MANHATTAN BEACH UNIFIED SCHOOL DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2016

Transcription

1 MANHATTAN BEACH UNIFIED SCHOOL DISTRICT ANNUAL FINANCIAL REPORT

2 TABLE OF CONTENTS FINANCIAL SECTION Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 14 Statement of Activities 15 Fund Financial Statements Governmental Funds - Balance Sheet 16 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 17 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 19 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 20 Proprietary Funds - Statement of Net Position 22 Proprietary Funds - Statement of Revenues, Expenses, and Changes in Fund Net Position 23 Proprietary Funds - Statement of Cash Flows 24 Fiduciary Funds - Statement of Net Position 25 Fiduciary Funds - Statement of Changes in Net Position 26 Notes to Financial Statements 27 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 74 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 75 Schedule of District's Proportionate Share of the Net Pension Liability 76 Schedule of District Contributions 77 Note to Required Supplementary Information 78 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 80 Local Education Agency Organization Structure 81 Schedule of Average Daily Attendance 82 Schedule of Instructional Time 83 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 84 Schedule of Financial Trends and Analysis 85 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 86 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 87 Note to Supplementary Information 88 INDEPENDENT AUDITOR'S REPORTS Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 91 Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by the Uniform Guidance 93 Report on State Compliance 95

3 TABLE OF CONTENTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 99 Financial Statement Findings 100 Federal Awards Findings and Questioned Costs 101 State Awards Findings and Questioned Costs 102 Summary Schedule of Prior Audit Findings 103 Management Letter 104

4 FINANCIAL SECTION 1

5 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITOR'S REPORT Governing Board Manhattan Beach Unified School District Manhattan Beach, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Manhattan Beach Unified School District (the District) as of and for the year ended June 30, 2016, 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; and the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, issued by the California Education Audit Appeals Panel as regulations. 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 District'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 District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions Foothill Blvd., Suite 300 Rancho Cucamonga, CA Tel: Fax:

6 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business type activities, each major fund, and the aggregate remaining fund information of the Manhattan Beach Unified School District, as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Correction of an Error As discussed in Note 16 to the financial statements, in 2016, the District restated its beginning balance for net pension liability to more accurately reflect the implementation of GASB Statement No. 68, Accounting and Financial Reporting for Pensions for its enterprise fund. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 5 through 13, budgetary comparison schedule on page 74, schedule of other postemployment benefits funding progress on page 75, schedule of the district's proportionate share of net pension liability on page 76, and the schedule of district contributions on page 77, 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 the Manhattan Beach Unified School District's basic financial statements. The accompanying supplementary information such as the combining and individual nonmajor fund financial statements and Schedule of Expenditures of Federal Awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards and the other supplementary information as listed on the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Schedule of Expenditures of Federal Awards and other accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3

7 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2016, on our consideration of the Manhattan Beach Unified School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on 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 Manhattan Beach Unified School District's internal control over financial reporting and compliance. Rancho Cucamonga, California December 15,

8 Michael Matthews, Ed.D. Superintendent Dawnalyn Murakawa-Leopard, Ed.D. Deputy Superintendent (310) , Ext FAX: (310) Manhattan Beach Unified School District 325 South Peck Avenue Manhattan Beach California (310) FAX (310) Board of Trustees Jennifer Cochran Christine Cronin-Hurst Bill Fournell Karen Komatinsky Ellen Rosenberg This section of Manhattan Beach Unified School District's (the District) annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, Please read it in conjunction with the District's financial statements, which immediately follow this section. OVERVIEW OF THE FINANCIAL STATEMENTS The Financial Statements The financial statements presented herein include all of the activities of the District and its component units using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement No. 34. The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities and business-type activities separately. These statements include all assets of the District (including capital assets), as well as all liabilities (including long-term obligations). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables, and receivables. The Fund Financial Statements include statements for each of the three categories of activities: governmental, business-type, and fiduciary. The Governmental Activities are prepared using the current financial resources measurement focus and modified accrual basis of accounting. The Business-Type Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. The Fiduciary Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach. The Primary unit of the government is the Manhattan Beach Unified School District. 5

9 MANAGEMENT'S DISCUSSION AND ANALYSIS REPORTING THE DISTRICT AS A WHOLE The Statement of Net Position and the Statement of Activities The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the District's net position and changes in them. Net position is the difference between assets and liabilities, which is one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net position are one indicator of whether its financial health is improving or deteriorating. Other factors to consider are changes in the District's property tax base and the condition of the District's facilities. The relationship between revenues and expenses is the District's operating results. Since the governing board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation. In the Statement of Net Position and the Statement of Activities, we present the District activities as follows: Governmental Activities - Most of the District's services are reported in this category. This includes the education of kindergarten through grade twelve students, adult education students, the operation of child development activities, and the on-going effort to improve and maintain buildings and sites. Property taxes, State income taxes, user fees, interest income, Federal, State, and local grants, as well as general obligation bonds, finance these activities. REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS Fund Financial Statements The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education. 6

10 MANAGEMENT'S DISCUSSION AND ANALYSIS Governmental Funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement. Proprietary Funds - When the District charges users for the services it provides, whether to outside customers or to other departments within the District, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Fund Net Position. In fact, the District's enterprise funds are the same as the business-type activities we report in the government-wide statements, but provide more detail and additional information, such as cash flows, for proprietary funds. We use internal service funds (the other component of proprietary funds) to report activities that provide supplies and services for the District's other programs and activities, such as the District's Self-Insurance Fund. The internal service funds are reported with governmental activities in the government-wide financial statements. THE DISTRICT AS A TRUSTEE Reporting the District's Fiduciary Responsibilities The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities, scholarships, employee retiree benefits, and pensions. The District's fiduciary activities are reported in the Fiduciary Funds - Statements of Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. FINANCIAL HIGHLIGHTS The Board of Trustees has increased the District's reserve in prior years for economic uncertainty (REU) from three percent to five percent. As a result, the District exceeds all State Department of Education requirements for maintenance of the REU. The District has maintained a conservative approach to budgeting expenditures. The District has expended approximately $5.8 million on construction during

11 MANAGEMENT'S DISCUSSION AND ANALYSIS To further its financial stability, the District continues to seek opportunities to reduce its long-term debt obligations. Passage of a General Obligation Bond in (Measure BB) is an example of one financial vehicle used for this purpose as well as to improve District facilities. At the same time, the District issued 2013 General Obligation Refunding Bonds, to prepay bonds issued under Series A of the Election of As of June 30, 2016, set aside money in an escrow account in the amount of $15 million will be used to liquidate Series A bonds that are no longer obligation of the District. The Energy Saving Program was continued and the District has obtained a commercial loan with a local financial institution in the prior year for approximately $9.8 million. Combined with the Prop 39 funding the overall project costs will exceed $10 million. It is anticipated that the savings on electricity will be used to repay the loan over an 18 year term. The District offered early retirement incentive to qualified employees. Current obligation over the next five years as of June 30, 2016 was $1,327,314. 8

12 MANAGEMENT'S DISCUSSION AND ANALYSIS THE DISTRICT AS A WHOLE Net Position The District's net position (deficit) was $(47,999,693) for the fiscal year ended June 30, Of this amount, $(40,425,779) was unrestricted. Restricted net position is reported separately to show legal constraints from debt covenants and enabling legislation that limit the governing board's ability to use the net position for day-to-day operations. Our analysis below, in summary form, focuses on the net position (Table 1) and change in net position (Table 2) of the District's governmental and business-type activities. Table 1 Assets As restated As restated As restated Current and other assets $ 43,298,578 $ 49,289,526 $ 1,830,152 $ 1,899,333 $ 45,128,730 $ 51,188,859 Capital assets 128,053, ,401, ,053, ,401,669 Liabilities Governmental Business-Type Activities Activities Total Total Assets 171,351, ,691,195 1,830,152 1,899, ,181, ,590,528 Total Deferred Outflows of Resources 20,898,537 4,701,296 1,065, ,902 21,963,748 5,050,198 Current liabilities 8,313,596 9,633, , ,151 8,538,660 9,845,178 Non-current long-term obligations 158,206, ,479, ,206, ,479,245 Aggregated net pension liability 60,951,729 44,747,631 2,945,471 2,198,704 63,897,200 46,946,335 Total Liabilities 227,471, ,859,903 3,170,535 2,410, ,642, ,270,758 Total Deferred Inflows of Resources 11,828,976 11,943, , ,303 12,503,124 12,620,984 Net Position Investment in capital assets (26,962,959) 16,128, (26,962,959) 16,128,297 Restricted 19,389,045 23,015, ,389,045 23,015,178 Unrestricted (deficit) (39,476,459) (86,554,568) (949,320) (839,923) (40,425,779) (87,394,491) Total Net Position (Deficit) $ (47,050,373) $ (47,411,093) $ (949,320) $ (839,923) $ (47,999,693) $ (48,251,016) The $(40,425,779) in unrestricted net position (deficit) of governmental and business-type activities represents the accumulated results of all past years' operations. 9

13 MANAGEMENT'S DISCUSSION AND ANALYSIS Changes in Net Position The results of this year's operations for the District as a whole are reported in the Statement of Activities on page 15. Table 2 takes the information from the Statement, rounds off the numbers, and rearranges them slightly so you can see our total revenues for the year. Table 2 Revenues Program revenues: Charges for services $ 255,302 $ 214,460 $ - $ - $ 255,302 $ 214,460 Operating grants and contributions 16,246,924 15,303, ,246,924 15,303,028 General revenues: Federal and State aid not restricted 21,638,594 17,621, ,638,594 17,621,437 Property taxes 43,871,347 40,407, ,871,347 40,407,595 Other general revenues 8,748,778 9,897,663 4,590,311 4,364,336 13,339,089 14,261,999 Expenses Governmental Business-Type Total School Activities Activities District Activities Total Revenues 90,760,945 83,444,183 4,590,311 4,364,336 95,351,256 87,808,519 Instructional 61,810,471 54,481, ,810,471 54,481,441 Student support services 7,110,662 6,824, ,110,662 6,824,242 Administration 4,902,779 5,502, ,902,779 5,502,783 Maintenance and operations 8,039,282 8,053, ,039,282 8,053,314 Other 8,537,031 8,179,844 4,699,708 4,448,417 13,236,739 12,628,261 Total Expenses 90,400,225 83,041,624 4,699,708 4,448,417 95,099,933 87,490,041 Change in Net Position $ 360,720 $ 402,559 $ (109,397) $ (84,081) $ 251,323 $ 318,478 Governmental Activities As reported in the Statement of Activities on page 15, the cost of all of our governmental activities this year was $90,400,225. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $43,871,347 because the cost was paid by those who benefited from the programs $(255,302) or by other governments and organizations who subsidized certain programs with grants and contributions $(16,246,924). We paid for the remaining "public benefit" portion of our governmental activities with $30,387,372 in Federal and State funds, and with other revenues, like interest and general entitlements. 10

14 MANAGEMENT'S DISCUSSION AND ANALYSIS In Table 3, we have presented the cost and net cost of each of the District's largest functions: regular program instruction, pupil transportation services, other pupil services, administration, maintenance and operations, and other outgo. As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits they believe are provided by that function. Table 3 Governmental Total Cost of Services Net Cost of Services Instruction $ 61,810,471 $ 54,481,441 $ 48,277,879 $ 41,809,942 Pupil transportation 457, , , ,981 Other pupil services 6,653,452 6,507,050 4,290,538 4,358,068 Administration 4,902,779 5,502,783 4,696,060 5,315,183 Maintenance and operations 8,039,282 8,053,314 7,783,819 7,707,555 Other outgo 8,537,031 8,179,844 8,477,933 8,124,407 Total $ 90,400,225 $ 83,041,624 $ 73,897,999 $ 67,524,136 THE DISTRICT'S FUNDS As the District completed this year, our governmental funds reported a combined fund balance of $35,276,565, which is a decrease of $4,715,055 from last year (Table 4). Table 4 Balances and Activity July 1, 2015 Revenues Expenditures June 30, 2016 General Fund (includes Fund 14) $ 13,394,968 $ 74,662,446 $ 74,442,651 $ 13,614,763 Special Reserve Fund for Other Than Capital Outlay Projects 11,306,262 31,038 4,334,720 7,002,580 Bond Interest and Redemption Fund 11,095,334 10,638,827 10,972,832 10,761,329 Cafeteria Fund 1,614,382 2,275,776 2,220,574 1,669,584 Building Fund 1,457,637 9,034 1,202, ,142 Capital Facilities Fund 1,123,037 1,114, ,551 1,964,167 Total $ 39,991,620 $ 88,731,802 $ 93,446,857 $ 35,276,565 11

15 MANAGEMENT'S DISCUSSION AND ANALYSIS CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At June 30, 2016, the District had $128,053,230, in a broad range of capital assets (net of depreciation), including land, buildings, furniture, and equipment. This amount represents a net increase (including additions, deductions, and depreciation) of $1,651,561, or 1.31 percent, from last year (Table 5). Table 5 Governmental Activities Land and construction in progress $ 11,272,178 $ 61,481,964 Buildings and improvements 116,265,004 64,391,896 Equipment 516, ,809 Total $ 128,053,230 $ 126,401,669 This year's additions included continuing of the District's wireless project, resulting in wireless internet connectivity for all school site common areas, classrooms, and offices and Phase III including a Band and Orchestra Building, Theater and Drama, and Student Quad Area. Long-Term Obligations At the end of this year, the District had $143,241,955 in bonds outstanding versus $147,408,521 last year, a decrease of $4,166,566 or 2.83 percent. Table 6 Governmental Activities General obligation bonds $ 143,241,955 $ 147,408,521 Premium on bonds 2,541,192 2,792,978 Compensated absences 549, ,659 Postemployment benefits 1,313, ,333 Equipment lease/purchase agreement 9,233,042 9,825,754 Supplemental retirement plan 1,327,314 - Total $ 158,206,417 $ 161,479,245 Other obligations include compensated absences payable, and other long-term obligations. We present more detailed information regarding our long-term obligations in Note 9 of the financial statements. 12

16 MANAGEMENT'S DISCUSSION AND ANALYSIS Net Pension Liability (NPL) As of June 30, 2016 and 2015, the total net pension liability as required by GASB Statement No. 68 was $63,897,200 and $46,946,335 respectively. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES In considering the District Budget for the year, the governing board and management used the following criteria: The key Average Daily Attendance (ADA) assumptions in our revenue forecast under the new Local Control Funding Formula (LCFF) are: ADA or the number of students used to calculate revenue was 6, LCFF Entitlement/Target revenue projection was $53,354,189 and Hold Harmless and GAP total funding projection of $51,635,589. Unrestricted lottery revenue is projected at $140 per ADA, with restricted lottery at $41 per ADA. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need any additional financial information, contact the Deputy Superintendent for Administrative Services, at Manhattan Beach Unified School District, South 325 Peck Avenue, Manhattan Beach, California

