IRVINE UNIFIED SCHOOL DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2017

Transcription

1 IRVINE 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 18 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 19 Proprietary Funds - Statement of Net Position 21 Proprietary Funds - Statement of Revenues, Expenses, and Changes in Fund Net Position 22 Proprietary Funds - Statement of Cash Flows 23 Fiduciary Funds - Statement of Net Position 24 Notes to Financial Statements 25 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 70 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 71 Schedule of the District's Proportionate Share of the Net Pension Liability 72 Schedule of District Contributions 73 Note to Required Supplementary Information 74 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 76 Local Education Agency Organization Structure 78 Schedule of Average Daily Attendance 79 Schedule of Instructional Time 80 Reconciliation of Annual Financial and Budget Report with Audited Financial Statements 81 Schedule of Financial Trends and Analysis 82 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 83 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 84 Note to Supplementary Information 85 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 88 Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance 90 Report on State Compliance 92

3 TABLE OF CONTENTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 96 Financial Statement Findings 97 Federal Awards Findings and Questioned Costs 98 State Awards Findings and Questioned Costs 99 Summary Schedule of Prior Audit Findings 100 Management Letter 103

4 FINANCIAL SECTION 1

5 INDEPENDENT AUDITOR'S REPORT Board of Education Irvine Unified School District Irvine, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Irvine Unified School District (the District) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; 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 Foothill Blvd., Suite 300, Rancho Cucamonga, CA P F W vtdcpa.com

6 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the District, as of June 30, 2017, 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. 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 70, schedule of other postemployment benefits (OPEB) funding progress on page 71, schedule of the District's proportionate share of net pension liability on page 72, and the schedule of District contributions on page 73, 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 District's basic financial statements. The accompanying supplementary information such as the combining and individual non-major 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 (Uniform Guidance) and the other supplementary information as listed in 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 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 14, 2017, on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's 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 Irvine Unified School District's internal control over financial reporting and compliance. Rancho Cucamonga, California December 14,

8 This section of the Irvine 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, 2017, with comparative information for 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 Irvine Unified School District and its component units using the integrated approach as prescribed by the 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. 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 Governmental Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. The Fund Financial Statements include statements for each of the three categories of activities: governmental and fiduciary. The Governmental Funds are prepared using the current financial resources measurement focus and modified accrual basis of accounting. The Proprietary Funds are prepared using the economic resources measurement focus and the accrual basis of accounting. The Fiduciary Funds are agency funds, which 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 Irvine 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 deferred outflows of resources, and liabilities and deferred inflows of resources, 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 will serve as a useful indicator of whether the financial position of the District 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 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, 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. We use internal service 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 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. The District's fiduciary activities are reported in the Fiduciary Fund-Statement 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. 7

11 MANAGEMENT'S DISCUSSION AND ANALYSIS THE DISTRICT AS A WHOLE Net Position The District's net position was $1,135.1 million for the fiscal year ended June 30, Of this amount, ($218.7) million was unrestricted. Restricted net position are reported separately to show legal constraints from debt covenants, grantors, constitutional provisions, and enabling legislation that limit the Board's ability to use those 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 activities. Table 1 (Amounts in millions) Governmental Activities ASSETS Current and other assets $ $ Capital assets 1, ,028.6 Total Assets 1, ,330.7 Deferred Outflows of Resources LIABILITIES Current liabilities Long-term obligations Aggregate net pension liability Total Liabilities Deferred Inflows of Resources NET POSITION Net investment in capital assets 1, ,028.2 Restricted Unrestricted (218.7) (202.2) Total Net Position $ 1,135.1 $ 1,043.9 The $218.7 million in negative unrestricted net position of governmental activities represents the accumulated results of all past years' operations. All districts throughout California were required to implement GASB Statement No. 68 to account for their share of the pension liability related to CalSTRS and CalPERS. The District's net pension liability was $311.9 million and $248.9 million for the years ending June 30, 2017 and June 30, 2016, respectively. 8

12 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 (Amounts in millions) Governmental Activities Revenues Program revenues: Charges for services $ 10.7 $ 8.3 Operating grants and contributions Capital grants and contributions General revenues: Federal and State aid not restricted Property taxes Proceeds from sale of bonds Other general revenues Total Revenues Expenses Instruction-related Pupil services Administration Plant services Other Total Expenses Change in Net Position $ 91.2 $ 78.6 Governmental Activities As reported in the Statement of Activities on page 15, the cost of all of our governmental activities this year was $384.5 million. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $250.2 million. 9

