Wednesday, December 20, :00 AM BlueSky Online School Offices Wentworth Center Suite East Wentworth Avenue West Saint Paul, MN 55118

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1 Wednesday, December 20, :00 AM BlueSky Online School Offices Wentworth Center Suite East Wentworth Avenue West Saint Paul, MN BlueSky School Board commits to Student Centered Decision making and improving the culture of the district by focusing on the following goals; finance, strategic planning, internal Board operations, and district planning. BlueSky Mission: BlueSky is defining education for the 21st century by creating an individualized, dynamic education for all students. We are committed to empowering our community by facilitating relevant learning, skills, hopes and relationships. Public can watch/listen to the meeting by joining: Collaborate Ultra Board Meeting Room - Agenda for next meeting: 1. Call to Order 2. Roll Call Paula Forbes, Vice Chair, Seat A: Community Member Matthew Schempp, Seat B: Teacher Member Jami St. Marie, Seat C: Required Parent Member Heidi Kelbel, Seat D: Teacher Member Judy Pekarek, Treasurer, Seat E: Community member Julie Johnson, Secretary, Seat F: Required Teacher member Jim Stocco, Chair Seat G: Required Community Member Approval of Agenda 4. Approval of Previous Board Minutes 4.1 Action - Approve board meeting minutes, November 29, FY17 Financial Audit 5.1 Action - Presentation and approval of FY17 financial audit (MMKR, Bill Lauer) 6 6. Filing of Finance Claims - TAG, Scott Brown Reports 7.1 Information - Finance Committee - Pekarek Information - Curriculum Committee - Schempp Information - HR Committee - Forbes Information - Director's Report - Larsen 7.5 Information - Student Activity/Updates - Hollenkamp 7.6 Information - Assessment update related to IQS contract goals - Ondich 7.7 Information - Student Services Report - Parcheta 3

2 8. Consent Items 9. Unfinished Business 10. New Business 10.1 Action - Approve Pollicy Admissions Policy with Lottery revision Public Input 12. Adjourn Future Meetings/Events Below: Wednesday, January 31, 2018 at 10:00 am Wednesday, February 28, 2018 at 10:00 am Wednesday, March 21, 2018 at 10:00 am Other: Next Board Election: May 2018

3 BlueSky Charter School Special Board Meeting Wednesday, November 29, :00 AM Pursuant to due call and notice thereof, the board of director meeting of the BlueSky Charter School, 4082, was held on November 29, 2017 at 10:00 AM. Roll call was taken with these members present: Johnson, Kelbel, Pekarek, Schempp, Stocco, St. Marie. Others present were: Amy Larsen, Megan Hollenkamp, Renee Parcheta, Scott Brown, Dan Ondich, Ben Haensel Collaborate Ultra Board Meeting Room - Approval of Agenda Pekarek/Kelbel moved to approve agenda as is 6-0 Motion passes Approval of Previous Board Minutes Schempp/Kelbel moved to approve board minutes from October 25, 2017 with correction to 9.1 to add who opposed in the split vote 6-0 Motion passes Filing of Finance Claim We are 33% of the fiscal year complete with YTD expenses as a percent of the budget at 25%. At the finance committee meeting, lowering the working budget ADM to 480 was discussed and that change has been made. Our Title I and Title II award has been adjusted up to $76,355. Schempp asked if we were done with our Comcast contract and Larsen said that we were not and would give a full update during her report. MDE will adjust our state aid payments moving forward as we were being paid for 490 ADM previously. Schempp/Pekarek moved to approve monthly financial statement 6-0 Motion passes Reports 6.1 Finance Committee The Committee recommends that the board approves the adjusted ADM that is under new business. It is also recommended that BlueSky transfer banks for our main credit card as the State Bank of Wabasha card was set up through a previous director and is a struggle to work with regarding credit limit, using reward points, and frequent issues with getting our bills on time. 6.2 Curriculum Committee Schempp attended the Moodle Moot conference a few weeks ago and gathered some valuable information that the team is excited about looking into implementing, like a mobile and desktop app to allow for offline work. Flash is going away in 2020 so the Math Team is looking at alternatives for instances in MathXL. 6.3 HR Committee No meeting held 3

4 6.4 Director s Report Our lower enrollment rates at this time of year can be attributed to a few different things - our new enrollment system and the lack of online marketing put forth by Risdall. We have about 480 students including our PSEO students. We have 19 pending registrations and 24 supplemental students enrolled taking 46 courses. The issues with the application process (InfoSnap) were discussed and how to streamline registration moving forward. Haensel will push to try to get backend data through InfoSnap and PowerSchool to gather analytics. The Marketing Committee has met and went over the RFP and what goals we want to achieve through marketing efforts. The admin team met with one of the cadre members from IQS to review the finance and operations section and we met and exceeded most every category with the exception of organizational systems - specifically that job descriptions have not been reviewed by the board every three years. In mid-december, a different cadre member will review the mission and vision and governance sections of our scorecard. The WBWF summary, annual report, and OLL review have all been shared with the accreditation team from AdvancEd that will be visiting the office on Thursday and Friday this week. The American Indian Education Plan has been at a bit of a standstill as the meeting has been rescheduled again. All American Indian students and parents have been contacted and the most interest has been coming from our students who are 18 years or older. 6.5 Student Activity/Updates The Chemists in the Classroom activity took place in the board room on November 17 th with 9 students attending demonstrations and hands-on activities led by a U of M PhD candidate. On December 15 th, Chris Peterson is leading a Perkins funded trip to the SeaLife aquarium at the Mall of America with 43 students planning to attend and a number of parents, friends, and staff, bringing the group total to 83. Perkins funding is only going towards BlueSky students and parents and friends will pay their own way. Student Day is taking place on Thursday, December 14 th with about 6 students signed up already to attend. Chris Peterson is also doing another trip to the Mill City Museum in February with a different program than what she did last year. 6.6 Assessment Update related to IQS contract goals & NWEA Our attendance rate is currently at 69.9% with 60.9% for seniors. Middle school is at 94% which is an improvement from previous years. The projection for passing the MCA testing in the spring is at 17.8% to pass in math and 54.4% to pass in reading based off of our NWEA scores. For Free and Reduced Lunch we project 13.9% for math and 47% for reading. 6.7 Student Services Report As an offshoot of We Day, Renee met with a person about traveling to the Amazon to build a school in the summer of The Hope Survey results have been good and thoughtful but we want to try to build on our responses and the staff will take the survey again in the spring. The social workers are getting increased workloads and are experimenting with grouping students in PowerSchool to better work with them. Kelbel/Johnson motion to approve all reports 6-0 motion passes Consent Items 7.1 Action - Approve Jennifer Dega 0.75 FTE Math Teacher 7.2 Action - Approve Karen Kraco 0.25 Advisor 4

5 Kelbel asked if the 0.75 Math Teacher needed to be changed to 0.25 Math and 0.5 RTI and Ondich stated that it can remain 0.75 to allow for flexibility. Schempp/Pekarek motion to approve consent items as is 6-0 motion passes Unfinished Business None New Business 9.1 Action - Approve FY18 Revised Budget (480 ADM) This revised budget shows the adjustment from 485 to 480 ADM and the addition of the Title I and Title II revenue. With all changes, the total budget will actually increase by about $22,000. Pekarek/Kelbel motion to approve FY18 Revised Budget (480 ADM) 6-0 motion passes 9.2 Action - Approve WBWF Summary This template was given to us by MDE to complete. Everything included in the summary has been previously reported to the board. Schempp/St. Marie motion to approve WBWF Summary 6-0 motion passes 9.3 Action - Approve BlueSky Online School Annual Report This report was updated from the previous year with graphics and information from the school year and focused on additional supports given to students. Pekarek/Johnson motion to approve BlueSky Online School Annual Report 6-0 motion 10.0 Public Input None 11.0 Adjourn Schempp/Kelbel motion to adjourn meeting at 11:23 am 6-0 motion passes Future Meetings/Events Below: Wednesday, December 20, 2017 at 10:00 am Wednesday, January 31, 2017 at 10:00 am Wednesday, February at 10:00 am Other: Next Board Election May

6 Management Report for BlueSky Charter School, Inc. West St. Paul, Minnesota June 30,

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8 C ERTIFIED P UBLIC A C C O U N T A N T S PRINCIPALS Thomas A. Karnowski, CPA Paul A. Radosevich, CPA William J. Lauer, CPA James H. Eichten, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA/CMA To the Board and Management of BlueSky Charter School, Inc. West St. Paul, Minnesota We have prepared this management report in conjunction with our audit of BlueSky Charter School, Inc. s (the School) financial statements for the year ended June 30, We have organized this report into the following sections: Audit Summary Funding Public Education in Minnesota Financial Trends of Your School Legislative Summary Accounting and Auditing Updates We would be pleased to further discuss any of the information contained in this report or any other concerns that you would like us to address. We would also like to express our thanks for the courtesy and assistance extended to us during the course of our audit. The purpose of this report is solely to provide those charged with governance of the School, management, and those who have responsibility for oversight of the financial reporting process comments resulting from our audit process and information relevant to school district and charter school financing in Minnesota. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota December 12, 2017 Malloy, Montague, Karnowski, Radosevich & Co., P.A Wayzata Boulevard Suite 410 Minneapolis, MN Phone: Fax:

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10 AUDIT SUMMARY The following is a summary of our audit work, key conclusions, and other information that we consider important or that is required to be communicated to the Board, administration, or those charged with governance of the School. OUR RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA AND GOVERNMENT AUDITING STANDARDS We have audited the financial statements of the governmental activities and the major fund of the School as of and for the year ended June 30, 2017, and the related notes to the financial statements. Professional standards require that we provide you with information about our responsibilities under auditing standards generally accepted in the United States of America and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information to you verbally and in our audit engagement letter. Professional standards also require that we communicate to you the following information related to our audit. PLANNED SCOPE AND TIMING OF THE AUDIT We performed the audit according to the planned scope and timing previously discussed and coordinated in order to obtain sufficient audit evidence and complete an effective audit. AUDIT OPINION AND FINDINGS Based on our audit of the School s financial statements for the year ended June 30, 2017: We have issued an unmodified opinion on the School s annual financial statements. We reported no deficiencies in the School s internal control over financial reporting that we considered to be material weaknesses. The results of our testing disclosed no instances of noncompliance required to be reported under Government Auditing Standards. We reported no findings based on our testing of the School s compliance with Minnesota laws and regulations. SIGNIFICANT ACCOUNTING POLICIES Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the School are described in Note 1 of the notes to basic financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the fiscal year ended June 30, However, the School implemented the following governmental accounting standard during the fiscal year ending June 30, 2017: Governmental Accounting Standards Board (GASB) Statement No. 82, Pension Issues, an amendment of GASB Statements No. 67, No. 68, and No. 73, which addressed certain issues related to pension reporting and disclosures. We noted no transactions entered into by the School during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period

11 ACCOUNTING ESTIMATES AND MANAGEMENT JUDGMENTS Accounting estimates are an integral part of the financial statements prepared by management and are based on management s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were: General education revenue and certain other revenues are computed by applying an allowance per student to the number of students served by the School. Student attendance is accumulated in a state-wide database MARSS. Because of the complexity of student accounting and because of certain enrollment options, student information is input by other schools and the MARSS data for the current fiscal year is not finalized until after the School has closed its financial records for the fiscal period. General education revenue and certain other revenues are computed using preliminary information on the number of students served in the resident school and also utilizing some estimates, particularly in the area of enrollment options. Special education state aid includes an adjustment related to tuition billings to other schools for special education services which are computed using formulas derived by the Minnesota Department of Education. Because of the timing of the calculations, this adjustment for the current fiscal year is not finalized until after the School has closed its financial records for the fiscal period. The impact of this adjustment on the receivable and revenue recorded for state special education aid is calculated using preliminary information available to the School. The School has recorded a liability in the Statement of Net Position for compensated absences payable for which it is probable employees will be compensated. The vesting method used by the School to calculate this liability is based on assumptions involving the probability of employees becoming eligible to receive the benefits (vesting), the potential use of accumulated sick leave prior to termination, and the age at which such employees are likely to retire. The School has recorded activity in the Statement of Net Position for pension benefits. This obligation is calculated using actuarial methodologies described in GASB Statement No. 68. This actuarial calculation includes significant assumptions, including projected changes, investment returns, retirement ages, proportionate share, and employee turnover. The depreciation of capital assets involves estimates pertaining to useful lives. We evaluated the key factors and assumptions used by management in the areas discussed above in determining that they are reasonable in relation to the financial statements taken as a whole. The financial statement disclosures are neutral, consistent, and clear. DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT We encountered no significant difficulties in dealing with management in performing and completing our audit. CORRECTED AND UNCORRECTED MISSTATEMENTS Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Where applicable, management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management, when applicable, were material, either individually or in the aggregate, to each opinion unit s financial statements taken as a whole

12 DISAGREEMENTS WITH MANAGEMENT For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor s report. We are pleased to report that no such disagreements arose during the course of our audit. MANAGEMENT REPRESENTATIONS We have requested certain representations from management that are included in the management representation letter dated December 12, MANAGEMENT CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a second opinion on certain situations. If a consultation involves application of an accounting principle to the School s financial statements or a determination of the type of auditor s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. OTHER AUDIT FINDINGS OR ISSUES We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the School s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. OTHER MATTERS We applied certain limited procedures to management s discussion and analysis and the pension-related required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding 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 did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the Uniform Financial Accounting and Reporting Standards Compliance Table accompanying the financial statements, which is not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the introductory section which accompanies the financial statements but is not RSI. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it

13 FUNDING PUBLIC EDUCATION IN MINNESOTA Due to its complexity, it would be impossible to fully explain the funding of public education in Minnesota within this report. A summary of legislative changes affecting school districts and charter schools included later in this report gives an indication of how complicated the funding system is. This section provides some state-wide funding and financial trend information. BASIC GENERAL EDUCATION REVENUE The largest single funding source for Minnesota charter schools is basic general education aid. Each year, the Legislature sets a basic formula allowance. Total basic general education revenue is calculated by multiplying the formula allowance by the number of pupil units for which a school is entitled to aid. Pupil units are calculated using a legislatively determined weighting system applied to average daily membership (ADM). Over the years, various modifications have been made to this calculation, including changes in weighting and special consideration for declining enrollment schools. The table below presents a summary of the formula allowance for the past decade and as approved for the 2018 and 2019 fiscal years. The amount of the formula allowance and the percentage change from year to year excludes temporary funding changes, the roll-in of aids that were previously funded separately, and changes that may vary dependent on actions taken by individual schools. The $529 increase in 2015 was offset by changes to pupil weightings and the general education aid formula that resulted in an increase equivalent to approximately $105, or 2.0 percent, state-wide. Fiscal Year Ended June 30, Formula Allowance Percent $ Amount 5,074 Increase 2.0 % $ 5, % $ 5,124 % $ 5,124 % $ 5, % $ 5, % $ 5, % $ 5, % $ 5, % $ 6, % $ 6, % $ 6, % -4-13

14 FINANCIAL TRENDS OF YOUR SCHOOL AVERAGE DAILY MEMBERSHIP (ADM) AND PUPIL UNITS The following graph summarizes the ADM and pupil units served by the School for the last five years: Students (Adjusted ADM and Pupil Units) ADM Pupil Units The School served an estimated ADM of 483 for 2017, a decrease of two from the previous year. The following graph shows the rate of ADM change from year to year, and the relationship of the resulting pupil units: Change in ADM and Pupil Units 12% 10% 8% 6% 4% 2% (2%) (4%) (6%) ADM 10.7% 1.7% 2.7% 0.4% (0.2%) Pupil Units 10.7% 1.7% (5.2%) 0.4% (0.2%) The pupil units served by the School for 2017 were estimated to be 580, a decrease of about two pupil units from the prior year. ADM is a measure of students attending class, which is then converted to pupil units (the base for determining revenue) using a statutory formula. Not only is the original budget based on ADM estimates, the final audited financial statements are based on updated, but still estimated ADM, since the counts are not finalized until around January of the following year. When viewing revenue budget variances, one needs to consider these ADM changes and the impact of the prior year final adjustments which affect this year s revenue