17 STATEMENT OF NET POSITION Governmental Business-Type Activities Activities Total ASSETS Deposits and investments $ 38,317,824 $ 1,762,727 $ 40,080,551 Receivables 4,722,790 67,425 4,790,215 Stores inventories 41,150-41,150 Other current assets 216, ,814 Capital assets: Land and construction in process 11,272,178-11,272,178 Other capital assets 166,278, ,278,292 Less: Accumulated depreciation (49,497,240) - (49,497,240) Total Capital Assets 128,053, ,053,230 Total Assets 171,351,808 1,830, ,181,960 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions 20,898,537 1,065,211 21,963,748 LIABILITIES Accounts payable 7,377, ,064 7,602,845 Interest payable 380, ,780 Unearned revenue 555, ,035 Long-term obligations: Current portion of long-term obligations 10,417,413-10,417,413 Noncurrent portion of long-term obligations 147,789, ,789,004 Total Long-Term Obligations 158,206, ,206,417 Net pension liability 60,951,729 2,945,471 63,897,200 Total Liabilities 227,471,742 3,170, ,642,277 DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pensions 11,828, ,148 12,503,124 NET POSITION Net investment in capital assets (26,962,959) - (26,962,959) Restricted for: Debt service 10,380,549-10,380,549 Capital projects 8,672,858-8,672,858 Educational programs 335, ,638 Unrestricted (deficit) (39,476,459) (949,320) (40,425,779) Total Net Position (Deficit) $ (47,050,373) $ (949,320) $ (47,999,693) The accompanying notes are an integral part of these financial statements. 14

18 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED Program Revenues Charges for Operating Services and Grants and Functions/Programs Expenses Sales Contributions Governmental Activities: Instruction $ 53,255,408 $ 152,140 $ 11,618,477 Instruction-related activities: Supervision of instruction 2,975,857 16, ,294 Instructional library, media, and technology 2,113, ,867 School site administration 3,465, ,175 Pupil services: Home-to-school transportation 457,210 7,066 78,374 Food services 2,116, ,478 All other pupil services 4,537,048 44,219 2,110,217 Administration: Data processing 819, All other administration 4,083,577 11, ,754 Plant services 8,039, ,463 Ancillary services 387,804-35,825 Enterprise services 27, Interest on long-term obligations 6,883, Other outgo 1,238,479 23,273 - Total Governmental Activities 90,400, ,302 16,246,924 Business-Type Activities: Enterprise services 4,699, Total Business-Type Activities $ 4,699,708 $ - $ - General revenues and subventions: Property taxes, levied for general purposes Property taxes, levied for debt service Taxes levied for other specific purposes Federal and State aid not restricted to specific purposes Interest and investment earnings Miscellaneous Change in Net Position Beginning Balance (As Restated) Net Position (Deficit) - Ending Subtotal, General Revenues The accompanying notes are an integral part of these financial statements. 15

19 Net (Expenses) Revenues and Changes in Net Position Governmental Business-Type Activities Activities Total $ (41,484,791) $ - $ (41,484,791) (2,333,924) - (2,333,924) (1,173,664) - (1,173,664) (3,285,500) - (3,285,500) (371,770) - (371,770) (1,907,926) - (1,907,926) (2,382,612) - (2,382,612) (819,202) - (819,202) (3,876,858) - (3,876,858) (7,783,819) - (7,783,819) (351,979) - (351,979) (27,332) - (27,332) (6,883,416) - (6,883,416) (1,215,206) - (1,215,206) (73,897,999) - (73,897,999) - (4,699,708) (4,699,708) - (4,699,708) (4,699,708) 33,281,313-33,281,313 10,573,951-10,573,951 16,083-16,083 21,638,594-21,638, ,118 9, ,411 8,569,660 4,581,018 13,150,678 74,258,719 4,590,311 78,849, ,720 (109,397) 251,323 (47,411,093) (839,923) (48,251,016) $ (47,050,373) $ (949,320) $ (47,999,693) 15

20 GOVERNMENTAL FUNDS BALANCE SHEET Special Reserve Bond Interest Fund For and General Capital Outlay Redemption Fund Projects Fund ASSETS Deposits and investments $ 16,223,231 $ 6,992,202 $ 10,761,329 Receivables 4,592,227 12,344 - Due from other funds 139, Stores inventories 24, Other current assets 216, Total Assets $ 21,196,306 $ 7,004,546 $ 10,761,329 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 7,026,508 $ 1,966 $ - Due to other funds Unearned revenue 555, Total Liabilities 7,581,543 1,966 - Fund Balances: Nonspendable 34, Restricted 335,638 7,002,580 10,761,329 Assigned 89, Unassigned 13,155, Total Fund Balances 13,614,763 7,002,580 10,761,329 Total Liabilities and Fund Balances $ 21,196,306 $ 7,004,546 $ 10,761,329 The accompanying notes are an integral part of these financial statements. 16

21 Non Major Governmental Funds Total Governmental Funds $ 4,252,086 $ 38,228, ,998 4,722, ,999 17,115 41, ,814 $ 4,387,199 $ 43,349,380 $ 349,307 $ 7,377, , , , ,306 8,072,815 19,360 53,395 1,971,656 20,071,203 1,906,877 1,996,234-13,155,733 3,897,893 35,276,565 $ 4,387,199 $ 43,349,380 16

22 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION Total Fund Balance - Governmental Funds $ 35,276,565 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, therefore, are not reported as assets in governmental funds. The cost of capital assets is: $ 177,550,470 Accumulated depreciation is: (49,497,240) Net Capital Assets 128,053,230 Expenditures relating to contributions made to pension plans were recognized on the modified accrual basis, but are not recognized on the accrual basis. 6,274,563 In governmental funds, unmatured interest on long-term obligations is recognized in the period when it is due. On the government-wide financial statements, unmatured interest on long-term obligations is recognized when it is incurred. (380,780) An internal service fund is used by the District's management to charge the costs of the workers' compensation insurance program to the individual funds. The assets and liabilities of the Internal Service Fund are included with governmental activities. 89,197 The net change in proportionate share of net pension liability as of the measurement date is not recognized as an expenditure under the modified accrual basis, but are recognized on the accrual basis over the expected remaining service life of members receiving pension benefits. 8,033,623 The difference between projected and actual pension plan investment earnings are not recognized on the modified accrual basis, but are recognized on the accrual basis as an adjustment to pension expense. (4,375,815) The differences between expected and actual experience in the measurement of the total pension liability are not recognized on the modified accrual basis, but are recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. (92,437) The accompanying notes are an integral part of these financial statements. 17

23 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION, Continued The changes of assumptions is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. $ (770,373) Net pension liability is not due and payable in the current period and is not reported as a liability in the funds. (60,951,729) Long-term obligations at year-end consist of: Bonds payable $ 92,995,258 Premium on bonds 2,541,192 Compensated absences 549,399 Net OPEB obligation 1,313,515 Equipment lease/ purchase agreement 9,233,042 Supplemental retirement plan 1,327,314 In addition, the District has issued "capital appreciation" General Obligation bonds. The accretion of interest on the General Obligation Bonds to date is: 50,246,697 Total Long-Term Obligations (158,206,417) Total Net Position (Deficit) - Governmental Activities $ (47,050,373) The accompanying notes are an integral part of these financial statements. 18

24 GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED Special Reserve Fund For General Capital Outlay Fund Projects REVENUES Local Control Funding Formula $ 49,973,564 $ - Federal sources 1,634,126 - Other State sources 11,890,084 - Other local sources 11,164,672 31,038 Total Revenues 74,662,446 31,038 EXPENDITURES Current Instruction 48,374,430 - Instruction-related activities: Supervision of instruction 1,559,373 - Instructional library, media and technology 2,021,631 - School site administration 3,183,650 - Pupil services: Home-to-school transportation 277,544 - Food services - - All other pupil services 4,301,761 - Administration: Data processing 767,384 - All other administration 3,572,648 - Plant services 7,917,854 - Facility acquisition and construction (102,731) 4,334,720 Ancillary services 381,241 - Debt service Principal 592,712 - Interest and other 356,675 - Total Expenditures 73,204,172 4,334,720 Excess (Deficiency) of Revenues Over (Under) Expenditures 1,458,274 (4,303,682) OTHER FINANCING SOURCES (USES) Other uses (1,238,479) - Net Financing Sources (Uses) (1,238,479) - NET CHANGE IN FUND BALANCES 219,795 (4,303,682) Fund Balances - Beginning 13,394,968 11,306,262 Fund Balances - Ending $ 13,614,763 $ 7,002,580 The accompanying notes are an integral part of these financial statements. 19

25 Bond Interest and Non-Major Total Redemption Governmental Governmental Fund Funds Funds $ - $ - $ 49,973, ,401 1,938,527 34,412 6,891 11,931,387 10,604,415 3,088,199 24,888,324 10,638,827 3,399,491 88,731, ,374, ,559, ,021, ,183, ,544-2,117,618 2,117, ,301, , ,748 3,776, ,917,854-1,375,288 5,607, ,241 6,992,251-7,584,963 3,980,581-4,337,256 10,972,832 3,696,654 92,208,378 (334,005) (297,163) (3,476,576) - - (1,238,479) - - (1,238,479) (334,005) (297,163) (4,715,055) 11,095,334 4,195,056 39,991,620 $ 10,761,329 $ 3,897,893 $ 35,276,565 19

26 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED Total Net Change in Fund Balances - Governmental Funds $ (4,715,055) Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures, however, for governmental activities, those costs are shown in the Statement of Net Position and allocated over their estimated useful lives as annual depreciation expenses in the Statement of Activities. This is the amount by which depreciation exceeds capital outlays expense in the period. Capital outlays $ 5,883,338 Depreciation expense (4,231,777) Net expense adjustment 1,651,561 In the Statement of Activities, Other Postemployment Benefits Obligations (OPEB) are measured by an actuarially determined Unfunded Frozen Actuarial Accrued Liability (UFAAL). In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). This year, amounts contributed toward the OPEB obligation were more than the cost on net OPEB obligation by $380,780. (363,182) In the governmental funds, pension costs are based on employer contributions made to pension plans during the year. However, in the Statement of Activities, pension expense is the net effect of all changes in the deferred outflows, deferred inflows and net pension liability during the year. 107,848 In the Statement of Activities, certain operating expense - compensated absences (vacation) are measured by the amounts earned during the year. In the governmental funds, however, expenditures for this item are measured by the amount of financial resources used (essentially, the amounts actually paid). Vacation used was less than the amounts earned by $47,740. (47,740) Proceeds received from issuance of debt is a revenue in the governmental funds, but it increases long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: (1,327,314) The accompanying notes are an integral part of these financial statements. 20

27 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES, Continued FOR THE YEAR ENDED Repayment of bond principal is an expenditure in the governmental funds, but it reduces long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: General obligation bonds $ 9,615,000 Equipment Lease/ purchase agreement 592,712 Under the modified basis of accounting used in the governmental funds, expenditures are not recognized for transactions that are not normally paid with expendable available financial resources. In the Statement of Activities, however, which is presented on the accrual basis, expenses and liabilities are reported regardless of when financial resources are available. This adjustment combines the net changes of the following balances: Amortization of debt premium 251,786 Interest on long-term obligations in the Statement of Activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. The additional interest reported in the Statement of Activities is the result of two factors. First, accrued interest decreased by $27,739 and second, $5,448,434 of additional accumulated interest was accreted on the District's "capital appreciation" general obligation bonds. (5,420,695) An Internal Service Fund is used by the District's management to charge the costs of services to the individual funds. The net change in net assets of the Internal Service Fund is reported with governmental activities. 15,799 Change in Net Position of Governmental Activities $ 360,720 The accompanying notes are an integral part of these financial statements. 21

28 PROPRIETARY FUNDS STATEMENT OF NET POSITION Business-Type Activities Governmental Enterprise Fund Activities - Community Internal Preschool Service Fund ASSETS Current Assets Deposits and investments $ 1,762,727 $ 88,976 Receivables 67, Total Current Assets 1,830,152 89,197 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions 1,065,211 - LIABILITIES Current Liabilities Accounts payable 225,064 - Noncurrent Liabilities Net pension liability 2,945,471 - DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pensions 674,148 - NET POSITION (DEFICIT) Restricted (949,320) 89,197 Total Net Position (Deficit) $ (949,320) $ 89,197 The accompanying notes are an integral part of these financial statements. 22

29 PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED Business-Type Activities Governmental Enterprise Fund Activities - Community Internal Preschool Service Fund OPERATING REVENUES Local and intermediate sources $ 4,535,758 $ 20,888 OPERATING EXPENSES Payroll costs 3,224,555 - Supplies and materials 298,652 5,607 Facility rental 1,172,603 - Other operating costs 3,898 - Total Operating Expenses 4,699,708 5,607 Operating Income (Loss) (163,950) 15,281 NON-OPERATING REVENUES Interest income 9, Grants 45,260 - Total Nonoperating Revenues 54, Change in Net Position (109,397) 15,799 Total Net Position (Deficit) - Beginning (839,923) 73,398 Total Net Position (Deficit) - Ending $ (949,320) $ 89,197 The accompanying notes are an integral part of these financial statements. 23

30 PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED Business-Type Activities Enterprise Governmental Fund Activities - Community Internal Preschool Service Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from other local sources $ 4,506,772 $ 20,888 Cash payments for salaries and benefits (3,197,252) - Cash payments for interfund services used, including payments in lieu of taxes that are payments for, and equivalent to, services provided (1,462,240) (5,838) Net Cash Provided (Used) by Operating Activities (152,720) 15,050 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Nonoperating grants received 45,260 - CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 9, Net Change in Cash and Cash Equivalents (98,167) 15,617 Cash and Cash Equivalents - Beginning 1,860,894 73,359 Cash and Cash Equivalents - Ending $ 1,762,727 $ 88,976 RECONCILIATION OF OPERATING REVENUE LOSS TO NET CASH USED BY OPERATING ACTIVITIES: Operating Income (loss) revenue $ (163,950) $ 15,281 Adjustments to reconcile operating loss to net cash provided (used) by operating activities: Changes in assets and liabilities: Receivables (28,986) - Deferred outflows of resources (716,309) - Account payable 12,913 (231) Deferred inflows of resources (3,155) - Net pension liability 746,767 - NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (152,720) $ 15,050 The accompanying notes are an integral part of these financial statements. 24

31 FIDUCIARY FUNDS STATEMENT OF NET POSITION Retiree Benefits Agency Trust Funds ASSETS Deposits and investments $ 272,304 $ 179,096 Receivables Total Assets 273,212 $ 179,096 LIABILITIES Accounts payable - $ 5,455 Due to student groups - 173,641 Total Liabilities - $ 179,096 NET POSITION Unreserved $ 273,212 The accompanying notes are an integral part of these financial statements. 25

