LEXINGTON CITY SCHOOLS, NORTH CAROLINA. Financial Statements June 30, 2017

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1 LEXINGTON CITY SCHOOLS, NORTH CAROLINA Financial Statements

2 Board of Education Members John Burke, Chair Robert Curlee, Vice Chair Hector Padial Brian Lancaster Angela McDuffie Sam Lem Scott Biesecker Anna Hayes Rose Banks School Officials Mr. Rick Kriesky, Superintendent Shelly Gentle, Director of Finance David Inabinett, Board Attorney

3 Table of Contents Exhibit Page Independent Auditors' Report 1 Management's Discussion and Analysis 4 Basic Financial Statements Government-Wide Financial Statements 1 Statement of Net Position 12 2 Statement of Activities 13 Fund Financial Statements 3 Balance Sheet - Governmental Funds 14 3 Reconciliation of the Balance Sheet to the Statement of Net Position 14 4 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 15 4 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 16 5 Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund 17 6 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - State Public School Fund 18 7 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Federal Grants Fund 19 8 Statement of Net Position - Proprietary Fund 20 9 Statement of Revenues, Expenses and Changes in Fund Net Position - Proprietary Fund Statement of Cash Flows - Proprietary Fund 22 Notes to the Financial Statements 24 Required Supplemental Information Schedule of Proportionate Share of Net Pension Liability 51 Schedule of Board Contributions 52 Schedule Combining and Individual Fund Schedules 1 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 53

4 Table of Contents (Continued) Schedule Page Combining and Individual Fund Schedules (Continued) 2 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - Capital Outlay Fund 55 3 Schedule of Revenues and Expenditures - Budget and Actual (Non-GAAP) - School Food Service Fund 56 Compliance Section 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 57 Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; In Accordance with OMB Circular A-133; and the State Single Audit Implementation Act 59 Report on Compliance for Each Major State Program; Report on Internal Control Over Compliance; In Accordance OMB Circular A-133 and the State Single Audit Implementation Act 62 Schedule of Findings and Questioned Costs 65 Summary Schedule of Prior Year Audit Findings 68 Corrective Action Plan 69 Schedule of Expenditures of Federal and State Awards 70

5 A S W A N D E R S O N S M I T H & W I K E PLLC Certified Public Accountants Independent Auditors' Report To the Board of Education Lexington City Schools, North Carolina Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Lexington City Schools, North Carolina, as of and for the year ended and the related notes to the financial statements, which collectively comprise the Lexington City Schools 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. Auditors' Responsibility Our responsibility is to express an opinion 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 of 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 risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant 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. 1 Member American Institute of Certified Public Accountants North Carolina Association of Certified Public Accountants

6 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of the Lexington City Schools, North Carolina, as of, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund, State Public School Fund and Federal Grants Fund for the year ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 4 through 11 and the Schedule of Proportionate Share of Net Pension Liability and the Schedule of Board Contributions on pages 51 and 52, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquires of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquires, 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. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Lexington City Schools' basic financial statements. The individual fund schedules, budgetary schedules and other schedules, as well as the accompanying schedule of expenditures of federal and State awards as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and the State Single Audit Implementation Act, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The individual fund schedules, budgetary schedules, other schedules and the accompanying schedule of expenditures of federal and State awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements, or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund schedules, budgetary schedules, other schedules and the accompanying schedule of expenditures of federal and State awards are fairly stated in all material respects in relation to the financial statements taken as a whole. 2

7 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 15, 2017, on our consideration of the Lexington City Schools' 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 are an integral part of an audit performed in accordance with Government Auditing Standards in considering Lexington City Schools' internal control over financial reporting and compliance. Gastonia, North Carolina September 15,

8 MANAGEMENT S DISCUSSION AND ANALYSIS This section of the Lexington City Schools (the Board) financial report represents our discussion and analysis of the financial performance of the Board for the year ended. This information should be read in conjunction with the audited financial statements included in this report. Financial Highlights The assets of the Board exceeded its liabilities at the close of the fiscal year by $20,182,036. As of the close of the 2017 fiscal year, the Board s governmental funds reported combined ending fund balances of $2,710,182, an increase of $191,102 in comparison with the prior year. Approximately 6% of the total is comprised of the fund balances of the individual schools. Approximately 90% of the total, or $2,098,840, is available for appropriation at the Board s discretion, of which $650,380 has been designated by the Board to balance the budget. Overview of the Financial Statements The audited financial statements of Lexington City Schools consist of four components. They are as follows: Independent Auditors Report Management's Discussion and Analysis (required supplementary information) Basic Financial Statements Required supplemental section that presents combining and individual fund schedules and a budgetary basis for certain governmental funds and the enterprise fund The Basic Financial Statements include two types of statements that present different views of the Board s finances. The first is the government-wide financial statements. The government-wide statements are presented on the full accrual basis of accounting and include the statement of net position and the statement of activities. The statement of net position includes all of the Board s assets and liabilities, and deferred inflows of resources. Assets and liabilities are classified in the order of relative liquidity for assets and due date for liabilities. This statement provides a summary of the Board's investment in assets, deferred inflows of resources and obligations to creditors. Liquidity and financial flexibility can be evaluated using the information contained in this statement. The statement of activities summarizes the Board s revenues and expenses for the current year. A net (expense) revenue format is used to indicate to what extent each function is self-sufficient. 4