13 MANAGEMENT'S DISCUSSION AND ANALYSIS In Table 3, we have presented the net cost of each of the District's largest functions - instruction-related, pupil services, administration, plant services, and other, as well as each program's net cost (total cost less revenues generated by the activities). 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 (Amounts in millions) Net Cost of Services Instruction-related $ $ Pupil services Administration Plant services Other 8.8 (3.1) Total $ $ THE DISTRICT'S FUNDS As the District completed this year, our governmental funds reported a combined fund balance of $377.1 million, which is an increase of $139.0 million from last year. General Fund Budgetary Highlights Over the course of the year, the District revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. (A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report on page 70.) Budgeted expenditures increased by $48,320,439 due to the appropriation of prior year fund balances, utilization of one-time resources, as well as budgetary increases for gift allocations. These amounts were unknown at the time the budget was adopted and the allocations were made during the fiscal year. In addition, the District successfully negotiated salary increases that were not part of the adopted budget. 10

14 MANAGEMENT'S DISCUSSION AND ANALYSIS CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At June 30, 2017, the District had $1,091.8 million (net) in a broad range of capital assets, including land, buildings, and furniture and equipment. (Net of accumulated depreciation) Table 4 (Amounts in millions) Governmental Activities Land and construction in process $ $ Buildings and improvements Furniture and equipment Total $ 1,091.8 $ 1,028.6 We present more detailed information regarding our long-term obligations in Note 5 of the financial statements. Long-Term Obligations At the end of this year, the District had $127.0 million in long-term obligations outstanding versus $22.6 million last year; an increase of 462 percent. Table 5 (Amounts in millions) Governmental Activities General obligation bonds, net of premium $ $ - Notes payable Accumulated vacation - net Net OPEB obligation Total $ $ 22.6 We present more detailed information regarding our long-term obligations in Note 9 of the financial statements. 11

15 MANAGEMENT'S DISCUSSION AND ANALYSIS SIGNIFICANT ACCOMPLISHMENTS OF FISCAL YEAR ARE NOTED BELOW: A 3.7 percent increase on the salary schedule and a 1.2 percent one-time off-schedule increase. Began construction on Measure E projects to enclose open classrooms at six school sites and continued planning for other upcoming projects in Series 1. Completed Relo projects at Cypress Village Elementary School. Continued Relo project at Portola Springs Elementary School. Completed construction of Maintenance and Operations, Modernization, and Expansion. Completed construction of Portola High School. Completed construction of Beacon Park K-8. Continued construction of Eastwood Elementary School (PA5B). Began construction of Cadence Park K-8 (Heritage Fields K-8 #2). Completed Westpark Relo project. Began construction of Eastshore Relo project. Continued planning process and purchased land for Portola Springs Elementary School #2. Began construction of Canyon View expansion project. Continued District-Wide IT Infrastructure project. Continued construction of Oak Creek Relo project. Continued construction of Woodbridge High School Relo project. Completed Relo project at Jeffrey Trail Middle School for the Special Education Educationally Related Mental Health Services (ERMHS) Office. Began construction of Rancho San Joaquin Remodel project. 12

16 MANAGEMENT'S DISCUSSION AND ANALYSIS ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES In considering the District Budget for the year, the District Board and management used the following criteria: The key assumptions in our revenue forecast are: 1. Five percent increase for property tax revenues. 2. Projected ADA growth of 924 students is anticipated. 3. Revenue projections based on Local Control Funding Formula. 4. Local revenues/gift funds remain unbudgeted until received. 5. Budgeted expenditures are aligned with the District's approved Local Control Accountability Plan (LCAP). The District's final approved LCAP is available on the District's website. Expenditures are based on the following forecasts: Staffing Ratio Enrollment Kindergarten 31:1 2,790 Grades one through three 30:1 7,571 Grades four through six 31.5:1 8,245 Grades seven through twelve 31:1 15,713 The new items specifically addressed in the budget are: 1. No salary increases are projected for No increases in health benefit contributions are projected in Costs associated with the opening of Eastwood Elementary School. 4. Additional designated reserves have been included for contingency reserves ($5.0 million), and additional reserves set aside for future LCAP distribution. 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 Assistant Superintendent, Business Services, at Irvine Unified School District, 5050 Barranca Parkway, Irvine, California, 92604, or at JohnFogarty@iusd.org. 13