32 FIDUCIARY FUNDS STATEMENT OF CHANGES IN NET POSITION FOR THE YEAR ENDED ADDITIONS Interest $ 2,437 Retiree Benefits Trust DEDUCTIONS Other expenditures 71,978 Change in Net Position (69,541) Net Position - Beginning 342,753 Net Position - Ending $ 273,212 The accompanying notes are an integral part of these financial statements. 26

33 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Entity The Manhattan Beach Unified School District (the District) was established in 1912 and unified in 1993 under the laws of the State of California. The District operates under a locally elected five-member Board form of government and provides educational services to grades K - 12 as mandated by the State and/or Federal agencies. The District operates five elementary schools, one middle school, and one high school. A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Manhattan Beach Unified School District, this includes general operations, food service, and student related activities of the District. Related Entity The Manhattan Beach Education Foundation Inc. The Manhattan Beach Education Foundation Inc. (the Foundation) is a legally separate, tax-exempt entity. The Foundation's sole purpose is to provide financial support for Manhattan Beach Unified School District. Although the District does not control the timing or the amount of receipts of the Foundation, the majority of the resources held by the Foundation can only be used by, or for the benefit, of the District. The Foundation is not considered a component unit of the District. During the year ended June 30, 2016, the Foundation contributed approximately $5,680,960 to the District. Current audited financial information was not available at the time of the District's audit. Basis of Presentation - Fund Accounting The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into three broad fund categories: governmental, proprietary, and fiduciary. Governmental Funds Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major and non-major governmental funds: Major Governmental Funds General Fund The General Fund is the chief operating fund for all districts. It is used to account for the ordinary operations of the District. All transactions except those accounted for in another fund are accounted for in this fund. 27

34 NOTES TO FINANCIAL STATEMENTS One fund currently defined as special revenue funds in the California State Accounting Manual (CSAM) does not meet the GASB Statement No. 54 special revenue fund definition. Specifically, Fund 14, Deferred Maintenance Fund, is not substantially composed of restricted or committed revenue sources. While this fund is authorized by statute and will remain open for internal reporting purposes, the fund function effectively as an extension of the General Fund, and accordingly, has been combined with the General Fund for presentation in the audited financial statements. As a result, the General Fund reflects an increase in assets, fund balance, and revenues of $89,357, $89,357, and $698, respectively. Cafeteria Fund The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the food service program (Education Code Sections ) and is used only for those expenditures authorized by the governing board as necessary for the operation of the District's food service program (Education Code Sections and 38100). Special Reserve Fund for Capital Outlay Projects The Special Reserve Fund for Capital Outlay Projects exists primarily to provide for the accumulation of General Fund monies for capital outlay purposes (Education Code Section 42840). Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used for the repayment of bonds issued for a district (Education Code Sections ). Non-Major Governmental Funds Special Revenue Funds The Special Revenue funds are used to account for the proceeds from specific revenue sources (other than trusts, major capital projects, or debt service) that are restricted or committed to expenditures for specified purposes and that compose a substantial portion of the inflows of the fund. Additional resources that are restricted, committed, or assigned to the purpose of the fund may also be reported in the fund. Capital Project Funds The Capital Project funds are used to account for and report financial resources that are restricted, committed, or assigned to the acquisition or construction of major capital facilities and other capital assets (other than those financed by proprietary funds and trust funds). Building Fund The Building Fund exists primarily to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued. Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections ). Expenditures are restricted to the purposes specified in Government Code Sections or to the items specified in agreements with the developer (Government Code Section 66006). 28

35 NOTES TO FINANCIAL STATEMENTS Proprietary Funds Proprietary fund reporting focuses on the determination of operating income, changes in net position, financial position, and cash flows. The District applies all GASB pronouncements, as well as the Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. Proprietary funds are classified as enterprise or internal service. The District has the following proprietary funds: Enterprise Fund Enterprise funds may be used to account for any activity for which a fee is charged to external users for goods or services. The only enterprise fund of the District accounts for the financial transactions related to the Community Preschool of the District. Internal Service Fund Internal service funds may be used to account for any activity for which goods or services are provided to other funds of the District on a cost-reimbursement basis. The District operates a Self-Insurance Fund that is accounted for in an internal service fund. Fiduciary Funds Fiduciary funds are used to account for assets held in trustee or agent capacity for others that cannot be used to support the District's own programs. The fiduciary fund category is split into four classifications: pension trust funds, investment trust funds, private-purpose trust funds, and agency funds. The key distinction between trust and agency funds is that trust funds are subject to a trust agreement that affects the degree of management involvement and the length of time that the resources are held. Trust funds are used to account for the assets held by the District under a trust agreement for individuals, private organizations, or other governments and are therefore, not available to support the District's own programs. The District's trust fund is a Retiree Benefits Trust Fund. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Such funds have no equity accounts since all assets are due to individuals or entities at some future time. The District's agency fund accounts for associated student body activities (ASB). Basis of Accounting - Measurement Focus Government-Wide Financial Statements The government-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting. This is the same approach used in the preparation of the proprietary fund financial statements, but differs from the manner in which governmental fund financial statements are prepared. The government-wide Statement of Activities presents a comparison between expenses, both direct and indirect, and program revenues for each segment of the business-type activities of the District and for each governmental function, and excludes fiduciary activity. Direct expenses are those that are specifically associated with a service, program, or department and are therefore, clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the Statement of Activities, except for depreciation. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each program or business segment is self-financing or draws from the general revenues of the District. Eliminations have been made to minimize the double counting of internal activities. 29

36 NOTES TO FINANCIAL STATEMENTS Net position should be reported as restricted when constraints placed on net asset use are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The net position restricted for other activities result from special revenue funds and the restrictions on their net asset use. Fund Financial Statements Fund financial statements report detailed information about the District. The focus of governmental and proprietary fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Non-major funds are aggregated and presented in a single column. Governmental Funds All governmental funds are accounted for using the flow of current financial resources measurement focus and the modified accrual basis of accounting. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balances reports on the sources (revenues and other financing sources) and uses (expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide financial statements are prepared. Governmental fund financial statements, therefore, include reconciliations with brief explanations to better identify the relationship between the government-wide financial statements, prepared using the economic resources measurement focus and the accrual basis of accounting, and the governmental fund financial statements, prepared using the flow of current financial resources measurement focus and the modified accrual basis of accounting. Proprietary Funds Proprietary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting. All assets and all liabilities associated with the operation of this fund are included in the Statement of Net Position. The Statement of Changes in Fund Net Position presents increases (revenues) and decreases (expenses) in net total assets. The Statement of Cash Flows provides information about how the District finances and meets the cash flow needs of its proprietary fund. Fiduciary Funds Fiduciary funds are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting. Fiduciary funds are excluded from the government-wide financial statements because they do not represent resources of the District. Revenues - Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter, to be used to pay liabilities of the current fiscal year. Generally, available is defined as collectible within 45 or 60 days. However, to achieve comparability of reporting among California districts and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to State-aid apportionments, the California Department of Education has defined available for districts as collectible within one year. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources. 30

37 NOTES TO FINANCIAL STATEMENTS Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose restrictions. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. Unearned Revenue Unearned revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for unearned revenue is removed from the balance sheet and revenue is recognized. Certain grants received before the eligibility requirements are met are recorded as unearned revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as unearned revenue. Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable, and typically paid within 90 days. Principal and interest on longterm obligations, which has not matured, are recognized when paid in the governmental funds as expenditures. Allocations of costs, such as depreciation and amortization, are not recognized in the governmental funds but are recognized in the entity-wide statements. Cash and Cash Equivalents The District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Cash equivalents also include cash with county treasury balances for purposes of the Statement of Cash Flows. Investments Investments held at June 30, 2016, with original maturities greater than one year are stated at fair value. Fair value is estimated based on quoted market prices at year-end. All investments not required to be reported at fair value are stated at cost or amortized cost. Fair values of investments in county and State investment pools are determined by the program sponsor. Stores Inventories Inventories consist of expendable food and supplies held for consumption. Inventories are stated at cost, on the first-in, first-out basis. The costs of inventory items are recorded as expenditures in the governmental funds and expenses in the proprietary funds when used. 31

38 NOTES TO FINANCIAL STATEMENTS Capital Assets and Depreciation The accounting and reporting treatment applied to the capital assets associated with a fund are determined by its measurement focus. Capital assets are long-lived assets of the District. The District maintains a capitalization threshold of $5,000. The District does not possess any infrastructure. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are not capitalized, but are expensed as incurred. When purchased, such assets are recorded as expenditures in the governmental funds and capitalized in the government-wide Statement of Net Position. The valuation basis for capital assets is historical cost, or where historical cost is not available, estimated historical cost based on replacement cost. Donated capital assets are capitalized at estimated fair market value on the date donated. Capital assets in the proprietary funds are capitalized in the fund in which they are utilized. The valuation basis for proprietary fund capital assets is the same as those used for the capital assets of governmental funds. Depreciation is computed using the straight-line method. Estimated useful lives of the various classes of depreciable capital assets are as follows: buildings, 20 to 50 years; improvements/infrastructure, 5 to 50 years; equipment, 2 to 20 years. Compensated Absences Compensated absences are accrued as a liability as the benefits are earned. The entire compensated absence liability is reported on the government-wide Statement of Net Position. For governmental funds, the current portion of unpaid compensated absences is recognized upon the occurrence of relevant events such as employee resignations and retirements that occur prior to year-end that have not yet been paid with expendable available financial resources. These amounts are reported in the fund from which the employees who have accumulated leave are paid. Sick leave is accumulated without limit for each employee at the rate of one day for each month worked. Leave with pay is provided when employees are absent for health reasons; however, the employees do not gain a vested right to accumulated sick leave. Employees are never paid for any sick leave balance at termination of employment or any other time. Therefore, the value of accumulated sick leave is not recognized as a liability in the District's financial statements. However, credit for unused sick leave is applicable to all classified school members who retire after January 1, At retirement, each member will receive.004 year of service credit for each day of unused sick leave. Credit for unused sick leave is applicable to all certificated employees and is determined by dividing the number of unused sick days by the number of base service days required to complete the last school year, if employed full-time. Accrued Liabilities and Long-Term Obligations All payables, accrued liabilities, and long-term obligations are reported in the government-wide and proprietary fund financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the governmental funds. 32

39 NOTES TO FINANCIAL STATEMENTS However, claims and judgments, compensated absences, special termination benefits, and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the governmental fund financial statements only to the extent that they are due for payment during the current year. Bonds, capital leases, and other long-term obligations are recognized as liabilities in the governmental fund financial statements when due. Premiums In the government-wide financial statements and in the proprietary fund type financial statements, long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund statement of net position. Debt premiums and discounts, as well as issuance costs, related to prepaid insurance costs are amortized over the life of the bonds using the straight-line method. In governmental fund financial statements, bond premiums and discounts, as well as debt issuance costs are recognized in the current period. The face amount of the debt is reported as other financing sources. Premiums received on debt issuance are also reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds, are reported as debt service expenditures. Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position also reports deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an expense or expenditure until then. The District reports deferred outflows of resources for pension related items. In addition to liabilities, the statement of net position reports a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until then. The District reports deferred inflows of resources for pension related items. Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the California State Teachers Retirement System (CalSTRS) and the California Public Employees' Retirement System (CalPERS) plan for schools (Plans) and additions to/deductions from the Plans' fiduciary net position have been determined on the same basis as they are reported by CalSTRS and CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Member contributions are recognized in the period in which they are earned. Investments are reported at fair value. Fund Balances - Governmental Funds As of June 30, 2016, fund balances of the governmental funds are classified as follows: Nonspendable - amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact. 33

40 NOTES TO FINANCIAL STATEMENTS Restricted - amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments. Assigned - amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. Under the District's adopted policy, only the governing board or chief business officer/assistant superintendent of business services may assign amounts for specific purposes. Unassigned - all other spendable amounts. Spending Order Policy When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the District considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the District considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless the governing board has provided otherwise in its commitment or assignment actions. Minimum Fund Balance Policy The governing board adopted a minimum fund balance policy for the General Fund in order to protect the District against revenue shortfalls or unpredicted one-time expenditures. The policy requires a Reserve for Economic Uncertainties consisting of unassigned amounts equal to no less than three percent of General Fund expenditures and other financing uses. Net Position Net position represents the difference between assets and liabilities. Net position net investment in capital assets, consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. The District has no related debt outstanding as of June 30, Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. The District first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. The government-wide financial statements report $19,389,045 of restricted net position. Operating Revenues and Expenses Operating revenues are those revenues that are generated directly from the primary activity of the proprietary funds. Operating expenses are necessary costs incurred to provide the good or service that are the primary activity of the fund. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. 34

41 NOTES TO FINANCIAL STATEMENTS Interfund Activity Transfers between governmental and business-type activities in the government-wide financial statements are reported in the same manner as general revenues. Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds and after non-operating revenues/expenses in proprietary funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented in the financial statements. Interfund transfers are eliminated in the governmental and business-type activities columns of the Statement of Activities, except for the net residual amounts transferred between governmental and business-type activities. Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Budgetary Data The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 st of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account. The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. For budget purposes, on behalf payments have not been included as revenue and expenditures as required under generally accepted accounting principles. Property Tax Secured property taxes attach as an enforceable lien on property as of January 1. Taxes are payable in two installments on November 1 and February 1 and become delinquent on December 10 and April 10, respectively. Unsecured property taxes are payable in one installment on or before August 31. The County of Los Angeles bills and collects the taxes on behalf of the District. Local property tax revenues are recorded when received. 35

42 NOTES TO FINANCIAL STATEMENTS Change in Accounting Principles In February 2015, the GASB issued Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The District has implemented the provisions of this Statement as of June 30, In June 2015, the GASB issued Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and No. 68. The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for Pensions, as well as for the assets accumulated for purposes of providing those pensions. In addition, it establishes requirements for defined contribution pensions that are not within the scope of Statement No. 68. It also amends certain provisions of Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68 for pension plans and pensions that are within their respective scopes. The provisions in this Statement effective as of June 30, 2016, include the provisions for assets accumulated for purposes of providing pensions through defined benefit plans and the amended provisions of Statements No. 67 and No. 68. The District has implemented these provisions as of June 30, The provisions in this Statement related to defined benefit pensions that are not within the scope of Statement No. 68 are effective for periods beginning after June 15, In June 2015, the GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this Statement is to identify in the context of the current governmental financial reporting environment the hierarchy of generally accepted accounting principles (GAAP). The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and non-authoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. This Statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The District has implemented the provisions of this Statement as of June 30,

