CADILLAC AREA PUBLIC SCHOOLS CADILLAC, MICHIGAN JUNE 30, 2013

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1 JUNE 30, 2013 CERTIFIED PUBLIC ACCOUNTANTS 134 WEST HARRIS STREET PHONE: (231) FAX: (231)

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3 ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2013 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 Statement of Activities 2 Fund Financial Statements Balance Sheet - Governmental Funds 3 Reconciliation of the Balance Sheet of Governmental Funds to the 4 Statement of Net Position Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 5 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 6 Fiduciary Funds Statement of Fiduciary Net Position 7 Statement of Changes in Fiduciary Net Position 8 Notes to Financial Statements 9-27 Required Supplementary Information Budgetary Comparison Schedule - General Fund 28 Combining Financial Statements Nonmajor Governmental Fund Types Combining Balance Sheet 29 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 30 Financial Statements of Individual Funds General Fund Comparative Balance Sheet 31 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Combining Schedule of Assets, Liabilities and Fund Balance 34 Combining Schedule of Revenues, Expenditures and Changes in Fund Balance 35-36

4 ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2012 TABLE OF CONTENTS PAGES Special Revenue (School Service) Funds Combining Balance Sheet 37 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 38 Food Service Fund Comparative Balance Sheet 39 Comparative Statement of Revenues, Expenditures and Changes in Fund Balance 40 Cadillac Community Schools Recreation Fund Combining Schedule of Assets, Liabilities, and Fund Balance 41 Combining Schedule of Revenues, Expenditures and Changes in Fund Balance Debt Retirement Funds Combining Balance Sheet 44 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 45 Capital Projects Funds Combining Balance Sheet 46 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 47 Fiduciary Fund Types Combining Balance Sheet 48 Private Purpose Trust Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balance Agency Funds Combining Balance Sheet 55 Statement of Cash Receipts, Disbursements and Balance Elementary Schools Account 56 Junior High School Account 57 Mackinaw Trail Middle School Account High School Account Cooley High School Account 62 Other Supplementary Information Schedule of Bonds Payable 2005 Refunding Bond Issue Refunding Bond Issue School Building and Site Bonds, Series I oo0oo

5 CERTIFIED PUBLIC ACCOUNTANTS 134 WEST HARRIS STREET PHONE: (231) FAX: (231) July 24, 2013 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, 2013, 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 i

6 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, each major fund, and the aggregate remaining fund information of Cadillac Area Public Schools, Cadillac, Michigan as of June 30, 2013, 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. Emphasis of Matter Change in Accounting Principle As discussed in the notes to the financial statements, Cadillac Area Public Schools implemented Governmental Accounting Standards Board Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position and Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to that matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information on pages iv through xi and 28 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 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 ii

7 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 information 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated July 24, 2013, 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 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 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, 2013 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. iv

9 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2013 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. 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. C. Summary of Net Position The following schedule summarizes the net position at fiscal year ended June 30: Assets Current Assets $ 8,240,443 $ 8,221,399 Non Current Assets Deferred Issuance Costs - Net 47,662 0 Capital Assets 43,171,691 43,454,979 Less Accumulated Depreciation (17,264,790) (18,043,418) Total Non Current Assets 25,954,563 25,411,561 Total Assets $ 34,195,006 $ 33,632,960 v

10 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, Liabilities Current Liabilities $ 4,751,237 $ 5,000,278 Non Current Liabilities 18,755,231 17,297,189 Total Liabilities 23,506,468 22,297,467 Net Position Net Investment in Capital Assets 7,083,372 7,574,593 Restricted for Capital Projects 365, ,687 Restricted for Food Service 157,959 52,441 Unrestricted 3,082,017 3,461,772 Total Net Position 10,688,538 11,335,493 Total Liabilities and Net Position $ 34,195,006 $ 33,632,960 D. Analysis of Financial Position During the fiscal year ended June 30, 2013, the District s net position increased by $646,955. 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, 2013, $1,073,116 was recorded for depreciation expense. 2. Capital Outlay Acquisitions For the fiscal year ended June 30, 2013, $577,776 of expenditures for building improvements, equipment and textbooks 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 $495,340 for the fiscal year ended June 30, vi