9 MANAGEMENT S DISCUSSION AND ANALYSIS The second set of statements included in the basic financial statements is the fund financial statements, which are presented for the Board s governmental funds and proprietary funds. These statements present the governmental funds on the modified accrual basis of accounting, measuring the near term inflows and outflows of financial resources and what is available at year-end to spend in the next fiscal year. The proprietary funds are presented on the full accrual basis of accounting. The fund financial statements focus on the Board s most significant funds. Because a different basis of accounting is used in the governmentwide statements, reconciliation from the governmental fund financial statements to the government-wide financial statements is required. The government-wide statements provide information about the Board as an economic unit while the fund financial statements provide information on the financial resources of each of the Board s major funds. Government-wide Financial Statements The government-wide financial statements report information about the unit as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the Board s assets, deferred inflows of resources and liabilities. 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 government-wide statements report the Board s net position and how they have changed. Net position the difference between the Board s assets and the total of liabilities and deferred inflows is one way to measure the unit s financial health or position. Over time, increases or decreases in the Board s net position are an indicator of whether its financial position is improving or deteriorating. To assess the Board s overall health, one should consider additional non-financial factors such as changes in the County s property tax base and the condition of its school buildings and other physical assets. The unit s activities are divided into two categories in the government-wide statements: Governmental activities: Most of the Board s basic services are included here, such as regular and special education, transportation, and administration. County funding and State and federal aid finance most of these activities. Business-type activities: The Board charges fees to help it cover the costs of certain services it provides. School food service is included here. The government-wide statements are shown as Exhibits 1 and 2 of this report. 5

10 MANAGEMENT S DISCUSSION AND ANALYSIS Fund Financial Statements The fund financial statements provide more detailed information about the Board s funds, focusing on its most significant or major funds not the unit as a whole. Funds are accounting devices the Board uses to keep track of specific sources of funding and spending on particular programs. Some funds are required by State law, such as the State Public School Fund. The Board has established other funds to control and manage money for a particular purpose or to show that it is properly using certain revenues, such as in the Federal Grants Fund. Lexington City Schools has two types of funds: Governmental funds: Most of the Board s basic services are included in the governmental funds, which generally focus on two things how cash and other assets can readily be converted to cash flow in and out, and the balances left at year-end that are available for spending. As a result of this focus, the governmental funds statements provide a detailed short-term view that helps the reader determine whether there are more or fewer financial resources that can be spent in the coming year to finance the Board s programs. Because this information does not encompass the additional long-term focus of the government-wide statements, additional information at the bottom of the governmental funds statements, in the form of a reconciliation, explains the relationship (or differences) between the government-wide and the fund financial statements. The Board has several governmental funds: the General Fund, the State Public School Fund, the School Activity Fund, the Capital Outlay Fund, and the Federal Grants Fund. The governmental fund statements are shown as Exhibits 3, 4, 5, 6 and 7 of this report. Proprietary funds: Services for which the Board charges a fee are generally reported in the proprietary funds. The proprietary fund statements are reported on the same full accrual basis of accounting as the government-wide statements. Lexington City Schools, North Carolina has one proprietary fund the School Food Service Fund, which is an enterprise fund. The proprietary fund statements are shown as Exhibits 8, 9, and 10 of this report. 6