15 GENERAL FUND OPERATIONS AND FINANCIAL POSITION The following graph displays the School s General Fund financial position over the last five years. Fund balance and cash balance are typically used as measures of financial health or equity, while annual expenditures are used to indicate the size of the operation: $5,250,000 $4,750,000 $4,250,000 $3,750,000 $3,250,000 $2,750,000 $2,250,000 $1,750,000 $1,250,000 $750,000 $250,000 General Fund Financial Position Year Ended June 30, $(250,000) Total Fund Bal. $166,262 $746,467 $1,226,515 $1,629,271 $1,798,485 Cash and Inv. $(41,375) $475,441 $972,287 $1,472,472 $1,718,616 Expenditures $3,852,918 $3,970,389 $4,336,791 $4,636,924 $4,938,440 The School s General Fund ended 2017 with a total fund balance of $1,798,485, an increase of $169,214 from the prior year, and $122,636 higher than projected in the final budget. The General Fund cash and investments balance (net of borrowing) at year-end was $1,718,616, an increase of $246,144 from the prior year. Unassigned fund balance as a percentage of expenditures is one key measure of a school s financial health. The resources represented by this fund balance are critical to a school s ability to maintain adequate cash flow throughout the year, to retain its programs, and to cushion against the impact of unexpected costs or funding shortfalls. For your school, the year-end unassigned fund balance of $1,649,932 represented 33.4 percent of annual expenditures, based on 2017 expenditure levels. By comparison, this ratio was 32.6 percent at the end of

16 GENERAL FUND REVENUE The following graph summarizes the School s General Fund revenue for 2017: $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 General Fund Revenue Budget and Actual $ State Sources Federal Sources Other Prior Year $4,905,237 $103,348 $31,095 Actual $4,967,276 $118,732 $21,646 Budget $5,079,100 $69,000 $20,800 Total General Fund revenues for 2017 were $5,107,654, an increase of $67,974 from the prior year. State aid revenue was $62,039 more than the prior year. State general education aid was $38,809 higher than the prior year, due to the increase in the general education basic formula allowance, and about $41,479 more state aid for alternative compensation. Revenue from federal sources was $15,384 higher than the previous year, due to the School s special education entitlement increasing in the current year. Revenues were $61,246 less than the final budget in total. Revenue from state sources was $111,824 under budget, due to a shift in expenditures from state special education to federal special education. Federal revenue was over budget by $49,732, mainly in federal special education funding

17 GENERAL FUND EXPENDITURES The following graph summarizes the School s General Fund expenditures for 2017: $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 General Fund Expenditures Budget and Actual $ Purchased Salaries Benefits Supplies Capital Other Services Prior Year $3,048,277 $742,121 $663,289 $116,344 $20,879 $46,014 Actual $3,242,240 $758,057 $657,150 $161,846 $60,484 $58,663 Budget $3,246,837 $791,794 $762,484 $241,792 $32,500 $46,915 Total General Fund expenditures for 2017 were $4,938,440, an increase of $301,516 from the prior year. Salaries and benefits were $209,899 more than the prior year, due to an increase in staffing. Supplies were $45,502 more than the prior year, mainly in school support services and elementary and secondary instruction. Capital expenditures were $39,605 more than the prior year, due to an increase in licensing fees for student information systems. Total expenditures were $183,882 under budget. Salaries and benefits were under budget by $38,334, due to not all budgeted positions being filled during the year, as well as lower health and dental insurance costs than anticipated. Purchased services expenditures were under budget by $105,334, mostly due to the School budgeting for increased contracted services in several program areas that were not utilized during the current year. Supplies were under budget by $79,946, mainly in elementary and secondary instruction

18 ENTITY-WIDE FINANCIAL STATEMENTS The School s financial statements include fund-based information that focuses on budgetary compliance, and the sufficiency of the School s current assets to finance its current liabilities. The governmental reporting model also requires the inclusion of two entity-wide financial statements designed to present a clear picture of the School as a single, unified entity. These entity-wide financial statements provide information on the total cost of delivering educational services, including capital assets and long-term liabilities. Theoretically, net position represents the resources the School has leftover to use for providing services after its debts are settled. However, those resources are not always in expendable form, or there may be restrictions on how resources can be used. Therefore, the statement divides net position into three components: net investment in capital assets, restricted, and unrestricted. The following table presents a summarized conversion of the School s governmental fund balances (as individually discussed earlier) to net position, and the separate components of net position for the last two years: June 30, Change Net position governmental activities Total fund balances governmental funds $ 1,798,485 $ 1,629,271 $ 169,214 Capital assets, less accumulated depreciation 54,985 38,171 16,814 Compensated absences and severance (295,568) (248,666) (46,902) Pension liability, net of deferments (4,552,683) (2,823,711) (1,728,972) Total net position governmental activities $ (2,994,781) $ (1,404,935) $ (1,589,846) Net position Net investment in capital assets $ 54,985 $ 38,171 $ 16,814 Unrestricted (3,049,766) (1,443,106) (1,606,660) Total net position $ (2,994,781) $ (1,404,935) $ (1,589,846) The School s total net position at June 30, 2017 was a deficit of ($2,994,781), a decrease of $1,589,846 from the previous year. The School s net investment in capital assets increased $16,814 due to various equipment additions. The unrestricted portion of net position decreased $1,606,660, mainly due to increases in the net pension liabilities reported on the Academy s entity-wide financial statements related to the state-wide PERA and the TRA pension plans

19 LEGISLATIVE SUMMARY The 2017 legislative session established public education funding appropriations for the fiscal biennium totaling $483.3 million. The following is a brief summary of specific legislative changes from the 2017 session or previous legislative sessions impacting Minnesota charter schools in future years. Basic General Education Revenue The 2017 Legislature approved annual increases of 2 percent to the basic general education formula allowance for the biennium. The per pupil allowance will increase $121 to $6,188 for fiscal year (FY) 2018, and another $124 to $6,312 for FY Compensatory Revenue The $5 million allocation for compensatory pilot grants in FY 2017 was permanently added to the allocation for regular compensatory revenue beginning in FY Beginning in FY 2018, a portion of compensatory revenue will be required to be used for extended time activities. The requirement will be 1.7 percent of total compensatory revenue for FY 2018, and 3.5 percent in FY 2019 and beyond. Transportation Sparsity Revenue Beginning in FY 2018, transportation sparsity revenue increases annually by percent of the difference between 1) the lessor of a school district s actual regular and excess transportation costs for the previous fiscal year or percent of those costs for the preceding year, and 2) the sum of 4.66 percent of a school district s basic transportation revenue, transportation sparsity revenue, and charter school transportation adjustment for the previous year. For charter schools, the adjustment to transportation sparsity is equal to the applicable school district s per pupil adjustment. Early Learning The Legislature made a number of changes to early learning programs, including appropriating funding of $71.75 million for the biennium. Other changes include: The creation of a new School Readiness Plus (SR+) program for FY 2018 and FY 2019 only, with the following student eligibility requirements: o A child who is four years of age as of September 1, and who demonstrates one or more risk factors is eligible to participate in the program free of charge, o A child who is four years of age as of September 1, and who does not demonstrate any risk factors is eligible to participate on a fee-for-service basis, and o A sliding fee schedule must be adopted for students not demonstrating risk factors, but the fee must be waived for students unable to pay. Changing the Voluntary Pre-Kindergarten (VPK) cap from a limit on the total state aid entitlement to a limit on the number of participants, as follows: o A combined cap of 6,160 participants for VPK and SR+ for FY 2018, o A combined cap of 7,160 participants for VPK and SR+ for FY 2019, and o A cap of 3,160 participants for VPK for FY 2020 and later (SR+ program sunsets). All applications submitted in January to renew an existing FY 2017 VPK program will be funded first (3,160 slots). Applications for expanded VPK programs, and new VPK or SR+ programs will be ranked and approved based on various criteria. The number of new participants allowed in each new or expanded program will depend on how the programs are ranked. Procedural Changes or Clarifications Related to Funding Charter schools are allowed to include students participating in postsecondary enrollment options in their pupil count for generating building lease aid. Nutrition Contracts The Legislature amended the law governing contracts to provide for an exception to the requirement limiting school contracts to two years with an option for an additional two years. A contract between a school board and a food service management company that complies with Code of Federal Regulations, Title 7, Section , may be renewed annually after its initial term for not more than four years

20 Lead in School Drinking Water Requires the commissioner of health and education to develop a model plan to test for lead in school drinking water. Requires charter schools to adopt the model plan or an alternative plan to test school water for lead at least every five years. Requires charter schools to make lead testing results available to the public and to notify parents that this information is available

21 ACCOUNTING AND AUDITING UPDATES GASB STATEMENT NO. 83, CERTAIN ASSET RETIREMENT OBLIGATIONS At times, state and local governments are required to take specific actions to retire certain tangible capital assets, such as the decommissioning of nuclear reactors, removal and disposal of wind turbines in wind farms, dismantling and removal of sewage treatment plants, and removal and disposal of x-ray machines. Obligations to retire certain tangible capital assets also arise from contracts or court judgments. Accounting and financial reporting standards exist for costs of the closure and post-closure care of municipal solid waste landfills, but those standards do not address retirement obligations associated with other types of tangible capital assets. This statement addresses accounting and financial reporting for certain asset retirement obligations (AROs) that were not addressed in GASB standards by establishing uniform accounting and financial reporting requirements for these obligations. An ARO is a legally enforceable liability associated with the retirement of a tangible capital asset. A government that has legal obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability based on the guidance in this statement. The requirements of this statement are effective for reporting periods beginning after June 15, GASB STATEMENT NO. 84, FIDUCIARY ACTIVITIES This statement is intended to enhance consistency and comparability of fiduciary activity reporting by state and local governments. It is also meant to improve the usefulness of fiduciary activity information primarily for assessing the accountability of governments in their roles as fiduciaries. This statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. An activity meeting the criteria should be reported in a fiduciary fund in the basic financial statements. This statement describes four fiduciary funds that should be reported, if applicable: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds. Custodial funds generally should report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria. The requirements of this statement are effective for reporting periods beginning after December 15, GASB STATEMENT NO. 85, OMNIBUS 2017 The objective of this statement is to address issues that have been identified during implementation and application of certain GASB statements. The statement addresses a variety of topics, including issues related to blending component units, goodwill, fair value measurement and application, and post-employment benefits (pensions and OPEB). The statement is meant to enhance consistency in the application of recent accounting and financial reporting standards. The requirements of this statement are effective for reporting periods beginning after June 15,

22 GASB STATEMENT NO. 86, CERTAIN DEBT EXTINGUISHMENT ISSUES Current GASB guidance requires that debt be considered defeased in substance when the debtor irrevocably places cash or other monetary assets acquired with refunding debt proceeds in a trust to be used solely for satisfying scheduled payments of both principal and interest of the defeased debt. This new standard establishes essentially the same requirements for when a government places cash and other monetary assets acquired with only existing resources in an irrevocable trust to extinguish the debt. The primary objective of this statement is to improve consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources resources other than the proceeds of refunding debt are placed in an irrevocable trust for the sole purpose of extinguishing debt. This statement also improves accounting and financial reporting for prepaid insurance on debt that is extinguished and notes to financial statements for debt that is defeased in substance. The requirements of this statement are effective for reporting periods beginning after June 15, GASB STATEMENT NO. 87, LEASES A lease is a contract that transfers control of the right to use another entity s nonfinancial asset as specified in the contract for a period of time in an exchange or exchange-like transaction. Examples of nonfinancial assets include buildings, land, vehicles, and equipment. Any contract that meets this definition should be accounted for under the leases guidance, unless specifically excluded in this statement. Governments enter into leases for many types of assets. Under the previous guidance, leases were classified as either capital or operating depending on whether the lease met any of four tests. In many cases, the previous guidance resulted in reporting lease transactions differently than similar nonlease financing transactions. The goal of this statement is to better meet the information needs of users by improving accounting and financial reporting for leases by governments. It establishes a single model for lease accounting based on the principle that leases are financings of the right to use an underlying asset. This statement increases the usefulness of financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. Under this statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments leasing activities. To reduce the cost of implementation, this statement includes an exception for short-term leases, defined as a lease that, at the commencement of the lease term, has a maximum possible term under the lease contract of 12 months (or less), including any options to extend, regardless of their probability of being exercised. Lessees and lessors should recognize short-term lease payments as outflows of resources or inflows of resources, respectively, based on the payment provisions of the lease contract. The requirements of this statement are effective for reporting periods beginning after December 15,

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24 BLUESKY CHARTER SCHOOL, INC. WEST ST. PAUL, MINNESOTA Financial Statements and Supplemental Information Year Ended June 30,

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26 BLUESKY CHARTER SCHOOL, INC. Table of Contents Page INTRODUCTORY SECTION BOARD AND ADMINISTRATION 1 FINANCIAL SECTION INDEPENDENT AUDITOR S REPORT 24 MANAGEMENT S DISCUSSION AND ANALYSIS 513 BASIC FINANCIAL STATEMENTS Entity-Wide Financial Statements Statement of Net Position 14 Statement of Activities 15 Fund Financial Statements General Fund Balance Sheet 16 Statement of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual 1719 Notes to Basic Financial Statements 2035 REQUIRED SUPPLEMENTARY INFORMATION Public Employees Retirement Association Pension Benefits Plan Schedule of School s and Nonemployer Proportionate Share of Net Pension Liability 36 Schedule of School Contributions 36 Teachers Retirement Association Pension Benefits Plan Schedule of School s and Nonemployer Proportionate Share of Net Pension Liability 37 Schedule of School Contributions 37 OTHER REQUIRED REPORTS 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 3839 Independent Auditor s Report on Minnesota Legal Compliance 40 Uniform Financial Accounting and Reporting Standards Compliance Table

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28 INTRODUCTORY SECTION 28

29 BLUESKY CHARTER SCHOOL, INC. Board and Administration Year Ended June 30, 2017 BOARD Jim Stocco Paula Forbes Judy Pekarek Julie Johnson Heidi Kelbel Matthew Schempp Jami St. Marie Chair Vice Chair Treasurer Secretary Director Director Director ADMINISTRATION Amy Larsen Renee Parcheta Daniel Ondich Executive Director Student Services Director Assistant Director -1-29

30 FINANCIAL SECTION 30

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32 C ERTIFIED P UBLIC A C C O U N T A N T S PRINCIPALS Thomas A. Karnowski, CPA Paul A. Radosevich, CPA William J. Lauer, CPA James H. Eichten, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA/CMA INDEPENDENT AUDITOR S REPORT To the Board and Management of BlueSky Charter School, Inc. West St. Paul, Minnesota REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of the governmental activities and the major fund of BlueSky Charter School, Inc. (the School) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the School s basic financial statements as listed in the table of contents. MANAGEMENT S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR S RESPONSIBILITY Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the School 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 School 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. -2- (continued) Malloy, Montague, Karnowski, Radosevich & Co., P.A Wayzata Boulevard Suite 410 Minneapolis, MN Phone: Fax:

33 OPINIONS In our opinion, the financial statements referred to on the previous page present fairly, in all material respects, the respective financial position of the governmental activities and the major fund of the School as of June 30, 2017, and the respective changes in financial position and budgetary comparison for the General Fund for the year then ended, in accordance with accounting principles generally accepted in the United States of America. OTHER MATTERS Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and the required supplementary information (RSI), as listed in the table of contents, 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 RSI 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 School s basic financial statements. The introductory section is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying Uniform Financial Accounting and Reporting Standards (UFARS) Compliance Table is presented for purposes of additional analysis as required by the Minnesota Department of Education, and is also not a required part of the basic financial statements of the School. The UFARS Compliance Table 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 information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. Prior Year Comparative Information We have previously audited the School s 2016 financial statements, and we expressed unmodified audit opinions on the respective financial statements of the governmental activities and the major fund in our report dated December 13, In our opinion, the partial comparative information presented herein as of and for the year ended June 30, 2016 is consistent, in all material respects, with the audited financial statements from which it has been derived. -3- (continued) 33

34 OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated December 12, 2017 on our consideration of the School s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the School s internal control over financial reporting and compliance. Minneapolis, Minnesota December 12,

