fund 37,240 17,461 19, Debt Retirement Fund 101,315 41,952 59,363 Capital Projects Fund 813, , ,390 Total Governmental Funds $ 6,822,748 $ 5,709,278 $ 1,113,470 In , the General Fund balance increased primarily due to an increase in foundation allowance revenue received from the state of Michigan as compared to the prior year. The Food Service Fund increased its fund balance due to increased local, state, and federal revenue. The Cadillac Community School Recreation Fund decreased its fund balance during the year due to wage expenses increasing from the prior year. The 2008 Debt Retirement Fund increased its fund balance during the year due to a transfer in of funds from the General Fund. The 2009 Debt Retirement Fund increased its fund balance during the year due to a transfer in of funds from the General Fund. The 2015 Debt Retirement Fund increased its fund balance during the year due to a transfer in of funds from the General Fund. The Capital Projects Fund increased its fund balance during the year due to a transfer in of funds from the General Fund. G. Analysis of Significant Revenues and Expenses Significant revenues and expenses are discussed in the segments below: 1. Property Taxes The District levies mills of property taxes for operations on non-homestead properties and 6.00 mills on non-homestead commercial personal properties, less the mandatory reductions required viii

13 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2017 by the Headlee Amendment, Article IX, Section 31. According to Michigan law, the taxable levy is based on the taxable valuation of properties. The annual taxable valuation increases are capped at the rate of the prior year s Consumer s Price Index increase or 5%, whichever is less. At the time property is sold, its taxable valuation is readjusted to the State Equalized Value, which in theory is half of the property s market value. For the fiscal year, the District levied $5,081,626 in non-homestead property taxes. This represented an increase of 0.17% from the prior year. The following table summarizes the non-homestead property tax levies for operations for the past five years: 2. State Sources Non-Homestead Fiscal Year Tax Levy $ 5,081, ,073, ,069, ,104, ,264,781 The majority of the state sources is comprised of the per student foundation allowance. The State of Michigan funds districts based on a blended student enrollment. For the fiscal year, the District received $7,511 per student FTE. 3. Student Enrollment The following schedule summarizes the blended student enrollment for the past five fiscal years: 4. Operating Grants Blended Fiscal Year Student FTE , , , , ,029 The District funds a significant portion of its operations with categorical grant sources. For the fiscal year ended June 30, 2017, federal, state, and other grants of this type accounted for $4,433,254. ix

14 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2017 H. General Fund Budgetary Highlights The Uniform Budget Act of the State of Michigan requires that the local Board of Education approve the original budget for the upcoming fiscal year prior to its starting on July 1. Any amendments made to the operating budget must be approved by the Board prior to the close of the fiscal year on June 30. For the fiscal year, the District amended the general fund budget throughout the year. The following schedule shows a comparison of the original general fund budget, the final amended general fund budget and actual totals from operations: ORIGINAL FINAL BUDGET BUDGET ACTUAL REVENUES AND OTHER FINANCING SOURCES $ 29,418,217 $ 30,507,260 $ 30,207,351 EXPENDITURES AND OTHER FINANCING USES Instruction $ 18,572,897 $ 18,197,766 $ 17,907,311 Supporting Services 10,712,603 11,407,910 11,025,764 Community Services 15,230 9,582 7,010 Transfers and Other Transactions 230, , ,220 Total Expenditures and Other Financing Uses $ 29,531,524 $ 30,261,272 $ 29,559,305 The Uniform Budget Act of the State of Michigan requires the local Board of Education to approve the original budget for the upcoming fiscal year prior to July 1, the start of the fiscal year. Many times this is prior to the funding from the State being determined and is also based on projected pupil enrollment. The Cadillac Area Public School District amends its budget when necessary during the year. Items necessitating a budget amendment include increases in funding levels, changes in enrollment and changes in the assumptions the expenditure budget was developed with. The difference in the Total Revenue Original Budget to the Total Revenue Final Budget was an increase of $1,089,043. Factors contributing to the increase include an increase in State funding for student enrollment, as well as an increase in district enrollment. The difference in the Total Expenditures Original Budget to the Total Expenditures Final Budget is an increase of $729,748. This increase is primarily due to increases in the budgeted amounts to be transferred out to the other funds. I. Capital Asset and Debt Administration 1. Capital Assets At June 30, 2017, the District had $42,517,451 in a broad range of capital assets, including school buildings and facilities, school buses and other vehicles, and various types of equipment. Depreciation expense for the year amounted to $944,822 bringing the accumulated depreciation to x