11 MANAGEMENT S DISCUSSION AND ANALYSIS Financial Analysis of the Board as a Whole Net position is an indicator of the fiscal health of the Board. Assets exceeded liabilities and deferred inflows of resources by $20,182,036 as of The largest component of net position is net investment in capital assets, of $22,370,651. It comprises 110.8% of the total net position. Following is a summary of the Statement of Net Position: Table 1 Condensed Statement of Net Position Governmental Activities Business-type Activities Total Primary Government 6/30/2017 6/30/2016 6/30/2017 6/30/2016 6/30/2017 6/30/2016 Current assets $ 3,595,921 $ 3,268,171 $ 1,318,633 $ 1,149,297 $ 4,914,554 $ 4,417,468 Capital assets 22,224,636 22,489, , ,851 22,421,573 22,619,660 Total assets 25,820,557 25,757,980 1,515,570 1,279,148 27,336,127 27,037,128 Deferred outflows of resources 6,987,043 1,521, ,931 44,888 7,178,974 1,566,052 Current liabilities 1,597,442 1,615,243 35,054 32,396 1,632,496 1,647,639 Long-term liabilities 11,576,660 5,181, , ,579 11,894,489 5,319,335 Total liabilities 13,174,102 6,796, , ,975 13, ,966,974 Deferred inflows of resources 791,887 1,445,994 14,193 37, ,080 1,483,057 Net investment in capital assets 22,173,714 22,239, , ,851 22,370,651 22,369,587 Restricted net position 568, , , ,494 Unrestricted net position (3,900,400) (3,802,079) 1,143, ,147 (2,756,912) (2,814,932) Total net position $ 18,841,611 $ 19,036,151 $ 1,340,425 $ 1,116,998 $ 20,182,036 $ 20,153,149 Note that total net position increased during the year, which was primarily due to the change in items related to the pension accounts in the fiscal year ending. There was a slight decrease in net position of the governmental activities of $194,540. Unrestricted net position in the business-type activities increased by $156,341. 7

12 MANAGEMENT S DISCUSSION AND ANALYSIS Financial Analysis of the Board as a Whole (Continued) The following table shows the revenues and expenses for the Board: Table 2 Condensed Statement of Activities Governmental Activities Business-type Activities Total Primary Government 6/30/2017 6/30/2016 6/30/2017 6/30/2016 6/30/2017 6/30/2016 Revenues: Program revenues: Charges for services $ 527,098 $ 458,805 $ 65,570 $ 69,287 $ 592,668 $ 528,092 Operating grants and contributions 22,303,016 21,560,560 2,358,699 2,269,367 24,661,715 23,829,927 Capital grants and contributions ,918-10,918 - General revenues: Other revenues 7,590,899 7,548,193 6,403 2,105 7,597,302 7,550,298 Total revenues 30,421,013 29,567,558 2,441,590 2,340,759 32,862,603 31,908,317 Expenses: Governmental activities: Instructional services 24,483,617 22,237, ,483,617 22,237,798 System-wide support services 5,862,117 5,526, ,862,117 5,526,103 Ancillary services 74,797 96, ,797 96,807 Non-programmed charges 112, , , ,461 Interest on long-term debt 6,387 13, ,387 13,455 Depreciation expense 76,252 49, ,252 49,033 Business-type activities: Food service - - 2,218,163 2,008,097 2,218,163 2,008,097 Total expenses 30,615,553 28,050,657 2,218,163 2,008,097 32,833,716 30,058,754 Increase (decrease) in net position (194,540) 1,516, , ,662 28,887 1,849,563 Net position, beginning 19,036,151 17,519,250 1,116, ,336 20,153,149 18,303,586 Net position, ending $ 18,841,611 $ 19,036,151 $ 1,340,425 $ 1,116,998 $ 20,182,036 $ 20,153,149 Total governmental activities generated revenues of $30,421,013 while expenses in this category totaled $30,615,553 for the year ended. Revenues increased 2. 88% from 2016 while expenses increased 9.1%. The decrease in net position stands at $194,540 at, compared to net increase of $1,516,901 in Business-type activities generated revenue of $2,441,590 with expenses of $2,218,163. Revenues increased 4.3% from 2016 while expenses increased 10%.. 8

13 MANAGEMENT S DISCUSSION AND ANALYSIS Financial Analysis of the Board s Funds Governmental Funds: The focus of Lexington City Schools governmental funds is to provide information on near-term inflows, outflows, and balances of usable resources. Such information is useful in assessing the Board s financing requirements. The Board s governmental funds reported a combined fund balance of $2,710,182, a $191,102 increase over last year. The General, Capital and School Activity Funds had revenue that exceeded expenditures and other financing sources, thus the increase in total fund balance. State funding increased $758,149, federal funding decreased by $19,565 and County funding increased by $17,470. Proprietary Fund: The Board s business-type fund, the School Food Service Fund, reflected an increase in net position of $223,427. The School Food Service Fund had an increase in revenue of $100,831, along with a increase in expenses of $210,066. General Fund Budgetary Highlights Over the course of the year, the Board revised the budget several times to account for changes in revenue and expense expectations and for new appropriations. There were no other significant changes in the budget during the course of the year. Capital Assets Capital assets decreased by $198,807 or about.8% from the previous year. The following is a summary of the capital assets, net of depreciation at year-end. Table 3 Summary of Capital Assets Governmental Activities Business-type Activities Total Primary Government 6/30/2017 6/30/2016 6/30/2017 6/30/2016 6/30/2017 6/30/2016 Land $ 317,098 $ 317,098 $ - $ - $ 317,098 $ 317,098 Construction in progress Buildings Equipment and furniture 21,154, ,038 21,720, , , ,851 21,154, ,975 21,720, ,099 Vehicles 69,051 67, ,051 67,866 Total $ 22,224,636 $ 22,489,809 $ 196,937 $ 129,851 $ 22,421,573 $ 22,619,660 9