17 STATEMENT OF NET POSITION Governmental Activities ASSETS Deposits and investments $ 436,540,903 Receivables 12,150,660 Prepaid expenses 26,802 Stores inventories 476,763 Other current assets 57,356 Capital assets not depreciated 694,440,718 Capital assets, net of accumulated depreciation 397,358,995 Total Assets 1,541,052,197 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions 80,098,273 LIABILITIES Accounts payable 27,882,903 Interest payable 1,227,165 Unearned revenue 2,782,740 Claims liability 7,175,545 Noncurrent portion of long-term obligations other than pensions 127,005,012 Aggregate net pension liability 311,885,152 Total Liabilities 477,958,517 DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pensions 8,064,683 NET POSITION Net investment in capital assets 1,079,080,421 Restricted for: Debt service 4,204,287 Capital projects 220,669,851 Educational programs 13,897,360 Other activities 36,011,195 Unrestricted (218,735,844) Total Net Position $ 1,135,127,270 The accompanying notes are an integral part of these financial statements. 14

18 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED Net (Expenses) Revenues and Changes Program Revenues Net Position Charges for Operating Capital Services and Grants and Grants and Governmental Functions/Programs Expenses Sales Contributions Contributions Activities Governmental Activities: Instruction $ 234,655,858 $ 102,187 $ 33,501,745 $ 94,333 $ (200,957,593) Instruction-related activities: Supervision of instruction 19,545,858 53,526 3,914,542 - (15,577,790) Instructional library, media, and technology 7,775,968 1,428 10,350 - (7,764,190) School site administration 23,647,015 3, ,011 - (22,771,865) Pupil services: Home-to-school transportation 4,979, ,283 - (4,960,243) Food services 9,097,684 5,495,177 2,517,133 - (1,085,374) All other pupil services 28,243,647 23,805 6,510,904 - (21,708,938) Administration: Data processing 3,854, (3,854,351) All other administration 7,791, , ,803 - (6,814,923) Plant services 16,622,230 11, ,226 - (16,321,150) Ancillary services 1,825,283 10,412 30,434 - (1,784,437) Community services 791, (791,020) Enterprise services 21, (21,961) Interest on long-term obligations 2,487, (2,487,426) Other outgo 23,214,050 4,876,331 14,620,309 - (3,717,410) Total Governmental Activities $ 384,553,279 $ 10,712,535 $ 63,127,740 $ 94,333 (310,618,671) General revenues and subventions: Property taxes, levied for general purposes 221,057,061 Taxes levied for other specific purposes 29,127,839 Federal and State aid not restricted to specific purposes 53,300,152 Interest and investment earnings 680,407 Proceeds from issuance of Community Facilities District Bonds 78,579,747 Miscellaneous Subtotal, General Revenues 19,066, ,811,850 Change in Net Position 91,193,179 Net Position - Beginning 1,043,934,091 Net Position - Ending $ 1,135,127,270 The accompanying notes are an integral part of these financial statements. 15

19 GOVERNMENTAL FUNDS BALANCE SHEET County School General Building Facilities Fund Fund Fund ASSETS Deposits and investments $ 67,870,861 $ 92,283,595 $ 6,353,431 Receivables 10,833,833 80,278 10,744 Due from other funds 901,390-52,565 Prepaid expenditures 26, Stores inventories 396, Other current assets 57, Total Assets $ 80,086,585 $ 92,363,873 $ 6,416,740 LIABILITIES AND FUND BALANCES LIABILITIES Accounts payable $ 17,520,671 3,378,131 $ 3,574,655 Due to other funds 2,362,844 52, ,259 Unearned revenue 2,200, Total Liabilities 22,083,964 3,430,696 3,698,914 FUND BALANCES Nonspendable 573, Restricted 13,897,360 88,933,177 2,717,826 Committed Assigned 36,455, Unassigned 7,077, Total Fund Balances 58,002,621 88,933,177 2,717,826 Total Liabilities and Fund Balances $ 80,086,585 $ 92,363,873 $ 6,416,740 The accompanying notes are an integral part of these financial statements. 16