43 NOTES TO FINANCIAL STATEMENTS In December 2015, the GASB issued Statement No. 79, Certain External Investment Pools and Pool Participants. This Statement addresses accounting and financial reporting for certain external investment pools and pool participants. Specifically, it establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. An external investment pool qualifies for that reporting if it meets all of the applicable criteria established in this Statement. The specific criteria address (1) how the external investment pool transacts with participants; (2) requirements for portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a shadow price. Significant noncompliance prevents the external investment pool from measuring all of its investments at amortized cost for financial reporting purposes. Professional judgment is required to determine if instances of noncompliance with the criteria established by this Statement during the reporting period, individually or in the aggregate, were significant. If an external investment pool does not meet the criteria established by this Statement, that pool should apply the provisions in paragraph 16 of Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, as amended. If an external investment pool meets the criteria in this Statement and measures all of its investments at amortized cost, the pool's participants also should measure their investments in that external investment pool at amortized cost for financial reporting purposes. If an external investment pool does not meet the criteria in this Statement, the pool's participants should measure their investments in that pool at fair value, as provided in paragraph 11 of Statement No. 31, as amended. This Statement establishes additional note disclosure requirements for qualifying external investment pools that measure all of their investments at amortized cost for financial reporting purposes and for governments that participate in those pools. Those disclosures for both the qualifying external investment pools and their participants include information about any limitations or restrictions on participant withdrawals. The District has implemented the provisions of this Statement as of June 30, New Accounting Pronouncements In June 2015, the GASB issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. The objective of this Statement is to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement No. 43, and Statement No. 50, Pension Disclosures. The requirements of this Statement are effective for financial statements for periods beginning after June 15, Early implementation is encouraged. 37

44 NOTES TO FINANCIAL STATEMENTS In June 2015, the GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pension. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans. The requirements of this Statement are effective for financial statements for periods beginning after June 15, Early implementation is encouraged. In August 2015, the GASB issued Statement No. 77, Tax Abatement Disclosures. This Statement requires governments that enter into tax abatement agreements to disclose the following information about the agreements: Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients. The gross dollar amount of taxes abated during the period. Commitments made by a government, other than to abate taxes, as part of a tax abatement agreement. The requirements of this Statement are effective for financial statements for periods beginning after December 15, Early implementation is encouraged. In December 2015, the GASB issued Statement No. 78, Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans. The objective of this Statement is to address a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This issue is associated with pensions provided through certain multiple-employer defined benefit pension plans and to state or local governmental employers whose employees are provided with such pensions. Prior to the issuance of this Statement, the requirements of Statement No. 68 applied to the financial statements of all state and local governmental employers whose employees are provided with pensions through pension plans that are administered through trusts that meet the criteria in paragraph 4 of that Statement. 38

45 NOTES TO FINANCIAL STATEMENTS This Statement amends the scope and applicability of Statement No. 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2) is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above. The requirements of this Statement are effective for reporting periods beginning after December 15, Early implementation is encouraged. In January 2016, the GASB issued Statement No. 80, Blending Requirements for Certain Component Units - amendment of GASB Statement No. 14. The objective of this Statement is to improve financial reporting by clarifying the financial statement presentation requirements for certain component units. This Statement amends the blending requirements established in paragraph 53 of Statement No. 14, The Financial Reporting Entity, as amended. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of Statement No. 39, Determining Whether Certain Organizations Are Component Units. The requirements of this Statement are effective for reporting periods beginning after June 15, Early implementation is encouraged. In March 2016, the GASB issued Statement No. 81, Irrevocable Split-Interest Agreements. The objective of this Statement is to improve accounting and financial reporting for irrevocable split-interest agreements by providing recognition and measurement guidance for situations in which a government is a beneficiary of the agreement. This Statement requires that a government that receives resources pursuant to an irrevocable split-interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. Furthermore, this Statement requires that a government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party, if the government controls the present service capacity of the beneficial interests. This Statement requires that a government recognize revenue when the resources become applicable to the reporting period. The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2016, and should be applied retroactively. Early implementation is encouraged. 39

46 NOTES TO FINANCIAL STATEMENTS In March 2016, the GASB issued Statement No. 82, Pension Issues - An Amendment of GASB Statements No. 67, No. 68, and No. 73. The objective of this Statement is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and No. 68. Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. The requirements of this Statement are effective for reporting periods beginning after June 15, 2016, except for the requirements of this Statement for the selection of assumptions in a circumstance in which an employer's pension liability is measured as of a date other than the employer's most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, Early implementation is encouraged. NOTE 2 - DEPOSITS AND INVESTMENTS Summary of Deposits and Investments Deposits and investments as of June 30, 2016, are classified in the accompanying financial statements as follows: Governmental activities $ 38,317,824 Business-type activities 1,762,727 Fiduciary funds 451,400 Total Deposits and Investments $ 40,531,951 Deposits and investments as of June 30, 2016, consist of the following: Cash on hand and in banks $ 4,857,606 Cash in revolving 12,245 Investments 35,662,100 Total Deposits and Investments $ 40,531,951 Policies and Practices The District is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; and collateralized mortgage obligations. 40

47 NOTES TO FINANCIAL STATEMENTS Investment in County Treasury - The District is considered to be an involuntary participant in an external investment pool as the District is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value of the District's investment in the pool is reported in the accounting financial statements at amounts based upon the District's pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis. General Authorizations Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules below: Maximum Maximum Maximum Authorized Remaining Percentage Investment Investment Type Maturity of Portfolio in One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20% of base None Medium-Term Corporate Notes 5 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None Joint Powers Authority Pools N/A None None Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The District manages its exposure to interest rate risk by investing in the county pool longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. 41

48 NOTES TO FINANCIAL STATEMENTS Specific Identification Information about the sensitivity of the fair values of the District's investments to market interest rate fluctuation is provided by the following schedule that shows the distribution of the District's investment by maturity: Fair Weighted Average Investment Type Value Days to Maturity Los Angeles County Investment Pool $ 36,274, Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The District's investment in the Los Angeles County Investment Pool is not required to be rated, nor has it been rated as of June 30, Custodial Credit Risk - Deposits This is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by State or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agency. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. As of June 30, 2016, the District's bank balance of $9,863,952 was exposed to custodial credit risk because it was uninsured, but collateralized with securities held by the pledging financial institution's trust department or agent, but not in the name of the District. NOTE 3 - FAIR VALUE MEASUREMENTS The District categorizes the fair value measurements of its investments based on the hierarchy established by generally accepted accounting principles. The fair value hierarchy, which has three levels, is based on the valuation inputs used to measure an asset's fair value. The following provides a summary of the hierarchy used to measure fair value: Level 1 - Quoted prices in active markets for identical assets that the District has the ability to access at the measurement date. Level 1 assets may include debt and equity securities that are traded in an active exchange market and that are highly liquid and are actively traded in over-the-counter markets. 42

49 NOTES TO FINANCIAL STATEMENTS Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, or other inputs that are observable, such as interest rates and curves observable at commonly quoted intervals, implied volatilities, and credit spreads. For financial reporting purposes, if an asset has a specified term, a Level 2 input is required to be observable for substantially the full term of the asset. Level 3 - Unobservable inputs should be developed using the best information available under the circumstances, which might include the District's own data. The District should adjust that data if reasonable available information indicates that other market participants would use different data or certain circumstances specific to the District are not available to other market participants. Uncategorized - Investments in the Los Angeles County Treasury Investment Pool are not measured using the input levels above because the District's transactions are based on a stable net asset value per share. All contributions and redemptions are transacted at $1.00 net asset value per share. The District's fair value measurements are as follows at June 30, 2016: Investment Type Fair Value Uncategorized Los Angeles County Investment Pool $ 36,274,428 $ 36,274,428 All assets have been valued using a market approach, with quoted market prices. 43

50 NOTES TO FINANCIAL STATEMENTS NOTE 4 - RECEIVABLES Receivables at June 30, 2016, consisted of intergovernmental grants, entitlements, interest, and other local sources. All receivables are considered collectible in full. Special Reserve Fund for Non-Major Total General Capital Outlay Governmental Governmental Proprietary Fund Projects Funds Activity Funds Federal Government Categorical aid $ 1,123,781 $ - $ - $ 1,123,781 $ - State Government State principal apportionment Categorical aid 1,222, ,222,318 - Lottery 769, ,344 - Local Government Interest 67,970 12,344 54, ,211 3,881 Other Local Sources 1,408,814-63,101 1,471,915 63,765 Total $ 4,592,227 $ 12,344 $ 117,998 $ 4,722,569 $ 67,646 NOTE 5 - INTERFUND TRANSACTIONS Interfund Receivables/Payables (Due To/Due From) Interfund receivable and payable balances arise from interfund transactions and are recorded by all funds affected in the period in which transactions are executed. Interfund receivable and payable balances at June 30, 2016, between major and non-major governmental funds. Due From General Due To Funds Non-Major Governmental Funds $ 139,999 The balance of $139,999 due from Non-Major Building Fund to General Fund is for construction cost. 44

51 NOTES TO FINANCIAL STATEMENTS NOTE 6 - CAPITAL ASSETS Capital asset activity for the fiscal year ended June 30, 2016, was as follows: Balance Balance July 1, 2015 Additions Deductions June 30, 2016 Governmental Activities Capital Assets Not Being Depreciated: Land $ 3,909,383 $ - $ - $ 3,909,383 Construction in progress 57,572,581 4,508,727 54,718,513 7,362,795 Total Capital Assets Not Being Depreciated 61,481,964 4,508,727 54,718,513 11,272,178 Capital Assets Being Depreciated: Land improvements 3,710,994 47,141-3,758,135 Buildings and improvements 101,949,666 55,950, ,900,080 Furniture and equipment 4,524,508 95,569-4,620,077 Total Capital Assets Being Depreciated 110,185,168 56,093, ,278,292 Total Capital Assets 171,667,132 60,601,851 54,718, ,550,470 Less Accumulated Depreciation: Land improvements 2,870,394 84,381-2,954,775 Buildings and improvements 38,398,370 4,040,066-42,438,436 Furniture and equipment 3,996, ,330-4,104,029 Total Accumulated Depreciation 45,265,463 4,231,777-49,497,240 Governmental Activities Capital Assets, Net $ 126,401,669 $ 56,370,074 $ 54,718,513 $ 128,053,230 Depreciation expense was charged as a direct expense to governmental functions as follows: Governmental Activities Instruction $ 2,895,805 Supervision of instruction 50,781 Instructional library, media, and technology 75,326 School site administration 194,239 Home-to-school transportation 49,512 All other pupil services 235,287 Data processing 34,701 All other administration 293,685 Plant services 402,441 Total Depreciation Expenses Governmental Activities $ 4,231,777 45

52 NOTES TO FINANCIAL STATEMENTS NOTE 7 - ACCOUNTS PAYABLE Accounts payable at June 30, 2016, consisted of the following: Special Reserve Fund for Non-Major Total General Capital Outlay Governmental Governmental Business-Type Agency Fund Projects Funds Activities Activities Funds Vendor payables $ 1,365,963 $ 1,966 $ 150,052 $ 1,517,981 $ 16,351 $ 5,455 State principal apportionment 676, , Salaries and benefits 4,983, ,255 5,183, ,713 - Total $ 7,026,508 $ 1,966 $ 349,307 $ 7,377,781 $ 225,064 $ 5,455 NOTE 8 - UNEARNED REVENUE Unearned revenue at June 30, 2016, consisted of the following: Governmental Activities General Fund Federal financial assistance $ 25,919 Other local 529,116 Total $ 555,035 46

53 NOTES TO FINANCIAL STATEMENTS NOTE 9 - LONG-TERM OBLIGATIONS Summary The changes in the District's long-term obligations during the year consisted of the following: Balance Balance Due in July 1, 2015 Additions Deductions June 30, 2016 One Year General obligation bonds $ 147,408,521 $ 5,448,434 $ 9,615,000 $ 143,241,955 $ 9,685,000 Premium on bonds 2,792, ,786 2,541,192 - Compensated absences 501,659 47, ,399 - Equipment lease/ purchase Agreement 9,825, ,712 9,233, ,950 Supplementary retirement plan - 1,327,314-1,327, ,463 Other postemployment benefits 950, ,044 17,862 1,313,515 - $ 161,479,245 $ 7,204,532 $ 10,477,360 $ 158,206,417 $ 10,417,413 Payments for General Obligation Bonds are made in the Bond Interest and Redemption Fund. Payments for Compensated Absences are typically liquidated in the General Fund and the Non-Major Governmental Funds. Payments for Other Postemployment Benefits are typically made in the General Fund. Payments for equipment lease/purchase agreement are made in the General Fund. Payments for supplementary retirement plan are made in the General Fund. 47

54 NOTES TO FINANCIAL STATEMENTS Bonded Debt The outstanding general obligation bonded debt is as follows: Bonds Bonds Issue Maturity Interest Original Outstanding Outstanding Date Date Rate Issue July 1, 2015 Issued Accretion Redeemed June 30, % $ 25,184,723 $ 14,742,083 $ - $ 719,157 $ 2,605,000 $ 12,856, % 6,000,501 12,960, , ,000 13,161, % 5,000,040 7,084, , ,000 7,110, % 5,148,769 8,044, , ,000 8,087, % 21,513,829 10,997, ,897-11,692, % 4,485,101 4,147, , ,000 4,276, % 5,940,925 9,492, , ,000 9,848, % 7,651,589 11,428, ,693-12,222, % 9,738,877 13,501, ,100-14,416, % 12,270,000 9,940, ,000 9,265, % 5,260,000 3,725, ,000 3,015, % 9,930,000 9,675, ,000 9,390, % 22,625,000 20,865, ,850,000 19,015, % 11,255,000 10,805, ,920,000 8,885,000 $ 147,408,521 $ - $ 5,448,434 $ 9,615,000 $ 143,241, Election, 1996 Series A Capital Appreciation Bonds On February 20, 1996, the District issued $12,165,000, Series A Current Interest Bonds, and $13,019,723, Series A Capital Appreciation Bonds. Proceeds from the bonds will be used for the purpose to modernize facilities within the District. The bonds mature on September 1, 2020, and yield an interest rate of 3.60 percent to 5.65 percent. At June 30, 2016, the principal balance outstanding was $12,856,240. The bonds mature through 2021 as follows: Principal Including Accreted Accreted Fiscal Year Interest to Date Interest Total 2017 $ 2,665,575 $ 24,425 $ 2,690, ,623, ,008 2,800, ,566, ,997 2,895, ,514, ,040 3,000, ,485, ,290 3,135,000 Total $ 12,856,240 $ 1,663,760 $ 14,520,000 48

