Old Redford Academy, PSA

Transcription

1 Old Redford Academy, PSA Detroit, Michigan Financial Statements and Single Audit Report June 30, 2015

2 TABLE OF CONTENTS Financial Section Page Independent Auditors' Report 1-3 Management's Discussion and Analysis 4-7 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Position 8 Statement of Activities 9 Fund Financial Statements: Balance Sheet-Governmental Funds 10 Reconciliation of Total Governmental Fund Balances to Net Position of Governmental Activities 11 Statement of Revenues, Expenditures and Changes in Fund Balances-Governmental Funds 12 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 13 Notes to the Basic Financial Statements Required Supplementary Information: Budgetary Comparison Schedule-General Fund 24 Other Supplementary Information: Balance Sheet - Non-Major Governmental Funds 25 Statement of Revenues, Expenditures and Changes in Fund Balances - Non-Major Governmental Funds 26

3 TABLE OF CONTENTS Single Audit Report Page 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 Report on Compliance For Each Major Federal Program and Report on Internal Control Over Compliance Schedule of Expenditures of Federal Awards 31 Notes to the Schedule of Expenditures of Federal Awards 32 Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings 35 Corrective Action Plan 36

4 Independent Auditors Report Management and the Board of Education Old Redford Academy, PSA Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Old Redford Academy, PSA, as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the Academy 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. Auditors 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 auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also 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. 1

5 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Old Redford Academy, PSA, as of June 30, 2015, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters: Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information, as identified 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 required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information, because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Old Redford Academy, PSA s basic financial statements. The other supplementary information, as identified in the table of contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the basic financial statements. The other supplementary information, as identified in the table of contents, and the schedule of expenditures of federal awards are the responsibility of management and were 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 2

6 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 other supplementary information, as identified in the table of contents, is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 21, 2015 on our consideration of the Old Redford Academy, PSA's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Old Redford Academy, PSA s internal control over financial reporting and compliance. Auburn Hills, MI October 21,

7 MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 Our discussion and analysis of Old Redford Academy s ( ORA ) financial performance provides an overview of the Academy s financial activities for the fiscal year ended June 30, FINANCIAL POSITION AND RESULTS OF OPERATIONS Old Redford Academy s net position the difference between assets and liabilities, as reported in the Statement of Net Position, is one way to measure the Academy s financial health, or financial position. Over time, increases or decreases in the Academy s net position, as reported in the Statement of Activities, is one indicator of whether its financial health is improving or deteriorating. The relationship between revenues and expenses indicates the Academy s operating results. However, the Academy s goal is to provide services to its students, not to generate profits as commercial entities do. Many other non-financial factors, such as enrollment, the quality of the education provided, and the safety of the school must also be considered when assessing the overall health of the Academy. Old Redford Academy s net position totaled $2,943,832 at June 30, Of this amount, $2,639,944 was unrestricted and undesignated. Restricted net position is reported separately to show legal constraints from debt covenants and legislation that limits the Academy s ability to use those funds for day-to-day operations. The following table is a comparable summary of the Academy s net position at June 30, 2015 and June 30, 2014, respectively: June 30, 2015 June 30, 2014 Assets Current assets $ 4,078,058 $ 4,952,081 Capital assets net of depreciation 140, ,449 Total assets 4,218,305 5,126,530 Liabilities Current liabilities 1,274,473 1,834,798 Net Position Invested in capital assets 140, ,449 Restricted for School Lunch 163,641 22,746 Unrestricted 2,639,944 3,094,537 Total net position $ 2,943,832 $ 3,291,732 The $2,639,944 in unrestricted net position of governmental activities represents ORA funds that have not been committed contractually or for debt obligations and are available for future use. Total net position decreased $347,900 in attributable in part to: Depreciation Expense The provisions of GASB 34 require the Academy to maintain a record of annual depreciation expense and accumulated depreciation. The net increase in accumulated depreciation is a reduction in net assets. Depreciation expense is recorded using a straight-line method over the estimated useful lives of the assets. In accordance with generally accepted accounting principles, depreciation expense is recorded based on the original cost of the asset less an estimated salvage value. For the year ended June 30, 2015 the net increase in accumulated depreciation was $39,450. Overall, management focused on monitoring and managing the financial resources of the Academy in order to support the growth of the school while continuing to provide a solid educational alternative for all students. Expenditures across all categories were closely monitored on a monthly basis to preserve the covenants and other financial requirements. 4