20 Special Reserve CFD Capital Non-Major Total Fund for Capital Projects Governmental Governmental Outlay Projects Fund Funds Funds $ 20,276,102 $ 178,326,357 $ 29,116,402 $ 394,226,748 13,742 7, ,487 11,402, ,310,242 3,264, , , , ,356 $ 20,289,844 $ 178,333,615 $ 31,963,551 $ 409,454,208 $ 291,548 $ 864,707 $ 886,544 $ 26,516,256 16, ,215 3,082, ,291 2,782, , ,707 1,995,050 32,381, , ,565 19,981, ,468,908 27,605, ,604, ,282,580 2,282, ,455, ,077,000 19,981, ,468,908 29,968, ,072,981 $ 20,289,844 $ 178,333,615 $ 31,963,551 $ 409,454,208 16

21 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION Total Fund Balance - Governmental Funds $ 377,072,981 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 1,317,972,514 Accumulated depreciation is (226,172,801) Net Capital Assets 1,091,799,713 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 incurred. (1,227,165) 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. 34,338,315 Deferred outflows of resources related to pensions represent a consumption of net position in a future period and is not reported in the District's funds. Deferred outflows of resources related to pensions at year-end consist of: Pension contributions subsequent to measurement date 27,197,210 Net change in proportionate share of the net pension liability 18,515,801 Difference between projected and actual earnings on pension plan investments. 30,909,591 Differences between expected and actual experience in the measurement of the total pension liability. 3,475,671 Total Deferred Outflows of Resources Related to Pensions 80,098,273 Deferred inflows of resources related to pensions represent an acquisition of net position that applies to a future period and is not reported in the District's funds. Deferred inflows of resources related to pensions at year-end consist of: Differences between expected and actual experience in the measurement of the total pension liability. (5,636,778) Changes in assumptions (2,427,905) Total Deferred Inflows of Resources Related to Pensions (8,064,683) Net pension liability is not due and payable in the current period, and is not reported as a liability in the funds. (311,885,152) Long-term obligations at year-end consist of: General Obligation Bonds, net of premium 101,652,469 Accumulated vacation 1,188,471 Net OPEB obligation 24,164,072 Total Long-Term Obligations (127,005,012) Total Net Position - Governmental Activities $ 1,135,127,270 The accompanying notes are an integral part of these financial statements. 17

22 GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED County School General Building Facilities Fund Fund Fund REVENUES Local Control Funding Formula $ 261,333,089 $ - $ - Federal sources 11,386, Other State sources 48,464, Other local sources 25,837, ,719 94,333 Total Revenues 347,021, ,719 94,333 EXPENDITURES Current Instruction 215,454, Instruction-related activities: Supervision of instruction 18,495, Instructional library, media, and technology 7,435, School site administration 22,413, Pupil services: Home-to-school transportation 4,932, Food services 89, All other pupil services 26,737, General administration: Data processing 3,708, All other general administration 6,665, Plant services 31,936, , ,293 Facility acquisition and construction 1,776,576 6,517,207 32,733,114 Ancillary services 1,792, Community services 777, Other outgo 2,468, Debt service Principal 348, Interest and other 9, Total Expenditures 345,042,000 6,623,542 32,913,407 Excess (Deficiency) of Revenues Over Expenditures 1,979,611 (6,066,823) (32,819,074) OTHER FINANCING SOURCES (USES) Transfers in 283,322-30,885,535 Other sources 127,073 95,000,000 1,546,075 Transfers out (8,759,996) - - Other uses Net Financing Sources (Uses) (8,349,601) 95,000,000 32,431,610 NET CHANGE IN FUND BALANCES (6,369,990) 88,933,177 (387,464) Fund Balance - Beginning 64,372,611-3,105,290 Fund Balances - Ending $ 58,002,621 $ 88,933,177 $ 2,717,826 The accompanying notes are an integral part of these financial statements. 18

23 Special Reserve CFD Capital Non-Major Total Fund for Capital Projects Governmental Governmental Outlay Projects Fund Funds Funds $ - $ - $ - $ 261,333, ,293,686 14,679, ,646 48,695, ,163 17,652,922 11,990,426 56,281, ,163 17,652,922 15,514, ,989, ,115, ,570, ,866 18,579, ,435, ,455 22,736, ,932, ,361,861 8,451, ,737, ,708, ,292 6,892, , , ,702 33,742,853 4,257,470 10,104,665 2,405,782 57,794, ,792, ,718-3,085,236-5,553, , ,288,523 1,298,275 4,587,446 13,937,315 14,248, ,352,042 (4,438,283) 3,715,607 1,266,426 (36,362,536) 3,161,492-3,798,504 38,128, ,792,539 6,690, ,156,170 - (29,969,763) (994,170) (39,723,929) - (163,226,648) - (163,226,648) 3,161,492 43,596,128 9,494, ,334,446 (1,276,791) 47,311,735 10,761, ,971,910 21,258, ,157,173 19,207, ,101,071 $ 19,981,948 $ 177,468,908 $ 29,968,501 $ 377,072,981 18