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36 BLUESKY CHARTER SCHOOL, INC. Management s Discussion and Analysis Fiscal Year Ended June 30, 2017 This section of BlueSky Charter School, Inc. s (the School) financial statements presents management s discussion and analysis of the School s financial performance during the fiscal year ended June 30, Please read it in conjunction with the other components of the School s financial statements. FINANCIAL HIGHLIGHTS The School s liabilities and deferred inflows of resources exceeded its assets and deferred outflows of resources at June 30, 2017 by $2,994,781 (deficit net position). The School s total net position decreased $1,589,846 from operations during the fiscal year ended June 30, At June 30, 2017, the School s General Fund reported a total fund balance of $1,798,485, an increase of $169,214 from the prior year. The unassigned portion of the year-end fund balance was $1,649,932. The remaining fund balance was a nonspendable fund balance of $148,553 for prepaid items. OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of the annual financial statements consists of the following parts: Independent Auditor s Report; Management s discussion and analysis; Basic financial statements, including the entity-wide financial statements, fund financial statements, and the notes to basic financial statements; and Required supplementary information. The following explains the two types of statements included in the basic financial statements: ENTITY-WIDE FINANCIAL STATEMENTS The entity-wide financial statements (Statement of Net Position and Statement of Activities) report information about the School as a whole using accounting methods similar to those used by private sector companies. The Statement of Net Position includes all of the School s assets, deferred outflows of resources, liabilities, and deferred inflows of resources. All of the current year s revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. The two entity-wide financial statements report the School s net position and how it has changed. Net position the difference between the School s assets, deferred outflows of resources, liabilities, and deferred inflows of resources is one way to measure the School s financial health or position. Over time, increases or decreases in the School s net position are indicators of whether its financial position is improving or deteriorating, respectively. To assess the overall health of the School requires consideration of additional nonfinancial factors, such as changes in the School s student population and the condition of the School s buildings and other facilities

37 In the entity-wide financial statements, the School s activities are all shown in one category titled governmental activities. These activities, providing regular and special education instruction services to students of the School, are primarily financed with state aids. FUND FINANCIAL STATEMENTS The fund financial statements provide more detailed information about the School s funds, focusing on its most significant or major funds, rather than the School as a whole. Funds are accounting devices the School uses to keep track of specific sources of funding and spending on particular programs. Minnesota charter schools must establish funds within the guidelines of the state s Uniform Financial Accounting and Reporting Standards. The School maintains the following type of fund: Governmental Funds The School s basic services are included in a governmental fund, which generally focuses on: 1) how cash and other financial assets that can readily be converted to cash flow in and out, and 2) the balances left at year-end that are available for spending. Consequently, the governmental fund financial statements provide a detailed short-term view that helps to determine whether there are more or less financial resources that can be spent in the near future to finance the School s programs. Because this information does not encompass the additional long-term focus of the entity-wide financial statements, we provide additional information (reconciliation schedules) immediately following the governmental fund financial statements that explain the relationship (or differences) between these two types of financial statement presentations

38 FINANCIAL ANALYSIS OF THE SCHOOL AS A WHOLE Table 1 is a summarized view of the School s Statement of Net Position: Table 1 Summary of Net Position as of June 30, 2017 and Assets Current and other assets $ 2,305,820 $ 2,031,526 Capital assets, net of depreciation 54,985 38,171 Total assets $ 2,360,805 $ 2,069,697 Deferred outflow of resources Pension plan deferments $ 8,428,921 $ 858,786 Liabilities Current and other liabilities $ 507,335 $ 402,255 Long-term liabilities, including due within one year 13,238,260 3,640,747 Total liabilities $ 13,745,595 $ 4,043,002 Deferred inflows of resources Pension plan deferments $ 38,912 $ 290,416 Net position Net investment in capital assets $ 54,985 $ 38,171 Unrestricted (3,049,766) (1,443,106) Total net position $ (2,994,781) $ (1,404,935) The School s financial position is the product of many factors. For example, the determination of the School s net investment in capital assets involves many assumptions and estimates, such as current and accumulated depreciation amounts. A conservative versus liberal approach to depreciation estimates, as well as capitalization policies, may produce a significant difference in the calculated amounts. Unrestricted net position includes the School s liabilities for severance and pensions, which are not fully funded. The School s total net position at June 30, 2017 was $1,589,846 lower than the prior year. Total assets and deferred outflows of resources increased $7,861,243, while total liabilities and deferred inflows of resources increased $9,451,089. The majority of the changes in long-term liabilities, deferred outflows and inflows of resources, and unrestricted net position were due to increases in the School s proportionate share of two state-wide pension plans reported on the entity-wide financial statements

39 Table 2 presents a condensed version of the Change in Net Position of the School: Table 2 Change in Net Position for the Years Ended June 30, 2017 and Revenues Program revenues Charges for services $ 2,632 $ 4,255 Operating grants and contributions 833, ,241 General revenues General grants and aids 4,409,558 4,189,344 Other general revenues 18,495 26,418 Investment earnings Total revenues 5,264,793 5,039,680 Expenses Administration 328, ,152 District support services 504, ,475 Elementary and secondary regular instruction 2,416,821 1,495,240 Vocational education instruction 7,856 8,376 Special education instruction 1,055, ,242 Instructional support services 727, ,238 Pupil support services 1,527,650 1,010,821 Sites and buildings 264, ,004 Fiscal and other fixed cost programs 21,612 27,745 Total expenses 6,854,639 4,718,293 Change in net position (1,589,846) 321,387 Net position beginning (1,404,935) (1,726,322) Net position ending $ (2,994,781) $ (1,404,935) The Statement of Activities is presented on an accrual basis of accounting and includes all of the School s governmental activities. This statement includes depreciation expense, but excludes capital asset purchase costs, and the proceeds from and repayment of any debt. The significant increase in expenses is due to higher entity-wide pension costs recognized related to the two state-wide pension plans. While being an online provider of education allows the School to attract students from across the state and to keep operating costs controlled, it creates other challenges. These challenges include the geographical demands of complying with state testing requirements, keeping technological systems operating at optimal levels, and maintaining a consistent staff to achieve these goals

40 Figures A and B show further analysis of these revenue sources and expense functions: Figure A Sources of Revenue for Fiscal Years 2017 and 2016 The largest share of the School s revenue is received from the state, including most of the operating and general grants. This significant reliance on the state for funding has placed pressures on charter school budgets as funding increases have generally not kept pace with inflation. Enrollment continues to be the largest influence on the School s revenue. The School s enrollment an adjusted average daily memberships (ADM) of 483 for the year was slightly below the initial budgeted projections of 485 ADM, and reflected a decrease of 2 ADM from the prior year. The School s total governmental activity revenues were $5,264,793 for the year ended June 30, 2017, which is an increase of $225,113 from the prior year. General grants increased by $220,214, primarily due to increased general education funding

41 Figure B Expenses for Fiscal Years 2017 and 2016 The School s expenses are predominately related to educating students. Programs (or functions) such as regular instruction, vocational education instruction, special education instruction, and instructional support services are directly related to classroom instruction, while the rest of the programs support instruction and other necessary costs to operate the School. The School s cost of all governmental activities for 2017 was $6,854,639, which is an increase of $2,136,346 (45.3 percent) from the prior year. The main increases were in elementary and secondary regular instruction, special education and pupil support services, primarily due to higher entity-wide pension costs recognized related to the two state-wide pension plans

42 FINANCIAL ANALYSIS OF THE GENERAL FUND Table 3 summarizes the amendments to the General Fund budget: Table 3 General Fund Budget Increase Original Budget Final Budget (Decrease) Percent Change Revenue $ 5,168,900 $ 5,168,900 $ % Expenditures $ 5,122,322 $ 5,122,322 $ % The School is required to adopt an operating budget prior to the beginning of its fiscal year, referred to above as the original budget. It is the School s practice to amend the General Fund budget during the year for known significant changes in circumstances such as: updated enrollment estimates, legislation changes, new or additional funding, staffing changes, employee contract settlements, adjustments to health insurance premiums, special education tuition changes, or utility rate changes. The School amended the budget during the year, but did not increase total revenues or expenditures. Table 4 summarizes the operating results of the General Fund: Table 4 General Fund Operating Results Increase (Decrease) Over (Under) Budget From Prior Year 2017 Actual Amount Percent Amount Percent Revenue $ 5,107,654 $ (61,246) (1.2%) $ 67, % Expenditures 4,938,440 $ (183,882) (3.6%) $ 301, % Net change in fund balances $ 169,214 General Fund revenues increased, mostly due to increased general education funding. Revenues were under budget due to serving fewer students than anticipated. General Fund expenditures were higher than the prior year due to planned staffing additions. Expenditures were under budget due in part to not all budgeted positions being filled

43 CAPITAL ASSETS AND LONG-TERM LIABILITIES Capital Assets Table 5 shows the School s capital assets, together with changes from the previous year. The table also shows the total depreciation expense for fiscal years ending June 30, 2017 and 2016: Table 5 Capital Assets Increase (Decrease) Furniture and equipment $ 191,697 $ 159,096 $ 32,601 Less accumulated depreciation (136,712) (120,925) (15,787) Total $ 54,985 $ 38,171 $ 16,814 Depreciation expense $ 15,787 $ 15,016 $ 771 The School is not heavily dependent on capital assets for providing instructional services to students due to its delivery of online learning. Long-Term Liabilities Table 6 shows the components of the School s long-term liabilities, and the change from the prior year: Table 6 Outstanding Long-Term Liabilities Increase (Decrease) Compensated absences payable $ 54,294 $ 42,393 $ 11,901 Severance benefits payable 241, ,273 35,001 Net pension liability 12,942,692 3,392,081 9,550,611 Total $ 13,238,260 $ 3,640,747 $ 9,597,513 The increase in the School s long-term liabilities was mainly due to the change in its proportionate share of the pension liabilities from the state-wide plans administered by the Public Employees Retirement Association and the Teachers Retirement Association. More detailed information on the School s capital assets and long-term liabilities can be found in the notes to basic financial statements

44 FACTORS BEARING ON THE SCHOOL S FUTURE The School is dependent on the state of Minnesota for much of its revenue. In recent years, legislated revenue increases have made it difficult to meet the instructional program needs and increased costs due to inflation for Minnesota charter schools. The general education program is the method by which charter schools receive the majority of their financial support. This source of funding is primarily state aid and, as such, charter schools rely heavily on the state of Minnesota for educational resources. The Legislature has added $121, or 2.0 percent, per pupil to the basic general education funding formula for fiscal year 2018 and an additional $124, or 2.0 percent, per pupil to the formula for fiscal year CONTACTING THE SCHOOL S FINANCIAL MANAGEMENT These financial statements are designed to provide our citizens, sponsor, customers, investors, and creditors with a general overview of the School s finances and to demonstrate the School s accountability for the money it receives. If you have questions about this report or need additional financial information, contact BlueSky Charter School, Inc., 33 Wentworth Avenue East, Suite 100, West St. Paul, Minnesota

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46 BASIC FINANCIAL STATEMENTS 46

47 BLUESKY CHARTER SCHOOL, INC. Statement of Net Position as of June 30, 2017 (With Partial Comparative Information as of June 30, 2016) Governmental Activities Assets Cash and temporary investments $ 1,718,616 $ 1,472,472 Receivables Due from other governmental units 438, ,680 Prepaid items 148, ,374 Capital assets Depreciated, net of accumulated depreciation 54,985 38,171 Total assets 2,360,805 2,069,697 Deferred outflows of resources Pension plan deferments 8,428, ,786 Total assets and deferred outflows of resources $ 10,789,726 $ 2,928,483 Liabilities Salaries and benefits payable $ 419,583 $ 386,195 Accounts and contracts payable 87,752 16,060 Long-term liabilities Due within one year 117,899 76,056 Due in more than one year 13,120,361 3,564,691 Total long-term liabilities 13,238,260 3,640,747 Total liabilities 13,745,595 4,043,002 Deferred inflows of resources Pension plan deferments 38, ,416 Net position Net investment in capital assets 54,985 38,171 Unrestricted (3,049,766) (1,443,106) Total net position (2,994,781) (1,404,935) Total liabilities, deferred inflows of resources, and net position $ 10,789,726 $ 2,928,483 See notes to basic financial statements

48 BLUESKY CHARTER SCHOOL, INC. Statement of Activities Year Ended June 30, 2017 (With Partial Comparative Information for the Year Ended June 30, 2016) Net (Expense) Net (Expense) Revenue and Revenue and Changes in Changes in Program Revenues Net Position Net Position Operating Charges Grants and Governmental Governmental Functions/Programs Expenses for Services Contributions Activities Activities Governmental activities Administration $ 328,772 $ $ $ (328,772) $ (153,152) District support services 504,928 (504,928) (390,475) Elementary and secondary regular instruction 2,416,821 2,632 (2,414,189) (1,490,985) Vocational education instruction 7,856 (7,856) (8,376) Special education instruction 1,055, ,059 (412,336) (69,961) Instructional support services 727,552 (727,552) (620,238) Pupil support services 1,527,650 (1,527,650) (1,010,821) Sites and buildings 264, ,530 (73,523) (123,044) Fiscal and other fixed cost programs 21,612 (21,612) (27,745) Total governmental activities $ 6,854,639 $ 2,632 $ 833,589 (6,018,418) (3,894,797) General revenues General grants and aids 4,409,558 4,189,344 Other general revenues 18,495 26,418 Investment earnings Total general revenues 4,428,572 4,216,184 Change in net position (1,589,846) 321,387 Net position beginning (1,404,935) (1,726,322) Net position ending $ (2,994,781) $ (1,404,935) See notes to basic financial statements

49 BLUESKY CHARTER SCHOOL, INC. General Fund Balance Sheet as of June 30, 2017 (With Partial Comparative Information as of June 30, 2016) Assets Cash and temporary investments $ 1,718,616 $ 1,472,472 Receivables Due from other governmental units 438, ,680 Prepaid items 148, ,374 Total assets $ 2,305,820 $ 2,031,526 Liabilities Salaries and benefits payable $ 419,583 $ 386,195 Accounts and contracts payable 87,752 16,060 Total liabilities 507, ,255 Fund balances Nonspendable for prepaid items 148, ,374 Unassigned 1,649,932 1,509,897 Total fund balances 1,798,485 1,629,271 Total liabilities and fund balances $ 2,305,820 $ 2,031,526 Amounts recorded for governmental activities in the Statement of Net Position differ because: Fund balances as reported above $ 1,798,485 $ 1,629,271 Capital assets are included in net position, but are excluded from fund balances because they do not represent financial resources. Cost of capital assets 191, ,096 Accumulated depreciation (136,712) (120,925) Long-term liabilities are included in net position, but are excluded from fund balances until due and payable. Compensated absences payable (54,294) (42,393) Severance benefits payable (241,274) (206,273) Net pension liability (12,942,692) (3,392,081) The recognition of certain revenues and expenses/expenditures differ between the full accrual governmental activities financial statements and the modified accrual governmental fund financial statements. Deferred outflows pension plan deferments 8,428, ,786 Deferred inflows pension plan deferments (38,912) (290,416) Total net position governmental activities $ (2,994,781) $ (1,404,935) See notes to basic financial statements

50 BLUESKY CHARTER SCHOOL, INC. General Fund Statement of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual Year Ended June 30, 2017 (With Partial Comparative Information for the Year Ended June 30, 2016) Original Final Over (Under) Budget Budget Actual Budget Actual Revenue Federal sources $ 69,000 $ 69,000 $ 118,732 $ 49,732 $ 103,348 State sources 5,079,100 5,079,100 4,967,276 (111,824) 4,905,237 Local sources Investment earnings Other 20,350 20,350 21, ,673 Total revenue 5,168,900 5,168,900 5,107,654 (61,246) 5,039,680 Expenditures Current Administration Salaries 146, , ,000 7, ,000 Employee benefits 24,393 29,993 35,209 5,216 19,601 Purchased services 4,350 4,350 4,137 (213) 5,267 Supplies and materials 65 Other expenditures 25,320 25,320 25, ,792 Total administration 201, , ,673 12, ,725 District support services Salaries 116, , ,278 3, ,539 Employee benefits 27,200 34,600 36,491 1,891 24,036 Purchased services 217, , ,192 (19,353) 162,969 Supplies and materials 74, ,202 91,315 (17,887) 65,996 Capital expenditures 25,000 25,000 26,974 1,974 16,692 Other expenditures 14,191 14,191 19,779 5,588 11,474 Total district support services 475, , ,029 (23,987) 392,706 Elementary and secondary regular instruction Salaries 1,919,418 1,293,504 1,237,470 (56,034) 1,087,027 Employee benefits 473, , ,639 (89,505) 279,455 Purchased services 55,430 40,430 24,879 (15,551) 44,845 Supplies and materials 43,901 95,000 48,242 (46,758) 30,285 Capital expenditures 2,500 33,060 30,560 Other expenditures 4,154 4,154 1,639 (2,515) 3,230 Total elementary and secondary regular instruction 2,495,926 1,826,732 1,646,929 (179,803) 1,444,842 See notes to basic financial statements -17- (continued) 50

