Old Redford Academy, PSA Audited Financial Statements June 30, Prepared by Taylor & Morgan, P.C.

Transcription

1 Old Redford Academy, PSA Audited Financial Statements June 30, 2013 Prepared by Taylor & Morgan, P.C Stonebridge Drive, Bldg. D Flint, MI Livernois Road, Suite 150 Troy, MI

2 OLD REDFORD ACADEMY, PSA TABLE OF CONTENTS Financial Section Independent Auditors' Report 1-2 Page Management's Discussion and Analysis 3-7 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 Supplemental Information: Budgetary Comparison Schedule-General Fund 24 Other Supplemental Information: Balance Sheet - Non-Major Governmental Funds 25 Statement of Revenues, Expenditures and Changes in Fund Balances - Non-Major Governmental Funds 26 Schedule of Revenues and Other Financing Sources-General Fund 27 Schedule of Expenditures and Other Financing Uses-General Fund 28

3 OLD REDFORD ACADEMY, PSA TABLE OF CONTENTS OMB Circular A-133 Reports Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Perfromed in Accordance with Government Auditing Standards Independent Auditors' Report on Compliance for Each Major Program and on Internal Control Over Compliance in Accordance With OMB Circular A Schedule of Expenditures of Federal Awards 33 Notes/Reconciliation to Schedule of Expenditures of Federal Awards 34 Reconciliation of "Grant Auditor's Report" to the Schedule of Expenditures Schedule of Expenditures of Federal Awards 35 Schedule of Findings and Questioned Costs 36

4 INDEPENDENT AUDITOR S REPORT October 24, 2013 Board of Education Old Redford Academy We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Old Redford Academy as of and for the year ended June 30, 2013, 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. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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 estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Old Redford Academy as of June 30, 2013 and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. G-2302 STONEBRIDGE DRIVE, BUILDING D FLINT, MICHIGAN OFFICE: (810) FAX: (810) LIVERNOIS ROAD, SUITE 150 TROY, MICHIGAN OFFICE: (248) FAX: (248)

5 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 on pages 3-7 and 24 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Old Redford Academy s basic financial statements. The introductory section titled management s discussion and analysis and individual nonmajor fund financial statements are presented for purposes of additional analysis and is not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements 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 statement 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 nonmajor fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory section titled management s discussion and analysis has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 24, 2013 on our consideration of the Old Redford Academy s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Old Redford Academy s internal control over financial reporting and compliance. Sincerely, Taylor & Morgan, P.C. Taylor & Morgan, P.C. Certified Public Accountants 2

6 MANAGEMENT S DISCUSSION AND ANALYSIS (MD & A)

7 Old Redford Academy PSA Detroit, Michigan Management Discussion and Analysis For the Fiscal Year Ended June 30, 2013 Our discussion and analysis of Old Redford Academy s 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 $2,380,859 at June 30, Of this amount, $2,185,546 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, 2013 and June 30, 2012, respectively: June 30, 2013 June 30, 2012 Assets Current assets $ 4,440,086 $ 4,375,517 Capital assets net of depreciation 195, ,889 Total assets 4,635,399 4,629,406 Liabilities Current liabilities 1,733,040 1,670,720 Long-term liabilities 521,500 - Total liabilities 2,254,540 1,670,720 Net Position Invested in capital assets, net of related debt 195, ,889 Unrestricted 2,185,546 2,704,797 Total net position $ 2,380,859 $ 2,958,686 The $2,185,546 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 $577,827 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 3

8 Old Redford Academy PSA Detroit, Michigan Management Discussion and Analysis For the Fiscal Year Ended June 30, 2013 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, 2013 the net increase in accumulated depreciation was $58,576. Reclassification of Account Payable to Long Term Debt The Academy elected to defer payment of $521,500 in management fees until funds become available. This amount was classified as Long Term Debt and results in a reduction of net position. Overall management focused on monitoring and managing the financial resources of the Academy in order to support the overall 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. 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, 2013 and June 30, 2012 are as follows: June 30, 2013 June 30, 2012 General revenue State of Michigan aid, unrestricted $ 14,423,817 $ 14,334,017 Other federal, state and local 36, ,112 Total general revenue 14,460,292 14,547,129 Program revenue Charges for services local 2,895 7,141 Operating grants and contributions 3,763,639 3,687,673 Total program revenue 3,766,534 3,694,814 Total revenue 18,226,826 18,241,943 Expenses Instruction 6,646,917 7,098,611 Support services 10,952,074 10,340,204 Food Services 1,205, ,680 Unallocated Depreciation - - Total expenses 18,804,653 18,254,495 Increase in net position (577,827) (12,552) Net Position July 1 2,958,686 2,971,238 Net Position June 30 $ 2,380,859 $ 2,958,686 4

9 Old Redford Academy PSA Detroit, Michigan Management Discussion and Analysis For the Fiscal Year Ended June 30, 2013 GOVERNMENTAL FUNDS FINANCIAL HIGHLIGHTS Our financial statements provide the following insights about the results of this year s operations: The Academy student enrollment increased at all sites. The population increase can be contributed to the continued growth at Old Redford Academy Preparatory High School, which met its enrollment targets in the first year of operation. 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, 2013, 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 $17,072,858. This is slightly less than the final amended budgeted amount of $17,479,525; a variance of less than 3%. The actual expenditures of the general fund were $17,540,428. This amount approximates the final amended budgeted amount of $17,807,801. General Fund revenues and other financing sources totaled $17,594,358 and expenditures were $17,540,428 for the fiscal year. Fund balance increased by $53,930 at June 30, The ending fund balance for the fiscal year ended June 30, 2013 is $2,707,046. GOVERNMENTAL FUND EXPENDITURES The general fund comprises 94% of all the expenditures within the governmental funds of Old Redford Academy. As of June 30, 2013, expenditures totaled $18,746,077 for all Academy programs. June 30, 2013 (In millions) General Fund $17.54 Other Non-major Funds 1.21 Total $18.75 O 5

10 Old Redford Academy PSA Detroit, Michigan Management Discussion and Analysis For the Fiscal Year Ended June 30, 2013 TOTAL REVENUES Revenues for all governmental funds totaled $18,226,826. The following graph illustrates the percentage of revenues by source: Revenues by Source State Sources 87% Federal Sources 13% Local Sources 0% Unrestricted State Aid The Academy s operating costs are predominately funded by State Aid based on a per-pupil allowance. The perpupil allowance was $7,110. State Aid membership was computed in school year with a blended count of 10% of the February and 90% of the September counts. ENROLLMENT The Academy s State Aid Membership totaled 2,052 students. This was an Academy-wide increase in enrollment of 38 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

11 Old Redford Academy PSA Detroit, Michigan Management Discussion and Analysis For the Fiscal Year Ended June 30, 2013 State Aid membership growth over the last ten years can be illustrated as follows: Enrollment Growth 2,100 1,600 1, ,075 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 the end of the fiscal periods, the Academy had $987,119 invested in furniture and equipment. Of this amount, $791,806 has been depreciated. Net book value totals $195,313. 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 $195,313 As of June 30, 2013, the Academy had classified $521,000 as Long-term Debt held by the Clothilde R. Smith Foundation, a related entity. This amount will be repaid by the Academy as cash flows allow. 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

12 BASIC FINANCIAL STATEMENTS

13 OLD REDFORD ACADEMY, PSA STATEMENT OF NET POSITION JUNE 30, 2013 Governmental Activities Assets Cash and Cash Equivalents $ 1,464,789 Due from Other Governmental Units 2,935,384 Prepaid Expenses 39,913 Capital Assets Equipment and Furniture 987,119 Less: Accumulated Depreciation (791,806) Net Capital Assets 195,313 Total Assets 4,635,399 Liabilities Accounts Payable 510,734 Accrued Expenses 906,399 State Aid Anticipation Note 310,353 Advances from Grantors 5,554 Long-term Liabilities Due in more than 1 year 521,500 Total Liabilities 2,254,540 Net Position Invested in Capital Assets, Net of Related Debt 195,313 Unrestricted Undesignated 2,185,546 Total Net Position $ 2,380,859 See accompanying notes to basic financial statements 8

14 OLD REDFORD ACADEMY, PSA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2013 Program Revenues Net (Expense) Operating Revenue and Charges for Grants and Changes in Expenses Services Contributions Net Position Functions/Programs Governmental Activities Instruction $ 6,646,917 $ - $ 2,610,372 $ (4,036,545) Support Services 10,952,074 2,194 - (10,949,880) Food Service 1,205, ,153,267 (51,694) Total Governmental Activities $ 18,804,653 $ 2,895 $ 3,763,639 (15,038,119) General Purpose Revenues State School Aid - Unrestricted 14,423,817 Miscellaneous 36,475 Total General Revenue 14,460,292 Change in Net Position (577,827) Net Position - July 1 2,958,686 Net Position - June 30 $ 2,380,859 See accompanying notes to basic financial statements 9

15 OLD REDFORD ACADEMY, PSA BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2013 Non-Major Total General Governmental Governmental Fund Funds Funds Assets Cash and Cash Equivalents $ 1,464,789 $ - $ 1,464,789 Due from Other Governmental Units 2,935,384-2,935,384 Prepaid Expenses 39,913-39,913 Total Assets $ 4,440,086 $ - $ 4,440,086 Liabilities and Fund Balance Current Liabilities Accounts Payable $ 510,734 $ - $ 510,734 Accrued Leased Payroll 906, ,399 State Aid Anticipation Note Payable 310, ,353 Advances from Grantors 5,554-5,554 Total Current Liabilities 1,733,040-1,733,040 Fund Balance Non-Spendable 39,913-39,913 Unassigned 2,667,133-2,667,133 Total Fund Balance 2,707,046-2,707,046 Total Liabilities and Fund Balance $ 4,440,086 $ - $ 4,440,086 See accompanying notes to basic financial statements 10

16 OLD REDFORD ACADEMY, PSA RECONCILIATION OF TOTAL GOVERNMENTAL FUND BALANCES TO NET POSITION OF GOVERNMENTAL ACTIVITIES JUNE 30, 2013 Total Governmental Fund Balances $ 2,707,046 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. Cost of Capital Assets $ 987,119 Accumulated Depreciation (791,806) 195,313 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-term liabilities at year end consist of: Management Fee's Payable (521,500) Total Net Position - Governmental Activities $ 2,380,859 See accompanying notes to basic financial statements 11

17 OLD REDFORD ACADEMY, PSA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2013 Revenues Non-Major Total General Governmental Governmental Fund Funds Funds Other Local Sources $ 38,669 $ 701 $ 39,370 State Sources 15,780,124 20,334 15,800,458 Federal Sources 1,254,065 1,132,933 2,386,998 Total Revenues 17,072,858 1,153,968 18,226,826 Expenditures Instruction - Basic Programs 5,347,301-5,347,301 Added Needs 1,261,798-1,261,798 Total Instruction 6,609,099 6,609,099 Support Services - Pupil Services 443, ,109 Instructional Staff 482, ,382 General Administration 2,541,314-2,541,314 School Administration 1,053,028-1,053,028 Business Services 351, ,217 Operation and Maintenance 5,170,559-5,170,559 Pupil Transportation 159, ,781 Central Services 639,474 Athletics 90,138-90,138 Other Supporting Services 327 1,205,649 1,205,976 Total Support Services 10,931,329 1,205,649 12,136,978 Total Expenditures 17,540,428 1,205,649 18,746,077 Excess/(Deficiency of Revenues over/(under) Expenditures (467,570) (51,681) (519,251) Other Financing Sources/(Uses) Operating Transfers Miscellaneous Other Financing Sources 521, ,500 Total Other Financing Sources/(Uses) 521, ,500 Net Changes in Fund Balance 53,930 (51,681) 2,249 Fund Balance - July 1 2,653,116 51,681 2,704,797 Fund Balance - June 30 $ 2,707,046 $ - $ 2,707,046 See accompanying notes to basic financial statements 12

18 OLD REDFORD ACADEMY, PSA 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, 2013 Total Net Change in Fund Balances - Governmental Funds $ 2,249 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 Depreciation Expense Proceeds from loans is an Other Financing Source in the Governmental Funds, but not in the Statement of Activities (where it is Long-term Debt) $ - (58,576) (58,576) (521,500) Change in Net Position of Governmental Activities $ (577,827) See accompanying notes to basic financial statements 13

19 NOTES TO FINANCIAL STATEMENTS

20 OLD REDFORD ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 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. Basic Financial Statements 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. Fiduciary funds are not included in the government-wide financial statements. 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 net of related debt; 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 (property taxes, 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 (property taxes, state and federal sources, interest income, etc.). The Academy does not allocate indirect costs. Inter-fund transactions have been eliminated in the governmentwide financial statements. Basic Financial Statements - Fund Financial Statements The accounts of the Academy are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund balance, revenues, and expenditures. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various funds are grouped, in the combined financial statements in this report; into two generic fund types in one broad fund category as follows: Governmental Funds Governmental funds are those funds through which most academy functions typically are financed. The acquisition, use, and balances of the Academy's expendable financial resources and the related current liabilities are accounted for through governmental funds. 14

21 OLD REDFORD ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 1 - Summary of Significant Accounting Policies (continued) 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. 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. Basis of Accounting/Measurement Focus The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental fund types and expendable trust funds are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. Operating statements of these funds present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in current assets. Accordingly, they are said to present a summary of sources and uses of "available spendable resources" during a period. Accrual Governmental activity in the government-wide financial statements is presented on the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred. Modified Accrual The governmental funds financial statements are presented on the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual; i.e., both measurable and available. Available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures are generally recognized under the modified accrual basis of accounting when the related liability is incurred. The exception to this general rule is that principal and interest on general obligation long-term debt is recognized when due. Those revenues susceptible to accrual are state aid, interest revenue, grants and charges for services. Other revenue is recorded when received. The Academy reports deferred revenue on its governmental funds balance sheet. Deferred revenues arise when potential revenue does not meet both the measurable and available criteria for recognition in the current period. Deferred revenues also arise when the Academy receives resources before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the government has a legal claim to the resources, the liability for deferred revenue is removed from the combined balance sheet and revenue is recognized. 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. 15

22 OLD REDFORD ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 1 - Summary of Significant Accounting Policies (continued) 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. Inventories - Items purchased for future use are recorded as inventory and charged to expenditure accounts when requisitioned for use. Food Service Fund inventory consists of food and paper goods recorded at cost and commodity inventory recorded at fair market value as determined by the USDA. Inventory amounts were not material at June 30, 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. 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 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. Economic Dependency The Academy receives approximately 86% 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. 16

23 OLD REDFORD ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 2 - Budget and Budgetary Accounting (continued) 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. Budgetary information Public Act 621 of 1978, as amended, provides that a local unit shall not incur expenditures in excess of the amount budgeted. In the body of the financial statements, the Academy s actual and budgeted expenditures for the period have been shown as adopted by function on a modified accrual basis. Excess of expenditures over appropriations in budgeted funds During the year, the Academy incurred expenditures in the General Fund which were in excess of the amounts appropriated, as follows: Budget item Budget Actual Variance General Administration $2,496,106 $2,541,314 $ (45,208) Operation and Maintenance 5,052,813 5,170,559 (117,746) The final amended budget anticipated expenditures would exceed revenues by $328,276. Actual revenues and other financing sources exceeded expenditures by $53,930, a positive variance of $382,206. Note 3 - C.R. Smith Foundation The Academy has for its benefit a charitable 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. 17

24 OLD REDFORD ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 4 - 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, 2013, the Academy had $1,319,916 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. Foreign Currency Risk This is the risk that changes in exchange rates will adversely affect the fair value of an investment. The Academy is not authorized to invest in investments that would be subject to this type of risk. 18

25 OLD REDFORD ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 5 - Capital Assets Below is a summary of the Academy s capital asset transactions for the year: Balance Balance June 30, 2013 Additions Disposals June 30, 2013 Furniture & equipment $ 987, $ 987,119 Accumulated Depreciation (733,230) (58,576) - (791,806) $ 253,889 (58,576) - $ 195,313 Depreciation expense, when appropriate, was allocated to governmental functions. Depreciation was recorded on the Statement of Activities as follows: Instruction $ 37,818 Support Services 20,745 Food Service 13 Total Depreciation Expense $ 58,576 Note 6 State Aid Anticipation Loan The Academy was issued a State Aid Anticipation Loan of $2,750,000 dated June 28, 2012; however the proceeds of the loan were received after June 30, This loan has an interest rate of 2.75% and matured on June 30, Nine monthly payments in the amount of $311,259 beginning on October 31, 2012 were required, with the final payment due on June 30, Proceeds from this loan were received by the Academy on June 28, 2012 and the corresponding liability was recorded at that time. The Academy was issued a State Aid Anticipation Loan of $2,750,000 dated June 25, 2013; however the proceeds of the loan were received after June 30, This loan has an interest rate of 2.35% and matures on June 30, Nine monthly payments in the amount of $311,013 beginning on October 31, 2013 are required, with the final payment due on June 30, Proceeds from this loan were received by the Academy on July 1, 2013 and the corresponding liability was recorded at that time. Note 7 Lease Financing Agreement 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 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, 2013 was $829,

26 OLD REDFORD ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 7 Lease Financing Agreement (continued) 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, Annual Lease Expense , , , , , ,032, ,026, ,006, ,832,521 Total $ 17,944,968 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, 2013 was $1,111,596. 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 Annual Lease June 30, Expense ,080, ,074, ,076, ,076, ,076, ,388, ,386, ,378, ,374, ,257,279 Total $ 29,170,523 20

27 OLD REDFORD ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 8 Leases The Academy leases a Middle School modular additions from C. R. Smith Foundation, a related party, under operating leases with monthly payments ranging from $25,000. The total payments made under these lease agreements for the year ended June 30, 2013 were $200,600. The future minimum lease payments under these agreements are as follows: Year Ended June 30, Amount ,000 $ 300,000 The Academy leases its Middle School building on a five-year lease commencing April 1, Monthly rent for lease is $7,500. Total lease expense under this agreement for the year ended June 30, 2013 was $67,500. The lease expired on May 1, The Academy leases a parking 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, 2013 were $133,500. The future minimum lease payments under these agreements are as follows: Year Ended June 30, Amount , , , , , ,000 $ 1,296,000 The Academy leases four buses and one vehicle from C.R. Smith Foundation, a related party. The payments range from $1,700 to $1900 per month and expire June 30, The total payments made under these lease agreements for the year ended June 30, 2013 were $87,396. The future minimum lease payments under these agreements are as follows: Year Ended June 30, Amount 2014 $87,396 21

28 OLD REDFORD ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 8 Leases (continued) The Academy entered into a lease agreement with Redford Lutheran, for a parking lot and office space beginning July 1, 2005 and ending June 30, The lease requires monthly payments of $4,300. Total lease expense under this agreement for the year ended June 30, 2013 was $51,600. Future minimum lease payments under this agreement are as follows: Year(s) Ended Annual Lease June 30, Expense 2014 $ 51, , , , , , , , ,200 $ 1,135,200 Note 9 Long Term Debt The Academy elected to defer payment of management fees in the amount of $521,500 until funds become available. This amount was classified as Long Term Debt and results in a reduction of net position. 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 - Fund Balance Non-spendable, Restricted, Committed, Assigned and Unassigned The Board of Education adopts a budget each year that includes the appropriation of fund balance. Nonspendable fund balance represents assets that are not available in spendable form and are not expected to be converted to cash. Non-spendable: Prepaid Expenses $ 39,913 Total Non-spendable $ 39,913 Restricted net assets are reported separately to show legal constraints from debt covenants and legislation that limits the Academy s ability to use those net assets for day-to-day operations. The Academy had no amounts restricted at June 30, Committed fund balance represents constrained amounts imposed by school board resolution. The Academy had no amounts committed at June 30,

29 OLD REDFORD ACADEMY NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 Note 11 Fund Balance (continued) Assigned fund balance represents amounts intended to be used for specific purposes expressed by the Board of Education, Finance Committee, or the official authorized by the governing body. Residual amounts in governmental funds other than the General Fund are also assigned. The Academy had no amounts assigned at June 30, Unassigned fund balance is reported only in the General Fund and represents the remaining fund balance after non-spendable, restrictions, and assignments have been made. The Academy applies restricted resources first for applicable expenditures. Assigned fund equity is applied when expenditures are incurred for the assigned purpose, followed by unassigned fund equity for budgeted expenditures. Note 12 - Related Party Old Redford 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. During the year ended June 30, 2013, the total expense was $1,996,312. Note 13 - 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. Note 14 - 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. Note 15 Fund Balance Restatement The Academy recorded a $51,681 decrease in the fund balance of the General Fund and an increase of $51,681 in the fund balance of the Food Service Fund. Note 16 - Subsequent Events Management has reviewed subsequent events through October 24,