24 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES Total Net Change in Fund Balances - Governmental Funds $ 138,971,910 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 capital outlays exceeds depreciation in the period. Capital outlays $ 77,957,754 Depreciation expense (14,753,106) Net Expense Adjustment 63,204,648 In the Statement of Activities, certain operating expenses - accumulated vacations are measured by the amounts earned during the year. In the governmental funds, however, expenditures are measured by the amount of financial resources used (essentially, the amounts actually paid). This year, vacation used was less than the amounts earned by $190,823. (190,823) Repayment of notes payable are expenditures in the governmental funds, but it reduces long-term obligations in the Statement of Net Position and does not affect the Statement of Activities. 348,723 Proceeds received from issuance of debt is a revenue in the governmental funds, but it increases long-term obligations in the Statement of Net Assets and does not affect the Statement of Activities: (95,000,000) Governmental funds report the effect of premiums, discounts, issuance costs, and the deferred amount on a refunding when the debt is first issued, whereas the amounts are deferred and amortized in the Statement of Activities. (6,690,483) 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. Amortization of debt premium 38,014 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. (1,227,165) The accompanying notes are an integral part of these financial statements. 19

25 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES, CONTINUED Contributions for postemployment benefits are recorded as an expense in the governmental funds when paid. However, the difference between the annual required contribution and the actual contribution made, if less, is recorded in the government-wide financial statements as an expense. The actual amount of the contribution was less than the annual required contribution. $ (2,955,500) 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. (9,765,999) An internal service fund is used by the District's management to charge the costs of the workers' compensation and health care insurance programs to the individual funds. The net change in assets of the internal service fund is reported with governmental activities. 4,459,854 Change in Net Position of Governmental Activities $ 91,193,179 The accompanying notes are an integral part of these financial statements. 20

26 PROPRIETARY FUNDS STATEMENT OF NET POSITION Internal Service Fund ASSETS Current Assets Deposits and investments $ 42,314,155 Receivables 748,318 Due from other funds 37 Total Current Assets 43,062,510 LIABILITIES Current Liabilities Accounts payable 1,366,647 Due to other funds 182,003 Claims liability 7,175,545 Total Current Liabilities 8,724,195 NET POSITION Restricted $ 34,338,315 The accompanying notes are an integral part of these financial statements. 21

27 PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED Internal Service Fund OPERATING REVENUES Charges to other funds and miscellaneous revenues $ 35,840,485 OPERATING EXPENSES Payroll costs 397,490 Professional and contract services 32,827,412 Supplies and materials 55,754 Total Operating Expenses 33,280,656 Operating Income 2,559,829 NONOPERATING REVENUES Interest income 304,949 Income Before Transfers 2,864,778 Transfers in 1,800,000 Transfers out (204,924) Total Net Transfers 1,595,076 Change in Net Position 4,459,854 Total Net Position - Beginning 29,878,461 Total Net Position - Ending $ 34,338,315 The accompanying notes are an integral part of these financial statements. 22

28 PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED Internal Service Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers $ 35,638,003 Cash payments to employers for services (397,490) Cash payments for insurance claims (7,711,636) Cash payments to other suppliers for goods and services (8,147) Other operating cash payments (23,847,171) Net Cash From Operating Activities 3,673,559 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers from other funds 1,800,000 Transfers to other funds (204,924) Net Cash From Noncapital Financing Activities 1,595,076 CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 304,949 Net change in cash and cash equivalents 5,573,584 Cash and cash equivalents - Beginning 36,740,571 Cash and cash equivalents - Ending $ 42,314,155 RECONCILIATION OF OPERATING INCOME TO NET CASH FROM OPERATING ACTIVITIES Operating income $ 2,559,829 Changes in assets and liabilities: Receivables (63,556) Accounts payable 356,295 Due from other fund 304,253 Due to other fund 182,003 Claims liability 334,735 NET CASH FROM OPERATING ACTIVITIES $ 3,673,559 The accompanying notes are an integral part of these financial statements. 23