8 MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 The results of this year s operations for Old Redford Academy as a whole are reported in the Statement of Activities. A summary of the Academy-wide results of operations for the year(s) ended June 30, 2015 and June 30, 2014 are as follows: June 30, 2015 June 30, 2014 General revenue State school aid - unrestricted $ 12,869,947 $ 14,294,135 Other federal, state and local 219, ,741 Total general revenue 13,089,510 14,453,876 Program revenue Charges for services local 4,443 2,759 Operating grants and contributions 3,597,369 4,161,231 Total program revenue 3,601,812 4,163,990 Total revenue 16,691,322 18,617,866 Expenses Instruction 6,601,726 6,656,943 Support services 9,475,346 9,930,816 Food Services 962,150 1,119,234 Total expenses 17,039,222 17,706,993 Change in net position (347,900) 910,873 Net Position July 1 3,291,732 2,380,859 Net Position June 30 $ 2,943,832 $ 3,291,732 GOVERNMENTAL FUNDS FINANCIAL HIGHLIGHTS Our financial statements provide the following insights about the results of this year s operations: The Academy student enrollment decreased during the school year. The Academy has developed an aggressive student recruitment plan to increase student enrollment in future years. MAJOR GOVERNMENTAL FUNDS BUDGETING AND OPERATING HIGHLIGHTS Old Redford Academy s budgets are prepared according to Michigan law and are initially adopted prior to July 1 of each year, before student enrollment counts are known. Therefore, it is expected that there will be changes between the initial budget and subsequent budgets, as actual enrollments and resultant staffing requirements are known. Currently, the most significant budgeted funds are the General Fund and the Special Revenue Funds. During the fiscal year ending June 30, 2015, the Academy amended the budgets of these major governmental funds three times. Each amendment reflected a change in revenues and/or expenditures. General Fund In the general fund, revenues for the year totaled $15,963,472. This is slightly less than the final amended budgeted amount of $16,760,883; a variance of less than 5%. The actual expenditures of the general fund were $16,041,814. This amount is below the final amended budgeted amount of $17,570,585. Fund balance decreased by $78,342 at June 30, The ending fund balance for the fiscal year ended June 30, 2015 is $2,639,944. 5

9 MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 GOVERNMENTAL FUND EXPENDITURES The general fund comprises 94% of all the expenditures within the governmental funds of Old Redford Academy. As of June 30, 2015, expenditures totaled $17,005,020 for all Academy programs. June 30, 2014 Of TOTAL (In millions) General Fund $ % Other Non-major Funds.96 6% Total $ % TOTAL REVENUES Revenues for all governmental funds totaled $17,067,573. revenues by source: The following graph illustrates the percentage of Revenues by Source State Sources 83% Federal Sources 16% Local Sources 1% Unrestricted State Aid The Academy s operating costs are predominately funded by State Aid based on a per-pupil allowance. The perpupil allowance was $7,218. State Aid membership was computed in school year with a blended count of 10% of the February 2015 and 90% of the September 2014 counts. ENROLLMENT The Academy s State Aid Membership totaled 1,806 students. This was an Academy-wide decrease in enrollment of 219 students from the previous year. The Academy is located in Northwest Detroit, which is a lower socio-economic area that has a great need for improved educational alternatives. Old Redford Academy added a facility in 2003 to accommodate the demand for a premier educational program and philosophy. The academic success of the Academy and community need lead to the expansion of a high school level in Old Redford Academy has continued its tradition of excellence with the purchase and renovation of the current high school site. In the fall of 2009, Old Redford Academy expanded the high school site with the construction of the 9 th Grade Academy and more recently completed a new middle school facility in the fall of

10 MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2015 State Aid membership growth over the last ten years can be illustrated as follows: Enrollment Growth 2,100 1,600 1,220 1,550 1,590 1,587 1,893 1,957 2, , Enrollment is important to the financial health of the Academy because State funding is based on a per-pupil formula. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At June 30, 2015, the Academy had $1,021,712 invested in furniture and equipment. Of this amount, $881,465 has been depreciated. Net book value totals $140,247. The Academy remains committed to the timely maintenance and repair of all educational facilities. Debt CAPITAL ASSETS AT YEAR END (NET OF DEPRECIATION) Governmental Activities Furniture and Equipment $ 140,247 As of June 30, 2015, the Academy did not have any long-term debt. CONTACTING THE SCHOOL ACADEMY S FINANCIAL MANAGEMENT This report is designed to give an overview of the financial conditions of Old Redford Academy. If you should desire additional detailed financial program audits, they can be obtained by contacting the following persons: Stephanie C. Little II at extension 228 Melvin Smith at extension 223 7