51 BLUESKY CHARTER SCHOOL, INC. General Fund Statement of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual (continued) Year Ended June 30, 2017 (With Partial Comparative Information for the Year Ended June 30, 2016) Original Final Over (Under) Budget Budget Actual Budget Actual Expenditures (continued) Current (continued) Vocational education instruction Salaries 4,836 3,250 2,600 (650) 1,200 Employee benefits (208) 1,595 Purchased services 1,450 1, (523) 588 Supplies and materials 1,790 1,790 2,937 Total vocational education instruction 6,992 5,286 5, ,320 Special education instruction Salaries 517, , , ,745 Employee benefits 121, , ,211 (5,217) 111,920 Purchased services 129, ,240 76,868 (44,372) 60,107 Supplies and materials 8,150 5,590 (2,560) 7,755 Other expenditures Total special education instruction 768, , ,766 (50,682) 699,527 Instructional support services Salaries 180, , ,062 7, ,520 Employee benefits 43,353 65,410 78,849 13, ,797 Purchased services 53,250 65,750 67,504 1,754 56,518 Supplies and materials 53,040 29,440 14,909 (14,531) 9,306 Other expenditures 3,000 3,000 11,017 8,017 7,518 Total instructional support services 332, , ,341 16, ,659 Pupil support services Salaries 415, , ,564 32, ,246 Employee benefits 101, , ,280 40, ,717 Purchased services (500) Other expenditures Total pupil support services 518, , ,914 72, ,963 Sites and buildings Purchased services 318, , ,031 (14,688) 305,250 Capital expenditures 5,000 5, (4,550) 4,187 Total sites and buildings 323, , ,481 (19,238) 309,437 See notes to basic financial statements -18- (continued) 51

52 BLUESKY CHARTER SCHOOL, INC. General Fund Statement of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual (continued) Year Ended June 30, 2017 (With Partial Comparative Information for the Year Ended June 30, 2016) Original Final Over (Under) Budget Budget Actual Budget Actual Expenditures (continued) Current (continued) Fiscal and other fixed cost programs Purchased services 33,500 21,612 (11,888) 27,745 Total expenditures 5,122,322 5,122,322 4,938,440 (183,882) 4,636,924 Net change in fund balance $ 46,578 $ 46, ,214 $ 122, ,756 Fund balances Beginning of year 1,629,271 1,226,515 End of year $ 1,798,485 $ 1,629,271 Amounts reported for governmental activities in the Statement of Activities differ because: Net change in fund balances reported above $ 169,214 $ 402,756 Capital outlays are recorded as net position and the cost is allocated over their estimated useful lives as depreciation expense. However, fund balances are reduced for the full cost of capital outlays at the time of purchase. Capital outlays 32,601 13,340 Depreciation expense (15,787) (15,016) Certain expenses are included in the change in net position, but do not require the use of current funds, and are not included in the change in fund balances. Compensated absences payable (11,901) 4,383 Severance benefits payable (35,001) (24,901) Net pension liability (9,550,611) (793,876) The recognition of certain revenues and expenses/expenditures differ between the full accrual governmental activities financial statements and the modified accrual governmental fund financial statements. Deferred outflows pension plan deferments 7,570, ,402 Deferred inflows pension plan deferments 251, ,299 Change in net position of governmental activities $ (1,589,846) $ 321,387 See notes to basic financial statements

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54 BLUESKY CHARTER SCHOOL, INC. Notes to Basic Financial Statements June 30, 2017 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity BlueSky Charter School, Inc. (the School) is an outcome-based charter school established March 9, 2000 in accordance with Minnesota Statutes 124D.10. The School is required to operate under a charter agreement with an entity that has been approved by the Minnesota Department of Education (MDE) to be a charter school authorizer. The authorizer monitors and evaluates the School s performance, and periodically determines whether to renew the School s charter. The School s authorizer is Novation Education Opportunities (NEO), a nonprofit organization. Aside from its responsibilities as authorizer, NEO has no authority or control over the School, and is not financially accountable for it. Therefore, the School is not considered to be a component unit of NEO. The School s financial statements include all funds, departments, agencies, boards, commissions, and other organizations for which the School is considered to be financially accountable. Component units are legally separate entities for which the School (primary government) is financially accountable, or for which the exclusion of the component unit would render the financial statements of the primary government misleading. The criteria used to determine if the primary government is financially accountable for a component unit includes whether or not the primary government appoints the voting majority of the potential component unit s governing body, is able to impose its will on the potential component unit, is in a relationship of financial benefit or burden with the potential component unit, or is fiscally depended upon by the potential component unit. Based on these criteria, there are no organizations considered to be component units of the School. Extracurricular student activities are determined primarily by student participants under the guidance of an adult, and are generally conducted outside of school hours. In accordance with Minnesota Statutes, the School s Board can elect to either control or not control student activities. The School s Board has elected to control student activities; therefore, any such activities are accounted for in the General Fund. B. Basis of Statement Presentation As required by state law, the School operates as a nonprofit corporation under Minnesota Statutes 317A. However, state law also requires that the School comply with Uniform Financial Accounting and Reporting Standards for Minnesota School Districts, which mandates the use of a governmental fund accounting structure. C. Entity-Wide Financial Statement Presentation The entity-wide financial statements (Statement of Net Position and Statement of Activities) display information about the reporting government as a whole. These statements include all the financial activities of the School. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment; and grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Other internally directed revenues are reported instead as general revenues

55 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The entity-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized when all eligibility requirements imposed by the provider have been met. Depreciation expense is included as a direct expense in the functional areas that utilize the related capital assets. Interest is considered an indirect expense and is reported separately on the Statement of Activities. D. Fund Financial Statement Presentation Separate fund financial statements are provided for governmental funds. Major individual governmental funds are reported as separate columns in the fund financial statements. The existence of the various school funds has been established by the MDE. Each fund is accounted for as an independent entity. The School maintains a single General Fund to account for all of its activity. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this basis of accounting transactions are recorded in the following manner: 1. Revenue Recognition Revenue is recognized when it becomes measurable and available. Measurable means the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. For this purpose, the School generally considers revenues to be available if they are collected within 60 days after year-end. Grants and similar revenues are recognized when all eligibility requirements imposed by the provider have been met. State revenue is recognized in the year to which it applies according to funding formulas established by Minnesota Statutes. 2. Recording of Expenditures Expenditures are generally recorded when a liability is incurred, except for compensated absences, severance benefits, and pensions, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as capital outlay expenditures in the governmental funds. In the General Fund, capital outlay expenditures are included within the applicable functional areas. E. Budgeting The School s Board adopts an annual budget for the General Fund, which is prepared on the same basis of accounting as the financial statements. Legal budgetary control is at the fund level. Budgeted expenditure appropriations lapse at year-end. F. Use of Estimates The preparation of 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 reported amounts and disclosure at the date of the financial statements and during the reporting period. Actual results could differ from those estimates. G. Income Taxes The School is exempt from income taxes under Internal Revenue Code (IRC) 501(c)(3). The School is subject to tax on income from any unrelated business

56 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The School follows the recognition requirements for uncertain income tax positions as required by the Financial Accounting Standards Board Accounting Standards Codification Income tax benefits are recognized for income tax positions taken or expected to be taken in a tax return, only when it is determined that the income tax position will more-likely-than-not be sustained upon examination by taxing authorities. The School has analyzed tax positions taken for filing with the Internal Revenue Service and state jurisdiction where it operates. The School believes that income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on its respective financial condition, results of operations, or cash flows. Accordingly, the School has not recorded any reserves or related accruals for interest and penalties for uncertain income tax positions at year-end. The School is subject to routine audits by taxing jurisdictions; however, there are currently no audits in progress for any open tax periods. H. Receivables When necessary, the School utilizes an allowance for uncollectible accounts to value its receivables. However, the School considers all of its current receivables to be collectible. I. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. Prepaid items are recorded as expenses/expenditures when consumed. J. Capital Assets Capital assets are capitalized at historical cost, or estimated historical cost if purchased or constructed. Donated assets are recorded as capital assets at their estimated acquisition value at the date of donation. The School defines capital assets as those with an initial, individual cost of $500 or more, which benefit more than one fiscal year. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Capital assets are recorded in the entity-wide financial statements, but are not reported in the fund financial statements. Capital assets are depreciated using the straight-line method over their estimated useful lives. Since assets are generally sold for an immaterial amount or scrapped when declared as no longer fit or needed for public school purposes by the School, no salvage value is taken into consideration for depreciation purposes. Useful lives for furniture and equipment are 310 years. K. Deferred Outflows/Inflows of Resources In addition to assets and liabilities, a statement of financial position will sometimes report separate sections for deferred outflows/inflows of resources. These separate financial statement elements represent a consumption/acquisition of net position that applies to a future period, which will not be recognized as an outflow of resources (expense/expenditure) or inflow of resources (revenue) until then. The School has one type of item that qualifies for reporting in these categories, deferred outflows/inflows of resources related to pensions, which are reported in the entity-wide Statement of Net Position. These deferred outflows/inflows result from differences between expected and actual experience, changes of assumptions, the difference between projected and actual earnings on pension plan investments, changes in proportion, and contributions to the plan subsequent to the measurement date and before the end of the reporting period. These amounts are deferred and amortized as required under pension standards

57 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) L. Compensated Absences Substantially all school employees are entitled to personal and sick leave at various rates, portions of which may be carried over to future years. Compensated absences are accrued in the governmental fund financial statements only to the extent they have been used or otherwise matured prior to year-end. Employees are reimbursed for unused personal leave upon termination, which is accrued in the entity-wide financial statements as it is earned. M. Severance Benefits After four years of service, certain employees are eligible to be compensated for 50 percent of unused sick leave, up to a maximum of 400 hours, upon termination of employment. Severance benefits are recorded as a liability in the governmental fund financial statements as they mature due to termination. Severance benefits based on convertible sick leave are recorded as a liability in the entity-wide financial statements as they are earned and it becomes probable they will vest at some point in the future. N. State-Wide Pension Plans For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and the Teachers Retirement Association (TRA) and additions to/deductions from the PERA s and the TRA s fiduciary net positions have been determined on the same basis as they are reported by the PERA and the TRA. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. The TRA has a special funding situation created by direct aid contributions made by the state of Minnesota, City of Minneapolis, and Special School District No. 1, Minneapolis Public Schools. The direct aid is a result of the merger of the Minneapolis Teachers Retirement Fund Association into the TRA in A second direct aid source is from the state of Minnesota for the merger of the Duluth Teachers Retirement Fund Association in The PERA has a special funding situation created by a direct aid contribution made by the state of Minnesota. The direct aid is a result of the merger of the Minneapolis Employees Retirement Fund into the PERA on January 1, O. Risk Management The School is exposed to various risks of loss related to torts: theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The School carries commercial insurance purchased from independent third parties to cover these risks. Settled claims have not exceeded coverage in any of the past three fiscal years. There were no significant reductions in insurance coverage in fiscal year

58 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) P. Fund Balance Classifications In the fund financial statements, governmental funds report fund balance in classifications that disclose constraints for which amounts in those funds can be spent. These classifications are as follows: Nonspendable Consists of amounts that are not in spendable form, such as prepaid items, inventory, and other long-term assets. Restricted Consists of amounts related to externally imposed constraints established by creditors, grantors, or contributors; or constraints imposed by state statutory provisions. Committed Consists of internally imposed constraints that are established by resolution of the Board. Those committed amounts cannot be used for any other purpose unless the Board removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. Assigned Consists of internally imposed constraints. These constraints consist of amounts intended to be used by the School for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds, assigned amounts represent intended uses established by the governing body itself. Unassigned The residual classification for the General Fund. When both restricted and unrestricted resources are available for use, the School uses restricted resources first, and then uses unrestricted resources as they are needed. When committed, assigned, or unassigned resources are available for use, the School uses resources in the following order: 1) committed, 2) assigned, and 3) unassigned. Q. Net Position In the entity-wide financial statements, net position represents the difference between assets, deferred outflows of resources, liabilities, and deferred inflows of resources. Net position is displayed in three components: Net Investment in Capital Assets Consists of capital assets, net of accumulated depreciation, reduced by outstanding debt, if any, attributable to acquire capital assets. Restricted Net Position Consists of net position restricted when there are limitations imposed on its use through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. Unrestricted Net Position All other net position that does not meet the definition of restricted or net investment in capital assets. The School applies restricted resources first when an expense is incurred for which both restricted and unrestricted resources are available

59 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) R. Prior Period Comparative Financial Information/Reclassification The basic financial statements include certain prior year partial comparative information in total but not at the level of detail required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the School s financial statements for the prior year, from which the summarized information was derived. Also, certain amounts presented in the prior year data have been reclassified in order to be consistent with the current year s presentation. NOTE 2 CASH AND TEMPORARY INVESTMENTS In accordance with applicable Minnesota Statutes, the School maintains deposits at depository banks authorized by the Board. The following is considered the most significant risk associated with deposits: Custodial Credit Risk In the case of deposits, this is the risk that in the event of a bank failure, the School s deposits may be lost. Minnesota Statutes require that all deposits be protected by federal deposit insurance, corporate surety bond, or collateral. The market value of collateral pledged must equal 110 percent of the deposits not covered by federal deposit insurance or corporate surety bonds. Authorized collateral includes treasury bills, notes, and bonds; issues of U.S. government agencies; general obligations rated A or better; revenue obligations rated AA or better; irrevocable standard letters of credit issued by the Federal Home Loan Bank; and certificates of deposit. Minnesota Statutes require that securities pledged as collateral be held in safekeeping in a restricted account at the Federal Reserve Bank or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The School s deposit policies do not further limit depository choices. At year-end, the carrying amount and bank balance of the School s deposits was $1,718,616, while the balance on the bank records was $1,744,026. At year-end, all deposits were fully covered by federal depository insurance or pledged collateral held by the School s agent in the School s name

60 NOTE 3 CAPITAL ASSETS Capital assets activity for the year is as follows: Balance Beginning Balance of Year Additions Deletions End of Year Furniture and equipment $ 159,096 $ 32,601 $ $ 191,697 Less accumulated depreciation (120,925) (15,787) (136,712) Capital assets, net of accumulated depreciation $ 38,171 $ 16,814 $ $ 54,985 Depreciation expense was charged to the following governmental functions: District support services $ 10,512 Elementary and secondary regular instruction 3,689 Vocational instruction 1,404 Instructional support services 160 Sites and buildings 22 Total depreciation expense $ 15,787 NOTE 4 LONG-TERM LIABILITIES Long-term liabilities consist of compensated absences payable, severance benefits payable, and net pension liabilities. School employees participate in two state-wide, cost-sharing, multi-employer plans administered by the PERA and the TRA. The following is a summary of the net pension liabilities, deferred outflows and inflows of resources, and pension expense reported for these plans as of and for the year ended June 30, 2017: Net Pension Deferred Outflows Deferred Inflows Pension Pension Plans Liabilities of Resources of Resources Expense PERA $ 324,780 $ 129,587 $ 38,560 $ 36,992 TRA 12,617,912 8,299, ,112,018 Total $ 12,942,692 $ 8,428,921 $ 38,912 $ 2,149,010 Changes in the long-term liabilities for the year are as follows: Balance Beginning Balance Due Within of Year Additions Retirements End of Year One Year Compensated absences payable $ 42,393 $ 17,273 $ 5,372 $ 54,294 $ 54,294 Severance benefits payable 206,273 89,379 54, ,274 63,605 Net pension liability 3,392,081 9,806, ,933 12,942,692 $ 3,640,747 $ 9,913,196 $ 315,683 $ 13,238,260 $ 117,