55 NOTES TO FINANCIAL STATEMENTS 1995 Election, 1998 Series B Capital Appreciation Bonds On February 27, 1998, the District issued $6,000,501, Series B Capital Appreciation Bonds. Proceeds from the bonds will be used for the purpose to modernize facilities within the District. The bonds mature on September 1, 2023, and yield an interest rate of 4.50 percent to 5.25 percent. At June 30, 2016, the principal balance outstanding was $13,161,367. The bonds mature through 2024 as follows: Principal Including Accreted Accreted Fiscal Year Interest to Date Interest Total 2017 $ 570,187 $ 4,813 $ 575, ,603 37, , ,571 79, , , , , , , , ,817,205 3,712,795 13,530,000 Total $ 13,161,367 $ 4,143,633 $ 17,305, Election, 1999 Series C Current Interest, and Capital Appreciation Bonds On September 23, 1999, the District issued $990,000, Series C Current Interest Bonds, and $4,010,040, Series C Capital Appreciation Bonds. Proceeds from the bonds will be used for the purpose to modernize facilities within the District. The bonds mature on September 1, 2024, and yield an interest rate of 3.50 percent to 5.87 percent. At June 30, 2016, the principal balance outstanding was $7,110,687. The bonds mature through 2025 as follows: Principal Including Accreted Accreted Fiscal Year Interest to Date Interest Total 2017 $ 401,035 $ 3,965 $ 405, ,822 28, , ,941 52, , ,494 76, , , , , ,216,422 3,283,578 8,500,000 Total $ 7,110,687 $ 3,544,313 $ 10,655,000 49

56 NOTES TO FINANCIAL STATEMENTS 1995 Election, 2001 Series D Current Interest, and Capital Appreciation Bonds On January 23, 2001, the District issued $885,000, Series D Current Interest Bonds, and $4,263,769, Series D Capital Appreciation Bonds. Proceeds from the bonds will be used for the purpose to modernize facilities within the District. The bonds mature on September 1, 2025, and yield an interest rate of 3.00 percent to 5.33 percent. At June 30, 2016, the principal balance outstanding was $8,087,022. The bonds mature through 2026 as follows: Principal Including Accreted Accreted Fiscal Year Interest to Date Interest Total 2017 $ 431,098 $ 3,902 $ 435, ,440 29, , ,399 59, , ,440 93, , , , , ,711,774 3,433,226 9,145,000 Total $ 8,087,022 $ 3,752,978 $ 11,840, Election, Series A Current Interest and Capital Appreciation Bonds On May 3, 2001, the District issued $16,885,000, Series A Current Interest Bonds, and $4,628,829, Series A Capital Appreciation Bonds. Proceeds from the bonds were used for the purpose to modernize the high school within the District. The bonds have a final maturity date of September 1, 2026, and yield an interest rate of 4.00 percent to 5.69 percent. On March 2004, the District issued $18,400,000 of General Obligation Refunding Bonds to advance refund the $16,885,000 Current Interest Bonds. As a result, the $16,885,000 Series A Current Interest Bonds are considered to be defeased and the liability for these bonds has been removed from the accompanying financial statements. At June 30, 2016, the principal balance outstanding for the Bonds was $11,692,609. The bonds mature through 2027 as follows: Principal Including Accreted Accreted Fiscal Year Interest to Date Interest Total 2021 $ 2,064,069 $ 600,931 $ 2,665, ,746,165 4,858,835 13,605, , ,625 1,595,000 Total $ 11,692,609 $ 6,172,391 $ 17,865,000 50

57 NOTES TO FINANCIAL STATEMENTS 2000 Election, 2002 Series B Current Interest and Capital Appreciation Bonds On January 23, 2002, the District issued $2,545,000, Series B Current Interest Bonds, and $1,940,101, Series B Capital Appreciation Bonds. Proceeds from the bonds will be used for the purpose to modernize one of the elementary schools within the District. The bonds mature on September 1, 2026, and yield an interest rate of 3.00 percent to 5.57 percent. At June 30, 2016, the principal balance outstanding was $4,276,675. The bonds mature through 2027 as follows: Principal Including Accreted Accreted Fiscal Year Interest to Date Interest Total 2017 $ 138,656 $ 1,344 $ 140, ,810 11, , ,636 24, , ,161 38, , ,031 39, , ,719, ,528 2,555, ,742,909 1,417,091 3,160,000 Total $ 4,276,675 $ 2,368,325 $ 6,645, Election, 2002 Series E Current Interest, and Capital Appreciation Bonds On January 23, 2002, the District issued $1,415,000, Series E Current Interest Bonds, and $4,525,925, Series E Capital Appreciation Bonds. Proceeds from the bonds will be used for the purpose to modernize one of the elementary schools within the District. The bonds mature on September 1, 2026, and yield an interest rate of 3.10 percent to 5.57 percent. At June 30, 2016, the principal balance outstanding was $9,848,909. The bonds mature through 2027 as follows: Principal Including Accreted Accreted Fiscal Year Interest to Date Interest Total 2017 $ 178,320 $ 1,680 $ 180, ,756 10, , ,224 16, , ,259 19, , ,936 21, , ,931,044 3,273,956 8,205, ,282,370 3,352,630 7,635,000 Total $ 9,848,909 $ 6,696,091 $ 16,545,000 51

58 NOTES TO FINANCIAL STATEMENTS 2008 Election, 2009 Series A Capital Appreciation Bonds On June 23, 2009, the District issued $7,651,589 in 2009 Series A, Capital Appreciation Bonds. Proceeds from the bonds will be used for the purpose to finance the rehabilitation of District buildings, and prepayment of certain lease payments related to Certificates of Participation. The bonds mature on September 1, 2031, and yield an interest rate of 6.39 percent to 6.73 percent. At June 30, 2016, the principal balance outstanding was $12,222,255. The bonds mature through 2032 as follows: Principal Including Accreted Accreted Fiscal Year Interest to Date Interest Total $ 9,838,303 $ 13,241,697 $ 23,080, ,383,952 4,121,048 6,505,000 Total $ 12,222,255 $ 17,362,745 $ 29,585, Election, 2010 Series B Capital Appreciation Bonds On June 23, 2010, the District issued $9,738,877 in 2010 Series B, Capital Appreciation Bonds. Proceeds from the bonds will be used for the purpose to finance the rehabilitation of District buildings and prepayment of certain lease payments related to Certificates of Participation. The bonds mature on September 1, 2045, and yield an interest rate of 6.33 percent to 6.71 percent. At June 30, 2016, the principal balance outstanding was $14,416,191. The bonds mature through 2046 as follows: Principal Current Including Accreted Interest to Accreted Fiscal Year Interest to Date Maturity Interest Total $ 45,501 $ 4,186,000 $ 64,499 $ 4,296, ,472,394 5,232,500 5,512,606 13,217, ,932,735 5,232,500 10,607,265 18,772, ,965,561 3,821,025 10,429,439 23,216,025 Total $ 14,416,191 $ 18,472,025 $ 26,613,809 $ 59,502,025 52

59 NOTES TO FINANCIAL STATEMENTS 2008 Election, 2011 Series C Current Interest Bonds On June 30, 2011, the District issued $12,270,000, Series C Current Interest Bonds. Proceeds from the bonds will be used for the purpose to finance the rehabilitation of Mira Costa High School and the payment of certain lease payments to the Certificate of Participation Series A of The bonds mature on September 1, 2024, and yield an interest rate of 2.00 percent to 5.00 percent. At June 30, 2016, the principal balance outstanding was $9,265,000. The bonds mature through 2025 as follows: Fiscal Year Principal Interest Total 2017 $ 755,000 $ 319,838 $ 1,074, , ,638 1,127, , ,938 1,180, , ,788 1,243, ,085, ,938 1,303, ,690, ,400 5,157,400 Total $ 9,265,000 $ 1,823,540 $ 11,088, Election, 2012 Series D Current Interest Bonds On February 29, 2012, the District issued $5,260,000, Series D Current Interest Bonds. Proceeds from the bonds will be used for the purpose to finance improvements to the District's high school and to defease the District's outstanding Certificate of Participation Series A of The bonds mature on September 1, 2019, and yield an interest rate of 0.59 percent to 2.61 percent. At June 30, 2016, the principal balance outstanding was $3,015,000. The bonds mature through 2020 as follows: Fiscal Year Principal Interest Total 2017 $ 720,000 $ 63,862 $ 783, ,000 51, , ,000 37, , ,000 20, ,587 Total $ 3,015,000 $ 173,301 $ 3,188,301 53

60 NOTES TO FINANCIAL STATEMENTS 2008 Election, 2012 Series E Current Interest Bonds On February 29, 2012, the District issued $9,930,000, Series E Current Interest Bonds. Proceeds from the bonds will be used for the purpose to finance improvements to the District's high school and to defease the District's outstanding Certificate of Participation Series A of The bonds mature on September 1, 2024, and yield an interest rate of 2.00 percent to 4.50 percent. At June 30, 2016, the principal balance outstanding was $9,390,000. The bonds mature through 2025 as follows: Fiscal Year Principal Interest Total 2017 $ 320,000 $ 275,100 $ 595, , , , , , , , , , ,380, ,350 1,609, ,485, ,950 7,059,950 Total $ 9,390,000 $ 1,842,300 $ 11,232, Election, Series F Current Interest Bonds On May 23, 2013, the District issued $22,625,000, Series F Current Interest Bonds. Proceeds from the bonds will be used for the purpose to finance improvements to the District's high school. The bonds mature on September 1, 2024, and yield an interest rate of 2.00 percent to 4.00 percent. At June 30, 2016, the principal balance outstanding was $19,015,000. The bonds mature through 2025 as follows: Fiscal Year Principal Interest Total 2017 $ 1,435,000 $ 522,350 $ 1,957, ,570, ,650 2,063, ,715, ,250 2,177, ,875, ,950 2,297, ,035, ,700 2,401, ,385, ,775 11,172,775 Total $ 19,015,000 $ 3,055,675 $ 22,070,675 54

61 NOTES TO FINANCIAL STATEMENTS 2013 General Obligation Refunding Bonds On May 23, 2013, the District issued $11,255,000, 2013 General Obligation Refunding Bonds. Proceeds from the bonds will be used for the purpose to finance improvements to the District's high school. The bonds mature on September 1, 2019, and yield an interest rate of 0.44 percent to 2.01 percent. At June 30, 2016, the principal balance outstanding was $8,885,000. The bonds mature through 2020 as follows: Fiscal Year Principal Interest Total 2017 $ 2,030,000 $ 130,667 $ 2,160, ,145, ,290 2,258, ,280,000 84,942 2,364, ,430,000 48,892 2,478,892 Total $ 8,885,000 $ 377,791 $ 9,262,791 Accumulated Unpaid Employee Vacation The long-term portion of accumulated unpaid employee vacation for the District at June 30, 2016, amounted to $549,399. Equipment lease/ purchase agreement On July 25, 2014, the District issued entered into an equipment lease/ purchase agreement with Banc Of America Public Capital Corp in the amount of $9,825,754. Proceeds from the loan will be used to lease and acquire certain equipment for the District. The loan mature on July 25, 2032, and yield an interest rate of 3.63 percent. At June 30, 2016, the principal balance outstanding was $9,233,042. Future lease payments are as follows: Fiscal Year Principal Interest Total 2017 $ 466,950 $ 335,159 $ 802, , , , , , , , , , , , , ,976,562 1,116,284 3,092, ,179, ,855 3,854, ,704,055 94,051 1,798,106 Total $ 9,233,042 $ 3,379,111 $ 12,612,153 55

62 NOTES TO FINANCIAL STATEMENTS PARS Supplemental Retirement Plan The District offered an early retirement incentive to qualified employees under a qualified plan of Section 403(b) of the Internal Revenue Code. Currently, there are 27 employees participating in this plan and the District's obligation to those retirees as of June 30, 2016, is $1,327,314. Fiscal Year Repayment 2017 $ 265, , , , ,462 Total $ 1,327,314 Other Postemployment Benefits (OPEB) Obligation The District's annual required contribution for the year ended June 30, 2016, was $403,872, and contributions made by the District during the year were $17,862. Interest on the net OPEB obligation and adjustments to the annual required contribution were $38,013 and $(60,841), respectively, which resulted in an increase to the net OPEB obligation of $363,182. As of June 30, 2016, the net OPEB obligation was $1,313,515. See Note 11 for additional information regarding the OPEB obligation and the postemployment benefits plan. 56

63 NOTES TO FINANCIAL STATEMENTS NOTE 10 - FUND BALANCES Fund balances are composed of the following elements: Bond Interest Special Reserve and Non-Major General Capital Outlay Redemption Governmental Fund Fund Fund Funds Total Nonspendable Revolving cash $ 10,000 $ - $ - $ 2,245 $ 12,245 Stores inventories 24, ,115 41,150 Total Nonspendable 34, ,360 53,395 Restricted Legally restricted programs 335, ,638 Capital projects - 7,002,580-1,971,656 8,974,236 Debt service ,761,329-10,761,329 Total Restricted 335,638 7,002,580 10,761,329 1,971,656 20,071,203 Assigned Other 89, ,906,877 1,996,234 Unassigned Reserve for economic uncertainties 13,155, ,155,733 Total $ 13,614,763 $ 7,002,580 $ 10,761,329 $ 3,897,893 $ 35,276,565 57

64 NOTES TO FINANCIAL STATEMENTS NOTE 11 - POSTEMPLOYMENT HEALTH CARE PLAN AND OTHER POSTEMPLOYMENT BENEFITS (OPEB) OBLIGATION Plan Description The Postemployment Benefits Plan (the Plan) is a single-employer defined benefit healthcare plan administered by the District. The Plan provides medical and dental insurance benefits to eligible retirees and their spouses. Membership of the Plan consists of 38 retirees and beneficiaries currently receiving benefits. The District is no longer offering postemployment health care benefits to its employees. There are certain past employees of the District who are entitled to receive various postemployment health care benefits as described below, which are payable from its General Fund. The District pays these amounts on a pay-as-you-go basis. The District has conducted an actuarial study for these benefits but because both the number of employees and the dollar amount of the contribution is capped. The District provides postemployment health care benefits, in accordance with District employment contracts, to all employees who retire from the District on or after attaining age 55 with at least 15 years of service. Currently, nine employees meet those eligibility requirements. The District contributes $400 per year for premiums incurred by retirees and their dependents and the retiree contributes the remainder. Expenditures for postemployment benefits are recognized on a pay-as-you-go basis. During the year, expenditures of $3,600 were recognized for retirees' health care benefits. A third category of postemployment benefits was inherited from the South Bay Union High School District when the District was unified in Employees from this district came with lifetime postemployment benefits, paid by their own Retiree Benefits Fund, separate from the District's General Fund. Membership of the Plan consists of 20 retirees currently receiving benefits. As of June 30, 2016, the Retiree Benefit Fund contained $273,212. Contribution Information The contribution requirements of plan members and the District are established and may be amended by the District and the Teachers Association (CEA), the local California Service Employees Association (CSEA), and unrepresented groups. The required contribution is based on projected pay-as-you-go financing requirements. For fiscal year , the District contributed $71,978 to the Plan, all of which was used for current premiums. 58