11 STATEMENT OF NET POSITION JUNE 30, 2015 Governmental Activities Assets Cash and Cash Equivalents $ 1,181,140 Due from Other Governmental Units 2,889,506 Inventory 7,412 Capital Assets Equipment and Furniture 1,021,712 Less: Accumulated Depreciation (881,465) Net Capital Assets 140,247 Total Assets 4,218,305 Liabilities Accounts Payable 199,850 Accrued Expenses 1,031,630 Unearned Revenue 42,993 Total Liabilities 1,274,473 Net Position Invested in Capital Assets 140,247 Restricted School Lunch 163,641 Unrestricted Undesignated 2,639,944 Total Net Position $ 2,943,832 See Accompanying Notes to the Financial Statements 8

12 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 Program Revenues Net (Expense) Operating Revenue and Charges for Grants and Changes in Expenses Services Contributions Net Position Functions/Programs Governmental Activities Instruction $ 6,601,726 $ - $ 2,493,268 $ (4,108,458) Support Services 9,475,346 4,443 - (9,470,903) Food Service 962,150-1,104, ,951 Total Governmental Activities $ 17,039,222 $ 4,443 $ 3,597,369 (13,437,410) General Purpose Revenues State School Aid - Unrestricted 12,869,947 Miscellaneous 219,563 Total General Revenue 13,089,510 Change in Net Position (347,900) Net Position - July 1 3,291,732 Net Position - June 30 $ 2,943,832 See Accompanying Notes to the Financial Statements 9

13 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2015 Non-Major Total General Governmental Governmental Fund Funds Funds Assets Cash and Cash Equivalents $ 1,181,140 $ - $ 1,181,140 Due from Other Governmental Units 2,802,213 87,293 2,889,506 Due from Other Funds - 76,478 76,478 Inventory - 7,412 7,412 Total Assets $ 3,983,353 $ 171,183 $ 4,154,536 Liabilities Current Liabilities Accounts Payable $ 192,308 $ 7,542 $ 199,850 Due to Other Funds 76,478-76,478 Accrued Leased Payroll 1,031,630-1,031,630 Unearned Revenue 42,993-42,993 Total Current Liabilities 1,343,409 7,542 1,350,951 Fund Balance Non-Spendable for Inventory - 7,412 7,412 Restricted for School Lunch - 156, ,229 Unassigned 2,639,944-2,639,944 Total Fund Balance 2,639, ,641 2,803,585 Total Liabilities and Fund Balance $ 3,983,353 $ 171,183 $ 4,154,536 See Accompanying Notes to the Financial Statements 10

14 RECONCILIATION OF TOTAL GOVERNMENTAL FUND BALANCES TO NET POSITION OF GOVERNMENTAL ACTIVITIES JUNE 30, 2015 Total Governmental Fund Balances $ 2,803,585 Amounts reported for governmental activities in the Statement of Net Position is different because: Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. Equipment and Furniture $ 1,021,712 Accumulated Depreciation (881,465) 140,247 Total Net Position - Governmental Activities $ 2,943,832 See Accompanying Notes to the Financial Statements 11

15 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2015 Non-Major Total General Governmental Governmental Fund Funds Funds Revenues Other Local Sources $ 224,005 $ - $ 224,005 State Sources 14,056,046 13,985 14,070,031 Federal Sources 1,683,421 1,090,116 2,773,537 Total Revenues 15,963,472 1,104,101 17,067,573 Expenditures Instruction Basic Programs 5,384,662-5,384,662 Added Needs 1,198,659-1,198,659 Supporting Services Pupil Services 640, ,653 Instructional Staff 423, ,677 General Administration 1,938,856-1,938,856 School Administration 903, ,155 Business Services 232, ,803 Operation and Maintenance 4,400,967-4,400,967 Pupil Transportation 183, ,438 Central Services 590, ,976 Athletics 58,238-58,238 Other Supporting Services 85, ,206 1,048,936 Total Expenditures 16,041, ,206 17,005,020 Net Changes in Fund Balance (78,342) 140,895 62,553 Fund Balance - July 1 2,718,286 22,746 2,741,032 Fund Balance - June 30 $ 2,639,944 $ 163,641 $ 2,803,585 See Accompanying Notes to the Financial Statements 12