61 NOTE 5 DEFINED BENEFIT PENSION PLANS STATE-WIDE A. Plan Descriptions The School participates in the following cost-sharing, multiple-employer defined benefit pension plans administered by the PERA and the TRA. The PERA s and the TRA s defined benefit pension plans are established and administered in accordance with Minnesota Statutes. The PERA s and the TRA s defined benefit pension plans are tax qualified plans under Section 401(a) of the IRC. 1. General Employees Retirement Fund (GERF) The PERA s defined benefit pension plans are established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. All full-time and certain part-time employees of the School other than teachers are covered by the GERF. GERF members belong to the Coordinated Plan. Coordinated Plan members are covered by Social Security. 2. Teachers Retirement Association (TRA) The TRA administers a Basic Plan (without Social Security coverage) and a Coordinated Plan (with Social Security coverage) in accordance with Minnesota Statutes, Chapters 354 and 356. The TRA is a separate statutory entity administered by a Board of Trustees. The Board of Trustees consists of four active members, one retired member, and three statutory officials. Teachers employed in Minnesota s public elementary and secondary schools, charter schools, and certain educational institutions maintained by the state (except those teachers employed by the City of St. Paul and by the University of Minnesota system) are required to be TRA members. State university, community college, and technical college teachers first employed by Minnesota State Colleges and Universities (MnSCU) may elect TRA coverage within one year of eligible employment. Alternatively, these teachers may elect coverage through the Defined Contribution Retirement Plan administered by MnSCU. B. Benefits Provided The PERA and the TRA provide retirement, disability, and death benefits. Benefit provisions are established by state statutes and can only be modified by the State Legislature. PERA Benefit increases are provided to benefit recipients each January. Increases are related to the funding ratio of the plan. Members in plans that are at least 90.0 percent funded for two consecutive years are given 2.5 percent increases. Members in plans that have not exceeded 90.0 percent funded, or have fallen below 80.0 percent, are given 1.0 percent increases. TRA Post-retirement benefit increases are provided to eligible benefit recipients each January and are assumed to remain level at 2.0 percent annually. The benefit provisions stated in the following paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet are bound by the provisions in effect at the time they last terminated their public service

62 NOTE 5 DEFINED BENEFIT PENSION PLANS STATE-WIDE (CONTINUED) 1. GERF Benefits Benefits are based on a member s highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for the PERA s Coordinated Plan members. The retiring member receives the higher of a step-rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Coordinated Plan member is 1.2 percent of average salary for each of the first 10 years and 1.7 percent for each remaining year. Under Method 2, the annuity accrual rate is 1.7 percent for Coordinated Plan members for each year of service. For members hired prior to July 1, 1989, a full annuity is available when age plus years of service equal 90 and normal retirement age is 65. For members hired on or after July 1, 1989, normal retirement age is the age for unreduced Social Security benefits capped at age TRA Benefits The TRA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible members. Benefits are established by Minnesota Statutes and vest after three years of service credit. The defined retirement benefits are based on a member s highest average salary for any five consecutive years of allowable service, age, and a formula multiplier based on years of credit at termination of service. Two methods are used to compute benefits for the TRA s Coordinated and Basic Plan members. Members first employed before July 1, 1989, receive the greater of the Tier I or Tier II benefits as described. Tier I Benefits Step-Rate Formula Percentage per Year Basic Plan First 10 years of service 2.2 % All years after 2.7 % Coordinated Plan First 10 years if service years are up to July 1, % First 10 years if service years are July 1, 2006 or after 1.4 % All other years of service if service years are up to July 1, % All other years of service if service years are up to July 1, 2006 or after 1.9 % With these provisions: (a) Normal retirement age is 65 with less than 30 years of allowable service and age 62 with 30 or more years of allowable service. (b) Three percent per year early retirement reduction factor for all years under normal retirement age. (c) Unreduced benefits for early retirement under a Rule of 90 (age plus allowable service equals 90 or more)

63 NOTE 5 DEFINED BENEFIT PENSION PLANS STATE-WIDE (CONTINUED) Tier II Benefits For years of service prior to July 1, 2006, a level formula of 1.7 percent per year for Coordinated Plan members and 2.7 percent per year for Basic Plan members applies. For years of service July 1, 2006 and after, a level formula of 1.9 percent per year for Coordinated Plan members and 2.7 percent for Basic Plan members applies. Beginning July 1, 2015, the early retirement reduction factors are based on rates established under Minnesota Statutes. Smaller reductions, more favorable to the member, will be applied to individuals who reach age 62 and have 30 years or more of service credit. Members first employed after June 30, 1989, receive only the Tier II calculation with a normal retirement age that is their retirement age for full Social Security retirement benefits, but not to exceed age 66. Six different types of annuities are available to members upon retirement. The No Refund Life Plan is a lifetime annuity that ceases upon the death of the retiree no survivor annuity is payable. A retiring member may also choose to provide survivor benefits to a designated beneficiary(ies) by selecting one of the five plans that have survivorship features. Vested members may also leave their contributions in the TRA Fund upon termination of service in order to qualify for a deferred annuity at retirement age. Any member terminating service is eligible for a refund of their employee contributions plus interest. C. Contributions Minnesota Statutes set the rates for employer and employee contributions. Contribution rates can only be modified by the State Legislature. 1. GERF Contributions Minnesota Statutes, Chapter 353 sets the rates for employer and employee contributions. Coordinated Plan members were required to contribute 6.5 percent of their annual covered salary in fiscal year 2017; the School was required to contribute 7.5 percent for Coordinated Plan members. The School s contributions to the GERF for the year ended June 30, 2017 were $22,401. The School s contributions were equal to the required contributions as set by state statutes. 2. TRA Contributions Minnesota Statutes, Chapter 354 sets the rates for employer and employee contributions. Rates for each fiscal year were: Year Ended June 30, Employee Employer Employee Employer Basic Plan 11.0 % 11.5 % 11.0 % 11.5 % Coordinated Plan 7.5 % 7.5 % 7.5 % 7.5 % The School s contributions to the TRA for the plan s fiscal year ended June 30, 2017, were $219,243. The School s contributions were equal to the required contributions for each year as set by state statutes

64 NOTE 5 DEFINED BENEFIT PENSION PLANS STATE-WIDE (CONTINUED) The following is a reconciliation of employer contributions in the TRA s Comprehensive Annual Financial Report (CAFR) Statement of Changes in Fiduciary Net Position to the employer contributions used in the Schedule of Employer and Nonemployer Pension Allocations: Employer contributions reported in the TRA s CAFR Statement of Changes in Fiduciary Net Position $ 354,961,140 Add employer contributions not related to future contribution efforts 26,356 Deduct the TRA s contributions not included in allocation (442,978) Total employer contributions 354,544,518 Total nonemployer contributions 35,587,410 Total contributions reported in Schedule of Employer and Nonemployer Pension Allocations $ 390,131,928 Amounts reported in the allocation schedules may not precisely agree with financial statement amounts or actuarial valuations due to the number of decimal places used in the allocations. The TRA has rounded percentage amounts to the nearest ten thousandths. D. Pension Costs 1. GERF Pension Costs At June 30, 2017, the School reported a liability of $324,780 for its proportionate share of the GERF s net pension liability. The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The School s proportion of the net pension liability was based on the School s contributions received by the PERA during the measurement period for employer payroll paid dates from July 1, 2015, through June 30, 2016, relative to the total employer contributions received from all of the PERA s participating employers. The School s proportionate share was percent at the end of the measurement period and percent for the beginning of the period. The School s net pension liability reflected a reduction due to the state of Minnesota s contribution of $6 million to the fund in The state of Minnesota is considered a nonemployer contributing entity and the state s contribution meets the definition of a special funding situation. The amount recognized by the School as its proportionate share of the net pension liability, the direct aid, and total portion of the net pension liability that was associated with the School were as follows: School s proportionate share of net pension liability $ 324,780 State s proportionate share of the net pension liability associated with the School $ 4,187 For the year ended June 30, 2017, the School recognized pension expense of $35,712 for its proportionate share of the GERF s pension expense. In addition, the School recognized an additional $1,280 as pension expense (and grant revenue) for its proportionate share of the state of Minnesota s contribution of $6 million to the GERF

65 NOTE 5 DEFINED BENEFIT PENSION PLANS STATE-WIDE (CONTINUED) At June 30, 2017, the School reported its proportionate share of the GERF s deferred outflows of resources and deferred inflows of resources, and its contributions subsequent to the measurement date, related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual economic experience $ 985 $ 26,557 Changes in actuarial assumptions 70,208 Difference between projected and actual investment earnings 35,993 Changes in proportion 12,003 School s contributions to the GERF subsequent to the measurement date 22,401 Total $ 129,587 $ 38,560 A total of $22,401 reported as deferred outflows of resources related to pensions resulting from school contributions to the GERF subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, Other amounts reported as deferred outflows and inflows of resources related to the GERF pensions will be recognized in pension expense as follows: Year Ending June 30, Pension Expense Amount 2018 $ 17, $ 9, $ 30, $ 11, TRA Pension Costs At June 30, 2017, the School reported a liability of $12,617,912 for its proportionate share of the TRA s net pension liability. The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The School s proportion of the net pension liability was based on the School s contributions to the TRA in relation to total system contributions, including direct aid from the state of Minnesota, City of Minneapolis, and Special School District No. 1, Minneapolis Public Schools. The School s proportionate share was percent at the end of the measurement period and percent for the beginning of the period. The pension liability amount reflected a reduction due to direct aid provided to the TRA. The amount recognized by the School as its proportionate share of the net pension liability, the direct aid, and total portion of the net pension liability that was associated with the School were as follows: School s proportionate share of net pension liability $ 12,617,912 State s proportionate share of the net pension liability associated with the School $ 1,266,

66 NOTE 5 DEFINED BENEFIT PENSION PLANS STATE-WIDE (CONTINUED) For the year ended June 30, 2017, the School recognized pension expense of $1,935,201. It also recognized $176,817 as an increase to pension expense for the support provided by direct aid. At June 30, 2017, the School reported its proportionate share of the TRA s deferred outflows of resources and deferred inflows of resources, and its contributions subsequent to the measurement date, related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual economic experience $ 121,122 $ 352 Changes in actuarial assumptions 7,180,157 Difference between projected and actual investment earnings 546,203 Changes in proportion 232,609 School s contributions to the TRA subsequent to the measurement date 219,243 Total $ 8,299,334 $ 352 A total of $219,243 reported as deferred outflows of resources related to pensions resulting from school contributions to the TRA subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending June 30, Other amounts reported as deferred outflows and inflows of resources related to the TRA pensions will be recognized in pension expense as follows: Year Ending June 30, Pension Expense Amount 2018 $ 1,636, $ 1,636, $ 1,806, $ 1,586, $ 1,414,761 E. Actuarial Assumptions The total pension liability in the June 30, 2016 actuarial valuation was determined using the following actuarial assumptions: Assumptions GERF TRA Inflation 2.50% per year Price inflation 2.75% Wage growth rate 3.50% Active member payroll 3.25% per year % based on years of service Investment rate of return 7.50% 4.66% Salary increases were based on a service-related table. Mortality rates for active members, retirees, survivors, and disabilitants were based on RP-2014 tables for males or females, as appropriate, with slight adjustments. Cost of living benefit increases for retirees are assumed to be 1 percent per year for all future years for the GERF and 2 percent per year for all future years for the TRA

67 NOTE 5 DEFINED BENEFIT PENSION PLANS STATE-WIDE (CONTINUED) Actuarial assumptions used in the June 30, 2016 valuation for the GERF were based on the results of actuarial experience studies. The most recent four-year experience study in the GERF was completed in The following changes in actuarial assumptions for the GERF occurred in 2016: The assumed post-retirement benefit increase rate was changed from 1.00 percent per year through 2035 and 2.50 percent per year thereafter, to 1.00 percent per year for all future years. The assumed investment return was changed from 7.90 percent to 7.50 percent. The single discount rate was changed from 7.90 percent to 7.50 percent. Other assumptions were changed pursuant to the experience study dated June 30, The assumed future salary increases, payroll growth, and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth and 2.50 percent for inflation. There was a change in actuarial assumptions that affected the measurement of the total liability for the TRA since the prior measurement date. Post-retirement benefit adjustments are now assumed to remain level at 2.00 percent annually, while in the previous measurement the cost of living adjustment increased to 2.50 percent in The long-term expected rate of return on pension plan investments is 7.50 percent for the GERF and 4.66 percent for the TRA. The Minnesota State Board of Investment, which manages the investments of the PERA and the TRA, prepares an analysis of the reasonableness of the long-term expected rate of return on a regular basis using a building-block method in which best-estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return F. Discount Rate 1. GERF Domestic stocks 45 % 5.50 % International stocks % Bonds % Alternative assets % Cash % Total 100 % The discount rate used to measure the total pension liability in 2016 was 7.5 percent, a reduction from the 7.9 percent used in The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the fiscal 2017 contribution rates. Based on these assumptions, the fiduciary net position of the GERF was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability

68 NOTE 5 DEFINED BENEFIT PENSION PLANS STATE-WIDE (CONTINUED) 2. TRA The discount rate used to measure the total pension liability was 4.66 percent. This is a decrease from the discount rate at the prior measurement date of 8.00 percent. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the fiscal 2017 contribution rate, contributions from school districts will be made at contractually required rates (actuarially determined), and contributions from the state will be made at current statutorily required rates. Based on those assumptions, the pension plan s fiduciary net position was projected to be depleted in 2052 and, as a result, the municipal bond index rate was used in the determination of the single equivalent interest rate (SEIR). The long-term expected rate of return was applied to periods before 2052 and the municipal bond index rate of 3.01 percent was applied to periods on and after 2052, resulting in a SEIR of 4.66 percent. Based on fiduciary net position at prior year measurement date, the discount rate of 8.00 percent was used and it was not necessary to calculate the SEIR. G. Pension Liability Sensitivity The following table presents the School s proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the School s proportionate share of the net pension liability would be if it were calculated using a discount rate 1 percentage point lower or 1 percentage point higher than the current discount rate: 1% Decrease in Discount Rate Discount Rate 1% Increase in Discount Rate GERF discount rate School s proportionate share of the GERF net pension liability 6.50% 7.50% 8.50% $ 461,284 $ 324,780 $ 212,338 TRA discount rate 3.66% 4.66% 5.66% School s proportionate share of the TRA net pension liability $ 16,255,025 $ 12,617,912 $ 9,655,603 H. Pension Plan Fiduciary Net Position Detailed information about the GERF s fiduciary net position is available in a separately issued PERA financial report. That report may be obtained on the PERA website at by writing to the PERA at 60 Empire Drive, Suite 200, St. Paul, Minnesota 55103; or by calling (651) or (800) Detailed information about the TRA s fiduciary net position is available in a separately issued TRA financial report. That report can be obtained at the TRA website at by writing to the TRA at 60 Empire Drive, Suite 400, St. Paul, Minnesota 55103; or by calling (651) or (800)

69 NOTE 6 COMMITMENTS AND CONTINGENCIES A. Building Lease The School has an agreement to lease space at 33 Wentworth Avenue East, Suite 100, West St. Paul, Minnesota for a 64-month period commencing March 1, The School extended this lease for an additional five years commencing July 1, During the year ended June 30, 2017, the School made rental payments totaling $211,699 under this agreement. Future minimum lease payments under the amended agreement are as follows: Year Ending June 30, Amount 2018 $ 226, , , , ,747 $ 1,247,013 B. Federal and State Revenues Amounts received or receivable from federal and state agencies are subject to agency audit and adjustment. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of funds which may be disallowed by the agencies cannot be determined at this time, although the School expects such amounts, if any, to be immaterial. NOTE 7 SUBSEQUENT EVENTS The School has entered into an agreement with Innovative Quality Schools (IQS) to replace NEO as the School s authorizer effective July 1, The agreement with IQS is for a five-year period ending June 30,

70 REQUIRED SUPPLEMENTARY INFORMATION 70

71 BLUESKY CHARTER SCHOOL, INC. Public Employees Retirement Association Pension Benefits Plan Schedule of School s and Nonemployer Proportionate Share of Net Pension Liability Year Ended June 30, 2017 School Fiscal Year-End Date 06/30/ /30/ /30/2017 Proportionate Share of the School s Net Pension Proportionate Liability and School s Share of the the School s Proportionate Plan Fiduciary State of Share of the Share of the Net Position School s School s Minnesota s State of Net Pension as a PERA Fiscal Proportion Proportionate Proportionate Minnesota s Liability as a Percentage Year-End Date of the Net Share of the Share of the Share of the School s Percentage of of the Total (Measurement Pension Net Pension Net Pension Net Pension Covered Covered Pension Date) Liability Liability Liability Liability Payroll Payroll Liability 06/30/ % $ 206,690 $ $ 206,690 $ 229, % 78.70% 06/30/ % $ 212,483 $ $ 212,483 $ 242, % 78.20% 06/30/ % $ 324,780 $ 4,187 $ 328,967 $ 246, % 68.90% Public Employees Retirement Association Pension Benefits Plan Schedule of School Contributions Year Ended June 30, 2017 School Fiscal Year-End Date 06/30/ /30/ /30/2017 Contributions Contributions in Relation to as a Statutorily the Statutorily Contribution Percentage Required Required Deficiency Covered of Covered Contributions Contributions (Excess) Payroll Payroll $ 17,918 $ 17,918 $ $ 242, % $ 18,498 $ 18,498 $ $ 246, % $ 22,401 $ 22,401 $ $ 298, % Note 1: Note 2: Note 3: Changes of Benefit Terms On January 1, 2015, the Minneapolis Employees Retirement Fund was merged into the GERF, which increased the total pension liability by $1.1 billion and increased the fiduciary plan net position by $892 million. Upon consolidation, state and employer contributions were revised. Changes in Actuarial Assumptions (1) 2015 Changes The assumed post-retirement benefit increase rate was changed from 1.00 percent per year through 2030 and 2.50 percent per year thereafter to 1.00 percent per year through 2035 and 2.50 percent per year thereafter. (2) 2016 Changes The assumed post-retirement benefit increase rate was changed from 1.00 percent per year through 2035 and 2.50 percent per year thereafter to 1.00 percent per year for all future years. The assumed investment return was changed from 7.90 percent to 7.50 percent. The single discount rate was changed from 7.90 percent to 7.50 percent. Other assumptions were changed pursuant to the experience study dated June 30, The assumed future salary increases, payroll growth, and inflation were decreased by 0.25 percent to 3.25 percent for payroll growth and 2.50 percent for inflation. The School implemented GASB Statement No. 68 in fiscal 2015 (using a June 30, 2014 measurement date). This schedule is intended to present 10-year trend information. Additional years will be added as they become available