11 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2013 E. Results of Operations For the fiscal year ended June 30, the results of operations, on a district-wide basis, were: General Revenues Property Taxes $ 7,434,792 $ 7,259,419 Investment Earnings 7,582 5,868 State Sources 15,573,365 16,310,720 Other 619, ,503 Total General Revenues 23,635,565 24,183,510 Program Revenues Charges for Services 1,063,206 1,022,188 Operating Grants 4,962,454 4,344,581 Total Program Revenues 6,025,660 5,366,769 Total Revenues 29,661,225 29,550,279 Expenses Instruction 16,447,502 16,613,756 Supporting Services 9,208,447 8,781,766 Food Service Activities 1,320,359 1,253,115 Community Services 399, ,219 Other Transactions 29,615 11,754 Interest on Long-Term Debt 803, ,598 Unallocated Depreciation 969,177 1,073,116 Total Expenses 29,177,789 28,903,324 Change in Net Position $ 483,436 $ 646,955 vii

12 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2013 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 $ 3,600,796 $ 3,586,697 $ (14,099) Nonmajor Funds Food Service Fund 254, ,381 (42,738) Cadillac Community School Recreation Fund 147, ,474 51, Debt Retirement Fund 9,534 7,359 (2,175) 2008 Debt Retirement Fund 8,275 5,171 (3,104) 2009 Debt Retirement Fund 3,378 3,178 (200) 2009 Capital Projects Fund 365, ,487 (139,703) Capital Projects Fund 565, ,516 (93,885) Total Governmental Funds $ 4,953,955 $ 4,709,263 $ (244,692) 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 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 $5,264,781 in non-homestead property taxes. This represented a decrease of 2.4% from the prior year. viii

13 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2013 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 $ 5,264, ,393, ,510, ,725, ,476,890 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. The blended enrollment consists of the current year s fall count and the prior year s spring count. For the fiscal year, the District received $6,966 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 , , , , ,187 The District funds a significant portion of its operations with categorical grant sources. For the fiscal year ended June 30, 2013, federal, state, and other grants of this type accounted for $4,344,581. 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. ix

14 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2013 For the fiscal year, the District amended the general fund budget in June 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 $ 24,944,649 $ 25,969,054 $ 25,899,690 EXPENDITURES Instruction $ 16,252,778 $ 16,983,405 $ 17,029,763 Supporting Services 8,841,566 8,894,104 8,805,720 Community Services 7,800 8,749 8,306 Transfers and Other Transactions 92,000 92,000 92,000 Total Expenditures $ 25,194,144 $ 25,978,258 $ 25,935,789 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 $1,024,405. The primary reasons for the increase include changes in funding from the State after the adoption of the initial budget, and the actual enrollment coming in 72 students higher than the projection. The difference in the Total Expenditures Original Budget to the Total Expenditures Final Budget is an increase of $784,114. The increase in expenditures included approximately $200,000 in costs related to steps of various labor contracts not included in the initial budget. The original budget also included a reduction in instructional staff through attrition. Due to the increase in student enrollment, this reduction was not possible without impacting the quality of instruction. The District also spent approximately $275,000 on technology needs, including an additional server with additional backup capabilities, an increase of wireless services in the school buildings, and replacement of instructional computers. The technology purchases allowed the District to be better prepared for the State plan to have the student assessment testing done online. An additional increase in budgeted expenditures included $277,662 of Retirement Rate Stabilization cost, mandated by the State of Michigan. Funding for the Retirement Rate Stabilization cost is included in the change in budgeted revenue above. The x