15 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2017 $20,259,356 as of June 30, The District expended $175,974 on various building and facility improvements and equipment throughout the District. The District has committed to purchase approximately $78,100 in equipment for the General Fund and approximately $31,625 in equipment for the Food Service Fund in fiscal year Long-Term Debt At June 30, 2017, the District had $53,301,184 in bonded debt, compensated absences and net pension liability. J. Factors Bearing on the District s Future At the time that these financial statements were prepared and audited, the District was aware of the following items that could significantly affect its financial health in the future: The State of Michigan has approved the School Aid Act for The act is calling for the per pupil foundation allowance to increase by $120. In recognition of the increased cost of secondary programming, the State is allocating an additional $25 per high school student. Our enrollment is expected to show a moderate increase of 6 students for All labor contracts are settled for multiple years. The Teachers Union, our largest union, has a multi-year contract, through the school year. The District has developed a strategic, long-term facility plan, which will allow for facility updates and maintenance into the future. The plan will be presented for community approval on November 7, All of these factors should have a stabilizing effect on the District s financial position. The District is anticipating finishing the school year with a balanced budget. For more information on the District s budget and long-term facility master plan, please visit our website at Vikingnet.org. K. Contacting the District s Financial Management This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. If you have questions about this report, please contact Cadillac Area Public Schools, 421 S. Mitchell Street, Cadillac, Michigan xi

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17 STATEMENT OF NET POSITION JUNE 30, 2017 ASSETS CURRENT ASSETS Cash $ 3,817,748 Accounts Receivable 52,408 Due from Other Governments 5,019,187 Prepaid Expense 209,035 Inventory 12,742 Investments 1,266,343 Total Current Assets 10,377,463 NON CURRENT ASSETS Capital Assets 42,517,451 Less Accumulated Depreciation (20,259,356) Total Non Current Assets 22,258,095 TOTAL ASSETS 32,635,558 DEFERRED OUTFLOWS OF RESOURCES Pension Related Items 6,504,432 LIABILITIES CURRENT LIABILITIES Accounts Payable 100,018 Accrued Expenses 816,935 Accrued Interest 79,495 Due to Other Governments 597,574 Salaries Payable 1,803,038 Unearned Revenue 237,150 Current Portion of Non Current Liabilities 1,610,000 Total Current Liabilities 5,244,210 The notes to the financial statements are an integral part of this statement. 1

18 STATEMENT OF NET POSITION JUNE 30, 2017 NON CURRENT LIABILITIES Bonds Payable 11,813,495 Compensated Absences 723,460 Net Pension Liability 40,764,229 Less Current Portion of Non Current Liabilities (1,610,000) Total Non Current Liabilities 51,691,184 TOTAL LIABILITIES 56,935,394 DEFERRED INFLOWS OF RESOURCES Pension Related Items 2,005,439 NET POSITION Net Investment in Capital Assets 10,373,566 Restricted for Debt Service 173,855 Restricted for Food Service 268,241 Unrestricted (Deficit) (30,616,505) TOTAL NET POSITION (Deficit) $ (19,800,843) The notes to the financial statements are an integral part of this statement. 2

19 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2017 GOVERNMENTAL ACTIVITIES NET (EXPENSE) PROGRAM REVENUES REVENUE AND CHARGES FOR OPERATING CAPITAL CHANGES IN FUNCTIONS/PROGRAMS EXPENSES SERVICES GRANTS GRANTS NET POSITION GOVERNMENTAL ACTIVITIES Instruction $ 17,671,775 $ 1,190,395 $ 2,356,278 $ 0 $ (14,125,102) Supporting Services 10,750, , ,704 0 (9,725,343) Food Service Activities 1,701, ,250 1,263, ,138 Community Services 399, ,882 10,456 0 (124,020) Other Transactions 9, (9,609) Interest on Long-Term Debt 461, (461,732) Unallocated Depreciation 944, (944,822) TOTAL GOVERNMENTAL ACTIVITIES $ 31,939,587 $ 2,171,843 $ 4,433,254 $ 0 (25,334,490) GENERAL REVENUES Property Taxes -Levied for General Purposes 5,081,626 Property Taxes -Levied for Debt Service 1,956,439 Investment Earnings 11,985 State Sources 19,946,238 Other 503,995 Total General Revenues 27,500,283 Change in Net Position 2,165,793 NET POSITION - Beginning of Year (Deficit) (21,966,636) NET POSITION - End of Year (Deficit) $ (19,800,843) The notes to the financial statements are an integral part of this statement. 3

