BRITTON DEERFIELD SCHOOLS BRITTON, MICHIGAN FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2014 WITH INDEPENDENT AUDITORS REPORT

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1 BRITTON, MICHIGAN FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2014 WITH INDEPENDENT AUDITORS REPORT

2 CONTENTS PAGE Management s Discussion and Analysis i vi Independent Auditors Report 1 3 Basic Financial Statements: Government-wide Financial Statements Statements of Net Position 4 Statement of Activities 5 Fund Financial Statements Balance Sheet Governmental Funds 6 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 7 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds 8 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 9 Fiduciary Funds Statements of Fiduciary Net Position 10 Statements of Changes in Fiduciary Net Position 11 Notes to Financial Statements Required Supplementary Information: Budgetary Comparison Schedule General Fund 36

3 CONTENTS PAGE Other Additional Information: 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 Nonmajor Governmental Fund Types Combining Balance Sheet 40 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 41 Special Revenue Funds Combining Balance Sheet 42 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 43 Debt Funds Combining Balance Sheet 44 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 45 Capital Projects Funds Combining Balance Sheet 46 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 47 Statement of Revenues, Expenditures and Fund Balance Private Purpose Trust Fund 48 Statement of Cash Receipts, Disbursements and Liabilities Agency Fund 49

4 BRITTON DEERFIELD SCHOOL DISTRICT - BRITTON, MICHIGAN MANAGEMENT AND DISCUSSION LETTER FOR THE FISCAL YEAR ENDED JUNE 30, 2014 On July 1, 2011 Britton-Macon and Deerfield Public Schools consolidated and became the Britton Deerfield Schools. Our discussion and analysis of Britton Deerfield School District s financial performance provides an overview of the School District s financial activities in the fiscal year ended June 30, The Britton Deerfield School District implemented GASB requirements in the June 30, 2014 audit as required by the Governmental Accounting Standards Board (GASB). Please read it in conjunction with the School District s financial statements, which immediately follow this section. The management s discussion and analysis is provided at the beginning of the audit and organized so that the reader can understand the current position of the Britton Deerfield School District s financial condition. This summary should not be taken as a replacement for the audit which consists of the financial statements and other supplemental information that presents all the School District s revenues by program for the General Fund, Debt Service Fund, Capital Projects Fund, and Special Revenue Fund. USING THIS ANNUAL REPORT The School District s Annual Report consists of a series of financial statements that show information for the School District as a whole, its funds, and its fiduciary responsibilities. The District Wide Financial Statements, which include the Statement of Net Position and the Statement of Activities provide information about the district as a whole and present a longerterm view of the School District s finances. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most privatesector companies. All of the current year s revenues and expenses are taken into account regardless of when cash is received or paid. The Fund Financial Statements provide detailed information about the School District s most significant funds-not the School District as a whole. Reporting the school district as a whole These two statements report the School District s Net Position-the difference between assets and liabilities and deferred inflows of resources as reported in the Statement of Net Position as one way to measure the School District s financial health or financial position. The Statement of Net Position, for the first time, combines and consolidates governmental fund s current financial resources with capital assets and long-term obligations, regardless if they are currently available or not. In comparison to other assets, capital assets are those assets that are tangible, valued over a specified amount, and usually have a long life. They are depreciated over a useful life. More detail on capital assets and their recorded useful lives is found in the footnote section of the audit. Long-term obligations (liabilities) are those that are longer than one year. Some liabilities are classified as short-term for the portion due in a year, and long-term for the portion due in the future years (such as leases payable, compensated absences, and debt obligations). Other liabilities are considered to be obligations due within a year. Over time, increases or decreases in the School District 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 School District s operating results. However, the School District s goal is to provide services to our students, not to generate a profit as commercial entities do. There are other factors to consider such as quality of education and school safety to assess the overall health of the School District. i

5 The Statement of Net Position and Statement of Activities report the governmental activities and business-type activities. These statements for the Britton Deerfield School District will include only governmental activities, which encompass all of the School District s services including instruction, supporting services, athletics, and food service. Property taxes, unrestricted State Aid (foundation allowance revenue), and State and Federal grants finance most of these activities. Reporting the school district s most significant funds The School District s fund financial statements provide detailed information about the School District s most significant funds- not the School District as a whole. The fund statements are similar to financial presentations in the past, but the new focus is on the District s major funds rather than fund types. The two Account Groups: General Fixed Assets and General Long-Term Debt are no longer reported. Some funds are required by State law and by bond covenants. However, the School District establishes many other funds to help it control and manage money for particular purposes (such as Food Service) or to show that it is meeting legal responsibilities for using certain taxes, grants, and other monies (such as Debt and Capital Projects). The School District s major fund is the General Fund. Most of the School District s services are reported in governmental funds. Governmental fund reporting focuses on how money flows into and out of the funds and the balances left at year-end that are available for spending in future periods. They are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can be readily converted to cash. The governmental fund statements provide a detailed short-term view of the School District s operations and services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the School District s programs. We describe the relationship (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds in reconciliation on pages 6 and 8. Fund types include the General Fund, Special Revenue Fund, Debt Retirement Fund, Capital Projects Fund, and Fiduciary Fund. The General Fund is used primarily to account for the general education requirements of the District. Its revenues are derived from property taxes, state and federal distributions and grants and other intergovernmental revenues. The Debt Fund is used to record the funding and payment of principal and interest on Bonded Debt. The Special Revenue Fund is used to record the funding and expenditures of monies specified for a specific purpose (Food Service). The Fiduciary Funds account for assets held by the District in a trustee capacity or as an agent for various student groups and related activities. The School District as a Whole The School District s net position was $5,093,998 at the end of June 30, 2014 and $4,828,823 as of June 30, 2013, representing a net increase of $265,275. Of the total amount $1,046,765 was unrestricted. Restricted net position is reported separately to show legal constraints from debt covenants and enabling legislation that limit the School District s ability to use those funds for day-to-day operations. Our analysis below focuses on the Net Position (Table 1) and Change in Net Position (Table 2) of the School District s governmental activities. ii

6 STATEMENT OF NET POSITION Assets: Current Assets: Cash and Cash Equivalents $ 1,607,006 $ 797,187 Investments 28,161 22,776 Accounts receivable 161, ,842 Due from other governmental units 1,094,952 1,086,395 Prepaid Expense 30,033 1,198 Total Current Assets 2,921,887 2,260,398 Noncurrent Assets: Capital Assets 15,454,511 15,454,511 Less: Accumulated Depreciation (7,559,740) (7,239,669) Capital assets-net of accumulated depreciation 7,894,771 8,214,842 Accrued interest receivable on defeased bonds 3,215 4,822 Liabilities: Total Noncurrent Assets 7,897,986 8,219,664 Total Assets 10,819,873 10,480,062 Current Liabilities: Accounts Payable 18, ,310 State aid and loan payable 749, ,143 Salaries payable 385, ,688 Accrued expenses 190, ,070 Interest payable 14,779 16,013 Current portion of long term obligations 390, ,000 Noncurrent Liabilities: Governmental Activities Total Current Liabilities 1,748,810 1,289,224 Long-term obligation 3,900,000 4,290,000 Compensated absences 74,281 71,945 Total Noncurrent Liabilities 3,974,281 4,361,945 Total Liabilities 5,723,091 5,651,169 Deferred inflows of resources Unearned income 2, Net Position: Invested in capital assets, net of related debt 3,607,986 3,554,664 Restricted for School Lunch program 25,764 18,520 Restricted for Debt Service 347, ,095 Restricted for Capital Projects 66,061 97,170 Unrestricted 1,046, ,274 Total Net Position $ 5,093,998 $ 4,828,723 iii

7 The Statement of Activities presented later in the government-wide financial statement, provides greater detail on the District s annual activity. The Statement of Net Position from Operating Results (Table 2) shown below details the cost of the District s governmental activities and how those activities were financed. STATEMENT OF NET POSITION FROM OPERATING RESULTS Revenues: Program Revenues: Charge for Services Food Service 146, ,168 Athletics 51,028 45,026 Support services 49, ,477 Operating grants: State Aid-At Risk 127, ,401 Federal Programs 74,723 86,515 Other 226, , , ,695 Food Services Free and Reduced Lunches 169, ,789 Commodity 22, , ,504 20, ,798 1,056,164 General Revenues: Property Taxes 938,842 1,062,935 Investment Income 2,358 3,026 State Aid Formula 5,386,272 5,319,484 Special Education 438, ,364 Preschool/Kids Care 49,744 97,888 Other 600 6,816,636 52,908 6,860,605. Total revenues 7,685,140 7,916,769 Expenditures: Instruction Salaries and benefits 4,028,255 4,388,209 Other 77,942 4,106, ,492 4,753,701 Support services Salaries and Benefits 1,374,520 1,436,078 Other 791,750 2,166, ,610 2,212,688 Food Services Salaries and Benefits 149, ,452 Other 213, , , ,374 Athletics 196, ,294 Depreciation (unallocated) 320, ,661 Interest on long term debt 191, ,716 Capital Outlay 74,352 - Other 1,607 17,119 Total expenditures 7,419,865 8,077,553 Change in net position 265,275 (160,784) iv

8 Financial Analysis of the District s Funds The financial performance of the district as a whole is reflected in its governmental funds as well. GENERAL FUND Factors affecting Revenue State Aid funding -The State of Michigan provides a $6,952 per pupil foundation allowance that provides a substantial portion of our district s revenue, 69 percent. In addition we also receive various grants from the state. This means that the financial stability of the District rests primarily with the economic health of the State of Michigan. State aid payments are made with the first payment of the school year beginning in October, and the last payment being made in August. Therefore, at the end of the District s fiscal year end, there is adjustment made that includes 2 months of state aid payments into revenue that has not yet been made. Schools of Choice-The School District has an agreement with the other public schools in Lenawee County to implement Lenawee County Schools of Choice (Open Enrollment) program. During the school year, of the 735 pupils enrolled, 238 (32%) of our student population were schools of choice pupils. Sinking Fund Millage Revenues are generated by taxes going toward building improvements. Factors affecting Expenses Salaries and Benefits-A significant portion of the School District s expenses are related to compensation, 75% in Instructional purchases- Another part of each year s budgetary expenditures includes textbooks and supplemental learning materials, supplies, and purchased services. Operation and Maintenance-Each year s budgetary expenditures also include the general operation and maintenance of our school buildings. General Fund Budgetary Highlights The Uniform Budget Act of the State of Michigan requires that the local Board of Education approve the original budget for the upcoming fiscal year prior to July 1, the start of the fiscal year. As a matter of practice, the District amends its budget during the school year. In fact, all Michigan school districts must complete a second full budget after the state s official student membership count date (the fourth Wednesday in September), because only then are they knowledgeable of their Foundation Grant s income level. These revisions are made in order to deal with the unexpected changes in revenues and expenditures. The following analysis describes the reasons for changes in the budget during the year. Original Budget versus Final Budget Revenues-Original estimated budgets for revenues were $6,507,315 versus the final budget of $6,943,030. Major components of revenue and their original budget versus final budget are discussed below. There was an increase in State Aid due to an increase in student enrollment. Expenditures The original budget for expenditures was $6,848,198 versus the final budget of $6,988,127. v

9 Final Budget versus Actual Figures The majority (about 46%) of Local Revenues are property taxes received from eight townships including Deerfield, Blissfield, Ridgeway, Summerfield, Macon, Raisin, Dundee and Milan. State Revenues were budgeted at $5,496,254 versus actual of $5,499,719. This is a difference of $3,465. Federal Revenues were budgeted at $74,723 versus actual of $74,723. Overall revenues were under budget by $26,879 from the final budget amounts. This is an insignificant amount compared to the total revenue budget of $6,943,030. SPECIAL REVENUE FUNDS Expenses- Final estimated budgets for expenses were $6,988,127 versus an actual final amount of $6,753,377. The overall variation from final budget to actual was $234,750. School Lunch Fund-The School Lunch Fund receives its revenues from the sale of goods State reimbursement and federal grants. Capital Projects Fund- Consist of 2007 Sinking Fund, Building Capital Project. These funds are used to do improvements to the district. These funds are restricted for improvements to the district. At the end of the fiscal year there was a fund balance of $66,061. Debt Service Fund This fund is directly funded through taxes. For fiscal year the collection of property taxes for the retirement of principal and interest relating to the 2006 Sinking Fund debt and the 2005 refunding bonds debt for both Deerfield and Britton Schools was $615,239. Principal and interest requirements for the retirement was $567,656. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets-At June 30, 2014, the School District had $7,894,771 invested in capital assets, net of accumulated depreciation. The district had bonded debt outstanding of $4,290,000. As these items also relate to capital assets, the amount Invested in capital assets net of related debt is $3,607,986. Assets, net of accumulated depreciation will probably continue to decrease because the district at this time has no intention of purchasing many capital assets. Those already on the books will continue to depreciate. Debt Administration- At the fiscal year ending June 30, 2014, the District s long term obligations included $420,000 in 2005 Debt Retirement bonds for Deerfield, $1,060,000 in Debt Retirement bonds for Britton, $2,810,000 for Building and Site bonds for Britton and $74,282 in compensated absences which included accrued sick pay leave. Contacting the District s Financial Management This financial report is designed to provide citizens, taxpayers, customers, investors, and creditors with a general overview of the District s finances and to demonstrate the School District s accountability for the money it receives. If you have questions about this report or need additional information, please contact: Business Office Britton Deerfield Schools 201 College Ave. Britton, MI vi

10 INDEPENDENT AUDITOR S REPORT To the Board of Education Britton Deerfield Schools Britton, Michigan 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 Britton Deerfield Schools as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the schools district s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedure selected depends 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 accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions N o r t h M a i n S t r e e t, A d r i a n, M i c h i g a n ( ) F A X : ( ) M E M B E R S : A. I. C. P. A. and M. A. C. P. A.

11 Page 2 To the Board of Education Britton Deerfield Schools Britton, Michigan 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 Britton Deerfield Schools, as of June 30, 2014, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information on pages i through vii and page 28 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 Britton Deerfield Schools basic financial statements. The introductory section, combining and individual non major fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual non-major 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 statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual non-major fund financial statements are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and accordingly, we do not express an opinion or provide any assurance on them. 2

12 Page 3 To the Board of Education Britton Deerfield Schools Britton, Michigan Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 10, 2014, on our consideration of Britton Deerfield Schools internal control over financial reporting and 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 Britton Deerfield Schools internal control over financial reporting and compliance. Robertson, Eaton & Owen, P.C. Adrian, Michigan October 10,

13 STATEMENT OF NET POSITION JUNE 30, 2014 AND 2013 ASSETS: Current Assets: Cash and cash equivalents $ 1,607,006 $ 797,187 Investments 28,161 22,776 Accounts receivable 161, ,842 Due from other governmental units 1,094,952 1,086,395 Prepaid expenses 30,033 1,198 Total current assets 2,921,887 2,260,398 Noncurrent assets: Capital assets 15,454,511 15,454,511 Less: accumulated depreciation (7,559,740) (7,239,669) Capital assets - net of accumulated depreciation and amortization 7,894,771 8,214,842 Accrued interest receivable on defeased bonds 3,215 4,822 Total noncurrent assets 7,897,986 8,219,664 Total assets $ 10,819,873 $ 10,480,062 LIABILITIES AND NET POSITION: Current liabilities: Accounts payable $ 18,915 $ 102,310 State aid loan payable 749, ,143 Salaries payable 385, ,688 Accrued expenses 190, ,070 Interest payable 14,779 16,013 Current portion of long term obligations 390, ,000 Total current liabilities 1,748,810 1,289,224 Noncurrent liabilities: Long term obligations 3,900,000 4,290,000 Compensated absences 74,281 71,945 Total noncurrent liabilities 3,974,281 4,361,945 Total liabilities 5,723,091 5,651,169 Deferred inflows of resources Unearned income 2, NET POSITION: Invested in capital assets, net of related debt 3,607,986 3,554,664 Restricted for school lunch program 25,764 18,520 Restricted for debt service 347, ,095 Restricted for capital projects 66,061 97,170 Unrestricted 1,046, ,274 Total net position $ 5,093,998 $ 4,828,723 The notes to the financial statements are an integral part of this statement. 4

14 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2014 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, 2013 Program Revenues Totals Governmental Activities Net Expense Revenue and Changes in Net position Charges for Operating Functions/Programs Expenses Services Grants Governmental activities: Instruction $ 4,106,197 $ - $ 410,159 $ (3,696,038) $ (4,381,150) Support services 2,240,622-18,580 (2,222,042) (1,925,067) Food services 362, , ,696 (24,091) (33,408) Athletics 196,995 51,028 - (145,967) (136,268) Interest on long term debt 191, (191,422) (205,716) Other 1,607 49,877-48,270 (17,119) Unallocated depreciation 320, (320,071) (322,661) Total governmental activities $ 7,419,865 $ 247,069 $ 621,435 $ (6,551,361) $ (7,021,389) General revenues: Property taxes, levied for general purposes $ 323,603 $ 308,313 Property taxes, levied for debt service 615, ,622 Investment earnings 2,358 3,026 State sources 5,386,272 5,319,484 Intermediate sources 438, ,364 Preschool/Kids care 49,744 97,888 Other ,908 Total general revenues 6,816,636 6,860,605 Change in Net position Net position, beginning of year Net position, end of year 265,275 (160,784) 4,828,723 4,989,507 $ 5,093,998 $ 4,828,723 The notes to the financial statements are an integral part of this statement. 5

15 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2014 AND 2013 Other Nonmajor Total Governmental General Governmental Funds Fund Funds ASSETS: Cash and cash equivalents $ 1,198,868 $ 408,138 $ 1,607,006 $ 797,187 Investments 28,161-28,161 22,776 Accounts receivable 161, , ,779 Taxes receivable Interfund receivable 752 9,584 10,336 3,903 Due from other governmental units 1,028,554-1,028,554 1,044,816 Prepaid expenditures 5,035 24,998 30,033 1,198 Total assets $ 2,423,042 $ 442,783 $ 2,865,825 $ 2,222,722 LIABILITIES: Accounts payable $ 18,915 $ - $ 18,915 $ 102,310 State aid loan payable 749, , ,143 Interfund payable 9, ,336 3,903 Salaries payable 385, , ,688 Accrued expenditures 190, , ,070 Total liabilities 1,353, ,354, ,114 Deferred inflows of resources Unearned income - 2,784 2, FUND BALANCES: Restricted School lunch program - 25,764 25,764 18,520 Debt service - 347, , ,095 Capital outlay - 66,061 66,061 97,170 Assinged, reported in: General fund 500, , ,000 Unassigned, reported in: General fund 569, , ,653 Total fund balances 1,069, ,247 1,508,674 1,320,438 Total liabilities, deferred inflows of resources and fund balances $ 2,423,042 $ 442,783 $ 2,865,825 $ 2,222,722 The notes to the financial statements are an integral part of this statement. 6

16 RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION FOR THE YEAR ENDED JUNE 30, 2014 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, Total governmental fund balances $ - $ 1,508,674 $ - $ 1,320,438 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and are not reported in the funds: The cost of capital assets is 15,454,511 15,454,511 The accumulated depreciation is (7,559,740) (7,239,669) 7,894,771 8,214,842 Other long term assets are not available to pay for current period expenditures and, therefore, are deferred in the funds Due from other governments 66,398 41,579 Accrued interest receivable on defeased bonds 3,215 4,822 Long term liabilities are not due and payable in the current period and are not reported in the funds: Bonds payable (4,290,000) (4,665,000) Interest payable on long-term debt (14,779) (16,013) Compensated absences (74,281) (71,945) Net position of governmental activities $ 5,093,998 $ 4,828,723 The notes to the financial statements are an integral part of this statement. 7

17 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2014 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, 2013 Other Nonmajor Total Governmental General Governmental Funds Fund Funds REVENUES: Local sources: Property taxes $ 323,603 $ 615,239 $ 938,842 $ 1,062,935 Investment earnings 1, ,358 3,026 Food sales - 146, , ,168 Athletics 51,028-51,028 45,026 Preschool/Kids care 49,744-49,744 97,888 Special Education reimbursements 253, , ,477 Other 21,502 28,375 49, ,693 Total local sources 700, ,564 1,491,167 1,748,213 State sources 5,499,719 14,064 5,513,783 5,466,610 Federal sources 74, , , ,588 Intermediate sources 640, , ,947 Total revenues 6,915, ,324 7,912,875 7,993,358 EXPENDITURES: Current: Instruction 4,354,915-4,354,915 4,740,825 Support services 2,168,370-2,168,370 2,212,198 Food service activities - 362, , ,374 Athletic activities 196, , ,294 Other expenditures Capital outlay 33,097 41,255 74,352 47,327 Debt service: Interest and fees - 192, , ,890 Total expenditures 6,753, ,862 7,350,239 7,772,908 Excess (deficiency) of revenues over (under) expenditures 162, , , ,450 OTHER FINANCING SOURCES (USES): Sale of asset Redemption of principal - (375,000) (375,000) (360,000) Total other financing sources (uses) 600 (375,000) (374,400) (360,000) Net change in fund balances 162,774 25, ,236 (139,550) Fund balances: Beginning of year 906, ,785 1,320,438 1,459,988 End of year $ 1,069,427 $ 439,247 $ 1,508,674 $ 1,320,438 The notes to the financial statements are integral part of this statement. 8

18 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF CHANGES IN NET POSITION FOR THE YEAR ENDED JUNE 30, 2014 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, Net change in fund balances total governmental funds $ 188,236 $ (139,550) Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures in the statement of revenues, expenditures, and changes in fund balances. These costs are allocated over their estimated useful lives as depreciation on the statement of activities. Depreciation expense (320,071) (322,661) Capital outlay - 31,815 Accrued interest on bonds and other long-term obligations is recorded in the statement of activities when incurred, it is not recorded in the governmental funds until it is paid. Accrued interest payable beginning of year 16,013 17,187 Accrued interest payable end of year (14,779) (16,013) Revenues in the statement of activities that do not provide current financial resources are not reported in the governmental funds: Payments on contract receivable - (48,785) Special education revenue from the Lenawee Intermediate School District 24,819 (27,804) Accrued inertest receivable on defeased bonds (1,607) (1,607) The issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment on long-term debt and related items. 375, ,000 Compensated absences are reported on the accrual method in the statement of activities, and recorded as an expenditure when financial resources are used in the governmental funds: Accrued compensated absences beginning of year 71,945 58,579 Accrued compensated absences end of year (74,281) (71,945) Change in net position of governmental activities $ 265,275 $ (160,784) The notes to the financial statements are an integral part of this statement. 9

19 STATEMENT OF FIDUCIARY NET POSITION FOR THE YEAR ENDED JUNE 30, 2014 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, 2013 Private Private Purpose Agency Purpose Agency Trust Funds Fund Trust Funds Fund ASSETS: Cash and cash equivalents $ 20,346 $ 172,292 $ 21,736 $ 165,101 LIABILITIES AND NET POSITION: Total assets $ 20,346 $ 172,292 $ 21,736 $ 165,101 LIABILITIES: Due to student groups $ - $ 165,939 $ - $ 156,212 Due to others - 6,353 - $ 8,889 Total liabilities - 172, ,101 NET POSITION: Reserved for scholarships - expendable 20,346-21,736 - Total liabilities and net position $ 20,346 $ 172,292 $ 21,736 $ 165,101 The notes to the financial statements are an integral part of this statement. 10

20 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2014 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, 2013 Total Private Purpose Trust Funds ADDITIONS Investment earnings $ 29 $ 35 Contributions 6,831 6,793 Total additions 6,860 6,828 DEDUCTIONS: Scholarships awarded 8,250 7,000 Total deductions 8,250 7,000 Change in net position (1,390) (172) NET POSITION: Beginning of year 21,736 21,908 End of year $ 20,346 $ 21,736 The notes to the financial statements are an integral part of this statement. 11

21 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The basic financial statements of Britton Deerfield Schools (the District ) have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the District s accounting policies are described below. A. Reporting Entity The District is governed by the Board of Education (the Board ) of Britton Deerfield Schools, which has responsibility and control over all activities related to public school education within the District. The District receives funding from local, state, and federal government sources and must comply with all of the requirements of these funding source entities. However, the District is not included in any other governmental reporting entity as defined by generally accepted accounting principles. Board members are elected by the public and have decision-making authority, the power to designate management, the ability to significantly influence operations, and the primary accountability for fiscal matters. In addition, the District s reporting entity does not contain any component units as defined in Governmental Accounting Standards Board Statement No. 14. B. Government-Wide And Fund Financial Statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the District. The government-wide financial statements categorize primary activities as either governmental or business-type. All of the District s activities are classified as governmental activities. Amounts reported in the funds as interfund receivables and payables are eliminated in the governmental activities column of the statement of net position. Amounts reported in the funds as receivable from or payable to fiduciary funds are included in the statement of net position as receivable from or payable to external parties, rather than as internal balances. Therefore, all internal balances are eliminated in the total primary government column. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include (1) charges paid by recipients who purchase, use or directly benefit from goods or services by a given function or segment and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. State Foundation Aid, certain revenue from the intermediate school district, and other unrestricted items are not included as program revenues but instead as general revenues. In the government-wide statement of net position, the governmental activities column (a) is presented on a consolidated basis, and (b) is reported on a full accrual, economic resource basis which recognizes all long-term assets and receivables as well as longterm debt and obligations. The District s net position are reported in three parts invested in capital assets net of related debt; restricted net position; and unrestricted net position. 12

22 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. Government-Wide and Fund Financial Statements (Continued) The District 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 District s functions. The functions are also supported by general government revenues (property taxes, certain intergovernmental revenues, fines, permits, and charges, etc.). The statement of activities reduces gross expenses by related program revenues and operating grants. Program revenues must be directly associated with the function. Operating grants include operating-specific and discretionary (either operating or capital) grants. The net costs (by function) are normally covered by general revenue (property taxes, state sources, intermediate district sources, interest income, and other revenues). The District does not allocate indirect costs. This government-wide focus is more on the sustainability of the District as an entity and the change in the District s net assets resulting from the current year s activities. Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from government-wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements. Governmental Funds Governmental funds are those funds through which most school district functions typically are financed. The acquisition, use, and balances of the school district s expendable financial resources and the related current liabilities are accounted for through governmental funds. Effective July 1, 2010, the school district has implemented their Fund Balance Policy in Accordance with GASB Statement No. 54 as follows: Purpose. The following policy has been adopted by the Board of Education in order to address the implications of Governmental Accounting Standards Board ( GASB ) Statement No. 54, Fund Balance Reporting and Governmental Fund Definitions. The policy is created in consideration of unanticipated events that could adversely affect the financial condition of the District and jeopardize the continuation of necessary public services. This policy will ensure that the District maintains adequate fund balances and reserves in order to: a. Provide sufficient cash flow for daily financial needs, b. Secure and maintain investment grade bond ratings, c. Offset significant economic downturns or revenues shortfalls and, d. Provide funds for unforeseen expenditures related to emergencies. This policy and the procedures promulgated under it supersede all previous regulations regarding the District s fund balance and reserve policies. 13

23 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. Government-Wide and Fund Financial Statements (Continued) Fund type definitions. The following definitions will be used in reporting activity in governmental funds across the District. The District may or may not report all fund types in any given reporting period, based on actual circumstances and activity. The general fund is used to account for all financial resources not accounted for and reported in another fund. Special revenue funds are used to account and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specific purposes other than debt service or capital projects. Debt service funds are used to account for all financial resources restricted, committed or assigned to expenditure for principal and interest. Capital projects funds are used to account for all financial resources restricted, committed or assigned to expenditure for the acquisition or construction of capital assets. Permanent funds are used to account for resources restricted to the extent that only earnings, and not principal, may be used for purposes that support the District s purposes. Fund balance reporting in governmental funds. Fund balance will be reported in governmental funds under the following categories: Nonspendable fund balance Definition includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained in-tact. Classification Nonspendable amounts will be determined before all other classifications and consist of the following items (as applicable in any given fiscal year): The District will maintain a fund balance equal to the balance of any long-term outstanding balances due from others (including other funds of the government). The District will maintain a fund balance equal to the value of inventory balances and prepaid items (to the extent that such balances are not offset with liabilities and actually result in fund balance). The District will maintain a fund balance equal to the corpus (principal) of any permanent funds that are legally or contractually required to be maintained intact. The District will maintain a fund balance equal to the balance of any land or other nonfinancial assets held for sale. 14

24 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. Government-Wide and Fund Financial Statements (Continued) Restricted fund balance Definition includes amounts that can be spent only for the specific purposes stipulated by the constitution, external resource providers; or through enabling legislation. Committed fund balance Definition includes amounts that can be used only for the specific purposes determined by a formal action of the District s highest level of decision-making authority (i.e., the Board of Education). Authority to Commit Commitments will only be used for specific purposes pursuant to a formal action of the Board of Education. A majority vote is required to approve a commitment and a two-thirds majority vote is required to remove a commitment. Assigned fund balance Definition includes amounts intended to be used by the District for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. Authority to Assign The Board of Education delegates to the Superintendent or his/her/their designee the authority to assign amounts to be used for specific purposes. Such assignments cannot exceed the available (spendable, unrestricted, uncommitted) fund balance in any particular fund. Unassigned fund balance Definition includes the residual classification for the District s general fund and includes all spendable amounts not contained in the other classifications. In other funds, the unassigned classification should be used only to report a deficit balance from overspending for specific purposes for which amounts had been restricted, committed, or assigned. Operational guidelines. The following guidelines address the classification and use of fund balance in governmental funds: Classifying fund balance amounts Fund balance classifications depict the nature of the net resources that are reported in a governmental fund. An individual governmental fund may include nonspendable resources and amounts that are restricted, committed, or assigned, or any combination of those classifications. The general fund may also include an unassigned amount. Encumbrance reporting Encumbering amounts for specific purposes for which resources have already been restricted, committed or assigned should not result in separate display of encumbered amounts. Encumbered amounts for specific purposes for which amounts have not been previously restricted, committed or assigned, will be classified as committed or assigned, as appropriate. 15

25 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B. Government-Wide and Fund Financial Statements (Continued) Prioritization of fund balance use When an expenditure is incurred for purposes for which both restricted and unrestricted (committed, assigned, or unassigned) amounts are available, it shall be the policy of the District to consider restricted amounts to have been reduced first. When an expenditure is incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used, it shall be the policy of the District that committed amounts would be reduced first, followed by assigned amounts and then unassigned amounts. The District reports the following major governmental fund: The General Fund Other Non-major Funds The Special Revenue Fund The Debt Service Funds and The Capital Projects Funds Fiduciary Funds account for assets held by the District in a trustee capacity or as an agent on behalf of others. Trust Funds account for assets held by the District under the terms of a formal trust agreement. Fiduciary Funds are not included in the government-wide statements. The Private Purpose Trust Fund is accounted for using the accrual method of accounting. Private Purpose Trust Funds account for assets where both the principal and interest may be spent. These funds are not reported on the District financial statements. The Agency Fund is custodial in nature and does not present results of operations or have a measurement focus. Agency Funds are accounted for using the accrual basis of accounting. This fund is used to account for assets that the District holds for others in an agency capacity (primarily student activities). C. Measurement Focus, Basis of Accounting and Basis of Presentation Accrual Method The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 16

26 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Measurement Focus, Basis of Accounting and Basis of Presentation (Continued) Modified Accrual Method Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the District 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. Property taxes, state and federal aid, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the District. State Revenue The State of Michigan utilizes a foundation grant approach which provides for a specific annual amount of revenue per pupil based on a statewide formula. The foundation is funded from state and local sources. Revenues from state sources are primarily governed by the School Aid Act and the School Code of Michigan. The Michigan Department of Education administers the allocation of state funds to school districts based on information supplied by the districts. For the year ended June 30, 2014, the foundation allowance was based on pupil membership counts taken in February and September of The state portion of the foundation is provided primarily by a state education property tax millage of 6 mills and an allocated portion of state sales and other taxes. The local portion of the foundation is funded primarily by non-homestead property taxes which may be levied at a rate of up to 18 mills. The state revenue is recognized during the foundation period and is funded through payments from October 2011 to August Thus, the unpaid portion at June 30 th is reported as due from other governmental units. The District also receives revenue from the state to administer certain categorical education programs. State rules require that revenue earmarked for these programs be used for its specific purpose. Certain governmental funds require an accounting to the state of the expenditures incurred. For categorical funds meeting this requirement, funds received, which are not expended by the close of the fiscal year are recorded as unearned revenue. Other categorical funding is recognized when the appropriation is received. 17

27 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) D. Other Accounting Policies 1. Cash and equivalents include amounts in demand deposits and certificates of deposit. The District reports its investments in accordance with GASB Codification I50 Para , Accounting and Financial Reporting for Certain Investments and for External Investment Pools. Under these standards, certain investments are valued at fair value as determined by quoted market prices or by estimated 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 District intends to hold the investment until maturity. Accordingly, investments in banker acceptances and commercial paper are recorded at amortized cost. State statutes authorize the District 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, Federal Savings and Loan Insurance Corporation, or National Credit Union Administration, respectively; in commercial paper rated at the time of purchase within the three highest classifications established by not less than two standard rating services and which matures not more than 270 days after the date of purchase. The District is also authorized to invest in U.S. Government or federal agency obligation repurchase agreements, bankers acceptances of U.S. banks, and mutual funds composed of investments as outlined above. The District has adopted a deposit and investment policy in accordance with GASB Codification I50 Para Property Taxes Property taxes levied by the District are collected by various municipalities and periodically remitted to the District. The taxes are levied and become a lien as of July 1 and December 1 and are due upon receipt of the billing by the taxpayer. The actual due dates are September 14 and February 14, after which time the bills become delinquent and penalties and interest may be assessed by the collecting entity. For the year ended June 30, 2014, the District levied the following amounts per $1,000 of assessed valuation. Fund Mills General Fund - Non Personal Residence and commercial property Refunding Deerfield Debt - total taxable value Britton Debt - total taxable value Britton Debt - total taxable value

28 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 3. Inventories and Prepaid Expenditures Inventories are valued at cost (first-in, first-out). Inventories in the Special Revenue Fund consisting of expendable supplies held for consumption, are recorded as expenditures when consumed or used rather than when purchased. Inventories for commodities are recorded as revenue when utilized. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid expenditures. 4. Capital Assets Capital assets purchased or acquired are capitalized at historical cost or estimated historical cost. Donated capital assets are valued at their estimated fair market value on the date received. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. Depreciation on all assets is provided on the straight-line basis over the estimated useful lives as follows: Buildings and additions Furniture and equipment Transportation equipment 50 years 5 20 years 3 7 years The District s capitalization policy is to capitalize individual amounts exceeding $5, Use of Estimates The process of preparing basic financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenditures. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. 19

29 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 6. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expenses/expenditure) until then. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The District has only one type of item, which arises only under a modified accrual basis of accounting that qualifies for reporting in this category. Accordingly, the item, unavailable revenue, is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues primarily from one source; receipts that exceeded 60 days of year end. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. NOTE 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. Annual appropriated budgets are adopted for the General Fund. The District maintains a formalized encumbrance system. Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting - under which purchase orders, contracts, and other commitments for the expenditure of resources are recorded to reserve that portion of the applicable appropriation - is utilized in the General Fund. Encumbrances outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be honored during the subsequent year. The District follows these procedures in establishing the budgetary data reflected in the financial statements: 1. The Superintendent submits to the School Board a proposed operating budget for the fiscal year commencing on July 1. The operating budget includes proposed expenditures and the means of financing them. The level of control for the budgets is at the functional level as set forth and presented as required supplementary information. 2. Public hearings are conducted to obtain taxpayer comments. 20

30 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (Continued) 3. Prior to July 1, the budget is legally adopted by School Board resolution pursuant to the Uniform Budgeting and Accounting Act (P.A. 621 of 1978). The Act requires that the budget be amended prior to the end of the fiscal year when necessary to adjust appropriations if it appears that revenues and other financing sources will be less than anticipated or so that expenditures will not be in excess of original estimates. Expenditures shall not be made or incurred, unless authorized in the budget, in excess of the amount appropriated. Violations, if any, are noted in the required supplementary information section. 4. The Superintendent and Business Manager are authorized to transfer budgeted amounts between major expenditure functions within any fund; however, these transfers and any revisions that alter the total expenditures of any fund must be approved by the School Board. 5. Formal budgetary integration is employed as a management control device during the year for the General Fund. 6. The budget was amended during the year with supplemental appropriation, the last one approved prior to June 30, The District does not consider these amendments to be significant. NOTE 3. DEPOSITS AND INVESTMENTS CREDIT RISK Deposits Custodial Credit Risk-Deposits. Custodial credit risk is the risk that in the event of a bank failure, the deposits may not be returned to the District. The District does not have a deposit policy for custodial credit risk. As of June 30, 2013, $1,369,639 of the District's bank balance of $1,838,051 was exposed to custodial credit risk as follows: Investments Uninsured and uncollateralized $ 1,369,639 The District s sole investment is in the Michigan Liquid Asset Fund (MILAF) through PFM Asset Management, LLC. This investment is not exposed to any risks subject to disclosure as required by GASB Statement No. 40. MILAF is a local government investment pool. MILAF may only invest in instruments as authorized by Sections 622, 1221 and 1223 of the Michigan school code. Credit Risk: The risk that an issuer or other counterparty to an investment will not fulfill its obligations. The District does not have a credit risk policy. The MILAF investment is rated AAAm by Standard & Poor s Ratings Services. Interest Rate Risk: The risk that changes in the interest rates will adversely affect the fair value of an investment. The District does not have an interest rate risk policy. The weighted average maturity of the MILAF portfolio at June 30, 2013 is less than 60 days. 21

31 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 4. INTERGOVERNMENTAL RECEIVABLES Due from governmental units June 30, 2014 consist of the following: Intergovernmental: State Aid $ 1,007,961 Federal revenue 20,593 Other 66,398 $ 1,094,952 No allowance for doubtful accounts is considered necessary. NOTE 5. CAPITAL ASSETS A summary of changes in the District s capital assets follows: Governmental activities: Primary Government Beginning Ending Balance Additions Retirements Balance Assets not being depreciated: Land $ 71,075 $ 71,075 Capital assets being depreciated: Land improvements $ 141,902 $ - $ - $ 141,902 Buildings and improvements 10,966, ,966,167 Machinery, equipment & furniture 2,856, ,856,994 Property in open 864, ,159 Transportation equipment 554, ,214 Depreciable capital assets 15,383, ,383,436 Less accumulated depreciation for: Land improvements 125,020 1, ,615 Buildings and improvements 3,766, ,040-3,967,610 Machinery, equipment & furniture 2,576,031 37,101-2,613,132 Property in open 389,562 38, ,768 Transportation equipment 382,486 42, ,615 - Total accumulated depreciation 7,239, ,071-7,559,740 Governmental activities capital assets being depreciated, net 8,143,767 (320,071) - 7,823,696 Governmental activities capital assets, net $ 8,214,842 $ (320,071) $ - $ 7,894,771 Depreciation is computed by the straight line method for all classes of assets. Depreciation for the fiscal year ended June 30, 2014 amounted to $320,071. The District determined that it was impractical to allocate depreciation and amortization to the various governmental activities as the assets serve multiple functions. NOTE 6. LONG-TERM DEBT The School District has authorized refunding bonds, dated May 15, 2005, for the purpose of refunding a portion of a prior bond issue of the Deerfield School District. The bonds were issued for $1,345,000 at an interest rate ranging from 3.0% to 4.2%. The net present value of the savings is $2,451 or 5.02% of refunded maturities. These bonds are in compliance with Section of the Revised School Code. 22

32 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 6. LONG-TERM DEBT (Continued) The School District has authorized refunding bonds, dated July 8, 2005, for the purpose of refunding a portion of a prior bond issue of the Britton-Macon School District. The bonds were issued for $1,620,000 at an interest rate ranging from 3.5% to 4.0%. The School District has authorized Building and Site Bonds for the purpose of erecting, furnishing and equipping an addition to and partially remodeling, furnishing and refurnishing, equipping and re-equipping the school district building; acquiring and installing educational technology improvements; and developing and improving the Britton school site, due in annual installments of $60,000 to $395,000 through May 1, 2026, plus interest of 4.0% to 4.125%. A schedule of the 2005 refunding bond issued for Deerfield is as follows: Year Ended Interest Principal Interest Due June 30 Rate Due May 1 November 1 May 1 Total Due % 135,000 8,615 8, , % 140,000 5,915 5, , % 145,000 3,045 3, ,090 $ 420,000 $ 17,575 $ 17,575 $ 455,150 A schedule of the 2005 refunding bond issue for Britton is as follows: Year Ended Interest Principal Interest Due June 30 Rate Due May 1 November 1 May 1 Total Due % 135,000 21,200 21, , % 140,000 18,500 18, , % 145,000 15,700 15, , % 150,000 12,800 12, , % 155,000 9,800 9, , % 165,000 6,700 6, , % 170,000 3,400 3, ,800 $ 1,060,000 $ 88,100 $ 88,100 $ 1,236,200 23

33 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 6. LONG-TERM DEBT (Continued) A schedule of the 2006 Building and Site bond issue for Britton is as follows: Year Ended Interest Principal Interest Due June 30 Rate Due May 1 Novemver 1 May 1 Total Due % 120,000 58,859 58, , % 125,000 55,859 55, , % 130,000 52,734 52, , % 140,000 50,134 50, , % 145,000 47,334 47, , % 150,000 44,344 44, , % 155,000 41,250 41, , % 340,000 38,053 38, , % 355,000 31,041 31, , % 370,000 23,719 23, , % 385,000 16,088 16, , % 395,000 8,147 8, ,294 $ 2,810,000 $ 467,562 $ 467,562 $ 3,745,124 The following is a schedule of the governmental long term obligations for the District for the year ended June 30, 2014: Refunding Refunding Building Bonds Bonds and Site Compensated Deerfield Britton Bonds-Britton Absences Total Balance July 1, 2013 $ 550,000 $ 1,190,000 $ 2,925,000 $ 71,945 $ 4,736,945 Additions ,337 2,337 Deletions 130, , , ,000 Balance June 30, ,000 1,060,000 2,810,000 74,282 4,364,282 Less: current portion 135, , , ,000 Total due after one year $ 285,000 $ 925,000 $ 2,690,000 $ 74,282 $ 3,974,282 24

34 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 6. LONG-TERM DEBT (Continued) The debt service requirements of governmental activities at June 30, 2014 were as follows: Year Ended June 30, Principal Interest Total , , , , , , , , , , , , , , , ,705, ,014 2,082, ,000 48, ,470 $ 4,290,000 $ 1,146,474 $ 5,436,474 NOTE 7. EMPLOYEE RETIREMENT SYSTEM DEFINED BENEFIT PLAN Plan Description The District participates in the statewide Michigan Public School Employees Retirement System (System) which is a cost-sharing, multiple employer, statewide, defined benefit public employee retirement plan governed by the State of Michigan (State) originally created under Public Act 136 of 1945, recodified and currently currently operating under the provision of Public Act 300 of 1980, as amended. Section 25 of this act establishes the Board s authority to promulgate or amend the provisions of the System. The System s pension plan was established by the State to provide retirement, survivor, and disability benefits to public school employees. In addition, the System s health plan provides all retirees with the option of receiving health, dental and vision coverage under the Michigan Public School Employees Retirement Act. The System s financial statements are included as a pension and other employee benefit trust fund in the State of Michigan Comprehensive Annual Financial Report. The MPSERS issues a publicly available financial report that includes financial statements and required supplementary information for MPSERS. That report may be obtained by writing to Michigan Public School Employees Retirement System, P.O. Box 30171, Lansing, Michigan, or by calling (800) It is also available at The System is administered by the Office of Retirement Services within the Michigan Department of Technology, Management and Budget. The Department Director appoints the Office Director who serves as Executive Secretary to the System s Board, with whom the general oversight of the System resides. The State Treasurer serves as the investment officer and custodian for the System. BENEFIT PROVISIONS - PENSION Introduction Benefit provisions of the defined benefit pension plan are established by State statute, which may be amended. Public Act 300 of 1980, as amended, establishes eligibility and benefit provisions for the defined benefit (DB) pension plan. Retirement benefits for DB plan members are determined by final average compensation and years of service. DB members are eligible to receive a monthly benefit when they meet certain age and service requirements. The System also provides disability and survivor benefits to DB plan members. A DB member of Pension Plus hybrid plan member who leaves Michigan public school employment may request a refund of his or her member contributions to the retirement system account. A refund cancels a former member s rights to future benefits. However, returning members who previously received a refund of their contributions may reinstate their service through repayment of the refund upon satisfaction of certain requirements. 25

35 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE 7. DEFINED BENEFIT PLAN AND POST RETIREMENT BENEFITS (Continued) BENEFIT PROVISIONS - PENSION (Continued) Pension Reform 2010 On May 19, 2010, the Governor signed Public Act 75 of 2010 into law. As a result, any member of the Michigan Public Schools Employees Retirement System (MPSERS) who became a member of MPSERS after June 30, 2010 is a Pension Plus member. Pension Plus is a hybrid plan that contains a pension component with an employee contribution (graded, up to 6.4% of salary) and a flexible and transferable defined contribution (DC) tax-deferred investment account that earns an employer match of 50% (up to 1% of salary) on employee contributions. Retirement benefits for Pension Plus members are determined by final average compensation and years of service. Disability and survivor benefits are available to Pension Plus members. Pension Reform 2012 On September 4, 2012, the Governor signed Public Act 300 of 2012 into law. The legislation grants all active members who first became a member before July 1, 2010 and who earned service credit in the 12 months ending September 3, 2012, or were on an approved professional service or military leave of absence on September 3, 2012, a voluntary election regarding their pension. Any changes to a member s pension are effective as of the member s transition date, which is defined as the first day of the pay period that begins on or after December 1, 2012, subsequently amended to February 1, Under the reform, members voluntarily chose to increase, maintain, or stop their contributions to the pension fund. Option 1 members voluntarily elected to increase their contributions to the pension fund as noted below, and retain the 1.5% pension factor in their pension formula. The increased contribution would begin as of their transition date and continue until they terminate public school employment. Basic Plan Members: 4% contribution MIP Fixed, MIP-Graded and MIP-Plus members: a flat 7% contribution Option 2 members voluntarily elected to increase their contributions to the pension fund as stated in Option 1 and retain the 1.5% pension factor in their pension formula. The increased contribution would begin as of their transition date and continue until they reach 30 years of service. If and when they reach 30 years of service, their contribution rates will return to the previous level in place as of the day before their transition date (0% for Basic Plan members, 3.9% for MIP-Fixed, up to 4.3% for MIP-Graded, or up to 6.4% for MIP-Plus). The pension formula for any service thereafter would include a 1.25% pension factor. Option 3 members voluntarily elected not to increase their contributions to the pension fund and maintain their current level of contribution to the pension fund. The pension formula for their years of service as of the day before their transition date will include a 1.5% pension factor. The pension formula for any service thereafter will include a 1.25% pension factor. 26

36 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE 7. DEFINED BENEFIT PLAN AND POST RETIREMENT BENEFITS (Continued) BENEFIT PROVISIONS - PENSION (Continued) Option 4 members voluntarily elected to no longer contribute to the pension fund and therefore are switched to the Defined Contribution plan for future service as of their transition date. As a DC participant they receive a 4% employer contribution to a tax-deferred 401(k) account and can choose to contribute up to the maximum amounts permitted by the IRS to a 457 account. They vest in employer contributions and related earnings in their 401(k) account based on the following schedule: 50% at 2 years, 75% at 3 years, and 100% at 4 years of service. They are 100% vested in any personal contributions and related earnings in their 457 account. Upon retirement, if they meet age and service requirements (including their total years of service), they would also receive a pension (calculated based on years of service and Final Average Compensation as of the day before their transition date and a 1.5% pension factor). Members who did not make an election before the deadline defaulted to Option 3 as described above. Deferred or nonvested public school employees on September 3, 2012, who return to public school employment on or after September 4, 2012, will be considered as if they had elected Option 3 above. Returning members who made the retirement plan election will retain whichever option they chose. Employees who first work on or after September 4, 2012, choose between two retirement plans: the Pension Plus hybrid plan described above and a Defined Contribution (DC) plan that provides a 50% employer match (up to 3% of salary) on employee contributions. New employees are automatically enrolled as members in the Pension Plus plan as of their date of hire. They have 75 days from the last day of their first pay period to elect to opt out of the Pension Plus hybrid plan and become a qualified participant in the DC plan; if no election is made they will remain in the Pension Plus hybrid plan. If they elect to opt out of the Pension Plus hybrid plan, their participation in the DC plan will be retroactive to their date of hire. 27

37 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE 7. DEFINED BENEFIT PLAN AND POST RETIREMENT BENEFITS (Continued) FUNDING POLICY Member Contributions Mandatory member contributions were phased out between 1974 and 1977, with the plan remaining noncontributory until January 1, 1987, when the Member Investment Plan (MIP) was enacted. MIP members enrolled prior to January 1, 1990, contribute at a permanently fixed rate of 3.9% of gross wages. The MIP contributions rate was 4.0% from January 1, 1987, the effective date of the MIP, until January 1, 1990, when it was reduced to 3.9%. Members first hired between January 1, 1990 and June 30, 2008, and returning members who did not work between January 1, 1987 through December 31, 1989, contribute at the following graduated permanently fixed contribution rate: 3% of the first $5,000; 3.6% of $5,001 through $15,000; 4.3% of all wages over $15,000. Members first hired July 1, 2008, or later including Pension Plus Plan members, contribute at the following graduated permanently fixed contribution rates; 3% of the $5,000; 3.6% of $5,001 through $15,000; 6.4% of all wages over $15,000. Basic Plan members make no contributions. For a limited period ending December 31, 1992, an active Basic Plan Member could enroll in the MIP by paying the contributions that would have been made had enrollment occurred initially on January 1, 1987, or on the date of hire, plus interest. MIP contributions at the rate of 3.9% of gross wages begin at enrollment. Actuarial rate of interest is posted to member accounts on July 1 st on all MIP monies on deposit for 12 months. If a member leaves public school service and no pension is payable, the member s accumulated contributions plus interest, if any, are refundable. Under Public Act 300 of 2012, eligible members voluntarily chose between increasing, maintaining, or stopping their contributions to the pension fund as of the transition date. Members who elected to increase their level of contribution contribute 4% (Basic Plan) or 7% (MIP); by doing so they maintain a 1.5% pension factor in their pension formula. Members who elected to maintain their level of contribution will receive a 1.25% pension factor in their pension formula for their years of service as of their transition date. Their contribution rates are described above. Members who elected to stop their contributions became participants in the Defined Contribution plan as of their transition date. Employer Contributions Each school district or reporting entity is required to contribute the full actuarial funding contribution amount to fund pension benefits, plus an additional amount to fund retiree health care benefit amounts on a cash disbursement basis. For the period October 1 through September 30, the School District pays an amount equal to a percentage of its employees wages to the Michigan Public School Employees Retirement System ( MPSERS ), which is administered by the State of Michigan. These contributions are required by law and are calculated by using the contribution rates and periods provided in the table below of the employees wages. In addition, the District is required to match 50% up to 1% of the employee s contribution in the Pension Plus plan. The contribution requirements of plan members and the District are established and may be amended by the MPSERS Board of Trustees. The District contributions to MPSERS were equal to the required contribution for those years. 28

38 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE 7. DEFINED BENEFIT PLAN AND POST RETIREMENT BENEFITS (Continued) FUNDING POLICY (Continued) The School District s contributions to MPSERS are as follows: Fiscal Year Ending June 30, Contributions to MPSERS 2014 $ 929, , ,883 Included in the amount paid above, the District received $195,082 and $72,109 of section 147(c) State Aid for the sole purpose of making supplemental payments to MPSERS. The District has recorded this amount as state revenue and additional pension expenditures/expense for the year ended June 30, 2014 and PA 464 Retirees Returning to Work, effective December 27, 2012 also require applicable employer contributions to the defined benefit and defined contribution plans. These amounts if any are included in the amounts paid above. 29

39 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE 7. DEFINED BENEFIT PLAN AND POST RETIREMENT BENEFITS (Continued) FUNDING POLICY (Continued) Contributions rates Fiscal Year 2014 Effective October 1, 2013 Pension Pension Basic MIP DB Public School Employee Plus Plus to DC to DC with DB Basic MIP DB Basic MIP Pension Rates (FYE Sept. 30th) Basic MIP Pension Plus with PHF with PHF Health to DC with PHF with PHF DB Contributions Pension Normal Cost 2.90% 2.67% 2.67% 0.00% 0.00% 0.00% 2.90% Pension UAL 14.08% 14.08% 14.08% 14.08% 14.08% 14.08% 14.08% Pension Early Retirement Incentive 1.36% 1.36% 1.36% 1.36% 1.36% 1.36% 1.36% Pension Contributions - Total Rate 18.34% 18.11% 18.11% 15.44% 15.44% 15.44% 18.34% Health Normal Cost 0.93% 0.93% 0.00% 0.00% 0.93% 0.00% 0.00% Health UAL 5.52% 5.52% 5.52% 5.52% 5.52% 5.52% 5.52% Health Contributions - Total Rate 6.45% 6.45% 5.52% 5.52% 6.45% 5.52% 5.52% Total 24.79% 24.56% 23.63% 20.96% 21.89% 20.96% 23.86% DC Contributions DC Employer Contributions 0.00% 1.00% 1.00% 3.00% 4.00% 4.00% 0.00% Personal Healthcare Fund 0.00% 0.00% 2.00% 2.00% 0.00% 2.00% 2.00% Total 0.00% 1.00% 3.00% 5.00% 4.00% 6.00% 2.00% Fiscal Year 2013 Contributions rates Effective February 1, 2013 Pension Plus Pension Plus to PHF - First DC with PHF Basic MIP DB Public School Employee worked after First worked to DC with DB Basic MIP DB Basic MIP Pension Rates (FYE Sept. 30th) Basic MIP Pension Plus 9/3/2012 after 9/3/2012 Health to DC with PHF with PHF DB Contributions Pension Normal Cost 2.43% 2.24% 2.24% 0.00% 0.00% 0.00% 2.43% Pension UAL 11.42% 11.42% 11.42% 11.42% 11.42% 11.42% 11.42% Pension Early Retirement Incentive 1.36% 1.36% 1.36% 1.36% 1.36% 1.36% 1.36% Pension Contributions - Total Rate 15.21% 15.02% 15.02% 12.78% 12.78% 12.78% 15.21% Health Normal Cost 0.93% 0.93% 0.00% 0.00% 0.93% 0.00% 0.00% Health UAL 8.18% 8.18% 8.18% 8.18% 8.18% 8.18% 8.18% Health Contributions - Total Rate 9.11% 9.11% 8.18% 8.18% 9.11% 8.18% 8.18% Total 24.32% 24.13% 23.20% 20.96% 21.89% 20.96% 23.39% DC Contributions DC Employer Contributions 0.00% 1.00% 1.00% 3.00% 4.00% 4.00% 0.00% Personal Healthcare Fund 0.00% 0.00% 2.00% 2.00% 0.00% 2.00% 2.00% Total 0.00% 1.00% 3.00% 5.00% 4.00% 6.00% 2.00% 4 months ended 1/31/13 First worked Pension Plus First worked between and First Elected DC and Public School Employee before 6/30/10 and worked after First worked Pension Rates (FYE Sept. 30th) 7/1/2010 9/3/2012 9/3/2012 after 9/3/12 Pension Normal Cost (Prefunded) 3.47% 2.24% 2.24% 0.00% Pension Unfunded Accrued Liability 11.42% 11.42% 11.42% 11.42% Early Retirement Incentive Program 1.36% 1.36% 1.36% 1.36% Pension Total Rate 16.25% 15.02% 15.02% 12.78% Retiree Health Care Contributuion (Cash basis) 0.93% 0.93% 0.00% 0.00% Surcharge due to Injunction 8.18% 8.18% 8.18% 8.18% Health Total Rate 9.11% 9.11% 8.18% 8.18% Total 25.36% 24.13% 23.20% 20.96% 30

40 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE 7. DEFINED BENEFIT PLAN AND POST RETIREMENT BENEFITS (Continued) BENEFIT PROVISIONS OTHER POSTEMPLOYMENT Introduction Benefit provisions of the postemployment healthcare plan are established by State statute, which may be amended. Public Act 300 of 1980, as amended, establishes eligibility and benefit provisions. Retirees have the option of health coverage, which, through 2012, is currently funded on a cash disbursement basis. Beginning fiscal year 2013, it will be funded on a prefunded basis. The System has contracted to provide the comprehensive group medical, hearing, dental and vision coverage for retirees and beneficiaries. A subsidized portion of the premium is paid by the System with the balance deducted from the monthly pension of each retiree health care recipient. For members who first worked before July 1, 2008, (Basic, MIP-fixed and MIP-Graded plan members), the subsidy is the maximum allowed by statute. To limit future liabilities of Other Postemployment Benefits, members who first worked on or after July 1, 2008 (MIP-Plus plan members), have a graded premium subsidy based on career length where they accrue credit towards their insurance premiums in retirement, not to exceed the maximum allowable by statute. Public Act 300 of 2012 set the maximum subsidy at 80% beginning January 1, 2013; 90% for those Medicare eligible and enrolled in the insurances as of that date. Public Act 75 of 2010 requires each actively employed member of MPSERS after June 30, 2010 to annually contribute 3% of their compensation to offset employer contributions for health care benefits of current retirees. Dependents are eligible for health care coverage if they meet the dependency requirements set forth in Public Act 300 of 1980, as amended. Retiree Healthcare Reform of 2012 Public Act 300 of 2012 granted all active members of the Michigan Public School Employees Retirement System, who earned service credit in the 12 months ending September 3, 2012, or were on an approved professional service or military leave of absence on September 3, 2012, a voluntary election regarding their retirement healthcare. Any changes to a member s healthcare benefit are effective as of the member s transition date, which is defined as the first day of the pay period that begins on or after December 1, Under Public Act 300 of 2012, members were given the choice between continuing the 3% contribution to retiree healthcare and keeping the premium subsidy benefit described above, or choosing not to pay the 3% contribution and instead opting out of the subsidy benefit and becoming a participant in the Personal Healthcare Fund (PHF), a portable, tax-deferred fund that can be used to pay healthcare expenses in retirement. Participants in the PHF are automatically enrolled in a 2% employee contribution into their 457 account as of their transition date, earning them a 2% employer match into a 401(k) account. Members who selected this option stop paying the 3% contribution to retiree healthcare as of the day before their transition date, and their prior contributions will be deposited into their 401(k) account no later than their first pay date after February 1, Members who did not make an election before the deadline retain the subsidy benefit and continue making the 3% contribution toward retiree healthcare. Deferred or nonvested members on September 3, 2012 who are rehired on or after September 4, 2012, will contribute 3% contribution to retiree healthcare and will retain the subsidy benefit. Returning members who made the retirement healthcare election will retain whichever option they chose. 31

41 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE 7. DEFINED BENEFIT PLAN AND POST RETIREMENT BENEFITS (Continued) BENEFIT PROVISIONS OTHER POSTEMPLOYMENT (Continued) Retiree Healthcare Reform of 2012 (Continued) Those who elected to retain the premium subsidy continue to annually contribute 3% of compensation into the health care funding account. A member or former member age 60 or older, who made the 3% healthcare contributions but who does not meet eligibility requirements may request a refund of their contributions. Similarly, if a retiree dies before the total value of the insurance subsidy paid equals the total value of the contributions the member made, and there are no eligible dependents, the beneficiary may request a refund of unused funds. Refunds of member contributions to the healthcare funding account are issued as a supplemental benefit paid out over a 60 month period. 1. Retirees with at least 21 years of service, who terminate employment after October 31, 1980, with vested deferred benefits, are eligible for subsidized employer paid health benefit coverage. 2. A delayed subsidy applies to retirees who became a member of the retirement system before July 1, 2008 and who purchased service credit on or after July 1, Such individuals are eligible for premium subsidy benefits at age 60 or when they would have been eligible to retire without having made a service purchase, whichever comes first. They may enroll in the insurance earlier, but are responsible for the full premium until the premium subsidy begins. Under Public Act 300 of 2012, the state no longer offers an insurance premium subsidy in retirement for public school employees who first work on or after September 4, Instead, all new employees will be placed into the Personal Healthcare Fund where they will have support saving for retirement healthcare costs in the following ways: They will automatically enrolled in a 2% employee contribution into a 457 account as of their date of hire, earning them a 2% employer match into a 401(k) account. They will receive a credit into a Health Reimbursement Account (HRA) at termination if they have at least 10 years of service at termination. The credit will be $2,000 for participants who are at least 60 years of age at termination or $1,000 for participants who are less than 60 years of age at termination. Participants in the Personal Healthcare Fund, who become disabled for any reason, are not eligible for any employer funded health insurance premium subsidy. If a PHF participant suffers a non-duty related death, his or her health benefit dependents are not eligible to participate in any employer funded health insurance premium subsidy. If a PHF participant suffers a duty death, the state will pay the maximum health premium allowed by statute for the surviving spouse and health benefit dependents. The spouses insurance subsidy may continue until his or her death, the dependents subsidy may continue until their eligibility ends (through marriage, age, or other event). Upon eligibility for a duty death benefit, the 2% employer matching contributions and related earnings in the PHF 401(k) are forfeited and the state will pay for the subsidy payments. The beneficiaries receive the member s personal contributions and related earnings in the PHF 457 account. 32

42 NOTES TO FINANCIAL STATEMENTS June 30, 2014 NOTE 7. DEFINED BENEFIT PLAN AND POST RETIREMENT BENEFITS (Continued) BENEFIT PROVISIONS OTHER POSTEMPLOYMENT (Continued) Other Information On June 28, 2010, the Michigan Court of Claims issued an injunction in response to a challenge to the authority of the State to require employees who began working before July 1, 2010, to contribute 3% of reportable wages to the retiree health care trust at MPSERS. As a result, the State has adjusted the contribution rate due on employees wages paid between November 1, 2010 and September 30, 2011 to 20.66% for members who first worked prior to July 1, 2010 and 19.16% for Pension Plus members. In March 2011, the Court of Claims granted the plaintiffs motions for summary disposition finding that the mandatory 3% contributions violated both the U.S. and Michigan constitutions. The State appealed the ruling to the Michigan Court of Appeals. The Court of Appeals accepted the appeal and ordered an expedited review. The Court of Appeals also granted the State s motion for a stay of proceedings and ordered that the 3% deduction continue to be collected and placed into an escrow account until further order of the Court. On August 16, 2012 the State of Michigan Court of Appeals affirmed the trial court s orders granting summary dispositions in favor of the plaintiffs in each of the cases before it, terminating the stay ordered by this Court on March 18, The State of Michigan has appealed the decision to the Michigan Supreme Court. The Office of Retirement Services is instructing Michigan public school employers to continue withholding the 3% contribution. Should the plaintiffs prevail; the escrowed funds will be returned to the employees. NOTE 8. INTERFUND BALANCES AND TRANSFERS Interfund balances resulted from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system and (3) payments between funds are made. All balances at June 30, 2013 are expected to be repaid within the next fiscal year. A schedule of interfund balances follows: Interfund Interfund Fund Receivable Fund Payable Major 752 Nonmajor 752 Nonmajor 9,584 Major 9,584 $ 10,336 $ 10,336 Interfund transfers are used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the Debt Service Fund as debt service payments become due and (3) use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. There were no interfund transfers for fiscal year ended June 30,

43 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 9. RISK MANAGEMENT The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees, and natural disasters. The District participates in two distinct pools of educational institutions within the State of Michigan for self-insuring property and casualty and workers disability compensation. The pools are considered public entity risk pools. The District pays annual premiums under a retrospectively rated policy to the pools for the respective insurance coverage. The premiums are based on the ultimate cost of the experience to date of the participating members of the risk pool. The District cannot estimate losses from reported and unreported claims at June 30, In the event a pool s total claims and expenses for a policy year exceed the total normal annual premiums for said years, all members of the specific pool s policy year may be subject to special assessment to make up the deficiency. The District continues to carry commercial insurance for other risks of loss, including employee health and accident insurance. No settlements have occurred in excess of coverage for June 30, 2014 or any of the prior three years. NOTE 10. CONTINGENCIES The District had no contingencies at June 30, NOTE 11. AT RISK During the year, the School District received State categorical aid for at risk students, which amounted to $127,511. The School District split all of these funds for at risk students NOTE 12. SHORT-TERM DEBT - STATE AID NOTES State School aid anticipation notes are issued under the provisions of Section 1225 of Act 451, Public Acts of Michigan, and Act 34 of Michigan for the purpose of providing money for school operations. The District has pledged its state aid as collateral. In the event of unavailability or insufficiency of State school aid, the note is payable from taxes levied by the District. The interest rate is 4.35% and the maturity date is August 20, The interest expense related to this note at June 30, 2014 is $6,281. Short-term debt activity for the fiscal year ended June 30, 2014 was as follows: Beginning Ending Balance Issued Redeemed Balance State aid anticipated note $ 132,143 $ 1,300,000 $ 682,620 $ 749,523 NOTE 13. NET POSITION RESTRICTED BY ENABLING LEGISLATION: The government-wide statement of net position reports $439,247 of restricted net position at June 30, 2014, all of which is restricted by enabling legislation. 34

44 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2014 NOTE 14. UPCOMING ACCOUNTING PRONOUNCEMENT GASB Statement No. 68, Accounting and Financial Reporting for Pensions, was issued by the GASB in June 2012 and will be effective for the District s 2015 fiscal year. The Statement requires governments that participate in defined benefit pension plans to report in their statement of net position a net pension liability. The net pension liability is the difference between the total pension liability (the present value of projected benefit payments to employees based on their past service) and the assets (mostly investments reported at fair value) set aside in a trust and restricted to paying benefits to current employees, retirees, and their beneficiaries. Statement 68 requires cost-sharing employers to record a liability and expense equal to their proportionate share of the collective net pension liability and expense for the cost-sharing plan. The Statement also will improve the comparability and consistency of how governments calculate the pension liabilities and expense. NOTE 15. SUBSEQUENT EVENTS The School District has reviewed subsequent events from June 30, 2014 to the date that the financial statements were available on October 10, 2014, and determined that no additional disclosures need be made. 35

45 REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2014 Variance with Final Budget Original Final Positive Budget Budget Actual (Negative) REVENUES: Local sources $ 679,595 $ 686,339 $ 701,203 $ 14,864 State sources 5,169,577 5,496,254 5,499,719 3,465 Federal sources 74,723 74,723 74,723 - Intermediate sources 583, , ,506 (45,208) Total revenues 6,507,315 6,943,030 6,916,151 (26,879) EXPENDITURES: Instruction Basic programs 3,256,715 3,498,483 3,348, ,196 Added needs 1,145,093 1,011,502 1,006,628 4,874 Total instruction 4,401,808 4,509,985 4,354, ,070 Support services Pupil 239, , ,998 14,517 Instructional staff 35,276 38,721 36,934 1,787 General administration 293, , ,168 11,588 School administration 441, , ,849 12,047 Business 105, , ,658 2,421 Operation and maintenance 720, , ,592 20,548 Pupil transportation 292, , ,819 12,378 Central 86, , ,827 2,023 Other 48,985 43,078 44,455 (1,377) Other - athletics 182, , ,995 2,510 Community service - 1, ,238 Total support services 2,446,390 2,478,142 2,398,462 79,680 Total expenditures 6,848,198 6,988,127 6,753, ,750 Excess (deficiency) of revenues over (under) expenditures (340,883) (45,097) 162, ,871 Fund balances: Beginning of year 906,653 End of year $ 1,069,427 See notes to financial statements. 36

46 INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Education Britton Deerfield Schools Britton, Michigan 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 Britton Deerfield Schools (the School District ) as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the School District s basic financial statements and have issued our report thereon dated October 10, INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit, we considered Britton Deerfield Schools internal control over financial reporting to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the School District s internal control. Accordingly, we do not express an opinion on the effectiveness of the School District s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the School District s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charge with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies, and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, material weaknesses may exist that have not been identified. We did identify certain deficiencies in internal control that we considered to be significant deficiencies N o r t h M a i n S t r e e t, A d r i a n, M i c h i g a n ( ) F A X : ( ) M E M B E R S : A. I. C. P. A. and M. A. C. P. A