15 MANAGEMENT S DISCUSSION AND ANALYSIS FOR FISCAL YEAR ENDED JUNE 30, 2013 above changes in budgeted revenues and budgeted expenditures resulted in the operating shortfall being reduced to $14,099, rather than the $249,495 shortfall that was originally projected. I. Capital Asset and Debt Administration 1. Capital Assets At June 30, 2013, the District had $43,454,979 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 $1,073,116 bringing the accumulated depreciation to $18,043,418 as of June 30, Long-Term Debt At June 30, 2013, the District had $17,670,000 in bonded debt outstanding. This represents a decrease of $1,345,695 from the amount outstanding at the close of the prior fiscal year. 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: With the current national and global economic condition being less than robust, and with the Michigan automotive manufacturing jobs being heavily dependent on national and global sales, at least some level of uncertainty should be present regarding the ability of the State to restore funding levels in the immediate future. In the State per pupil allocation was $7,316 for Cadillac Area Public Schools. The current enacted State Aid Bill has the per pupil funding level for Cadillac Area Public Schools set at $7,026 for Furthermore, the ability of the District to levy property taxes, as well as the State s ability to do the same, appears to be less stable due to only a very slight increase of about 1% in property values and the potential complete repeal of taxes on personal property. In the fiscal year, the State eliminated the industrial personal property tax and reduced the school operating tax on commercial property by two thirds. By reducing a tax source that funds the School Aid Fund, pressure on the remaining sources of revenue will increase. The major remaining State School Aid Fund sources are State Income Taxes, the State Education Tax on all real property and the State Sales Tax. 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, 2013 ASSETS CURRENT ASSETS Cash $ 3,008,868 Taxes Receivable 18,963 Accounts Receivable 40,909 Due from Other Governments 3,787,523 Prepaid Expense 237,649 Inventory 73,763 Investments 1,053,724 Total Current Assets 8,221,399 NON CURRENT ASSETS Capital Assets 43,454,979 Less Accumulated Depreciation (18,043,418) Total Non Current Assets 25,411,561 TOTAL ASSETS 33,632,960 LIABILITIES CURRENT LIABILITIES Accounts Payable 93,483 Accrued Expenses 834,856 Accrued Interest 125,694 Due to Other Governments 664,924 Salaries Payable 1,776,495 Unearned Revenue 129,826 Current Portion of Non Current Liabilities 1,375,000 Total Current Liabilities 5,000,278 NON CURRENT LIABILITIES Bonds Payable 18,062,455 Compensated Absences 609,734 Less Current Portion of Non Current Liabilities (1,375,000) Total Non Current Liabilities 17,297,189 TOTAL LIABILITIES 22,297,467 NET POSITION Net Investment in Capital Assets 7,574,593 Restricted for Capital Projects 246,687 Restricted for Food Service 52,441 Unrestricted 3,461,772 TOTAL NET POSITION $ 11,335,493 The notes to the financial statements are an integral part of this statement. 1

18 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2013 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 $ 16,613,756 $ 219,597 $ 3,375,834 $ 0 $ (13,018,325) Supporting Services 8,781, , (8,560,785) Food Service Activities 1,253, , , ,609 Community Services 370, ,047 15,586 0 (77,586) Other Transactions 11, (11,754) Interest on Long Term Debt 799, (799,598) Unallocated Depreciation 1,073, (1,073,116) Total Governmental Activities $ 28,903,324 $ 1,022,188 $ 4,344,581 $ 0 (23,536,555) GENERAL REVENUES Property Taxes -Levied for General Purposes 5,264,781 Property Taxes -Levied for Debt Service 1,994,638 Investment Earnings 5,868 State Sources 16,310,720 Other 607,503 Total General Revenues 24,183,510 Change in Net Position 646,955 NET POSITION - Beginning of Year 10,688,538 NET POSITION - End of Year $ 11,335,493 The notes to the financial statements are an integral part of this statement. 2