20 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2017 OTHER NONMAJOR TOTAL GENERAL GOVERNMENTAL GOVERNMENTAL FUND FUNDS FUNDS ASSETS Cash and Cash Equivalents $ 2,174,618 $ 1,643,130 $ 3,817,748 Accounts Receivable 39,893 12,515 52,408 Due from Other Governments 4,944,710 74,477 5,019,187 Due from Other Funds 0 41,708 41,708 Prepaid Expenditures 59, , ,035 Inventory 0 12,742 12,742 Investments 1,266, ,266,343 TOTAL ASSETS $ 8,484,599 $ 1,934,572 $ 10,419,171 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable $ 17,010 $ 83,008 $ 100,018 Due to Other Governments 597, ,574 Accrued Expenses 812,761 4, ,935 Salaries Payable 1,790,287 12,751 1,803,038 Unearned Revenue 237, ,150 Due to Other Funds 41, ,708 Total Liabilities 3,496,490 99,933 3,596,423 FUND BALANCES Nonspendable Prepaid Expenditures 59, , ,035 Inventory 0 12,742 12,742 Restricted Debt Service 0 253, ,350 Food Service 0 305, ,756 Committed for Capital Projects 0 813, ,586 Assigned Community Recreations 0 264, ,044 Athletics 2, ,713 Camp Torenta 0 35,161 35,161 Sick Leave 723, ,460 Working Capital 4,202, ,202,901 Total Fund Balances 4,988,109 1,834,639 6,822,748 TOTAL LIABILITIES AND FUND BALANCES $ 8,484,599 $ 1,934,572 $ 10,419,171 The notes to the financial statements are an integral part of this statement. 4

21 RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2017 Total Governmental Fund Balances $ 6,822,748 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not financial resources and are not reported in the funds. The cost of the capital assets is $ 42,517,451 Accumulated depreciation is (20,259,356) 22,258,095 Long-term liabilities are not due and payable in the current period and are not reported in the funds. Bonds Payable (11,510,000) Compensated Absences (723,460) Accrued interest is not included as a liability in governmental funds, it is recorded when paid. (79,495) The 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. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. Bond Premium Net of Amortization (374,529) Deferred Charges Net of Amortization 71,034 Some liabilities, including net pension obligations, are not due and payable in the current period and, therefore, are not reported in the funds. Net Pension Liability (40,764,229) Deferred outflows and (inflows) of resources related to pensions are applicable to future periods and, therefore, are not reported in the funds. Deferred Inflows of Resources Related to Pensions (2,005,439) Deferred Outflows of Resources Related to Pensions 6,504,432 NET POSITION OF GOVERNMENTAL ACTIVITIES $ (19,800,843) The notes to the financial statements are an integral part of this statement. 5

22 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2017 OTHER NONMAJOR TOTAL GENERAL GOVERNMENTAL GOVERNMENTAL FUND FUNDS FUNDS REVENUES Local Sources $ 5,685,484 $ 2,718,215 $ 8,403,699 Intermediate Sources 0 59,888 59,888 State Sources 21,747,739 73,709 21,821,448 Federal Sources 1,150,492 1,190,107 2,340,599 Other Transactions 1,614, ,614,797 Total Revenues 30,198,512 4,041,919 34,240,431 EXPENDITURES Instruction Basic Programs 14,849, ,849,959 Added Needs 3,034, ,034,789 Adult/Continuing Education 22, ,563 Supporting Services Pupil 1,447, ,447,225 Instructional Staff 1,378, ,378,497 General Administration 524, ,658 School Administration 2,231, ,231,772 Business 630, ,376 Other 861, ,809 Operation and Maintenance of Plant 2,566, ,566,929 Pupil Transportation Services 1,296, ,296,527 Support Services - Central 87, ,971 Community Services 7, , ,892 Food Service Activities 0 1,703,292 1,703,292 Debt Service Principal 0 1,535,000 1,535,000 Interest 0 545, ,093 Other Transactions 2,220 7,389 9,609 Total Expenditures 28,942,305 4,184,656 33,126,961 Excess (Deficiency) of Revenues Over Expenditures 1,256,207 (142,737) 1,113,470 The notes to the financial statements are an integral part of this statement. 6