14 MANAGEMENT S DISCUSSION AND ANALYSIS Debt Outstanding During the year the Board s outstanding debt decreased by $199,151 for payments made on the installment financing for energy conservation measures. The Board is limited by North Carolina General Statutes with regards to the types of debt it can issue and for what purpose that debt can be used. Davidson County holds virtually all debt issued for school capital construction. Economic Factors Funding from Davidson County, which historically represents about 16 percent of total operating funding, is a major source of operating revenue for the Lexington City Board of Education; therefore, the County s economic outlook directly affects that of the school district. The following factors have affected the economic outlook of Davidson County: Davidson County s unemployment rate of 4.1% at June 2017 has improved from 4.9% at June The County s rate remains slightly below the statewide rate of 4.2%. The unemployment rate ranks Davidson County as having the 37 th lowest rate in the state. The unemployment rate in Davidson County has been steadily declining over the past several years. 74 job creations in Davidson County were announced during The Davidson County Board of Commissioners increased the per pupil allocation by $30 or 2.58% as compared to the previous year, continuing their commitment to the education of the students at Lexington City Schools. Davidson County s property tax rate of $0.54 per $100 of valuation remained the same as the approved rate for This rate remains well below its peers in terms of the overall property tax rate. 10

15 MANAGEMENT S DISCUSSION AND ANALYSIS Requests for Information This report is intended to provide a summary of the financial condition of the Lexington City Schools. Questions or requests for additional information should be addressed to: Shelly Gentle, Director of Finance Lexington City Schools, North Carolina 1010 Fair Street Lexington, NC

16 STATEMENT OF NET POSITION Exhibit 1 Governmental Activities Primary Government Business-type Activities Total ASSETS Cash and cash equivalents $ 2,940,897 $ 1,183,882 $ 4,124,779 Accounts receivable 145, ,052 Due from other governments 509, , ,141 Internal balances Inventories - 31,582 31,582 Capital assets: Land and construction in progress 317, ,098 Other capital assets, net of depreciation 21,907, ,937 22,104,475 Total capital assets 22,224, ,937 22,421,573 Total assets 25,820,557 1,515,570 27,336,127 DEFERRED OUTFLOWS OF RESOURCES 6,987, ,931 7,178,974 LIABILITIES Accounts payable and accrued expenses 94,527 10, ,581 Accrued salaries and wages payable 515, ,993 Long-term liabilities: Net pension liability 10,932, ,297 11,232,361 Due within one year 986,922 25,000 1,011,922 Due in more than one year 644,596 17, ,128 Total liabilities 13,174, ,883 13,526,985 DEFERRED INFLOWS OF RESOURCES 791,887 14, ,080 NET POSITION Net investment in capital assets, net of related debt 22,173, ,937 22,370,651 Restricted for: Stabilization by State Statue 185, ,386 Individual schools 162, ,745 Schlarships and grants 43,045-43,045 School Capital Outlay 220, ,166 Unrestricted (deficit) (3,943,445) 1,143,488 (2,799,957) Total net position $ 18,841,611 $ 1,340,425 $ 20,182,036 The accompanying notes are an integral part of the financial statements. Page 12