72 BLUESKY CHARTER SCHOOL, INC. Teachers Retirement Association Pension Benefits Plan Schedule of School s and Nonemployer Proportionate Share of Net Pension Liability Year Ended June 30, 2017 School Fiscal Year-End Date 06/30/ /30/ /30/2017 Proportionate Share of the School s Net Pension Proportionate Liability and School s Share of the the School s Proportionate Plan Fiduciary State of Share of the Share of the Net Position School s School s Minnesota s State of Net Pension as a TRA Fiscal Proportion Proportionate Proportionate Minnesota s Liability as a Percentage Year-End Date of the Net Share of the Share of the Share of the School s Percentage of of the Total (Measurement Pension Net Pension Net Pension Net Pension Covered Covered Pension Date) Liability Liability Liability Liability Payroll Payroll Liability 06/30/ % $ 2,391,515 $ 168,388 $ 2,559,903 $ 2,369, % 81.50% 06/30/ % $ 3,179,598 $ 389,976 $ 3,569,574 $ 2,608, % 76.80% 06/30/ % $ 12,617,912 $ 1,266,296 $ 13,884,208 $ 2,752, % 44.88% Teachers Retirement Association Pension Benefits Plan Schedule of School Contributions Year Ended June 30, 2017 School Fiscal Year-End Date 06/30/ /30/ /30/2017 Contributions Contributions in Relation to as a Statutorily the Statutorily Contribution Percentage Required Required Deficiency Covered of Covered Contributions Contributions (Excess) Payroll Payroll $ 195,607 $ 195,607 $ $ 2,608, % $ 206,223 $ 206,223 $ $ 2,752, % $ 219,243 $ 219,243 $ $ 2,919, % Note 1: Changes of Benefit Terms The Duluth Teachers Retirement Fund Association was merged into the TRA on June 30, Note 2: Note 3: Changes in Actuarial Assumptions (1) 2015 Changes The annual cost of living adjustment for the June 30, 2015 valuation assumed 2.00 percent. The prior year valuation used 2.00 percent with an increase to 2.50 percent commencing in The discount rate used to measure the total pension liability was 8.00 percent. This is a decrease from the discount rate at the prior measurement date of 8.25 percent. (2) 2016 Changes The discount rate used to measure the total pension liability was 4.66 percent. Details, if necessary, can be obtained from the TRA s CAFR. The School implemented GASB Statement No. 68 in fiscal 2015 (using a June 30, 2014 measurement date). This schedule is intended to present 10-year trend information. Additional years will be added as they become available

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74 OTHER REQUIRED REPORTS 74

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76 C ERTIFIED P UBLIC A C C O U N T A N T S PRINCIPALS Thomas A. Karnowski, CPA Paul A. Radosevich, CPA William J. Lauer, CPA James H. Eichten, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA/CMA INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board and Management of BlueSky Charter School, Inc. West St. Paul, Minnesota We have audited, 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, the financial statements of the governmental activities and the major fund of BlueSky Charter School, Inc. (the School) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the School s basic financial statements, and have issued our report thereon dated December 12, INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit of the financial statements, we considered the School 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 the School s internal control. Accordingly, we do not express an opinion on the effectiveness of the School 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 combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the School s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified (continued) Malloy, Montague, Karnowski, Radosevich & Co., P.A Wayzata Boulevard Suite 410 Minneapolis, MN Phone: Fax:

77 COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the School s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. PURPOSE OF THIS REPORT The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the School 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 School s internal control and compliance. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota December 12,

78 C ERTIFIED P UBLIC A C C O U N T A N T S PRINCIPALS Thomas A. Karnowski, CPA Paul A. Radosevich, CPA William J. Lauer, CPA James H. Eichten, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA/CMA INDEPENDENT AUDITOR S REPORT ON MINNESOTA LEGAL COMPLIANCE To the Board and Management of BlueSky Charter School, Inc. West St. Paul, Minnesota We have audited, 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, the financial statements of the governmental activities and the major fund of BlueSky Charter School, Inc. (the School) as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the School s basic financial statements, and have issued our report thereon dated December 12, MINNESOTA LEGAL COMPLIANCE The Minnesota Legal Compliance Audit Guide for Charter Schools, promulgated by the State Auditor pursuant to Minnesota Statutes 6.65, contains two categories of compliance to be tested in audits of charter schools: uniform financial accounting and reporting standards, and charter schools. Our audit considered both of the listed categories. In connection with our audit, nothing came to our attention that caused us to believe that the School failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Charter Schools. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the School s noncompliance with the above referenced provisions. PURPOSE OF THIS REPORT The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion on compliance. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota December 12, Malloy, Montague, Karnowski, Radosevich & Co., P.A Wayzata Boulevard Suite 410 Minneapolis, MN Phone: Fax:

79 BLUESKY CHARTER SCHOOL, INC. Uniform Financial Accounting and Reporting Standards Compliance Table June 30, 2017 Audit UFARS Audit UFARS General Fund Total revenue $ 5,107,654 $ 5,107,654 $ Total expenditures $ 4,938,440 $ 4,938,440 $ Nonspendable 460 Nonspendable fund balance $ 148,553 $ 148,553 $ Restricted 403 Staff development $ $ $ 406 Health and safety $ $ $ 407 Capital projects levy $ $ $ 408 Cooperative revenue $ $ $ 413 Project funded by COP $ $ $ 414 Operating debt $ $ $ 416 Levy reduction $ $ $ 417 Taconite building maintenance $ $ $ 423 Certain teacher programs $ $ $ 424 Operating capital $ $ $ 426 $25 taconite $ $ $ 427 Disabled accessibility $ $ $ 428 Learning and development $ $ $ 434 Area learning center $ $ $ 435 Contracted alternative programs $ $ $ 436 State approved alternative program $ $ $ 438 Gifted and talented $ $ $ 440 Teacher development and evaluation $ $ $ 441 Basic skills programs $ $ $ 445 Career and technical programs $ $ $ 448 Achievement and integration $ $ $ 449 Safe schools levy $ $ $ 450 Pre-kindergarten $ $ $ 451 QZAB payments $ $ $ 452 OPEB liability not in trust $ $ $ 453 Unfunded severance and retirement levy $ $ $ 467 Long-term facilities maintenance $ $ $ 472 Medical Assistance $ $ $ 464 Restricted fund balance $ $ $ Committed 418 Committed for separation $ $ $ 461 Committed fund balance $ $ $ Assigned 462 Assigned fund balance $ $ $ Unassigned 422 Unassigned fund balance $ 1,649,932 $ 1,649,932 $ Food Service Total revenue $ $ $ Total expenditures $ $ $ Nonspendable 460 Nonspendable fund balance $ $ $ Restricted 452 OPEB liability not in trust $ $ $ 464 Restricted fund balance $ $ $ Unassigned 463 Unassigned fund balance $ $ $ Community Service Total revenue $ $ $ Total expenditures $ $ $ Nonspendable 460 Nonspendable fund balance $ $ $ Restricted 426 $25 taconite $ $ $ 431 Community education $ $ $ 432 ECFE $ $ $ 440 Teacher development and evaluation $ $ $ 444 School readiness $ $ $ 447 Adult basic education $ $ $ 452 OPEB liability not in trust $ $ $ 464 Restricted fund balance $ $ $ Unassigned 463 Unassigned fund balance $ $ $

80 BLUESKY CHARTER SCHOOL, INC. Uniform Financial Accounting and Reporting Standards Compliance Table (continued) June 30, 2017 Audit UFARS Audit UFARS Building Construction Total revenue $ $ $ Total expenditures $ $ $ Nonspendable 460 Nonspendable fund balance $ $ $ Restricted 407 Capital projects levy $ $ $ 413 Project funded by COP $ $ $ 467 Long-term facilities maintenance $ $ $ 464 Restricted fund balance $ $ $ Unassigned 463 Unassigned fund balance $ $ $ Debt Service Total revenue $ $ $ Total expenditures $ $ $ Nonspendable 460 Nonspendable fund balance $ $ $ Restricted 425 Bond refundings $ $ $ 451 QZAB payments $ $ $ 464 Restricted fund balance $ $ $ Unassigned 463 Unassigned fund balance $ $ $ Trust Total revenue $ $ $ Total expenditures $ $ $ 422 Net position $ $ $ Internal Service Total revenue $ $ $ Total expenditures $ $ $ 422 Net position $ $ $ OPEB Revocable Trust Fund Total revenue $ $ $ Total expenditures $ $ $ 422 Net position $ $ $ OPEB Irrevocable Trust Fund Total revenue $ $ $ Total expenditures $ $ $ 422 Net position $ $ $ OPEB Debt Service Fund Total revenue $ $ $ Total expenditures $ $ $ Nonspendable 460 Nonspendable fund balance $ $ $ Restricted 425 Bond refundings $ $ $ 464 Restricted fund balance $ $ $ Unassigned 463 Unassigned fund balance $ $ $ Note: Statutory restricted deficits, if any, are reported in unassigned fund balances in the financial statements in accordance with accounting principles generally accepted in the United States of America

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82 TO: FROM: Members, Board of Education The Anton Group DATE: December 12, 2017 RE: Financials and Update- November Year-To-Date Financials and Budget Income Statement: The focus of the School s income statement is to monitor the ongoing revenues and expenses of the various programs. Monthly review of the actual spent vs. budget as well as taking into consideration the percentage of the fiscal year completed is imperative. We have added a revised budget as approved at the November board meeting. We have reduced the ADM slightly to 480ADM, but have adjusted for the Title I and Title II award of $76,355. The highlights from the income statement are: Percent of fiscal year completed: 42% YTD revenue as a percent of budget: 41%, based on estimated enrollment. YTD expenses as a percent of budget: 35%. Cash Flow Statement: The cash flow statement is the most important of all statement. This statement will help us understand the cash needs and opportunities of the school. Additionally, consistent review of this projection will ensure sufficient capital is always available. Currently no cash flow concerns. Other: The audit is complete and we have received draft financials, currently anticipate no audit findings or other concerns raised by Rachel McQuiston, Bill Lauer and the rest of the MMKR team. Your questions and comments are solicited. ATTACHMENTS: Financials, Register, IDEAS Report Prepared for Management Use 1 82

83 BlueSky Charter School Balance Sheet November 30, 2017 Assets As of Month-End Cash $ 2,046,639 Due from State 216,284 Due from Federal - Prepaids 58,057 Total Assets $ 2,320,979 Liabilities Salary and Benefits Payable (est.) $ 127,629 Accounts Payable 35,948 Lease Payable - Total Liabilities $ 163,577 Fund Balance Beginning $ 1,798,485 Change in Fund Balance 358,917 Ending- Projected $ 2,157,402 Liabilities and Fund Balance Total $ 2,320,979 **Current year projections are based on management and consultant estimates** Prepared for Management Use 2 83

84 BlueSky Charter School Income Statement Summary November 30, 2017 Revenue Adopted Budget Revised Budget Monthly Activity Year to Date % Working Budget State Aids 5,210,628 5,164, ,081 2,188, % Federal Aids 82, , % Local 44,645 34,889 2,674 11, % Total (Excluding Transfers) 5,337,693 5,382, ,754 2,200, % Expense 1 Salary 3,400,679 3,400, ,682 1,026, % 2 Benefits 828, ,655 63, , % Summer Payable ,896 NA 3 Purchased Services 790, ,931 55, , % 4 Supplies and Materials 192, ,100 13,543 87, % 5 Capital Expenditures 68,000 68,000-24, % 6 Other Expenses 47,958 47,958 1,110 17, % Total 5,328,323 5,333, ,869 1,841, % Change in Fund Balance 9,370 49,557 7, ,917 Beginning Fund Balance 1,798,485 1,798,485 1,798,485 1,798,485 Ending- Projected 1,807,855 1,848,042 1,806,370 2,157,402 FB as a % of Exp 34% 35% Prepared for Management Use 3 84

85 BlueSky Charter School Detail Revenue November 30, % Year Complete Adopted Budget Revised Budget Monthly Activity Year to Date % Working Budget General Fund 485ADM/582PU 480ADM/576PU State Aid R General Aid 4,196,171 4,172, ,431 1,709, % R Special Ed 677, , , , % Q-Comp 129, , % R Lease Aid 207, ,000 70,969 71, % State Aid Receivables ,268 N/A Total State Aid 5,210,628 5,164, ,081 2,188, % Federal Aid R Title - 76, % R Special Ed 62,620 86, % E-Rate 12,800 12, % Perkins 7,000 7, % 82, , % Local Aid and Donation R Donations and Other 44,645 34,889 2,674 11, % 44,645 34,889 2,674 11, % Total General Fund Revenue 5,337,693 5,382, ,754 2,200, % Prepared for Management Use 4 85

86 BlueSky Charter School Detail Expense November 30, 2017 FYTD: 42% Adopted Budget Revised Budget Monthly Activity Year to Date % Working Budget Admin and Operations 485ADM/582PU 480ADM/576PU 100 Salaries 324, ,552 25, , % 200 Benefits 82,571 82,571 5,544 27, % 305 Contracted Services 189, ,919 15,564 58, % 320 Communication 49,000 49,000 4,960 21, % 329 Postage 2,500 2, % 366 Travel & Conferences 15,000 15, % 370 Operating Leases (Copier) 7,200 7, % 401 General Supplies 26,500 19,000 7,061 10, % 405 Purchased Software 51,040 51,040 3,511 39, % 490 Food 2,500 2, % 555 Technology Equipment 46,000 46,000-24, % 820 Dues & Memberships 40,456 40,456 1,110 16, % Total Admin and Operations 836, ,738 63, , % Instruction 100 Salaries 1,378,178 1,378,178 97, , % 200 Benefits 352, ,436 23,054 87, % 1/2XX Summer Payable ,896 NA 305 Contracted Services 5,000 17,500-5, % 329 Postage % 366 Travel & Conferences 4,450 9,450 1,084 3, % 369 Field Trips and Registration % 390 Pmt to Other Districts 9,250 9, % 394 Field Trips and Reg ,017 1, % 401 General Supplies 4,500 4, , % 405 Purchased Software 58,645 58, , % 430 Instructional Supplies 4,500 16,000 1,796 10, % 460 Textbooks & Workbooks 7,500 7, % 555 Technology Equipment 9,000 9, % 820 Dues & Memberships 4,250 4, % Instruction 1,838,239 1,867, , , % Special Education 100 Salaries 537, ,263 42, , % 200 Benefits 130, ,150 10,021 33, % 305 Contracted Services 120, ,719-15, % 329 Postage % 366 Travel & Conferences 2,020 2, % 394 Payments to Other Agencies - - 3,417 6, % 401 General Supplies % 430 Instructional Supplies 8,000 8, , % 555 Technology Equipment % 820 Dues & Memberships % Total Special Education 799, ,054 55, , % District Support 100 Salaries 1,160,686 1,160,686 99, , % 200 Benefits 263, ,498 25,106 94, % 305 Contracted Services 9,750 9,750 1,000 4, % 320 Communication 16,500 16,500-1, % 330 Utility 44,793 44,793 3,553 24, % 340 Insurance 33,500 33,500-17, % 350 Repairs & Maintenance % 360 Transportation % 366 Travel & Conferences 39,050 39,050 5,181 20, % 370 Operating Leases (Copier) 5,750 5, , % 371 Building Lease 230, ,000 18, , % 401 General Supplies % 405 Purchased Software 5,200 5,200-2, % 430 Instructional Supplies 18,915 14, % 461 Standardized Tests 8,900 8,900-3, % 500 Furniture & Equipment 10,000 10, % 555 Technology Equipment 3,000 3, % 820 Dues & Memberships 3,000 3, % Total District Support 1,854,292 1,850, , , % Total General Fund Expenditures 5,328,323 5,333, ,869 1,841, % Total Expense- All Funds 5,328,323 5,333, ,869 1,841, % Prepared for Management Use 5 86