23 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2017 OTHER NONMAJOR TOTAL GENERAL GOVERNMENTAL GOVERNMENTAL FUND FUNDS FUNDS OTHER FINANCING SOURCES (USES) Transfers In 8, , ,839 Transfers Out (617,000) (8,839) (625,839) Total Other Financing Sources (Uses) (608,161) 608,161 0 Net Change in Fund Balance 648, ,424 1,113,470 FUND BALANCE - Beginning of Year 4,340,063 1,369,215 5,709,278 FUND BALANCE - End of Year $ 4,988,109 $ 1,834,639 $ 6,822,748 The notes to the financial statements are an integral part of this statement. 7

24 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2017 Net Change in Fund Balances Total Governmental Funds $ 1,113,470 Amounts reported for governmental activities are different because: Governmental funds report capital outlays as expenditures. In the Statement of Activities these costs are allocated over their estimated useful lives as depreciation. Depreciation Expense (944,822) Capital Outlay 175,974 Accrued interest on bonds is recorded in the Statement of Activities when incurred; it is not recorded in governmental funds until it is paid: Accrued Interest Payable - Beginning of Year 90,849 Accrued Interest Payable - End of Year (79,495) The 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. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. Repayment of Bond Principal 1,535,000 Amortization of Deferred Charges (17,758) Amortization of Bond Premiums 89,765 Employees Early Retirement and Accumulated Sick Pay are reported on the accrual method in the Statement of Activities, and recorded as an expenditure when financial resources are used in the governmental funds: Accumulated Sick Pay - Beginning of Year 947,881 Accumulated Sick Pay - End of Year (723,460) The notes to the financial statements are an integral part of this statement. 8

25 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2017 Governmental funds report district pension contributions as expenditures. However, in the Statement of Activities, the cost of pension benefits earned net of employee contributions is reported as a pension expense. Change in Pension Related Items 113,440 Restricted revenue reported in the governmental funds that is deferred to offset the deferred outflows related to Section 147 C pension contributions subsequent to the measurement date Change in State Aid Funding for Pension (135,051) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ 2,165,793 The notes to the financial statements are an integral part of this statement. 9

26 STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2017 PRIVATE PURPOSE TRUST AGENCY FUNDS FUNDS ASSETS Cash and Cash Equivalents $ 228,107 $ 202,207 Accrued Interest 55 0 TOTAL ASSETS 228, ,207 LIABILITIES Due to Groups and Organizations 0 202,207 NET POSITION Restricted for Trust Activities $ 228,162 $ 0 The notes to the financial statements are an integral part of this statement. 10

27 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2017 PRIVATE PURPOSE TRUST FUNDS ADDITIONS Donations $ 37,634 Earnings on Investments and Deposits 2,057 Total Additions 39,691 DEDUCTIONS Scholarships Awarded 39,442 Miscellaneous 14,340 Total Deductions 53,782 Change in Net Position (14,091) NET POSITION - Beginning of Year 242,253 NET POSITION - End of Year $ 228,162 The notes to the financial statements are an integral part of this statement. 11

28 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The basic financial statements of the Cadillac Area Public Schools have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the District s accounting policies are described below. A. Reporting Entity The School District (the District ) is located in Wexford, Osceola, and Lake Counties with its administrative offices located in Cadillac, Michigan. The District operates under an elected 7-member board of education and provides services to its 3,143 students in elementary, middle school, high school, special education instruction, guidance, health, transportation, food service, athletics and recreation. The District receives funding from local, state, and federal government sources and must comply with all of the requirements of these funding source entities. However, the District is not included in any other governmental reporting entity as defined by generally accepted accounting principles. Board members are elected by the public and have decision-making authority, the power to designate management, the ability to significantly influence operations, and the primary accountability for fiscal matters. B. Description of Government-Wide Financial Statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report the information on all of the nonfiduciary activities of the primary government and its component units. All fiduciary activities are reported only in the fund financial statements. Governmental activities, which normally are supported by taxes, intergovernmental revenues, and other nonexchange transactions, are reported separately from business-type activities, which rely to a significant extent on fees and charges to external customers for support. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The District does not have any business-type activities or component units. C. Basis of Presentation Government-Wide Financial Statements While separate government-wide and fund financial statements are presented, they are interrelated. The governmental activities column incorporates data from the governmental funds. Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. D. Basis of Presentation Fund Financial Statements The fund financial statements provide information about the government s funds, including its fiduciary funds. Separate statements for each fund category governmental and fiduciary are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All 12