17 STATEMENT OF ACTIVITIES For the Year Ended Exhibit 2 Net (Expense) Revenue and Changes in Net Position Program Revenues Primary Government Functions/Programs Expenses Charges for Services Operating Grants and Contributions Capital Grants and Contributions Governmental Activities Business-type Activities Total Primary government: Governmental Activities: Instructional services: Regular instructional $ 14,000,240 $ - $ 11,323,721 $ - $ (2,676,519) $ - $ (2,676,519) Special populations 3,840,481-3,568,049 - (272,432) - (272,432) Alternative programs and services 2,046,370-1,712,302 - (334,068) - (334,068) School leadership services 2,169,881-1,617,928 - (551,953) - (551,953) Co-curricular 681, , (225,819) - (225,819) School-based support services 1,745,278-1,605,242 - (140,036) - (140,036) System-wide support services: Support and development 143,913-79,142 - (64,771) - (64,771) Special population support and development 261, ,305 - (43,235) - (43,235) Alternative programs and services support and development 32,666-32,311 - (355) - (355) Technology support 465,252-15,342 - (449,910) - (449,910) Operational support 3,349,276 71,550 1,112,759 - (2,164,967) - (2,164,967) Financial and human resource services 485, ,677 - (157,257) - (157,257) Accountability services 112, ,665 - (10,372) - (10,372) System-wide pupil support Policy, leadership and public relations 1,011, ,986 - (533,513) - (533,513) Ancillary services 74,797-19,594 - (55,203) - (55,203) Non-programmed charges 112,383-89,993 - (22,390) - (22,390) Interest on long-term debt 6, (6,387) - (6,387) Unallocated depreciation expense** 76, (76,252) - (76,252) Total governmental activities 30,615, ,098 22,303,016 - (7,785,439) - (7,785,439) Business-type activities: School food service 2,263,321 65,570 2,358,699 10, , ,866 Total business-type activities 2,263,321 65,570 2,358,699 10, , ,866 Total primary government $ 32,878,874 $ 592,668 $ 24,661,715 10,918 (7,785,439) 171,866 (7,613,573) General revenues: Unrestricted county appropriations - operating Unrestricted county appropriations - capital 742, ,774 Unrestricted State appropriations - operating 290, ,828 Unrestricted State appropriations - capital 5,913-5,913 Investment earnings, unrestricted 4,920 1,971 6,891 Miscellaneous, unrestricted 6,591,622 4,432 6,596,054 Transfers (45,158) 45,158 - Total general revenues and transfers 7,590,899 51,561 7,642,460 Change in net position (194,540) 223,427 28,887 Net position-beginning 19,036,151 1,116,998 20,153,149 Net position-ending $ 18,841,611 $ 1,340,425 $ 20,182,036 ** This amount excludes the depreciation that is included in the direct expenses of the various programs The accompanying notes are an integral part of the financial statements. Page 13 $ -

18 BALANCE SHEET - GOVERNMENTAL FUNDS Exhibit 3 Major Funds Non-major Fund General State Public School Capital Outlay Federal Grants School Activity Fund Total Governmental Funds ASSETS Cash and cash equivalents $ 2,563,899 $ - $ 214,253 $ - $ 162,745 $ 2,940,897 Accounts receivable 145, ,052 Due from other governments 40, ,669 5,913 96, ,972 Total assets $ 2,749,285 $ 367,669 $ 220,166 $ 96,056 $ 162,745 $ 3,595,921 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and accrued expenditures $ 94,527 $ - $ - $ - $ - $ 94,527 Accrued salaries and wages payable 52, ,669-96, ,993 Total liabilities 146, ,669-96, ,520 Deferred inflows of resources 275, ,219 Fund balances: Restricted: - Stabilization by State Statue 185, ,386 Individual Schools , ,745 Scholarships and grants 43, ,045 School Capital Outlay , ,166 Assigned: Subsequent years expenditures 650, ,380 Unassigned: 1,448, ,448,460 Total fund balances 2,327, , ,745 2,710,182 Total liabilities and fund balances $ 2,749,285 $ 367,669 $ 220,166 $ 96,056 $ 162,745 Amounts reported for governmental activities in the statement of net assets (Exhibit 1) are different Capital assets used in governmental activities are not financial resources and therefore are not reported in Deferred outflows of resources related to pensions 22,224,636 6,987,043 Some liabilities are not due and payable in the current period and therefore are not reported in the Net pension liability Deferred intflows of resources related to pensions (1,631,518) (10,932,064) (516,668) Net position of governmental activities $ 18,841,611 The accompanying notes are an integral part of the financial statements. Page 14