87 BlueSky Charter School CashFlow FY18 November 30, 2017 Cash Receipts Budget Year to Date December January February State Aids- CY 5,164,862 1,946, , , ,365 State Aids- PY 440, ,825-4,357 3,822 Federal Aids 183, ,500 Local 34,889 11, Total Inflows 5,822,884 2,389, , , ,687 Expense Salary 3,400,679 1,026, , , ,390 Benefits 828, ,505 69,055 69,055 69,055 Purchased Services 790, ,440 67,927 67,927 67,927 Supplies and Materials 197,100 87,970 15,590 15,590 15,590 Capital Expenditures 68,000 24,730 6,181 6,181 6,181 Other Expenses 47,958 17,695 3,997 3,997 3,997 Accounts and Sal Payable 35,948-35, Total Outflows 5,369,271 1,715, , , ,140 Change in Cash (94,723) (54,418) (41,453) 87 Beginning 2,046,639 1,951,916 1,897,498 Line of Credit Ending- Projected 1,951,916 1,897,498 1,856,045 Line of Credit Balance Prepared for Management Use 6

88 BlueSky Charter School CashFlow FY18 November 30, 2017 Cash Receipts State Aids- CY State Aids- PY Federal Aids Local Total Inflows 7 months remaining March April May June Total Budget Remaining 387, , , ,365 4,657,749 5,164, , , , ,000 25,000 63, , , ,000 34,889 34, , , , ,365 5,196,141 5,822, ,743 Expense Salary Benefits Purchased Services Supplies and Materials Capital Expenditures Other Expenses Accounts and Sal Payable Total Outflows 283, , , ,390 3,009,928 3,400, ,751 69,055 69,055 69,055 69, , , ,768 67,927 67,927 67,927 67, , ,931-15,590 15,590 15,590 15, , ,100-6,181 6,181 6,181 6,181 68,000 68,000-3,997 3,997 3,997 6,284 47,958 47, ,948 35, , , , ,427 4,876,752 5,369, ,519 (58,775) (58,775) (33,775) (13,063) 88 1,856,045 1,797,270 1,738,495 1,704, ,797,270 1,738,495 1,704,720 1,691, Prepared for Management Use 7

89 r_ap_checkregd BLUESKY CHARTER SCHOOL Page 1 of 7 Detail Payment Register By No. 12/12/ :47:49 Co Bank No Code Rcd Vendor Pmt/Void Date 4082 ANCH CDW GOVERNMENT INC. E Laptop Battery $ PO#: Voucher #: 5232 Invoice Invoice No: KNB /3/2017 Pmt Type Paid Amt: 4082 ANCH HRdirect E Poster Guard 1 Year Renewal $84.42 PO#: Voucher #: 5230 Invoice Invoice No: A /3/2017 Paid Amt: 4082 ANCH Loffler Companies Inc. E Copier Lease $ PO#: Voucher #: 5229 Invoice Invoice No: /3/2017 Paid Amt: 4082 ANCH MACMH E Conference Registration $ PO#: Voucher #: 5238 Invoice Invoice No: /3/2017 Paid Amt: 4082 ANCH Office Depot, Inc. E Coffee for Office $ Prepared for Management Use 8 PO#: Voucher #: 5234 Invoice Invoice No: /3/2017 E Hanging Folders - SpEd $40.60 PO#: Voucher #: 5235 Invoice Invoice No: /3/2017 Paid Amt: Paid Amt: 4082 ANCH PowerSchool Group LLC E SIS Customizations $ PO#: Voucher #: 5237 Invoice Invoice No: INV /3/2017 Paid Amt: 4082 ANCH Promotional Solutions E Staff Apparel $2, PO#: Voucher #: 5233 Invoice Invoice No: /3/2017 E Staff Apparel - Jacket $57.45 PO#: Voucher #: 5228 Invoice Invoice No: /3/2017 Paid Amt: Paid Amt: 4082 ANCH The Anton Group E November Accounting Service $6, PO#: Voucher #: 5236 Invoice Invoice No: /3/2017 Paid Amt: $ Amount: $ $84.42 Amount: $84.42 $ Amount: $ $ Amount: $ $83.14 $40.60 Amount: $ $ Amount: $ $2, $57.45 Amount: $2, $6, Amount: $6,700.00

90 r_ap_checkregd BLUESKY CHARTER SCHOOL Page 2 of 7 Detail Payment Register By No. 12/12/ :47:49 Co Bank No Code Rcd Vendor Pmt/Void Date 4082 ANCH NEOFUNDS BY NEOPOST E Postage Machine Rental $ PO#: Voucher #: 5231 Invoice Invoice No: DT /3/2017 Pmt Type Paid Amt: 4082 ANCH Employee Credit Union B HSA $ PO#: Voucher #: 5209 Invoice Invoice No: S /7/2017 Paid Amt: 4082 ANCH TRUSTAR FEDERAL CREDIT UNION B HSA $ PO#: Voucher #: 5208 Invoice Invoice No: S /7/2017 Paid Amt: 4082 ANCH Chester Johnson E Reimbursement - Stamps (SpEd) $56.00 PO#: Voucher #: 5251 Invoice Invoice No: DT /15/2017 Paid Amt: 4082 ANCH COMCAST E Internet $ Prepared for Management Use 9 PO#: Voucher #: 5247 Invoice Invoice No: DT /15/2017 Paid Amt: 4082 ANCH Enterprise E Van Rental - We Day $ PO#: Voucher #: 5242 Invoice Invoice No: 9K9NYT 11/15/2017 Paid Amt: 4082 ANCH HEATHER BRACK E Reimbursement - Headset for Staff $24.69 PO#: Voucher #: 5246 Invoice Invoice No: DT /15/2017 Paid Amt: 4082 ANCH KIDDER BENEFITS CONSULTANT INC E (b) Plan $1, PO#: Voucher #: 5243 Invoice Invoice No: IN 11/15/2017 Paid Amt: 4082 ANCH LYNN A. RIEBE E Reimbursement - Mileage Social Work Meeting $ PO#: Voucher #: 5252 Invoice Invoice No: DT /15/2017 Paid Amt: $ Amount: $ $ Amount: $ $ Amount: $ $56.00 Amount: $56.00 $ Amount: $ $ Amount: $ $24.69 Amount: $24.69 $1, Amount: $1, $ Amount: $102.61

91 r_ap_checkregd BLUESKY CHARTER SCHOOL Page 3 of 7 Detail Payment Register By No. 12/12/ :47:49 Co Bank No Code Rcd Vendor Pmt/Void Date 4082 ANCH MCSS E MCSS Conference - Social Studies x5 $ PO#: Voucher #: 5250 Invoice Invoice No: /15/2017 Pmt Type Paid Amt: 4082 ANCH Megan Hollenkamp E Reimbursement - Student Day Supplies $82.83 PO#: E Reimbursement - Postage $35.40 Voucher #: 5245 Invoice Invoice No: DT /15/2017 Paid Amt: 4082 ANCH MN PEIP B Health Insurance $28, B Dental Insurance $2, PO#: Voucher #: 5241 Invoice Invoice No: /15/2017 Paid Amt: 4082 ANCH PIONEER SECURESHRED E Shredding Service $ Prepared for Management Use 10 PO#: Voucher #: 5244 Invoice Invoice No: /15/2017 Paid Amt: 4082 ANCH Promotional Solutions E Additional Employee Apparel $ PO#: Voucher #: 5240 Invoice Invoice No: /15/2017 Paid Amt: 4082 ANCH RISDALL MARKETING GROUP, LLC E Online Marketing Service $1, PO#: Voucher #: 5248 Invoice Invoice No: INV /15/2017 Paid Amt: 4082 ANCH STRATEGIC STAFFING SOLUTIONS, LLC E SpEd Service - October $3, PO#: Voucher #: 5249 Invoice Invoice No: /15/2017 Paid Amt: 4082 ANCH CMERDC E Integration, Support & Development Services $3, PO#: Voucher #: 5268 Invoice Invoice No: /20/2017 Paid Amt: 4082 ANCH GENIUS SIS, INC. E Enrollment Fee 7/1/17-9/30/17 $68.00 PO#: Voucher #: 5274 Invoice Invoice No: /20/2017 Paid Amt: $ Amount: $ $ Amount: $ $30, Amount: $30, $45.00 Amount: $45.00 $ Amount: $ $1, Amount: $1, $3, Amount: $3, $3, Amount: $3, $68.00 Amount: $68.00

92 r_ap_checkregd BLUESKY CHARTER SCHOOL Page 4 of 7 Detail Payment Register By No. 12/12/ :47:49 Co Bank No Code Rcd Vendor Pmt/Void Date 4082 ANCH Josten's E Diplomas $ PO#: Voucher #: 5271 Invoice Invoice No: /20/2017 Pmt Type Paid Amt: 4082 ANCH META 13, INC. E Website Quarterly Hosting Fee $60.00 PO#: Voucher #: 5269 Invoice Invoice No: /20/2017 Paid Amt: 4082 ANCH Presence Learning, Inc. E OT Services $97.75 PO#: Voucher #: 5270 Invoice Invoice No: INV /20/2017 Paid Amt: 4082 ANCH WENTWORTH CENTER MANAGEMENT E January Rent $18, Prepared for Management Use 11 E January Utilities $3, PO#: Voucher #: 5273 Invoice Invoice No: /20/2017 Paid Amt: 4082 ANCH ZEHTEK CORPORATION E Remote Services Monitoring - October $1, PO#: Voucher #: 5272 Invoice Invoice No: /20/2017 Paid Amt: 4082 ANCH Allstream E Phone for Office 11/11/17-12/10/17 $2, PO#: Voucher #: 5281 Invoice Invoice No: /22/2017 Paid Amt: 4082 ANCH EDVISIONS, Inc. E Hope Survey Annual Fee $1, PO#: Voucher #: 5280 Invoice Invoice No: /22/2017 Paid Amt: 4082 ANCH JULIE JOHNSON E Reimbursement - Mileage Q-Comp $ PO#: Voucher #: 5275 Invoice Invoice No: DT /22/2017 Paid Amt: 4082 ANCH MobyMax, LLC E SpEd Curriculum $99.00 PO#: Voucher #: 5277 Invoice Invoice No: /22/2017 Paid Amt: $ Amount: $ $60.00 Amount: $60.00 $97.75 Amount: $97.75 $22, Amount: $22, $1, Amount: $1, $2, Amount: $2, $1, Amount: $1, $ Amount: $ $99.00 Amount: $99.00

93 r_ap_checkregd BLUESKY CHARTER SCHOOL Page 5 of 7 Detail Payment Register By No. 12/12/ :47:49 Co Bank No Code Rcd Vendor Pmt/Void Date 4082 ANCH PowerSchool Group LLC E SIS Customizations $ PO#: Voucher #: 5278 Invoice Invoice No: INV /22/2017 Pmt Type Paid Amt: 4082 ANCH Promotional Solutions E Apparel Item for Student Prize Drawing $42.06 PO#: Voucher #: 5282 Invoice Invoice No: /22/2017 Paid Amt: 4082 ANCH The McDowell Agency, Inc. E Background s $51.00 PO#: Voucher #: 5279 Invoice Invoice No: /22/2017 Paid Amt: 4082 ANCH VERIZON WIRELESS E Cell Phone 10/7/17-11/6/17 $1, PO#: Voucher #: 5276 Invoice Invoice No: /22/2017 Paid Amt: 4082 ANCH Employee Credit Union B HSA $ Prepared for Management Use 12 PO#: Voucher #: 5262 Invoice Invoice No: S /22/2017 Paid Amt: 4082 ANCH TRUSTAR FEDERAL CREDIT UNION B HSA $ PO#: Voucher #: 5261 Invoice Invoice No: S /22/2017 Paid Amt: 4082 ANCH BENJAMIN P. HAENSEL E Reimbursement - Moodle Moot $ PO#: Voucher #: 5299 Invoice Invoice No: DT /29/2017 Paid Amt: 4082 ANCH HEIDI VANDER HAGEN E Reimbursement - SpEd Postage $22.61 PO#: Voucher #: 5298 Invoice Invoice No: DT /29/2017 Paid Amt: 4082 ANCH Jennifer Anderson E Reimbursement - MIEA Conference & Mileage $ PO#: Voucher #: 5297 Invoice Invoice No: DT /29/2017 Paid Amt: $ Amount: $ $42.06 Amount: $42.06 $51.00 Amount: $51.00 $1, Amount: $1, $ Amount: $ $ Amount: $ $ Amount: $ $22.61 Amount: $22.61 $ Amount: $359.90

94 r_ap_checkregd BLUESKY CHARTER SCHOOL Page 6 of 7 Detail Payment Register By No. 12/12/ :47:49 Co Bank No Code Rcd Vendor Pmt/Void Date 4082 ANCH JULIE JOHNSON E Reimbursement - MNSTA Science Conference $ PO#: Voucher #: 5294 Invoice Invoice No: DT /29/2017 Pmt Type Paid Amt: 4082 ANCH LegalShield B Employee Paid Benefits $99.65 PO#: Voucher #: 5293 Invoice Invoice No: DT /29/2017 Paid Amt: 4082 ANCH MDE-MCIS E MCIS Jr Annual License $1, PO#: Voucher #: 5300 Invoice Invoice No: /29/2017 Paid Amt: 4082 ANCH MMKR & CO. P.A. E Audit of Financials through 10/31/17 $5, PO#: Voucher #: 5302 Invoice Invoice No: /29/2017 Paid Amt: 4082 ANCH Mutual of Omaha B Life Insurance, LTD, STD $2, Prepared for Management Use 13 PO#: Voucher #: 5292 Invoice Invoice No: /29/2017 Paid Amt: 4082 ANCH Sea Life MN E Field Trip Addmissions - Confirmation # $ PO#: Voucher #: 5295 Invoice Invoice No: /29/2017 E Field Trip Addmissions - Confirmation # $ PO#: Voucher #: 5296 Invoice Invoice No: /29/2017 Paid Amt: Paid Amt: 4082 ANCH SPRINT E Staff Cell Phone 10/15/17-11/14/17 $1, PO#: Voucher #: 5291 Invoice Invoice No: /29/2017 Paid Amt: 4082 ANCH VISA E Marketing $1, E Technology $ E TITLE II STAFF DEV - TRAVEL, CONVENTION $ E Curriculum $ E Staff Development $ E Prekins $ E Q-Comp $3, $ Amount: $ $99.65 Amount: $99.65 $1, Amount: $1, $5, Amount: $5, $2, Amount: $2, $ $ Amount: $ $1, Amount: $1,447.14

95 r_ap_checkregd BLUESKY CHARTER SCHOOL Page 7 of 7 Detail Payment Register By No. 12/12/ :47:49 Co Bank No Code Rcd Vendor Pmt/Void Date 4082 ANCH VISA E Law Conference $ Prepared for Management Use 14 PO#: Voucher #: 5301 Invoice Invoice No: DT /29/2017 Pmt Type Paid Amt: $5, Amount: $5, Report Total: $99,813.18