29 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 remaining governmental funds are aggregated and reported as nonmajor funds. Major individual governmental funds are reported as separate columns in the fund financial statements. The District reports the following major governmental fund: The General Fund is the District s primary operating fund. It accounts for all financial resources of the District, except those required to be accounted for in another fund. Other non-major funds: The Special Revenue Funds account for proceeds from specific revenue sources that are restricted or committed to expenditures for specific purposes. The District accounts for its food service and community schools recreation activities in the special revenue funds. The 2008, 2009 and 2015 Debt Service Funds account for the resources accumulated and payments made for principal and interest on long-term general obligation debt of governmental funds. The Capital Projects Fund accounts for the acquisition of fixed assets or construction of major capital projects. Additionally, the District reports the following fund type: Fiduciary Funds are accounted for using the accrual method of accounting. Fiduciary funds account for assets held by the District in a trustee capacity or as an agent on behalf of others. Trust funds account for assets held by the District under the terms of a formal trust agreement. Fiduciary funds are not included in the government-wide statements. The District reports the following fiduciary funds: The Agency Fund is custodial in nature and does not present results of operations or have a measurement focus. Agency funds are accounted for using the accrual basis of accounting. This fund is used to account for assets that the District holds for others in an agency capacity. The Private Purpose Trust Funds are accounted for using the accrual method of accounting. Private purpose trust funds account for contributions earmarked for scholarships available to qualifying students of the District. During the course of operations the government has activity between funds for various purposes. Any residual balances outstanding at year-end are reported as due from/to other funds and advances to/from other funds. 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. Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/out. While reported in fund 13

30 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 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. E. 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 timing of related cash flows. Property taxes are recognized as revenues 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. 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. Property taxes, state and federal aid and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Entitlements are recorded as revenues when all eligibility requirements are met, including any time requirements, and the amount is received during the period or within the availability period for this revenue resource (within 60 days of year-end). Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year-end). All other revenue items are considered to be measurable and available only when cash is received by the government. The private-purpose trust funds are reported using the economic resources measurement focus and 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. F. Budgetary Information 1. Budgetary Basis of Accounting Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. Annual appropriated budgets are adopted for the general and special revenue funds. 14

31 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2017 Appropriations in all budgeted funds lapse at the end of the fiscal year even if they have related encumbrances. Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting - under which purchase orders, contracts and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation - is utilized in the governmental funds. While all appropriations and encumbrances lapse at year-end, valid outstanding encumbrances (those for which performance under the executory contract is expected in the next year) are re-appropriated and become part of the subsequent year s budget pursuant to state regulations. The District follows these procedures in establishing the budgetary data reflected in the financial statements: a) In June, the assistant superintendent submits to the school board a proposed operating budget for the fiscal year commencing on July 1. b) A public hearing is conducted during June to obtain taxpayer comments. c) Prior to June 30, the budget is legally adopted by the School Board resolution pursuant to the Uniform Budgeting and Accounting Act. The Act requires that the budget be amended prior to the end of the fiscal year, when necessary, to adjust appropriations if it appears that revenues and other financial sources will be less than anticipated, or so that expenditures will not be in excess of original estimates. Expenditures shall not be made or incurred, unless authorized in the budget, in excess of the amount appropriated. d) The assistant superintendent is charged with general supervision of the budgets and shall hold the department heads responsible for performance of their responsibilities. e) During the year the budgets are monitored and amendments to the budget resolution are made when it is deemed necessary. f) Budgeted amounts are as originally adopted on June 27, 2016, or as amended by the School Board of Education throughout the year. 2. Excess of Expenditures Over Appropriations General Fund Supporting Services Other expenditures of $861,809 exceeded appropriations of $861,764 by $45. G. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance 1. Cash and Cash Equivalents The District s cash and cash equivalents are considered to be cash on hand, demand deposits, and shortterm investments. The District considers all highly liquid investments (including certificates of deposit) to be cash equivalents. 15