19 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS For the Year Ended June 30,, 2017 Exhibit 4 Major Funds Non-major Fund Total Governmental Funds General State Public School Capital Outlay Federal Grants School Activity Fund REVENUES State of North Carolina $ 290,828 $ 19,701,671 $ 5,913 $ - $ - $ 19,998,412 Davidson County 5,800, , ,543,347 U.S. Government 373, ,646,503-3,020,285 Other 433,732-14, , ,129 Total revenues 6,898,915 19,701, ,536 2,646, ,548 30,466,173 EXPENDITURES Current: Instructional services: Regular instructional 1,632,067 11,171, ,725-12,955,788 Special populations 230,743 2,855, ,188-3,798,792 Alternative programs and services 311, ,514-1,400,788-2,024,156 School leadership services 528,398 1,617, ,146,326 Co-curricular services 227, , ,063 School-based support services 130,998 1,478, ,878-1,736,240 System-wide support services: Support and development 63,209 36,685-42, ,351 Special population support and development 40, ,713-1, ,701 Alternative programs and services support and development ,311-32,311 Technology support 444,860 15, ,202 Operational support 2,200,160 1,102,549-10,210-3,312,919 Financial and human resource services 151, , ,659 Accountablility services 9, , ,821 System-wide pupil support Policy, leadership and public relations 522, ,543-67,443-1,000,519 Ancillary services 55,203 8,676-10,918-74,797 Non-programmed charges 22, , ,383 Debt service: Principal 199, ,151 Interest and other charges 6, ,387 Capital outlay: Real property and buildings , ,775 Furniture and equipment , ,572 Buses and motor vehicles Total expenditures 6,776,888 19,656, ,347 2,646, ,662 30,229,913 Revenues over (under) expenditures 122,027 45,158 50,189-18, ,260 OTHER FINANCING SOURCES Transfers to other fund - (45,158) (45,158) Total other financing sources - (45,158) (45,158) Net change in fund balance 122,027-50,189-18, ,102 Fund balances-beginning 2,205, , ,859 2,519,080 Fund balances-ending $ 2,327,271 $ - $ 220,166 $ - $ 162,745 $ 2,710,182 The accompanying notes are an integral part of the financial statements. Page 15

20 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS For the Year, Ended Exhibit 4 (Continued) Amounts reported for governmental activities in the statement of activities are different because: Net changes in fund balances - total governmental funds $ 191,102 Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period. (265,173) Contribution to the pension plan in the current fiscal year are not included on the Statement of Activities 1,735,049 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt and related items. Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. 199,151 Pension expense (2,007,133) Change in compensated absences (47,536) Remaining book value of disposed capital assets - Total changes in net position of governmental activities $ (194,540) The accompanying notes are an integral part of the financial statements. Page 16

21 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL - GENERAL FUND For the Year Ended Exhibit 5 General Fund Variance with Final Budget - Original Final Actual Amounts Positive (Negative) Revenues: State of North Carolina $ 342,507 $ 342,507 $ 290,828 $ (51,679) Davidson County 5,788,615 5,788,615 5,800,573 11,958 U.S. Government 530, , ,782 (156,420) Other 386, , ,732 10,575 Total revenues 7,048,029 7,084,481 6,898,915 (185,566) Expenditures: Current: Instructional services: Regular instructional 1,839,825 1,801,230 1,632, ,163 Special populations 252, , ,743 44,198 Alternative programs and services 385, , ,854 60,034 School leadership services 520, , ,398 10,210 Co-curricular services 228, , ,401 1,851 School-based support services 211, , ,998 80,823 System-wide support services: Support and development 82,500 82,500 63,209 19,291 Special population support and development 32,691 43,322 40,396 2,926 Alternative programs and services support and development Technology support 455, , ,860 8,786 Operational support 2,588,435 2,609,812 2,200, ,652 Financial and human resource services 163, , ,982 11,636 Accountability services 9,156 9,156 9,156 - System-wide Pupil Support Services Policy, leadership and public relations 576, , ,533 52,596 Ancillary services 56,885 58,855 55,203 3,652 Non-programmed charges 9,000 25,000 22,390 2,610 Debt service: Principal 199, , , Interest and other charges 6,387 6,387 6,387 - Total expenditures 7,617,926 7,654,378 6,776, ,490 Revenues over (under) expenditures (569,897) (569,897) 122, ,924 Other financing sources (uses): Capital lease obligations issued Transfers to other fund Total other financing sources (uses) Revenues and other sources over (under) expenditures and other uses (569,897) (569,897) 122, ,924 Appropriated fund balance 569, ,897 - (569,897) Net change in fund balance $ - $ - 122,027 $ 122,027 Fund balances, beginning of year 2,205, Fund balances, end of year $ 2,327,271 The accompanying notes are an integral part of the financial statements. Page 17