96 RUN DATE: 11/28/17 MINNESOTA DEPARTMENT OF EDUCATION PAYMENT YEAR: RUN TIME: 15:14 IDEASB (IDEAS) COMBINED AIDS PAYMENT REPORT TEL. (651) DISTRICT: BLUESKY CHARTER SCHOOL TO: SUPERINTENDENT OF SCHOOLS / COOPERATIVE CENTER DIRECTOR FR: ANN VAN DIEST SCHOOL FINANCE BRENDA CASSELLIUS COMMISSIONER RE: NOV 30, 2017 STATE AIDS PAYMENT MAILING 96 THE FOLLOWING REPORTS ARE INCLUDED ON THE MINNESOTA DEPARTMENT OF*AID PRORATION FACTORS OF LESS THAN 1.0 PRESENTLY USED IN THE EDUCATION WEB SITE AT CLICK ON *CALCULATION OF AID ENTITLEMENTS ARE AS FOLLOWS: "DATA CENTER", "DATA REPORTS AND ANALYTICS", "MINNESTOA FUNDING * REPORTS SYSTEM (MFR)" * AID PROGRAM * FINAL AIDS PAYMENT REPORT, PARTS 1 AND 2 FOR NOVEMBER * DESEG TRANSPORTATION , WITH OTHER ADJUSTMENT DETAIL REPORT TO SELECTED DISTRICTS * OUT-OF-STATE TUITION * INDIAN ED DISTRICT ESTIMATED ANNUAL ENTITLEMENTS HAVE BEEN UPDATED FOR THE * INDIAN ED BIA GENERAL EDUCATION AND CONCURRENT ENROLLMENT AID PROGRAMS. * INDIAN ED CHARTER * CAREER TECH AID RECOVERIES FOR THE GENERAL EDUCATION PROGRAMS ARE * CHARTER SCHOOL LEASE BEING MADE IN THE CURRENT PORTION OF THIS PAYMENT. * EQUITY IN TELECOM ACCESS * CHARTER SCH LEASE-MS127A CURRENT AIDS PAYMENT REPORT, PARTS 1 AND 2 FOR * LT FAC MAINT CHARTER NOVEMBER 30, WITH OTHER ADJUSTMENT DETAIL REPORT TO SELECTED * LT FAC MAINT MS127A DISTRICTS, AND STATE AID PAYMENT SCHEDULE * LT FAC MAINT REV FUND * LT FAC MAINT REV FUND ESTIMATED ANNUAL ENTITLEMENTS HAVE BEEN UPDATED FOR THE * NORTHWEST COLLEGE ONLINE COMPENSATORY, PSEO, SPECIAL EDUCATION, CHARTER SCHOOL LEASE, * CONCURRENT ENROLLMENT LITERACY AND NONPUBLIC PUPIL AID PROGRAMS. * ABATEMENT AID FUND * ABATEMENT AID FUND * ABATEMENT AID FUND * * * * * * * * * * * * * * * * * * * * * * * * * Prepared for Management Use 15

97 RUN DATE: 11/28/17 (IDEAS) MINNESOTA DEPARTMENT OF EDUCATION ENTITLEMENT YEAR: RUN TIME: 15:14 STATE AIDS PAYMENT REPORT BY DISTRICT FINAL PAYMENT NOVEMBER 30 FINAL ACCOUNT PART 1 DISTRICT: BLUESKY CHARTER SCHOOL NO. ANNUAL AID PRORATED AID GENERAL ANNUAL UFARS REDUCTION CUMULATIVE AID PROGRAM DST ENTITLEMENT ENTITLEMENT REDUCTION REVENUE ADJUSTMENT AMOUNT DUE SCH TRUST LAND ENDOWMENT 17, , , , GENERAL EDUCATION-CHARTR ,060, ,060, ,060, SUBTOTAL 17, ,077, ,077, ,077, SPECIAL ED-CHARTER 328, , , , SUBTOTAL 328, , , , CHARTER SCHOOL LEASE 190, , * , , LT FAC MAINT CHARTER 19, , * , , ALTERNATIVE COMPENSATION 127, , , , SUBTOTAL 337, , , , TOTAL 683, ,943, ,943, ,919, * PRORATED Prepared for Management Use 16

98 RUN DATE: 11/28/17 (IDEAS) MINNESOTA DEPARTMENT OF EDUCATION ENTITLEMENT YEAR: RUN TIME: 15:14 STATE AIDS PAYMENT REPORT BY DISTRICT FINAL PAYMENT NOVEMBER 30 FINAL ACCOUNT PART 2 DISTRICT: BLUESKY CHARTER SCHOOL UFARS GROSS AID GROSS AID TAX SHIFT ADJ OTHER ADJ NET AID THIS PAYMENT AID PROGRAM CODE YEAR-TO-DATE THIS PAYMENT THIS PAYMENT THIS PAYMENT PAYMENT OVERPAYMENT SCH TRUST LAND ENDOWMENT 01S201 17, GENERAL EDUCATION-CHARTR 01S211 4,054, , , SUBTOTAL 4,071, , , SPECIAL ED-CHARTER 01S , SUBTOTAL 549, CHARTER SCHOOL LEASE 01F , LT FAC MAINT CHARTER 01S317 18, ALTERNATIVE COMPENSATION XXF , SUBTOTAL 327, TOTAL 4,948, , , Prepared for Management Use 17

99 RUN DATE: 11/28/17 (IDEAS) MINNESOTA DEPARTMENT OF EDUCATION ENTITLEMENT YEAR: RUN TIME: 15:14 STATE AIDS PAYMENT REPORT BY DISTRICT PAYMENT #10 : NOVEMBER, 30 CURRENT ACCOUNT PART 1 DISTRICT: BLUESKY CHARTER SCHOOL NO. ANNUAL AID PRORATED AID GENERAL ANNUAL UFARS REDUCTION AMOUNT PAYABLE AID PROGRAM DST ENTITLEMENT ENTITLEMENT REDUCTION REVENUE ADJUSTMENT CURRENT ACCOUNT SCH TRUST LAND ENDOWMENT 18, , , , GENERAL EDUCATION-CHARTR ,251, ,251, ,826, SUBTOTAL 18, ,269, ,269, ,844, SPECIAL ED-CHARTER 322, , , , SUBTOTAL 322, , , , CHARTER SCHOOL LEASE 204, , , , LT FAC MAINT CHARTER 50, , * , , ALTERNATIVE COMPENSATION 122, , , , SUBTOTAL 377, , , , TOTAL 718, ,195, ,195, ,665, * PRORATED Prepared for Management Use 18

100 RUN DATE: 11/28/17 (IDEAS) MINNESOTA DEPARTMENT OF EDUCATION ENTITLEMENT YEAR: RUN TIME: 15:14 STATE AIDS PAYMENT REPORT BY DISTRICT PAYMENT #10 : NOVEMBER, 30 CURRENT ACCOUNT PART 2 DISTRICT: BLUESKY CHARTER SCHOOL UFARS CUMULATIVE GROSS AID GROSS AID TAX SHIFT ADJ OTHER ADJ NET AID AID PROGRAM CODE AMOUNT DUE YEAR-TO-DATE THIS PAYMENT THIS PAYMENT THIS PAYMENT THIS PAYMENT SCH TRUST LAND ENDOWMENT 01S201 9, , GENERAL EDUCATION-CHARTR 01S211 1,700, ,700, SUBTOTAL 1,709, ,709, SPECIAL ED-CHARTER 01S , , , , SUBTOTAL 164, , , , CHARTER SCHOOL LEASE 01F348 70, , , LT FAC MAINT CHARTER 01S ALTERNATIVE COMPENSATION XXF SUBTOTAL 70, , , TOTAL 1,945, ,734, , , Prepared for Management Use 19

101 RUN DATE: 11/28/17 (IDEAS) MINNESOTA DEPARTMENT OF EDUCATION PAYMENT YEAR: RUN TIME: 15:14 STATE AIDS PAYMENT SCHEDULE BASIS: C0530, F0530 **** NET AID PAYMENT **** DISTRICT: BLUESKY CHARTER SCHOOL THIS REPORT CONTAINS SUMMARY INFORMATION ON STATE AID CASH PAYMENTS TO YOUR SCHOOL FOR THE PAYMENT YEAR. THE FIRST COLUMN SHOWS THE PAYMENT PERIOD DATE. THE SECOND COLUMN SHOWS THE STATUS - ESTIMATES FOR DATES YET TO COME, CURRENT FOR CURRENT PAYMENT DATE, AND ACTUAL FOR CASH PAYMENTS ACTUALLY TRANSFERRED TO YOUR FINANCIAL INSTITUTION. THE THIRD COLUMN SHOWS PAYMENT AMOUNTS FOR THE SCHOOL YEAR (60% OF STATE AID REVENUES). THE FOURTH COLUMN SHOWS FINAL ADJUSTMENT PAYMENT AMOUNTS FOR THE SCHOOL YEAR (RECEIVABLE). THE FIFTH COLUMN SHOWS THE SUM OF PAYMENTS FOR THE TWO YEARS ON AN ACTUAL, CURRENT OR ESTIMATED BASIS. THE CALCULATION OF PAYMENTS TO SCHOOLS IS BASED ON MS 124D.11, SUBD. 9. THE AMOUNTS SHOWN IN PAYMENT PERIODS WITH STATUS OF 'ESTIMATE' ARE BASED ON ENTITLEMENTS ON THE IDEAS SYSTEM AS OF THE CURRENT PAYMENT DATE. ACTUAL CASH PAYMENTS WILL CHANGE FOR SEVERAL REASONS INCLUDING: ENTITLEMENT DECREASES RESULT IN REDUCTION OF PAYMENT AMOUNTS AS THE SCHOOL HAS RECEIVED MORE CASH THAN IS DUE AT THAT DATE ENTITLEMENT INCREASES RESULT IN AN ADDITIONAL PAYMENT AMOUNT TO 'CATCH UP'. 3. AID ADJUSTMENTS (SEEN IN PART 2 OF THE PAYMENT REPORT IN COLUMN TITLED 'OTHER ADJ THIS PERIOD') ARE AUTHORIZED BY MS 127A.41, SUBD. 2 TO RECOVER AMOUNTS DUE TO THE STATE AS A RESULT OF A) HAVING BEEN PAID MORE THAN 60% AMOUNT PAYABLE CURRENT ACCOUNT FOR OR B) HAVING BEEN PAID IN EXCESS OF ANNUAL UFARS REVENUE FOR AID ADJUSTMENTS (SEEN IN PART 2 OF THE PAYMENT REPORT IN COLUMN TITLED 'OTHER ADJ THIS PERIOD') DUE TO AUDIT OF PRIOR YEAR STUDENT DATA, PROGRAM OR EXPENDITURE DATA. 5. CHANGES IN THE SCHEDULING OF PAYMENT AMOUNTS DUE TO AVAILABILITY OF DATA USED TO CALCULATE STATE AID ENTITLEMENTS. PAY PERIOD STATUS CURRENT YEAR PRIOR YEAR TOTAL 101 JUL 15 ACTUAL 181, , JUL 30 ACTUAL 173, , AUG 15 ACTUAL 200, , AUG 30 ACTUAL 185, , , SEP 15 ACTUAL 218, , SEP 30 ACTUAL 190, , , OCT 15 ACTUAL 190, , OCT 30 ACTUAL 202, , , NOV 15 ACTUAL 191, , NOV 30 CURRENT 211, , , DEC 15 ESTIMATE 193, , DEC 30 ESTIMATE 193, , JAN 15 ESTIMATE 193, , JAN 30 ESTIMATE 193, , , FEB 15 ESTIMATE 193, , , FEB 28 ESTIMATE 193, , MAR 15 ESTIMATE 202, , MAR 30 ESTIMATE 193, , APR 15 ESTIMATE 193, , APR 30 ESTIMATE 193, , MAY 15 ESTIMATE 193, , MAY 30 ESTIMATE 193, , JUN 20 ESTIMATE 193, , JUN 30 ESTIMATE 193, , TOTAL 4,665, , ,105, AID ENTITLEMENT AMOUNTS ARE BASED ON THE BEST ESTIMATES AVAILABLE AT THIS TIME, BUT MAY BE "SOFT" AID ENTITLEMENTS AND PROJECTED FINAL PAYMENTS ARE BASED PRIMARILY ON DATA AS OF THE FEBRUARY 2016 FORECAST AND WILL BE REVISED THROUGH THE YEAR AS STUDENT, EXPENDITURE, OTHER DATA ARE FINALIZED. 3. ESTIMATED PAYMENT AMOUNTS ON THIS REPORT REFLECT A 90/10 PAYMENT SCEDULE. EARLY RECOGNITION ITEMS WITH NO CORRESPONDING AID ADJUSTMENT SPECIFIED IN STATUTE WILL CONTINUE TO BE RECOGNIZED EARLY. Prepared for Management Use 20

102 Finance Committee Agenda Date: 12/14/17 Time: 10:00 a.m. Location: Google Hangouts (link below and also in the calendar invite) Join meeting: finance Members Present: Jim Weiberg, Scott Brown, Amy Larsen, Dan Ondich, Renee Parcheta, Chris Peterson, Megan Hollenkamp, J udy Pekarek, Sara Neu, Amy Chicoine, Darren Sonenstahl Finance Committee Responsibilities: 1. Review and recommend the annual school budget to be approved by the board of directors no later than their June meeting. Monitor the annual budget and recommend adjustments if needed to the board. 2. Review monthly account activities and balances. 3. Review the annual audit, and report findings to the board with any recommendations for board action. 4. Work with the Personnel and Human Resources committee for salaries and benefits. 5. Post meeting notices 72 hours in advance, and keep minutes of proceedings. Agenda : I. Financial Updates A. Monthly Financial Statements (Scott Brown) 1. November Financial Statement Brown reviewed November financials and reported we are 42% of the way through our current fiscal year with expenses paid out of 35%. There are no cash flow concerns at this time. Pekarek asked what the Poster Guard expense was on the check register. Neu informed her that it was the annual subscription renewal for our required posters for labor laws, etc. 2. Credit Card Statement Pekarek inquired about the AdvancED charges on the credit card statement. Larsen noted that the accreditation renewal process required BlueSky cover all expenses for the review team including food and travel expenses. Sonenstahl asked if we had received a new credit card. Larsen informed the committee that BlueSky was approved for a credit card through Anchor Bank but it has not yet been activated. The new card and the Visa will both be active for a period of time. B. ADM/Enrollment Update (Amy Larsen) according to MARSS report. BlueSky is seeing an increase number of new enrollments for the past couple of weeks. This could partially be due to the increase in our online marketing which includes the addition of banner ads. There are currently 486 active enrollments + 31 future starts and 8 PSEO students. There is 27 supplemental students taking about 60 different courses. Ondich noted we will likely 102

103 reach our cap next week. Compensatory aid is focus - 18% free and reduced Sonenstahl asked if we need to consider increasing our cap in order to reach our 480 ADM goal. Larsen noted that the average enrollment number should reach 480 by the end of the year if we maintain our cap going forward. The decrease in the number of weekly student drops has also helped BlueSky maintain a higher average student enrollment number. Larsen made the committee aware that we are currently only at 18% free/reduced lunch rate. We average about 30% with last year s number being 34%. This number effects the amount of compensatory aid BlueSky will receive next year and it is important that we maintain an accurate number which is difficult when we do not receive all of the student forms back. There are currently about 300 students/parents that have not submitted the free/reduced lunch form. Larsen will be sending out a robo call and message reminder to submit this important form. II. Other Business/Questions A. FY17 Audit Financial Statement Brown summarized that the audit will be presented to the board next Wednesday by the auditing firm MMKR. There were no findings/deficiencies. III. Recommendations to the Board No recommendations at this time. Future Meetings: Thursdays at 10:00 a.m. December 14 January 25 February 22 March 15 April 19 May 17 June

104 Curriculum Committee Agenda & Minutes December 14, :00-10:00 Members Present: Amy Larsen Carla Anderson-Diekmann Darren Sonenstahl Heather Novak Karen Kraco Renee Parcheta Dan Ondich Erin Winchell Jim Weiberg Matthew Schempp BlueSky Charter School Vision: BlueSky is defining education for the 21st century by creating an individualized, dynamic education for all students. We are committed to empowering our community by facilitating relevant learning, skills, hopes and relationships. BlueSky Charter School Mission: Bringing quality online education and diverse learners together. Curriculum Committee-Primary Objective: The primary objective of the Curriculum Development Committee is to review and recommend to the BlueSky Charter School Board of Directors on matters pertaining to the content of the academic program, course materials, and method of delivery. This includes, but is not limited to, the review and selection of curriculum and educational materials, review of all class syllabi, common course outlines and learning objectives for use in the program. Curriculum Vision: Through high quality curriculum and instructional practices BlueSky will do the following: 1. implement standards-based and data-driven practices 2. embed RTI over the next three to five years 3. foster academic and testing skills among students 4. provide College and Career Readiness resources to support student success and learning to ensure opportunities post high school 5. empower teachers to tailor instruction that meets the needs of individual students 6. develop consistent course design and format that ensures content accessibility for all students; and 7. establish a schedule that offers both flexible and structured options for students Annual Focus Areas: 1. College & Career Readiness 2. Core Competencies 3. First Principles of Instruction 4. Continued review of curriculum and programming a. Part-time/supplemental enrollment b. RTI c. Group Pace & My Pace (continue to survey and review data) 104