16 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 Total Net Change in Fund Balances - Governmental Funds $ 62,553 Amounts reported for governmental activities in the Statement of Activities are different because: 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 as depreciation expense. This is the amount by which depreciation exceeded capital outlay in the current period. Capitalized Assets $ 5,248 Depreciation Expense (39,450) (34,202) Revenue is reported in the Statement of Activities that do not provide current financial resources are not reported as revenue in the funds. Grants (376,251) Change in Net Position of Governmental Activities $ (347,900) See Accompanying Notes to the Financial Statements 13

17 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 Note 1 - Summary of Significant Accounting Policies Reporting Entity The accompanying basic financial statements have been prepared in accordance with criteria established by the GASB for determining the various governmental organizations to be included in the reporting entity. These criteria include oversight responsibility, scope of public service, and special financing arrangements. Based on application of the criteria, the entity does not contain component units. The Academy receives funding from local, state, and federal government sources and must comply with the accompanying requirements of these funding source entities. However, the Academy is not included in any other governmental "reporting entity" body that has separate legal standing and is fiscally independent of the governmental entities. As such, the Board of Education has decision-making authority, the authority to determine its budget, the power to designate management, the ability to significantly influence operations, and primary accountability for fiscal matters. Government-wide Statements The Academy s basic financial statements include both government-wide (reporting the Academy as a whole) and fund financial statements (reporting the Academy s major funds). The government-wide financial statements categorize primary activities as either governmental or business type. All of the Academy s activities are classified as governmental activities. In the government-wide Statement of Net Position, the governmental activities column is presented on a consolidated basis and is reported on a full-accrual economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. The Academy s net position is reported in three parts: invested in capital assets; restricted net assets; and unrestricted net assets. The Academy first utilizes restricted resources to finance qualifying activities. The government-wide Statement of Activities reports both the gross and net cost of each of the Academy s functions. General government revenues (certain intergovernmental revenues, fines, permits and charges, etc.) also support the functions. The Statement of Activities reduces gross expenses by related program revenues, operating and capital grants. Program revenues must be directly associated with the function. Operating grants include operating-specific and discretionary grants. The net costs by function are normally covered by general revenue (state and federal sources, interest income, etc.). In creating the government-wide financial statements the Academy has eliminated interfund transactions. The government-wide focus is on the sustainability of the Academy as an entity and the change in the Academy s net position resulting from current year activities. Fund Financial Statements Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the district-wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized as soon as it is both measurable and available. Revenue is considered to be available if it is collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Academy considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. 14

18 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 The Academy reports the following major governmental fund: General Fund - The General Fund is used to record the general operations of the Academy pertaining to education and those operations not provided for in other funds. Included are all transactions related to the approved current operating budget. Additionally, the Academy reports the following fund type: Special Revenue Funds - Special Revenue Funds are used to segregate the transactions of particular activities from regular revenue and expenditure accounts. The Academy maintains full control of these funds. The Academy maintains one special revenue fund: Food Service Fund. Assets, Liabilities, and Net Position Cash and Investments Cash and cash equivalents include amounts in demand deposits, sweep accounts, and certificate of deposits with original maturities less than 180 days. The Academy reports its investments in accordance with Governmental Accounting Standards Board (GASB) Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools and No. 40, Deposits and Investment Risk Disclosures. Under these standards, certain investments are valued at fair values when quoted market prices are not available. The standards also provide that certain investments are valued at cost (or amortized cost) when they are of a short-term duration, the rate of return is fixed, and the Academy intends to hold the investment until maturity. Accordingly, investments in banker acceptances and commercial paper are recorded at amortized cost. State statutes authorize the Academy to invest in bonds and other direct and certain indirect obligations of the U.S. Treasury, certificates of deposit, savings accounts, deposit accounts, or depository receipts of a bank, savings and loan association, or credit union, which is a member of the Federal Deposit Insurance Corporation (FDIC), Federal Savings and Loan Insurance Corporation (FSLIC), or National Credit Union Administration (NCUA), respectively; and in commercial paper rated at the time of purchase within the three highest classifications established by no less than two standard rating services and which matures not more than 270 days after the date of purchase. The Academy is also authorized to invest in U.S. Government or federal agency obligation repurchase agreements, bankers acceptances of U.S. banks, mutual funds composed of investments outlined above, and investment pools, as authorized by the surplus funds investment pool act, Act. No. 367 of the Public Acts of 1982, being sections to of the Michigan Compiled Laws, composed entirely of instruments that are legal for direct investment by an academy. Receivables and Payables Generally, outstanding amounts owed between funds are classified as due from/to other funds. These amounts are caused by transferring revenues and expenses between funds to get them into the proper reporting fund. These balances are paid back as cash flow permits. All trade receivables as shown net of an allowance for uncollectible amounts. The Academy considers all accounts receivable to be fully collectible; accordingly, no allowance for uncollectible amounts is recorded. Inventories Inventories are valued at cost, on a first-in, first-out basis. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. School Lunch Fund inventory consists of food and paper goods recorded at cost. Capital Assets The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Improvements are capitalized and depreciated over the remaining useful lives of the related fixed assets. 15

19 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 Depreciation on all assets is computed on the straight-line basis over the estimated useful lives as follows: Buildings and additions Buses and other vehicles Furniture and equipment years 5 10 years 5 20 years Fund Equity In the fund financial statements, governmental funds report fund balance in the following categories: Non-spendable amounts that are not available in a spendable form. Restricted amounts that are legally imposed or otherwise required by external parties to be used for a specific purpose Committed amounts that have been formally set aside by the Board of Education for specific purposes. A fund balance commitment may be established, modified, or rescinded by the resolution of the Board of Education. Assigned amounts intended to be used for specific purposes, as determined by the Board of Education. The Board of Education has granted the Finance Committee the authority to assign funds. Residual amounts in governmental funds other than the general fund are automatically assigned by their nature. Unassigned all other resources; the remaining fund balances after non-spendable, restrictions, commitments and assignments. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the Academy s policy is to consider restricted funds spent first. When an expenditure is incurred for purposes for which committed, assigned, or unassigned amounts could be used, the Academy s policy is to consider the funds to be spent in the following order: (1) committed, (2) assigned, (3) unassigned. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Eliminations and Reclassifications - In the process of aggregating data for the statement of net position and the statement of activities, some amounts reported as interfund activity and balances in the funds were eliminated or reclassified. Interfund receivables and payables were eliminated to minimize the grossing up effect on assets and liabilities within the governmental activities column. Upcoming Accounting and Reporting Changes - The Governmental Accounting Standards Board ( The GASB ) has issued Statement No. 72 Fair Value Measurements and Applications. Statement 72 provides guidance for accounting and financial reporting issues related to fair value measurement. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The guidance establishes a three level hierarchy of inputs for valuation of fair value. The School District is evaluating the impact GASB 72 will have on its financial reporting. Statement 72 is effective for the year ending June 30,

20 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 Economic Dependency The Academy receives approximately 88% of its operating revenue from the State of Michigan. Note 2 Budget and Budgetary Accounting The State of Michigan adopted a Uniform Budgeting and Accounting Act (Act) applicable to all local governmental entities in the state. The law requires appropriation acts to be adopted for General, Special Revenue, and Debt Retirement Funds and an informational study of Capital Project Funds of academies prior to the expenditure of monies in a fiscal year. The Board of Education adopts appropriations utilizing the modified accrual basis of accounting for all governmental funds. The appropriation level adopted by the Board is the level of control authorized by the Act. The Act requires expenditures to be budgeted on a functional basis. An Academy is not considered to be in violation of the Act if reasonable procedures are in use by the Academy to detect violations. The Academy follows these procedures in establishing the budgetary data reflected in the financial statements: 1. The Academy's CEO submits to the Board of Education a proposed budget by July 1 of each year. The budget includes proposed expenditures and the means of financing them. 2. The CEO is authorized to transfer budgeted amounts between functions within any fund with the approval of the Board of Education; however, any revisions that alter the total expenditures of any fund must be approved by the Board of Education. 3. Budgets for the General and Special Revenue Fund are adopted on a basis consistent with generally accepted accounting principles. 4. Budgeted amounts are as originally adopted, or as amended by the Board of Education throughout the year. Individual amendments were not material in relation to the original appropriations, which were amended. 5. Appropriations lapse at year-end and, therefore, cancel all encumbrances. These appropriations are reestablished at the beginning of the following year. A schedule comparing actual results of operations to the budgeted amounts (at the level of control adopted by the Board of Education) for the General Fund is presented as required supplementary information. Excess of Expenditures Over Appropriations During the year, the Academy incurred expenditures in certain budgetary funds which were in excess of the amounts appropriated as follows: Final Amount of Budget Functions Budget Expenditures Variances General Fund Supporting Services School Administration $ 880,953 $ 903,155 $ 22,202 Athletics 53,997 58,238 4,241 $ 934,950 $ 961,393 $ 26,443 17

21 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 Note 3 Cash and Investments Interest Rate Risk This is the risk that changes in interest rates will adversely affect the fair value of an investment. Investments held for longer periods are subject to increased risk of adverse interest rate changes. The Academy s policy provides that to the extent practicable, investments are matched with anticipated cash flows. Investments are diversified to minimize the risk of loss resulting from over-concentration of assets in a specific maturity period, a single issuer, or an individual class of securities and are invested primarily in shorter-term securities, liquid asset funds, money market mutual funds, or similar investment pools. Concentration of Credit Risk This is the risk of loss attributed to the magnitude of the Academy s investment in a single issuer. Cumulatively, portfolios of the Academy may not be invested in any given financial institution in excess of 5% of such institution s total assets. Additionally, no more than 5% of the total Academy portfolio may be placed with any single financial institution with the exception of repurchase agreements. U.S. government securities and 2a7-like investment pools are excluded from these restrictions. Credit Risk This is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. State law limits this exposure by mandating that the Academy s investments in commercial paper and corporate bonds be limited to those with a prime rating or better issued by nationally recognized statistical rating organizations (NRSROs). Custodial Credit Risk for Deposits This is the risk that in the event of a bank failure, the Academy s deposits may not be returned or the Academy will not be able to recover collateral securities, if any, in the possession of an outside party. At June 30, 2015, the Academy had $973,896 of its deposit balances uninsured and uncollateralized. Custodial Credit Risk for Investments This is the risk that in the event of the failure of the counterparty, the Academy will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. This risk is minimized by the Academy through limiting investments to those of a prime or better rating and pre-qualifying the financial institutions, brokers/dealers, intermediaries, and advisors. Note 4 Capital Assets Below is a summary of the Academy s capital asset transactions for the year: Balance Balance June 30, 2014 Additions Disposals June 30, 2015 Furniture & equipment $ 1,016,464 $ 5,248 $ - $ 1,021,712 Accumulated Depreciation (842,015) (39,450) - (881,465) $ 174,449 $ (34,202) $ - $ 140,247 18

22 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 Depreciation expense, when appropriate, was allocated to governmental functions. Depreciation was recorded in the Statement of Activities as follows: Basic Programs $ 17,773 Added Needs 632 Support Services 16,853 Food Service 4,192 $ 39,450 Note 5 Interfund Receivable and Payable Individual interfund receivable and payable balances at year end were: Due From Fund Due To Fund Amount Non-major Fund General Fund $ 76,478 The outstanding balances between funds result mainly from the time lag between the dates that transactions are recorded in the accounting system and payments between funds are made. Management does not anticipate individual interfund balances to remain outstanding for periods in excess of one year. Note 6 Unearned Revenue Governmental funds report unearned revenue in connection with resources that have been received but not yet earned. At the end of the current fiscal year, the components of unearned revenue are as follows: Grant and categorical aid payments received prior to meeting all eligibility requirements $ 42,993 Note 7 State Aid Anticipation Loan The Academy was issued a State Aid Anticipation Loan of $2,750,000 dated July 2, 2014 and the proceeds of the loan were received after June 30, This loan has an interest rate of 2.54% and matured on June 30, Nine monthly payments in the amount of $310,598 beginning on October 31, 2014 were required, with the final payment due on June 30, Proceeds from this loan were received by the Academy on July 3, 2014 and the corresponding liability was recorded at that time. Note 8 Lease Financing Agreements In December of 2005, the Academy entered into a lease financing agreement with C.R. Smith Foundation, a related party, for the construction and equipping of a new elementary school. The agreement calls for the Foundation to finance the construction through issuance of limited obligation revenue bonds. These bonds are to be repaid monthly (with an exception of August and September) beginning June 20, 2006 through Old Redford Academy by way of a set-aside of the Academy s State School Aid, not to exceed 20%. These monies are to be held in trust by U.S. Bank until such time as principal and interest become due. In the event there are insufficient amounts held in trust to make the necessary bond payments, Old Redford Academy pledges to use any and all 19

23 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 other available funds up to and including 97% of its State School Aid. The total amount paid under this agreement for the year ended June 30, 2015 was $808,588. The minimum future payments under the Lease Financing Agreement excluding $8,000 per month, per bond paid to C.R. Smith Foundation for bond servicing fees are as follows: Year(s) Ended June 30, Amount 2016 $ 809, , , , , ,032, ,019, ,141, ,500 $ 16,325,713 In November 2010, the Academy entered into a lease financing agreement with C.R. Smith Foundation, a related party, for the construction and equipping of a new middle school. The agreement calls for the Foundation to finance the construction through issuance of limited obligation revenue bonds. These bonds are to be repaid monthly (with an exception of August and September) beginning June 30, 2012 through Old Redford Academy by way of a set-aside of the Academy s State School Aid, not to exceed 20%. These monies are to be held in trust by U.S. Bank until such time as principal and interest become due. In the event there are insufficient amounts held in trust to make the necessary bond payments, Old Redford Academy pledges to use any and all other available funds up to and including 97% of its State School Aid. The total amount paid under this agreement for the year ended June 30, 2015 was $1,074,756. The minimum future payments under the Lease Financing Agreement excluding $8,000 per month, per bond paid to C.R. Smith Foundation for bond servicing fees are as follows: Year(s) Ended June 30, Amount 2016 $ 1,077, ,075, ,076, ,078, ,078, ,382, ,397, ,364, ,376, ,988 $ 27,122,694 20

24 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 Note 9 Operating Leases The Academy leases Middle School modular building additions from the C. R. Smith Foundation, a related party, under an operating lease with monthly payments of $25,000. The total payments made under this lease agreements for the year ended June 30, 2015 were $300,000. The future minimum lease payments under this agreement are as follows: Year Ended June 30, Amount 2016 $ 300, , ,000 $ 900,000 The Academy leases a parking lot and athletic fields from C. R. Smith Foundation, a related party, under operating leases with monthly payments of $13,500. The total payments made under these lease agreements for the year ended June 30, 2015 were $162,000. The future minimum lease payments under these agreements are as follows: Year Ended June 30, Amount 2016 $ 162, , , , , ,000 $ 972,000 The Academy leases four buses and one vehicle from C.R. Smith Foundation, a related party, on a month-tomonth basis. The payments range from $1,700 to $1,900 per month. The total payments made under these lease agreements for the year ended June 30, 2015 were $87,396. There are no future minimum lease payments under these agreements. 21

25 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 The Academy entered into a lease agreement with Redford Lutheran, for a parking lot beginning July 1, 2005 and ending June 30, The lease requires monthly payments ranging from $3,850 to $7,161. Total lease expense under this agreement for the year ended June 30, 2015 was $46,887. Future minimum lease payments under this agreement are as follows: Year(s) Ended June 30, Amount 2016 $ 48, , , , , , , ,462 $ 1,297,677 Note 10 Defined Benefit Pension Plan The Academy did not participate in the Michigan Public School Employees Retirement System (MPSERS). All personnel services are provided by Advanced Educational Staffing, Inc. of Michigan. Therefore, no pension plan disclosure is deemed necessary. Note 11 Related Parties The Academy has a management agreement with a corporation that is managed by a primary founder of the Academy. The related party provides management services, including grant administration, obtaining highly qualified teaching staff, facilities maintenance, and other reasonable services requested by the Academy. The fees for these services are 11% of state aid revenue. As of June 30, 2015, the Academy had accounts payable relating to the management company of $7,353. Total expense paid to the management company during the year was $1,381,345. The Academy has for its benefit a charitable foundation, C.R. Smith Foundation, established for the purpose of raising funds for non-profit educational institutions in the metropolitan Detroit area. The foundation provides financial support through securing financing for facilities and buses; as well as cash contributions. Related party leases and the associated expenses are described at Notes 9 and 10. As of June 30, 2015, the Academy also had accounts payable relating to the foundation of $18,320. Note 12 Contingencies and Commitments The Academy has received federal and state grants for specific purposes. These grants are subject to review and audit by the grantor agencies. Although such audits could generate expenditure disallowance under terms of the grants, management believes that any required reimbursements would not be material. 22

26 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2015 Note 13 Risk Management The Academy is exposed to various risks of loss related to property loss, torts, errors and omissions. The Academy purchases commercial insurance coverage to cover potential claims, and management believes this coverage is sufficient to protect the Academy from any significant adverse financial impact. Settled claims relating to the commercial insurance have not exceeded the amount of insurance coverage in the past three fiscal years. Note 14 Subsequent Event Subsequent to year end, the Academy was issued a State Aid Anticipation Loan of $2,750,000 dated September 3, 2015 and the proceeds of the loan were received after June 30, This loan has an interest rate of 2.83% and matures on June 30, Nine monthly payments in the amount of $309,234 beginning on October 31, 2015 are required, with the final payment due on June 30, Proceeds from this loan were received by the Academy on September 8, 2015 and the corresponding liability was recorded at that time. 23

27 REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE - GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 Variance with Budget Final Budget Over Original Final Actual (Under) Revenues Local Sources $ 159,805 $ 159,805 $ 224,005 $ 64,200 State Sources 14,698,037 14,619,868 14,056,046 (563,822) Federal Sources 1,604,968 1,981,210 1,683,421 (297,789) Total Revenues 16,462,810 16,760,883 15,963,472 (797,411) Expenditures Instruction Basic Programs 5,647,689 5,488,047 5,384,662 (103,385) Added Needs 1,803,896 1,712,295 1,198,659 (513,636) Supporting Services Pupil Services 752, , ,653 (136,586) Instructional Staff 567, , ,677 (221,262) General Administration 2,166,104 2,159,101 1,938,856 (220,245) School Administration 863, , ,155 22,202 Business Services 285, , ,803 (55,347) Operation and Maintenance 4,612,967 4,607,587 4,400,967 (206,620) Transportation 190, , ,438 (7,561) Central Services 661, , ,976 (75,797) Athletics 53,997 53,997 58,238 4,241 Other Services 98, ,505 85,730 (14,775) Total Expenditures 17,704,823 17,570,585 16,041,814 (1,528,771) Net Change in Fund Balance (1,242,013) (809,702) (78,342) 731,360 Fund Balance - July 1 2,718,286 2,718,286 2,718,286 - Fund Balance - June 30 $ 1,476,273 $ 1,908,584 $ 2,639,944 $ 731,360 24

28 OTHER SUPPLEMENTARY INFORMATION BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS JUNE 30, 2015 Non-Major Governmental Funds Special Revenue Fund School Lunch Fund Assets Due from Other Governmental Units $ 87,293 Due from General Fund 76,478 Inventory 7,412 Total Assets $ 171,183 Liabilities Accounts Payable $ 7,542 Fund Balances Non-Spendable 7,412 Restricted 156,229 Total Fund Balances 163,641 Total Liabilities and Fund Balance $ 171,183 25

29 OTHER SUPPLEMENTARY INFORMATION STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2015 Non-Major Governmental Funds Special Revenue Funds School Lunch Fund Revenues State Sources $ 13,985 Federal Sources 1,090,116 Total Revenues 1,104,101 Expenditures Purchased Services 449,216 Supplies and Materials 487,238 Capital Outlay 19,432 Other 7,320 Total Expenditures 963,206 Net Change in Fund Balances 140,895 Fund Balance - July 1 22,746 Fund Balance - June 30 $ 163,641 26

30 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 Independent Auditors Report Members of the Board of Education Old Redford Academy, PSA We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Old Redford Academy, PSA as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise Old Redford Academy, PSA s basic financial statements, and have issued our report thereon dated October 21, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Old Redford Academy'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 opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Old Redford Academy s internal control. Accordingly, we do not express an opinion on the effectiveness of Old Redford Academy s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described in the accompanying schedule of findings and questioned costs to be a material weakness at