65 NOTES TO FINANCIAL STATEMENTS Annual OPEB Cost and Net OPEB Obligation The District's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (UAAL) (or funding excess) over a period not to exceed 30 years. The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the District's net OPEB obligation to the Plan: Annual required contribution $ 403,872 Interest on net OPEB obligation 38,013 Adjustment to annual required contribution (60,841) Annual OPEB cost (expense) 381,044 Contributions made (17,862) Decrease in net OPEB obligation 363,182 Net OPEB obligation, beginning of year 950,333 Net OPEB obligation, end of year $ 1,313,515 Trend Information Trend information for annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation is as follows: Annual Actual Year Ended OPEB Employer Percentage Net OPEB June 30, Cost Contribution Contributed Obligation 2014 $ 600,476 $ 44, % $ 595, $ 381,044 $ 17, % $ 1,313, $ 381,044 $ 17, % $ 1,313,515 Funded Status and Funding Progress A schedule of funding progress as of the most recent actuarial valuation is as follows: Actuarial Accrued Liability Unfunded UAAL as a Actuarial Actuarial (AAL) - AAL Funded Percentage of Valuation Value of Unprojected (UAAL) Ratio Covered Covered Payroll Date Assets (a) Unit Credit (b) (b - a) (a / b) Payroll (c) ([b - a] / c) July 1, 2014 $ - $ 4,321,268 $ 4,321, % $ 35,245, % 59

66 NOTES TO FINANCIAL STATEMENTS Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, investment returns, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1, 2014, actuarial valuation, the unprojected unit credit method was used. The actuarial assumptions included a five percent investment rate of return (net of administrative expenses), based on the plan being funded in an irrevocable employee benefit trust invested in a combined equity and fixed income portfolio. Healthcare cost trend rates ranged from an initial ten percent to an ultimate rate of five percent. The UAAL is being amortized at a level dollar method. The remaining amortization period at July 1, 2014, was 23 years. The actuarial value of assets was not determined in this actuarial valuation. NOTE 12 - RISK MANAGEMENT Property and Liability The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees and natural disasters. During fiscal year ending June 30, 2016, the District contracted with Alliance of Schools for Cooperative Insurance Programs (ASCIP) for property and liability insurance coverage. Settled claims have not exceeded this commercial coverage in any of the past three years. There has not been a significant reduction in coverage from the prior year. 60

67 NOTES TO FINANCIAL STATEMENTS Workers' Compensation For fiscal year 2016, the District participated in the Schools' Excess Liability Fund (SELF), an insurance purchasing pool. The intent of SELF is to achieve the benefit of a reduced premium for the District by virtue of its grouping and representation with other participants in SELF. The workers' compensation experience of the participating districts is calculated as one experience and a common premium rate is applied to all districts in SELF. Each participant pays its workers' compensation premium based on its individual rate. Total savings are then calculated and each participant's individual performance is compared to the overall savings. A participant will then either receive money from or be required to contribute to the "equity-pooling fund". This "equity pooling" arrangement insures that each participant shares equally in the overall performance of SELF. Participation in SELF is limited to districts that can meet SELF's selection criteria. The third party administrator provides administrative, cost control and actuarial services to the JPA. NOTE 13 - EMPLOYEE RETIREMENT SYSTEMS Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Academic employees are members of the California State Teachers' Retirement System (CalSTRS) and classified employees are members of the California Public Employees' Retirement System (CalPERS). For the fiscal year ended June 30, 2016, the District reported net pension liabilities, deferred outflows of resources, deferred inflows of resources, and pension expense for each of the above plans as follows: Collective Collective Net Deferred Outflows Collective Deferred Collective Pension Plan Pension Liability of Resources Inflows of Resources Pension Expense CalSTRS $ 49,516,734 $ 16,608,308 $ 8,765,309 $ 4,911,480 CalPERS 14,380,466 5,355,440 3,737,815 1,615,848 Total $ 63,897,200 $ 21,963,748 $ 12,503,124 $ 6,527,328 The details of each plan are as follows: California State Teachers' Retirement System (CalSTRS) Plan Description The District contributes to the State Teachers Retirement Plan (STRP) administered by the California State Teachers' Retirement System (CalSTRS). STRP is a cost-sharing multiple-employer public employee retirement system defined benefit pension plan. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers' Retirement Law. 61

68 NOTES TO FINANCIAL STATEMENTS A full description of the pension plan regarding benefit provisions, assumptions (for funding, but not accounting purposes), and membership information is listed in the June 30, 2014, annual actuarial valuation report, Defined Benefit Program Actuarial Valuation. This report and CalSTRS audited financial information are publically available reports that can be found on the CalSTRS website under Publications at: Benefits Provided The STRP provides retirement, disability and survivor benefits to beneficiaries. Benefits are based on members' final compensation, age, and years of service credit. Members hired on or before December 31, 2012, with five years of credited service are eligible for the normal retirement benefit at age 60. Members hired on or after January 1, 2013, with five years of credited service are eligible for the normal retirement benefit at age 62. The normal retirement benefit is equal to 2.0 percent of final compensation for each year of credited service. The STRP is comprised of four programs: Defined Benefit Program, Defined Benefit Supplement Program, Cash Balance Benefit Program, and Replacement Benefits Program. The STRP holds assets for the exclusive purpose of providing benefits to members and beneficiaries of these programs. CalSTRS also uses plan assets to defray reasonable expenses of administering the STRP. Although CalSTRS is the administrator of the STRP, the state is the sponsor of the STRP and obligor of the trust. In addition, the state is both an employer and nonemployer contributing entity to the STRP. The District contributes exclusively to the STRP Defined Benefit Program, thus disclosures are not included for the other plans. The STRP provisions and benefits in effect at June 30, 2016, are summarized as follows: Hire date STRP Defined Benefit Program On or before December 31, 2012 On or after January 1, 2013 Benefit formula 2% at 60 2% at 62 Benefit vesting schedule 5 years of service 5 years of service Benefit payments Monthly for life Monthly for life Retirement age Monthly benefits as a percentage of eligible compensation 2.0% - 2.4% 2.0% - 2.4% Required employee contribution rate 9.20% 8.56% Required employer contribution rate 10.73% 10.73% Required state contribution rate % % 62

69 NOTES TO FINANCIAL STATEMENTS Contributions Required member, District and State of California contributions rates are set by the California Legislature and Governor and detailed in Teachers' Retirement Law. The contributions rates are expressed as a level percentage of payroll using the entry age normal actuarial method. In accordance with AB 1469, employer contributions into the CalSTRS will be increasing to a total of 19.1 percent of applicable member earnings phased over a seven-year period. The contribution rates for each plan for the year ended June 30, 2016, are presented above and the District's total contributions were $5,307,727. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2016, the District reported a liability for its proportionate share of the net pension liability that reflected a reduction for State pension support provided to the District. The amount recognized by the District as its proportionate share of the net pension liability, the related state support and the total portion of the net pension liability that was associated with the District were as follows: Total net pension liability, including State share: District's proportionate share of net pension liability State's proportionate share of the net pension liability associated with the District Total $ $ 49,516,734 26,188,894 75,705,628 The net pension liability was measured as of June 30, The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plan relative to the projected contributions of all participating school districts and the State, actuarially determined. The District's proportionate share for the measurement period June 30, 2015 and June 30, 2014, respectively was percent and percent, resulting in a net increase in the proportionate share of percent. For the year ended June 30, 2016, the District recognized pension expense of $4,911,480. In addition, the District recognized pension expense and revenue of $2,028,624 for support provided by the State. At June 30, 2016, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Pension contributions subsequent to measurement date Net change in proportionate share of net pension liability Deferred Outflows of Resources Deferred Inflows of Resources $ 5,307,727 $ - 7,399,127 - Difference between projected and actual earnings on pension plan investments 3,901,454 7,937,873 Differences between expected and actual experience in the measurement of the total pension liability Total - 827,436 $ 16,608,308 $ 8,765,309 63

70 NOTES TO FINANCIAL STATEMENTS The deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year. The deferred outflows/(inflows) of resources related to the difference between projected and actual earnings on pension plan investments will be amortized over a closed five-year period and will be recognized in pension expense as follows: Year Ended Outflows/(Inflows) June 30, of Resources 2017 $ (1,670,594) 2018 (1,670,594) 2019 (1,670,594) ,363 Total $ (4,036,419) Deferred The deferred outflows/(inflows) of resources related to the net change in proportionate share of net pension liability and differences between expected and actual experience in the measurement of the total pension liability will be amortized over the Expected Average Remaining Service Life (EARSL) of all members that are provided benefits (active, inactive, and retirees) as of the beginning of the measurement period. The EARSL for the measurement period is seven years and will be recognized in pension expense as follows: Year Ended Outflows/(Inflows) June 30, of Resources 2017 $ 1,095, ,095, ,095, ,095, ,095,282 Thereafter 1,095,281 Total $ 6,571,691 Deferred 64

71 NOTES TO FINANCIAL STATEMENTS Actuarial Methods and Assumptions Total pension liability for STRP was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2014, and rolling forward the total pension liability to June 30, The financial reporting actuarial valuation as of June 30, 2014, used the following methods and assumptions, applied to all prior periods included in the measurement: Valuation date June 30, 2014 Measurement date June 30, 2015 Experience study July 1, 2006 through June 30, 2010 Actuarial cost method Entry age normal Discount rate 7.60% Investment rate of return 7.60% Consumer price inflation 3.00% Wage growth 3.75% CalSTRS uses custom mortality tables to best fit the patterns of mortality among its members. These custom tables are based on RP2000 series tables adjusted to fit CalSTRS experience. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. The best estimate ranges were developed using capital market assumptions from CalSTRS general investment consultant. Based on the model for CalSTRS consulting actuary's investment practice, a best estimate range was determined by assuming the portfolio is re-balanced annually and that the annual returns are lognormally distributed and independent from year to year to develop expected percentiles for the long-term distribution of annualized returns. The assumed asset allocation is based on Teacher's Retirement Board of the California State Teachers' Retirement System (board) policy for target asset allocation in effect on February 2, 2012, the date the current experience study was approved by the board. Best estimates of 10-year geometric real rates of return and the assumed asset allocation for each major asset class used as input to develop the actuarial investment rate of return are summarized in the following table: Assumed Asset Long-Term Expected Real Asset Class Allocation Rate of Return Global equity 47% 4.50% Private equity 12% 6.20% Real estate 15% 4.35% Inflation sensitive 5% 3.20% Fixed income 20% 0.20% Cash/liquidity 1% 0.00% 65

72 NOTES TO FINANCIAL STATEMENTS Discount Rate The discount rate used to measure the total pension liability was 7.60 percent. The projection of cash flows used to determine the discount rate assumed the contributions from plan members and employers will be made at statutory contribution rates. Projected inflows from investment earnings were calculated using the long-term assumed investment rate of return (7.60 percent) and assuming that contributions, benefit payments and administrative expense occurred midyear. Based on these assumptions, the STRP's fiduciary net position was projected to be available to make all projected future benefit payments to current plan members. Therefore, the long-term assumed investment rate of return was applied to all periods of projected benefit payments to determine total pension liability. The following presents the District's proportionate share of the net pension liability calculated using the current discount rate as well as what the net pension liability would be if it were calculated using a discount rate that is one percent lower or higher than the current rate: Discount Rate 1% decrease (6.60%) $ 74,766,415 Net Pension Liability Current discount rate (7.60%) $ 49,516,734 1% increase (8.60%) $ 28,532,213 California Public Employees Retirement System (CalPERS) Plan Description Qualified employees are eligible to participate in the School Employer Pool (SEP) under the California Public Employees' Retirement System (CalPERS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalPERS. Benefit provisions are established by State statutes, as legislatively amended, within the Public Employees' Retirement Law. A full description of the pension plan regarding benefit provisions, assumptions (for funding, but not accounting purposes), and membership information is listed in the June 30, 2014 annual actuarial valuation report, Schools Pool Actuarial Valuation, This report and CalPERS audited financial information are publically available reports that can be found on the CalPERS website under Forms and Publications at: 66

73 NOTES TO FINANCIAL STATEMENTS Benefits Provided CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of service credit, a benefit factor and the member's final compensation. Members hired on or before December 31, 2012, with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. Members hired on or after January 1, 2013, with five years of total service are eligible to retire at age 52 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after five years of service. The Basic Death Benefit is paid to any member's beneficiary if the member dies while actively employed. An employee's eligible survivor may receive the 1957 Survivor Benefit if the member dies while actively employed, is at least age 50 (or 52 for members hired on or after January 1, 2013), and has at least five years of credited service. The cost of living adjustments for each plan are applied as specified by the Public Employees' Retirement Law. The CalPERS provisions and benefits in effect at June 30, 2016, are summarized as follows: School Employer Pool (CalPERS) Hire date On or before December 31, 2012 On or after January 1, 2013 Benefit formula 2% at 55 2% at 62 Benefit vesting schedule 5 years of service 5 years of service Benefit payments Monthly for life Monthly for life Retirement age Monthly benefits as a percentage of eligible compensation 1.1% - 2.5% 1.0% - 2.5% Required employee contribution rate 7.000% 6.000% Required employer contribution rate % % Contributions Section 20814(c) of the California Public Employees' Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Total plan contributions are calculated through the CalPERS annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The District is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. The contributions rates are expressed as percentage of annual payroll. The contribution rates for each plan for the year ended June 30, 2016, are presented above and the total District contributions were $1,254,

74 NOTES TO FINANCIAL STATEMENTS Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions As of June 30, 2016, the District reported net pension liabilities for its proportionate share of the CalPERS net pension liability totaling $14,380,466. The net pension liability was measured as of June 30, The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plan relative to the projected contributions of all participating school districts, actuarially determined. The District's proportionate share for the measurement period June 30, 2015 and June 30, 2014, respectively was percent and percent, resulting in a net increase in the proportionate share of percent. For the year ended June 30, 2016, the District recognized pension expense of $1,615,848. At June 30, 2016, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to measurement date $ 1,254,959 $ - Net change in proportionate share of net pension liability 916,777 - Difference between projected and actual earnings on pension plan investments 2,361,839 2,854,238 Differences between expected and actual experience in the measurement of the total pension liability 821,865 - Changes of assumptions - 883,577 Total $ 5,355,440 $ 3,737,815 The deferred outflows of resources related to pensions resulting from District contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the subsequent fiscal year. The deferred outflows/(inflows) of resources related to the difference between projected and actual earnings on pension plan investments will be amortized over a closed five-year period and will be recognized in pension expense as follows: Year Ended Outflows/(Inflows) June 30, of Resources 2017 $ (360,953) 2018 (360,953) 2019 (360,953) ,460 Total $ (492,399) Deferred 68