29 FIDUCIARY FUNDS STATEMENT OF NET POSITION Agency Funds ASSETS Deposits and investments $ 89,901,786 Receivables 24,001,401 Total Assets $ 113,903,187 LIABILITIES Accounts payable $ 1,159 Due to student groups 2,477,755 Due to bondholders 111,424,273 Total Liabilities $ 113,903,187 The accompanying notes are an integral part of these financial statements. 24

30 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Entity The Irvine Unified School District (the District) was unified on July 1, 1972, 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 twenty-three elementary schools, three K-8 schools, six middle schools, five high schools, one continuation school, one independent study school, and one adult education center. 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 Irvine Unified School District, this includes general operations, food service, and student related activities of the District. Component Units Component units are legally separate organizations for which the District is financially accountable. Component units may also include organizations that are fiscally dependent on the District, in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable, but the nature and significance of the organization's relationship with the District is such that exclusion would cause the District's financial statements to be misleading or incomplete. For financial reporting purposes, the component units have a financial and operational relationship which meets the reporting entity definition criteria of the Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, and thus are included in the financial statements of the District. The component units, although legally separate entities, are reported in the financial statements using the blended presentation method as if they were part of the District's operations because the governing board of the component units is essentially the same as the governing board of the District and because their purpose is to finance the construction of facilities to be used for the direct benefit of the District. The basic financial statements include blended component units. The blended component units, although legally separate entities are, in substance, part of the District's operations and so data from these units are combined with data of the primary government for purposes of reporting in the accompanying basic financial statements. The Irvine Unified School District and the Irvine Unified School District Financing Authority (the Authority) have financial and operational relationships which meet the reporting entity definition criteria of the GASB Codification of Governmental Accounting and Financial Reporting Standards, Section 2100, for inclusion of the Authority as a component unit of the District. The Authority's financial activity is presented in the financial statements in the CFD Capital Project Funds and in the agency fund. 25

31 NOTES TO FINANCIAL STATEMENTS Blended Component Units Pursuant to the Mello-Roos Community Facilities Act of 1982, the District established the Community Facilities Districts Nos. 86-1, 01-1, 04-1, 04-2A, 04-2B, 06-1, 08-1, and 09-1 legally constituted governmental entities, for the purpose of financing special capital projects. The Community Facilities Districts (CFDs) were authorized, at special elections, to incur indebtedness and subsequently sold bonds for the purpose of providing educational facilities within the District boundaries. The repayment of the bonds is not a general or special obligation of the CFDs, but rather are limited obligations payable solely from the proceeds of special taxes levied on property within the Community Facilities Districts. The following are those aspects of the relationship between the District and the Community Facilities Districts which satisfy Statement Three criteria. Manifestations of Oversight The CFDs and the District have common boards. The CFDs have no employees. The District's Superintendent functions as an agent of the CFDs. The District exercises significant influence over operations of the CFDs as all projects of the CFDs involve the Irvine Unified School District. Accountability of Fiscal Matters The District is responsible for preparation of the annual budgets for the CFDs. Scope of Public Service The CFDs were created specifically to finance capital improvements for the District. Financial Presentation For financial presentation purposes, the CFDs' financial activity has been blended, or combined with the financial data of the District. The financial statements present the CFDs' financial activity within the Combined Community Facilities District Capital Projects Funds and in an Agency Fund for the repayment of the Non-Obligatory Debt. 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. 26

32 NOTES TO FINANCIAL STATEMENTS 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. 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. County School Facilities Fund The County School Facilities Fund is established pursuant to Education Code Section to receive apportionments from the 1998 State School Facilities Fund (Proposition la), the 2002 State School Facilities Fund (Proposition 47), the 2004 State School Facilities Fund (Proposition 55), or the 2006 State Schools Facilities Fund (Proposition 1D) authorized by the State Allocation Board for new school facility construction, modernization projects, and facility hardship grants, as provided in the Leroy F. Greene School Facilities Act of 1998 (Education Code Section et seq.). 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). Community Facilities District (CFD) Capital Projects Fund The CFD Capital Projects Fund is used to account for capital projects financed by Community Facilities Districts that are considered blended component units of the District. 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. Adult Education Fund The Adult Education Fund is used to account separately for Federal, State, and local revenues for adult education programs and is to be expended for adult education purposes only. Child Development Fund The Child Development Fund is used to account separately for Federal, State, and local revenues to operate child development programs and is to be used only for expenditures for the operation of child development programs. 27