19 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2013 OTHER NONMAJOR TOTAL GENERAL GOVERNMENTAL GOVERNMENTAL FUND FUNDS FUNDS ASSETS Cash and Cash Equivalents $ 2,064,208 $ 944,660 $ 3,008,868 Taxes Receivable 13,200 5,763 18,963 Accounts Receivable 13,780 27,129 40,909 Due from Other Governments 3,741,898 45,625 3,787,523 Due from Other Funds Prepaid Expenditures 87, , ,649 Inventory 64,823 8,940 73,763 Investments 1,053, ,053,724 TOTAL ASSETS $ 7,039,282 $ 1,182,292 $ 8,221,574 LIABILITIES, DEFERRED INFLOWS AND FUND BALANCES LIABILITIES Accounts Payable $ 77,596 $ 15,887 $ 93,483 Due to Other Governments 663,019 1, ,924 Due to Other Funds Accrued Expenses 808,682 26, ,856 Salaries Payable 1,764,238 12,257 1,776,495 Unearned Revenue 129, ,826 Total Liabilities 3,443,536 56,223 3,499,759 DEFERRED INFLOWS OF RESOURCES Unavailable Revenue - Property Taxes 9,049 3,503 12,552 FUND BALANCES Nonspendable Inventory 64,823 8,940 73,763 Prepaid Expenditures 87, , ,649 Restricted Debt Service 0 15,708 15,708 Capital Projects 0 246, ,687 Food Service 0 52,441 52,441 Committed for Capital Projects 0 450, ,316 Assigned Community Recreations 0 179, ,977 Athletics 73, ,486 Camp Torenta 0 18,497 18,497 Sick Leave 609, ,734 Working Capital 2,751, ,751,005 Total Fund Balances 3,586,697 1,122,566 4,709,263 TOTAL LIABILITIES, DEFERRED INFLOWS AND FUND BALANCES $ 7,039,282 $ 1,182,292 $ 8,221,574 The notes to the financial statements are an integral part of this statement. 3

20 RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2013 Total Governmental Fund Balances $ 4,709,263 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 $ 43,454,979 Accumulated depreciation is (18,043,418) 25,411,561 Long-term liabilities are not due and payable in the current period and are not reported in the funds. Bonds Payable (17,670,000) Compensated Absences (609,734) Accrued interest is not included as a liability in governmental funds, it is recorded when paid. (125,694) Balance of taxes receivable at June 30, 2013, expected to be collected after 12,552 September 1, 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 (392,455) Statement of Activities. NET POSITION OF GOVERNMENTAL ACTIVITIES $ 11,335,493 The notes to the financial statements are an integral part of this statement. 4

21 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2013 OTHER NONMAJOR TOTAL GENERAL GOVERNMENTAL GOVERNMENTAL FUND FUNDS FUNDS REVENUES Local Sources $ 5,775,733 $ 2,614,704 $ 8,390,437 Intermediate Sources 0 61,497 61,497 State Sources 18,260,873 74,706 18,335,579 Federal Sources 999, ,181 1,901,655 Other Transactions 863, ,610 Total Revenues 25,899,690 3,653,088 29,552,778 EXPENDITURES Instruction Basic Programs 13,191, ,191,421 Added Needs 3,130, ,130,575 Adult/Continuing Education 707, ,767 Supporting Services Pupil 928, ,710 Instructional Staff 638, ,851 General Administration 460, ,898 School Administration 1,735, ,735,526 Business 544, ,221 Other 761, ,090 Operation and Maintenance of Plant 2,587, ,587,015 Pupil Transportation Services 1,107, ,107,953 Support Services - Central 41, ,456 Community Services 8, , ,219 Food Service Activities 0 1,275,669 1,275,669 Capital Outlay 0 154, ,229 Debt Service Principal 0 1,345,699 1,345,699 Interest 0 804, ,417 Other Transactions 0 11,754 11,754 Total Expenditures 25,843,789 3,953,681 29,797,470 Excess (Deficiency) of Revenues Over Expenditures 55,901 (300,593) (244,692) OTHER FINANCING SOURCES (USES) Transfers In 22, , ,000 Transfers Out (92,000) (162,000) (254,000) Total Other Financing Sources (Uses) (70,000) 70,000 0 Net Change in Fund Balance (14,099) (230,593) (244,692) FUND BALANCE - Beginning of Year 3,600,796 1,353,159 4,953,955 FUND BALANCE - End of Year $ 3,586,697 $ 1,122,566 $ 4,709,263 The notes to the financial statements are an integral part of this statement. 5

22 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2013 Net Change in Fund Balances Total Governmental Funds $ (244,692) 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 (1,073,116) Capital Outlay 577,776 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 134,038 Accrued Interest Payable - End of Year (125,694) Revenue is recorded on the accrual method in the Statement of Activities; in the governmental funds it is recorded on the modified accrual method and not considered available: Taxes Included in Unavailable Revenue - Beginning of Year (15,051) Taxes Included in Unavailable Revenue - End of Year 12,552 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 1,345,699 Amortization of Bond Issuance Costs (47,662) Amortization of Deferred Charges 44,137 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 648,702 Accumulated Sick Pay - End of Year (609,734) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ 646,955 The notes to the financial statements are an integral part of this statement. 6

23 STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2013 PRIVATE PURPOSE TRUST AGENCY FUNDS FUNDS ASSETS Cash and Cash Equivalents $ 244,013 $ 185,563 Accrued Interest 7 0 TOTAL ASSETS $ 244,020 $ 185,563 LIABILITIES AND NET POSITION LIABILITIES Due to Groups and Organizations $ 0 $ 185,563 NET POSITION Restricted for Trust Activities 244,020 0 TOTAL LIABILITIES AND NET POSITION $ 244,020 $ 185,563 The notes to the financial statements are an integral part of this statement. 7

24 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2013 PRIVATE PURPOSE TRUST FUNDS ADDITIONS Donations $ 20,374 Earnings on Investments and Deposits 480 Total Additions 20,854 DEDUCTIONS Scholarships Awarded 23,123 Miscellaneous 2,000 Total Deductions 25,123 Change in Net Position (4,269) NET POSITION - Beginning of Year 248,289 NET POSITION - End of Year $ 244,020 The notes to the financial statements are an integral part of this statement. 8

25 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 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 standardsetting 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 3,029 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 signification 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. 9

26 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 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 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 2005, 2008, 2009, and Durant 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 and 2009 Capital Projects Fund account 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. This fund is custodial in nature and does not involve measurement of results of operations. Accordingly, it presents only a statement of fiduciary net position and does not present a statement of changes in fiduciary net position. 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. 10

27 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 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 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 statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. In the government-wide statement of net position, the governmental activities column (a) is presented on a consolidated basis, (b) and is reported on a full accrual, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. The District s net position are reported in three parts net investment in capital assets; restricted net position; and unrestricted net position. The government-wide statement of activities reports both the gross and net cost of each of the District s functions. The functions are also supported by general government revenues (property taxes, certain intergovernmental revenues, fines, permits and charges, etc.). The statement of activities reduces gross expenses by related program revenues and operating grants. Program revenues must be directly associated with the function. Operating grants include operating-specific and discretionary (either operating or capital) grants. The net costs (by function) are normally covered by general revenue (property taxes, state sources, intermediate district sources, interest income and other revenues). 11

28 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 This government-wide focus is more on the sustainability of the District as an entity and the change in the District s net position resulting from the current year s activities. 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. 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. 12

29 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 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, 2012, or as amended by the School Board of Education throughout the year. 2. Excess of Expenditures over Appropriations General Fund Instruction Services Adult Continuing Education expenditures of $707,767 exceeded appropriations of $659,691 by $48,076. G. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance 1. Cash and Investments Cash includes amounts in demand deposits. Investments are carried at market value. The District complies with State statutes regarding investment of funds. The Board policy on investment of funds authorizes the District to invest as follows: a) Bonds, bills, or notes of the United States, or obligations, the principal and interest of which are fully guaranteed by the United States. b) Certificates of deposit issued by any state or national bank organized and authorized to operate in this state. 13