75 NOTES TO FINANCIAL STATEMENTS The deferred outflows/(inflows) of resources related to the net change in proportionate share of net pension liability, changes of assumptions, and differences between expected and actual experience in the measurement of the total pension liability will be amortized over the Expected Average Remaining Service Life (EARSL) of all members that are provided benefits (active, inactive, and retirees) as of the beginning of the measurement period. The EARSL for the measurement period is 3.9 years and will be recognized in pension expense as follows: Year Ended Outflows/(Inflows) June 30, of Resources 2017 $ 408, , ,536 Total $ 855,065 Deferred Actuarial Methods and Assumptions Total pension liability for the SEP was determined by applying update procedures to a financial reporting actuarial valuation as of June 30, 2014, and rolling forward the total pension liability to June 30, The financial reporting actuarial valuation as of June 30, 2014, used the following methods and assumptions, applied to all prior periods included in the measurement: Valuation date June 30, 2014 Measurement date June 30, 2015 Experience study July 1, 1997 through June 30, 2011 Actuarial cost method Discount rate 7.65% Investment rate of return 7.65% Entry age normal Consumer price inflation 2.75% Wage growth Varies by entry age and service Mortality assumptions are based on mortality rates resulting from the most recent CalPERS experience study adopted by the CalPERS Board. For purposes of the post-retirement mortality rates, those revised rates include five years of projected ongoing mortality improvement using Scale AA published by the Society of Actuaries. 69

76 NOTES TO FINANCIAL STATEMENTS In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds' asset classes, expected compound returns were calculated over the short-term (first ten years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The target asset allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Long-Term Assumed Asset Expected Real Asset Class Allocation Rate of Return Global equity 51% 5.25% Global fixed income 19% 0.99% Private equity 10% 6.83% Real estate 10% 4.50% Inflation sensitive 6% 0.45% Infrastructure and Forestland 2% 4.50% Liquidity 2% -0.55% Discount Rate The discount rate used to measure the total pension liability was 7.65 percent. The projection of cash flows used to determine the discount rate assumed the contributions from plan members and employers will be made at statutory contribution rates. Based on these assumptions, the School Employer Pool fiduciary net position was projected to be available to make all projected future benefit payments to current plan members. Therefore, the long-term assumed investment rate of return was applied to all periods of projected benefit payments to determine total pension liability. The following presents the District's proportionate share of the net pension liability calculated using the current discount rate as well as what the net pension liability would be if it were calculated using a discount rate that is one percent lower or higher than the current rate: Net Pension Discount rate Liability 1% decrease (6.65%) $ 23,405,408 Current discount rate (7.65%) $ 14,380,466 1% increase (8.65%) $ 6,875,625 70

77 NOTES TO FINANCIAL STATEMENTS On Behalf Payments The State of California makes contributions to CalSTRS on behalf of the District. These payments consist of State General Fund contributions to CalSTRS in the amount of $2,072,817 ( percent of annual payroll). Contributions are no longer appropriated in the annual Budget Act for the legislatively mandated benefits to CalPERS. Therefore, there is no on behalf contribution rate for CalPERS. Under accounting principles generally accepted in the United States of America, these amounts are to be reported as revenues and expenditures. Accordingly, these amounts have been recorded in these financial statements. On behalf payments have been excluded from the calculation of available reserves, and have not been included in the budgeted amounts reported in the General Fund - Budgetary Comparison Schedule. NOTE 14 - COMMITMENTS AND CONTINGENCIES Grants The District received financial assistance from Federal and State agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the General Fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the District at June 30, Litigation District is involved in various litigation arising from the normal course of business. In the opinion of management and legal counsel, the disposition of all litigation pending is not expected to have a material adverse effect on the overall financial position of the District at June 30, NOTE 15 - PARTICIPATION IN PUBLIC ENTITY RISK POOLS, JOINT POWERS AUTHORITIES AND OTHER RELATED PARTY TRANSACTIONS The District is a member of the Alliance of Schools for Cooperative Insurance Programs (ASCIP), Schools' Excess Liability Fund (SELF), and the Centinela South Bay Self-Insurance Authority (CSBSIA) joint powers authorities (JPA's). The District pays an annual premium to the applicable entity for its health, workers' compensation, and property liability coverage. The relationships between the District, the pools, and the JPA's are such that they are not component units of the District for financial reporting purposes. These entities have budgeting and financial reporting requirements independent of member units and their financial statements are not presented in these financial statements; however, fund transactions between the entities and the District are included in these statements. Audited financial statements are generally available from the respective entities. 71

78 NOTES TO FINANCIAL STATEMENTS During the year ended June 30, 2016, the District made payments of $1,675,450 and $22,432 to ASCIP and SELF, respectively. NOTE 16 - RESTATEMENT OF PRIOR YEAR NET POSITION The District adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions, in the current year. As a result, the effect on the current fiscal year is as follows: Statement of Net Position - Governmental Activities Net Position - Beginning $ (49,938,198) Inclusion of net pension liability from the adoption of GASB Statement No. 68 2,198,704 Inclusion of deferred inflows of resources from the adoption of GASB Statement No ,303 Inclusion of deferred outflows of resources from the adoption of GASB Statement No. 68 (348,902) Net Position - Beginning as Restated $ (47,411,093) Statement of Net Position - Business-Type Activities and Statement of Revenues, Expenses, and Changes in Fund Net Position - Proprietary Funds Net Position - Beginning $ 1,687,182 Inclusion of net pension liability from the adoption of GASB Statement No. 68 (2,198,704) Inclusion of deferred inflows of resources from the adoption of GASB Statement No. 68 (677,303) Inclusion of deferred outflows of resources from the adoption of GASB Statement No ,902 Net Position - Beginning as Restated $ (839,923) 72

79 REQUIRED SUPPLEMENTARY INFORMATION 73

80 GENERAL FUND BUDGETARY COMPARISON SCHEDULE FOR THE YEAR ENDED Variances - Positive (Negative) Budgeted Amounts Actual Final Original Final (GAAP Basis) to Actual REVENUES Local Control Funding Formula $ 50,449,599 $ 49,944,100 $ 49,973,564 $ 29,464 Federal sources 1,679,246 1,793,736 1,634,126 (159,610) Other State sources 8,417,319 9,265,888 11,890,084 2,624,196 Other local sources 7,653,071 11,424,649 11,164,672 (259,977) Total Revenues 1 68,199,235 72,428,373 74,662,446 2,234,073 EXPENDITURES Current Certificated salaries 31,677,981 33,061,996 32,771, ,073 Classified salaries 10,210,665 11,082,385 10,870, ,927 Employee benefits 12,470,982 12,995,967 14,723,615 (1,727,648) Books and supplies 2,596,075 5,234,451 4,774, ,082 Services and operating expenditures 9,581,183 10,729,976 8,986,129 1,743,847 Capital outlay - 128, ,291 (1) Other outgo 2,345,995 2,117,143-2,117,143 Debt service Principal ,712 (592,712) Interest ,675 (356,675) Total Expenditures 1 68,882,881 75,350,208 73,204,172 2,146,036 Excess (Deficiency) of Revenues Over (Under) Expenditures (683,646) (2,921,835) 1,458,274 4,380,109 OTHER FINANCING USES Other uses - - (1,238,479) (1,238,479) NET CHANGE IN FUND BALANCE (683,646) (2,921,835) 219,795 3,141,630 Fund Balance - Beginning 13,394,968 13,394,968 13,394,968 - Fund Balance - Ending $ 12,711,322 $ 10,473,133 $ 13,614,763 $ 3,141,630 1 On behalf payments of $2,072,817 are included in the actual revenues and expenditures, but have not been included in the budgeted amounts. In addition, due to the consolidation of Fund 14, Deferred Maintenance Fund, for reporting purposes into the General Fund, additional revenues and expenditures pertaining to these other funds are included in the Actual (GAAP Basis) revenues and expenditures, however are not included in the original and final General Fund budgets. See accompanying note to required supplementary information. 74

81 SCHEDULE OF OTHER POSTEMPLOYMENT BENEFITS (OPEB) FUNDING PROGRESS FOR THE YEAR ENDED Actuarial Accrued Liability Unfunded UAAL as a Actuarial Actuarial (AAL) - AAL Funded Percentage of Valuation Value of Unprojected (UAAL) Ratio Covered Covered Payroll Date Assets (a) Unit Credit (b) (b - a) (a / b) Payroll (c) ([b - a] / c) July 1, 2014 $ - $ 4,321,268 $ 4,321, % $ 35,245, % See accompanying note to required supplementary information. 75

82 SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY FOR THE YEAR ENDED CalSTRS District's proportion of the net pension liability % % District's proportionate share of the net pension liability $ 49,516,734 $ 36,053,713 State's proportionate share of the net pension liability associated with the District 26,188,894 21,770,788 Total $ 75,705,628 $ 57,824,501 District's covered - employee payroll $ 31,719,583 $ 27,479,891 District's proportionate share of the net pension liability as a percentage of its covered - employee payroll % % Plan fiduciary net position as a percentage of the total pension liability 74% 77% CalPERS District's proportion of the net pension liability % % District's proportionate share of the net pension liability $ 14,380,466 $ 10,892,622 District's covered - employee payroll $ 9,620,495 $ 10,074,082 District's proportionate share of the net pension liability as a percentage of its covered - employee payroll % % Plan fiduciary net position as a percentage of the total pension liability 79.00% 83.38% Note : In the future, as data become available, ten years of information will be presented. See accompanying note to required supplementary information. 76

83 SCHEDULE OF DISTRICT CONTRIBUTIONS FOR THE YEAR ENDED CalSTRS Contractually required contribution $ 5,307,727 $ 2,816,699 Contributions in relation to the contractually required contribution 5,307,727 2,816,699 Contribution deficiency (excess) $ - $ - District's covered - employee payroll $ 49,466,234 $ 31,719,583 Contributions as a percentage of covered - employee payroll 10.73% 8.88% CalPERS Contractually required contribution $ 1,254,959 $ 1,132,332 Contributions in relation to the contractually required contribution 1,254,959 1,132,332 Contribution deficiency (excess) $ - $ - District's covered - employee payroll $ 10,593,053 $ 9,620,495 Contributions as a percentage of covered - employee payroll 11.85% 11.77% Note : In the future, as data become available, ten years of information will be presented. See accompanying note to required supplementary information. 77

84 NOTE TO REQUIRED SUPPLEMENTARY INFORMATION NOTE 1 - PURPOSE OF SCHEDULES Budgetary Comparison Schedule This schedule presents information for the original and final budgets and actual results of operations, as well as the variances from the final budget to actual results of operations. Schedule of Other Postemployment Benefits (OPEB) Funding Progress This schedule is intended to show trends about the funding progress of the District's actuarially determined liability for postemployment benefits other than pensions. Schedule of the District's Proportionate Share of the Net Pension Liability This schedule presents information on the District's proportionate share of the net pension liability (NPL), the plans' fiduciary net position and, when applicable, the State's proportionate share of the NPL associated with the District. In the future, as data becomes available, ten years of information will be presented. Schedule of District Contributions This schedule presents information on the District's required contribution, the amounts actually contributed, and any excess or deficiency related to the required contribution. In the future, as data becomes available, ten years of information will be presented. Changes in Benefit Terms There were no changes in benefit terms since the previous valuation for either CalSTRS and CalPERS. Changes in Assumptions The CalSTRS plan rate of investment return assumption was not changed from the previous valuation. The CalPERS plan rate of investment return assumption was changed from 7.50 percent to 7.65 percent since the previous valuation. 78

85 SUPPLEMENTARY INFORMATION 79

86 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED Pass-Through Entity Federal Grantor/Pass-Through CFDA Identifying Program Grantor/Program Number Number Expenditures U.S. DEPARTMENT OF EDUCATION Passed through California Department of Education (CDE): No Child Left Behind Act (NCLB): Title I, Part A, Grants to Local Educational Agencies $ 216,710 Title I, Part G, Advance Placement (AP) Test Fee Reimbursement Program Agencies ,419 Title II, Part A, Improving Teacher Quality ,043 Individuals with Disabilities Education Act (IDEA) Special Education (IDEA) Cluster: Basic Local Assistance Entitlement, Part B, Section ,445 Local Assistance Entitlement, Part B, Section 611 Private School ISP's ,249 Preschool Grants, Part B, Section 619 (Age 3-4-5) ,657 Mental Health Allocation Plan, Part B, Sec A ,699 Preschool Local Entitlement, Part B, Section 611 (Age 3-4-5) A ,752 Preschool Staff Development, Part B, Section A Total Special Education (IDEA) Cluster 1,358,954 Total U.S. Department of Education 1,634,126 U.S. DEPARTMENT OF AGRICULTURE Passed through CDE: Child Nutrition Cluster: National School Lunch Program ,298 Basic Breakfast ,289 Food Distribution ,814 Total U.S. Department of Agriculture 304,401 Total Federal Programs $ 1,938,527 See accompanying note to supplementary information. 80

87 LOCAL EDUCATION AGENCY ORGANIZATION STRUCTURE ORGANIZATION The Manhattan Beach Unified School District was established in 1912, and unified in 1993, and consists of an area comprising approximately 3.88 square miles in the southwestern portion of the County of Los Angeles, and is conterminous with the City of Manhattan Beach. The District operates five elementary schools, one middle school, and one high school. There were no boundary changes during the year. GOVERNING BOARD MEMBER OFFICE TERM EXPIRES Ellen Rosenberg President December 2017 Jennifer Cochran Vice President December 2017 Karen Komatinsky Clerk December 2019 Christine Cronin-Hurst Member December 2017 Bill Fournell Member December 2019 ADMINISTRATION Michael Matthews, Ed.D Dawnalyn Murakawa-Leopard, Ed. D Brett Geithman, Ed. D Megan Atkins Brian Lucus Superintendent Deputy Superintendent, Business Services Assistant Superintendent, Educational Services Assistant Superintendent, Student Services Assistant Superintendent, Human Resources See accompanying note to supplementary information. 81

88 SCHEDULE OF AVERAGE DAILY ATTENDANCE FOR THE YEAR ENDED Final Report Second Period Annual Report Report Regular ADA Transitional kindergarten through third 1, , Fourth through sixth 1, , Seventh and eighth 1, , Ninth through twelfth 2, , Total Regular ADA 6, , Extended Year Special Education Transitional kindergarten through third Fourth through sixth Seventh and eighth Ninth through twelfth Total Extended Year Special Education Special Education, Nonpublic, Nonsectarian Schools Fourth through sixth Seventh and eighth Ninth through twelfth Total Special Education, Nonpublic, Nonsectarian Schools Extended Year Special Education, Nonpublic, Nonsectarian Schools Fourth through sixth Seventh and eighth Ninth through twelfth Total Extended Year Special Education, Nonpublic, Nonsectarian Schools Total ADA 6, , See accompanying note to supplementary information. 82