22 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL - STATE PUBLIC SCHOOL FUND For the Year Ended Exhibit 6 State Public School Fund Variance with Final Budget - Original Final Actual Amounts Positive (Negative) Revenues: State of North Carolina $ 19,771,011 $ 20,179,968 $ 19,701,671 $ (478,297) Davidson County U.S. Government Other Total revenues 19,771,011 20,179,968 19,701,671 (478,297) Expenditures: Current: Instructional services: Regular instructional 11,437,805 11,496,457 11,171, ,461 Special populations 2,936,493 2,903,890 2,855,861 48,029 Alternative programs and services 230, , ,514 36,861 School leadership services 1,642,677 1,619,325 1,617,928 1,397 Co-curricular services School-based support services 1,624,776 1,502,500 1,478,364 24,136 System-wide support services: Support and development 33,259 38,249 36,685 1,564 Special population support and development 94, , ,713 1,258 Alternative programs and services support and development Technology support - 15,342 15,342 - Operational support 848,414 1,111,313 1,102,549 8,764 Financial and human resource services 353, , ,677 20,010 Accountability services 103, , ,665 1,512 System-wide Pupil Support Services Policy, leadership and public relations 418, , ,543 7,664 Ancillary services 2,317 11,044 8,676 2,368 Non-programmed charges Debt service: Principal Interest and other charges Total expenditures 19,725,400 20,134,537 19,656, ,024 Revenues over (under) expenditures 45,611 45,431 45,158 (273) Other financing sources (uses): Transfers to other fund (45,611) (45,431) (45,158) 273 Total other financing sources (uses) (45,611) (45,431) (45,158) 273 Revenues and other sources over (under) expenditures and other uses Appropriated fund balance Net change in fund balance Fund balances, beginning of year - - Fund balances, end of year $ - The accompanying notes are an integral part of the financial statements. Page 18

23 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL - FEDERAL GRANTS FUND For the Year Ended Exhibit 7 Federal Grants Fund Variance with Final Budget - Original Final Actual Amounts Positive (Negative) Revenues: State of North Carolina $ - $ - $ - $ - Davidson County U.S. Government 3,430,040 3,550,310 2,646,503 (903,807) Other Total revenues 3,430,040 3,550,310 2,646,503 (903,807) Expenditures: Current: Instructional services: Regular instructional 155, , ,725 3,012 Special populations 958, , , ,252 Alternative programs and services 1,536,110 1,538,980 1,400, ,192 School leadership services Co-curricular services School-based support services 141, , ,878 18,624 System-wide support services: Support and development 43,110 43,110 42, Special population support and development 143, ,445 1, ,853 Alternative programs and services support and development 32,391 32,503 32, Technology support Operational support 23,691 29,012 10,210 18,802 Financial and human resource services Accountability services System-wide Pupil Support Services Policy, leadership and public relations 67,613 67,794 67, Ancillary services 10,918 10,918 10,918 - Non-programmed charges 317, ,869 89, ,876 Debt service: Principal Interest and other charges Total expenditures 3,430,040 3,550,310 2,646, ,807 Revenues over (under) expenditures Other financing sources (uses): Capital lease obligations issued Transfers to other fund Total other financing sources (uses) Revenues and other sources over (under) expenditures and other uses Appropriated fund balance Net change in fund balance $ - $ - $ - Fund balances, beginning of year - Fund balances, end of year $ - The accompanying notes are an integral part of the financial statements. Page 19

24 STATEMENT OF NET POSITION - PROPRIETARY FUND Exhibit 8 Enterprise Fund Major Fund School Food Service ASSETS Current assets: Cash and cash equivalents $ 1,183,882 Due from other governments 103,169 Inventories 31,582 Total current assets 1,318,633 Noncurrent assets: Capital assets, net 196,937 Total assets 1,515,570 DEFERRED OUTFLOWS OF RESOURCES 191,931 LIABILITIES Current liabilities: Accounts payable and accrued liabilities 10,054 Compensated absences 25,000 Total current liabilities 35,054 Noncurrent liabilities: Net pension liability 300,297 Compensated absences 17,532 Total noncurrent liabilities 317,829 Total liabilities 352,883 DEFERRED INFLOWS OF RESOURCES 14,193 NET POSITION Net Investment in capital assets 196,937 Unrestricted 1,143,488 Total net position $ 1,340,425 The accompanying notes are an integral part of the financial statements. Page 20

25 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION - PROPRIETARY FUND For the Year Ended Exhibit 9 Enterprise Fund Major Fund School Food Service OPERATING REVENUES Food sales $ 65,570 Total operating revenues 65,570 OPERATING EXPENSES Purchase of food 1,053,276 Salaries and benefits 812,455 Indirect costs 137,899 Materials and supplies 121,242 Telephone and utilities 1,278 Repairs and maintenance 47,864 Depreciation 25,006 Contracted services 62,950 Other 1,351 Total operating expenses 2,263,321 Operating loss (2,197,751) NONOPERATING REVENUES Federal reimbursements 2,220,271 Federal commodities 138,428 Interest earned 1,971 Other 4,432 Total nonoperating revenue 2,365,102 Income before transfers 167,351 Capital contribution 10,918 Transfers from other fund 45,158 Change in net position 223,427 Total net position - beginning 1,116,998 Total net position - ending $ 1,340,425 The accompanying notes are an integral part of the financial statements. Page 21

26 STATEMENT OF CASH FLOWS - PROPRIETARY FUND For the Year Ended Exhibit 10 Enterprise Fund Major Fund School Food Service CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 65,570 Cash paid for goods and services (1,252,864) Cash paid to employees for services (759,930) Other operating revenues - Net cash used by operating activities (1,947,224) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Federal reimbursements 2,201,152 Other nonoperating revenues 15,350 Net cash provided by noncapital financing activities 2,216,502 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets (92,092) Net cash provided by capital and related financing activities (92,092) CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 1,971 Net increase in cash and cash equivalents 179,157 Balances-beginning of the year 1,004,725 Balances-end of the year $ 1,183,882 The accompanying notes are an integral part of the financial statements. Page 22

27 STATEMENT OF CASH FLOWS - PROPRIETARY FUND For the Year Ended Exhibit 10 (Continued) Reconciliation of operating loss to net cash used by operating activities Operating loss $ (2,197,751) Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation 25,006 Donated commodities consumed 138,428 Salaries paid by other fund 45,158 Changes in assets and liabilities: Decrease in inventory 25,910 Increase in deferred outflows (144,043) Increase in accounts payable and accrued liabilities 8,658 Increase in net pension liability 168,842 Decrease in deferred inflows (22,840) Increase in compensated absences 5,408 Total adjustments 250,527 Net cash used by operating activities $ (1,947,224) Noncash investing, capital, and financing activities: The State Public School Fund paid salaries and benefits of $45,158 to administrative personnel of the School Food Service Fund during the fiscal year. The payment is reflected by a transfer in and an operating expense on Exhibit 9. The School Food Service Fund received donated commodities with a value of $138,428 during the fiscal year. The receipt of the commodities is recognized as a nonoperating revenue on Exhibit 9. The accompanying notes are an integral part of the financial statements. Page 23

28 NOTES TO FINANCIAL STATEMENTS A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of Lexington City Schools, North Carolina conform to generally accepted accounting principles as applicable to governments. The following is a summary of the more significant accounting policies: Reporting Entity The Lexington City Schools, North Carolina, (Board) is a Local Education Agency empowered by State law [Chapter 115C of the North Carolina General Statutes] with the responsibility to oversee and control all activities related to public school education within the City of Lexington, North Carolina. The Board receives State, local, and federal government funding and must adhere to the legal requirements of each funding entity. Basis of Presentation Government-wide Financial Statements: The statement of net position and the statement of activities display information about the Board. These statements include the financial activities of the overall government. Eliminations have been made to minimize the effect of internal activities on revenues and expenses. These statements distinguish between the governmental and business-type activities of the Board. Governmental activities generally are financed through intergovernmental revenues, and other non-exchange transactions. Business-type activities are financed in whole or in part by fees charged to external parties. The statement of activities presents a comparison between direct expenses and program revenues for the different business-type activities of the Board and for each function of the Board s governmental activities. Direct expenses are those that are specifically associated with a program or function and therefore, are clearly identifiable to a particular function. Indirect expense allocations that have been made in the funds have been reversed for the statement of activities. Program revenues include (a) fees and charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the Board s funds. Separate statements for each fund category governmental and proprietary are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as non-major funds. 24

29 NOTES TO FINANCIAL STATEMENTS A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation (Continued) Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or ancillary activities. The Board reports the following major governmental funds: General Fund. The General Fund is the general operating fund of the Board. The General Fund accounts for all financial resources except those that are required to be accounted for in another fund. This fund is the Local Current Expense Fund, which is mandated by State law [G.S. 115C-426]. State Public School Fund. The State Public School Fund includes appropriations from the North Carolina Department of Public Instruction for the current operating expenditures of the public school system. Federal Grants Fund. The Federal Grants Fund is used to account for funds provided by the federal government under various federal programs. Capital Outlay Fund. The Capital Outlay Fund accounts for financial resources to be used for the acquisition and construction of major capital facilities (other than those financed by proprietary funds and trust funds) and is reported as a capital projects fund. It is mandated by State law [G.S.115C-426]. Capital projects are funded by Davidson County appropriations, restricted sales tax monies, proceeds of Davidson County bonds issued for public school construction, lottery proceeds, as well as certain State assistance. The Board reports the following major enterprise fund: School Food Service Fund. The School Food Service Fund is used to account for the food service program within the school system and is reported as an enterprise fund. Measurement Focus and Basis of Accounting Government-wide and Proprietary Fund Financial Statements. The government-wide and proprietary fund 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 at the time liabilities are incurred, regardless of when the related cash flows take place. Non-exchange transactions, in which the Board gives (or receives) value without directly receiving (or giving) equal value in exchange, includes grants and donations. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. 25