89 SCHEDULE OF INSTRUCTIONAL TIME FOR THE YEAR ENDED Number of Days Minutes Actual Traditional Multitrack Grade Level Requirement Minutes Calendar Calendar Status Kindergarten 36,000 36, Complied Grades ,400 Grade 1 50, Complied Grade 2 50, Complied Grade 3 50, Complied Grades ,000 Grade 4 54, Complied Grade 5 54, Complied Grade 6 62, Complied Grades ,000 Grade 7 62, Complied Grade 8 62, Complied Grades ,800 Grade 9 64, Complied Grade 10 64, Complied Grade 11 64, Complied Grade 12 64, Complied See accompanying note to supplementary information. 83

90 RECONCILIATION OF ANNUAL FINANCIAL AND BUDGET REPORT WITH AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED Summarized below are the fund balance reconciliations between the Unaudited Actual Financial Report and the audited financial statements. General Building Fund Fund FUND BALANCE Balance, June 30, 2016, Unaudited Actuals $ 13,474,764 $ 404,141 Increase in: Due from other funds 139,999 - Due to other funds - (139,999) Balance, June 30, 2016, Audited Financial Statements $ 13,614,763 $ 264,142 See accompanying note to supplementary information. 84

91 SCHEDULE OF FINANCIAL TRENDS AND ANALYSIS FOR THE YEAR ENDED (Budget) GENERAL FUND 4 Revenues $ 70,256,892 $ 74,661,748 $ 67,502,631 $ 62,311,657 Expenditures 73,596,399 73,204,172 67,474,124 59,565,421 Other uses and transfers out - 1,238,479 1,560,496 1,225,854 Total Expenditures and Other Uses 73,596,399 74,442,651 69,034,620 60,791,275 INCREASE (DECREASE) CHANGE IN FUND BALANCE $ (3,339,507) $ 219,097 $ (1,531,989) $ 1,520,382 ENDING FUND BALANCE $ 10,185,899 $ 13,525,406 $ 13,306,309 $ 14,838,298 AVAILABLE RESERVES 2 $ 8,107,029 $ 13,105,091 $ 11,089,922 $ 13,146,879 AVAILABLE RESERVES AS A PERCENTAGE OF TOTAL OUTGO % 18.10% 16.46% 22.13% LONG-TERM OBLIGATIONS N/A $ 158,206,417 $ 161,479,245 $ 155,296,922 K-12 AVERAGE DAILY ATTENDANCE AT P-2 6,623 6,630 6,715 6,688 The General Fund balance has decreased by $1,312,892 over the past two years. The fiscal year budget projects a decrease of $3,339,507 (24.69 percent). For a district this size, the State recommends available reserves of at least three percent of total General Fund expenditures, transfers out, and other uses (total outgo). The District has incurred operating surpluses in two of the past three years and anticipates incurring an operating deficit during the fiscal year. Total long-term obligations have increased by $2,909,495 over the past two years. Average daily attendance has decreased by 58 over the past two years. Additional decline of seven ADA is anticipated during fiscal year Budget 2017 is included for analytical purposes only and has not been subjected to audit. 2 Available reserves consist of all unassigned fund balances including all amounts reserved for economic uncertainties contained with the General Fund. 3 On behalf payments of $2,027,557, $1,523,144, and $1,390,593, has been excluded from the calculation of available reserves for the fiscal years ending June 30, 2016, 2015, and 2014, respectively. 4 General Fund amounts do not include activity related to the consolidation of the Deferred Maintenance Fund as required by GASB Statement No. 54. See accompanying note to supplementary information. 85

92 NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET Total Capital Non-Major Cafeteria Building Facilities Governmental Fund Fund Fund Funds ASSETS Deposits and investments $ 1,771,524 $ 558,031 $ 1,922,531 $ 4,252,086 Receivables 66,389 2,941 48, ,998 Stores inventories 17, ,115 Total Assets $ 1,855,028 $ 560,972 $ 1,971,199 $ 4,387,199 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 185,444 $ 156,831 $ 7,032 $ 349,307 Due to other funds - 139, ,999 Total Liabilities 185, ,830 7, ,306 Fund Balances: Nonspendable 19, ,360 Restricted - 7,489 1,964,167 1,971,656 Assigned 1,650, ,653-1,906,877 Total Fund Balances 1,669, ,142 1,964,167 3,897,893 Total Liabilities and Fund Balances $ 1,855,028 $ 560,972 $ 1,971,199 $ 4,387,199 See accompanying note to supplementary information. 86

93 NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED Total Capital Non-Major Cafeteria Building Facilities Governmental Fund Fund Fund Funds REVENUES Federal sources $ 304,401 $ - $ - $ 304,401 Other State sources 6, ,891 Other local sources 1,964,484 9,034 1,114,681 3,088,199 Total Revenues 2,275,776 9,034 1,114,681 3,399,491 EXPENDITURES Current Pupil services: Food services 2,117, ,117,618 Administration: All other administration 102, , ,748 Facility acquisition and construction - 1,202, ,759 1,375,288 Total Expenditures 2,220,574 1,202, ,551 3,696,654 NET CHANGE IN FUND BALANCES 55,202 (1,193,495) 841,130 (297,163) Fund Balances - Beginning 1,614,382 1,457,637 1,123,037 4,195,056 Fund Balances - Ending $ 1,669,584 $ 264,142 $ 1,964,167 $ 3,897,893 See accompanying note to supplementary information. 87

94 NOTE TO SUPPLEMENTARY INFORMATION NOTE 1 - PURPOSE OF SCHEDULES Schedule of Expenditures of Federal Awards The accompanying Schedule of Expenditures of Federal Awards includes the Federal grant activity of the District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements. The District has not elected to use the ten percent de minimis cost rate as covered in Section Indirect (F&A) costs of the Uniform Guidance. Local Education Agency Organization Structure This schedule provides information about the District's boundaries and schools operated, members of the governing board, and members of the administration. Schedule of Average Daily Attendance (ADA) Average daily attendance (ADA) is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of State funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs. Schedule of Instructional Time The District has received incentive funding for increasing instructional time as provided by the Incentives for Longer Instructional Day. The District neither met nor exceeded its target funding. This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections through Districts must maintain their instructional minutes at the requirements, as required by Education Code Section Reconciliation of Annual Financial and Budget Report With Audited Financial Statements This schedule provides the information necessary to reconcile the fund balance of all funds reported on the Unaudited Actual Financial Report to the audited financial statements. 88

95 NOTE TO SUPPLEMENTARY INFORMATION Schedule of Financial Trends and Analysis This schedule discloses the District's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time. Non-Major Governmental Funds - Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances The Non-Major Governmental Funds Combining Balance Sheet and Combining Statement of Revenues, Expenditures, and Changes in Fund Balances is included to provide information regarding the individual funds that have been included in the Non-Major Governmental Funds column on the Governmental Funds Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balances. 89

96 INDEPENDENT AUDITOR'S REPORTS 90

97 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Governing Board Manhattan Beach Unified School District Manhattan Beach, California We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of Manhattan Beach Unified School District (the District) as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise Manhattan Beach Unified School District's basic financial statements, and have issued our report thereon dated December 15, Emphasis of Matter Correction of an Error As discussed in Note 16 to the financial statements, in 2016, the District restated its beginning balance for net pension liability to more accurately reflect the implementation of GASB Statement No. 68, Accounting and Financial Reporting for Pensions for its enterprise fund. Our opinion is not modified with respect to this matter. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Manhattan Beach Unified School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Manhattan Beach Unified School District's internal control. Accordingly, we do not express an opinion on the effectiveness of Manhattan Beach Unified School District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance Foothill Blvd., Suite 300 Rancho Cucamonga, CA Tel: Fax:

98 Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether Manhattan Beach Unified School District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of Manhattan Beach Unified School District in a separate letter dated December 15, Purpose of This Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Rancho Cucamonga, California December 15,

99 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Governing Board Manhattan Beach Unified School District Manhattan Beach, California Report on Compliance for Each Major Federal Program We have audited Manhattan Beach Unified School District's compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Manhattan Beach Unified School District's (the District) major Federal programs for the year ended June 30, Manhattan Beach Unified School District's major Federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with the federal statutes, regulations, and the terms and conditions of its Federal awards applicable to its Federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of Manhattan Beach Unified School District's major Federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about Manhattan Beach Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major Federal program. However, our audit does not provide a legal determination of Manhattan Beach Unified School District's compliance Foothill Blvd., Suite 300 Rancho Cucamonga, CA Tel: Fax:

100 Opinion on Each Major Federal Program In our opinion, Manhattan Beach Unified School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major Federal programs for the year ended June 30, Report on Internal Control Over Compliance Management of Manhattan Beach Unified School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Manhattan Beach Unified School District's internal control over compliance with the types of requirements that could have a direct and material effect on each major Federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major Federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Manhattan Beach Unified School District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a Federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a Federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a Federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Rancho Cucamonga, California December 15,

101 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITOR'S REPORT ON STATE COMPLIANCE Governing Board Manhattan Beach Unified School District Manhattan Beach, California Report on State Compliance We have audited Manhattan Beach Unified School District's compliance with the types of compliance requirements as identified in the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting that could have a direct and material effect on each of the Manhattan Beach Unified School District's State government programs as noted below for the year ended June 30, Management's Responsibility Management is responsible for compliance with the requirements of State laws, regulations, and the terms and conditions of its State awards applicable to its State programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance of each of the Manhattan Beach Unified School District's State programs based on our audit of the types of compliance requirements referred to above. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting. These standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a material effect on the applicable government programs noted below. An audit includes examining, on a test basis, evidence about Manhattan Beach Unified School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions. Our audit does not provide a legal determination of Manhattan Beach Unified School District's compliance with those requirements. Unmodified Opinion on Each of the Programs In our opinion, Manhattan Beach Unified School District complied, in all material respects, with the compliance requirements referred to above that are applicable to the government programs noted below that were audited for the year ended June 30, Foothill Blvd., Suite 300 Rancho Cucamonga, CA Tel: Fax:

102 In connection with the audit referred to above, we selected and tested transactions and records to determine the Manhattan Beach Unified School District's compliance with the State laws and regulations applicable to the following items: Procedures Performed LOCAL EDUCATION AGENCIES OTHER THAN CHARTER SCHOOLS Attendance Yes Teacher Certification and Misassignments Kindergarten Continuance Independent Study Continuation Education Instructional Time Yes Instructional Materials Ratios of Administrative Employees to Teachers Classroom Teacher Salaries Early Retirement Incentive Gann Limit Calculation School Accountability Report Card Juvenile Court Schools Middle or Early College High Schools K-3 Grade Span Adjustment Yes Transportation Maintenance of Effort Yes Yes Yes No, see below No, see below Yes Yes Yes No, see below Yes Yes No, see below No, see below SCHOOL DISTRICTS, COUNTY OFFICES OF EDUCATION, AND CHARTER SCHOOLS Educator Effectiveness California Clean Energy Jobs Act After School Education and Safety Program: General Requirements After School Before School Proper Expenditure of Education Protection Account Funds Unduplicated Local Control Funding Formula Pupil Counts Local Control Accountability Plan Independent Study - Course Based Immunizations Yes, see below CHARTER SCHOOLS Attendance Mode of Instruction Non Classroom-Based Instruction/Independent Study for Charter Schools Determination of Funding for Non Classroom-Based Instruction Annual Instruction Minutes Classroom-Based Charter School Facility Grant Program Yes Yes No, see below No, see below No, see below Yes Yes Yes No, see below No, see below No, see below No, see below No, see below No, see below No, see below 96

103 The District's Independent Study Program is below the level required for testing; therefore, we did not perform procedures related to the Independent Study Program. The District does not offer a Continuation Education Attendance Program; therefore, we did not perform procedures related to the Continuation Education Attendance Program. The District did not offer an Early Retirement Incentive Program during the current year; therefore, we did not perform procedures related to the Early Retirement Incentive Program. The District does not have any Juvenile Court Schools; therefore, we did not perform any procedures related to Juvenile Court Schools. The District does not have any Middle or Early College High Schools; therefore, we did not perform any procedures related to Middle or Early College High Schools. The District does not offer an After School Education and Safety Program; therefore, we did not perform any procedures related to the After School Education and Safety Program. The District does not offer an Independent Study - Course Based Program; therefore, we did not perform any procedures related to the Independent Study - Course Based Program. The District did not have any schools listed on the immunization assessment reports; therefore, we did not perform the remaining procedures. The District does not have any Charter Schools; therefore, we did not perform any procedures for Charter School Programs. Rancho Cucamonga, California December 15,

104 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 98

105 SUMMARY OF AUDITOR'S RESULTS FOR THE YEAR ENDED FINANCIAL STATEMENTS Type of auditor's report issued: Internal control over financial reporting: Material weakness identified? Significant deficiency identified? Noncompliance material to financial statements noted? FEDERAL AWARDS Internal control over major Federal programs: Material weakness identified? Significant deficiency identified? Type of auditor's report issued on compliance for major Federal programs: Any audit findings disclosed that are required to be reported in accordance with Section (a) of the Uniform Guidance? Identification of major Federal programs: Unmodified No None Reported No No None Reported Unmodified No CFDA Numbers , , A, A Name of Federal Program or Cluster Special Education (IDEA) Cluster Dollar threshold used to distinguish between Type A and Type B programs: Auditee qualified as low-risk auditee? $ Yes 750,000 STATE AWARDS Type of auditor's report issued on compliance for programs: Unmodified 99

106 FINANCIAL STATEMENT FINDINGS FOR THE YEAR ENDED None reported. 100

107 FEDERAL AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED None reported. 101

108 STATE AWARDS FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED None reported. 102

109 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS FOR THE YEAR ENDED There were no audit findings reported in the prior year's schedule of financial statement findings. 103

110 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE Governing Board Manhattan Beach Unified School District Manhattan Beach, California In planning and performing our audit of the financial statements of Manhattan Beach Unified School District, for the year ended June 30, 2016, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control structure. However, during our audit we noted matters that are opportunities for strengthening internal controls and operating efficiency. The following items represent conditions noted by our audit that we consider important enough to bring to your attention. This letter does not affect our report dated December 15, 2016 on the government-wide financial statements of the District Observation and Recommendation Internal Controls Cash Receipting Observations During cash receipt testing, auditor noted the following deficiencies: Clearing account bank reconciliations are not being performed in a timely manner. Cash in the clearing account was not cleared to the County on a timely basis. As a result, a balance as of June 30, 2016, in the clearing account was noted. Recommendation We recommend the District implement procedures to ensure that internal controls over cash collections are in place and operating effectively. We will review the status of the current year comments during our next audit engagement. Rancho Cucamonga, California December 15, Foothill Blvd., Suite 300 Rancho Cucamonga, CA Tel: Fax: