VANDERBILT AREA SCHOOL ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2016

Transcription

1 VANDERBILT AREA SCHOOL ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2016

2 TABLE OF CONTENTS Independent Auditor's Report 1 Management's Discussion and Analysis 4 BASIC FINANCIAL STATEMENTS District-wide Financial Statements Statement of Net Position 13 Statement of Activities 14 Fund Financial Statements Governmental Funds Balance Sheet 15 Reconciliation of Governmental Funds Balance Sheet to the Statement of Net Position 16 Statement of Revenues, Expenditures, and Changes in Fund Balance 17 Reconciliation of Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances with Statement of Activities 18 Fiduciary Funds Statement of Fiduciary Net Position 19 Notes to the Financial Statements 21 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund 43 Schedule of Proportionate Share of Net Pension Liability 44 Schedule of Contributions 45 OTHER SUPPLEMENTARY INFORMATION Nonmajor Governmental Funds Combining Balance Sheet 47 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 48 Fiduciary Funds Combining Statement of Changes in Assets and Liabilities 49 Page

3 INDEPENDENT AUDITOR S REPORT To the Board of Education Vanderbilt Area School Vanderbilt, 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 Vanderbilt Area School, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise Vanderbilt Area School s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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

4 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 Vanderbilt Area Schools, as of June 30, 2016, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, budgetary comparison information, and schedules of proportionate share of net pension liability and contributions, as listed in the table of contents, to 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 Vanderbilt Area School s basic financial statements. The combining and individual nonmajor 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 nonmajor fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial 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 nonmajor fund financial statements are fairly stated in all material respects in relation to the basic financial statements as a whole

5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 27, 2016, on our consideration of Vanderbilt Area School s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Vanderbilt Area School s internal control over financial reporting and compliance. Gabridge & Company, PLC Grand Rapids, MI October 27,

6 Management s Discussion and Analysis June 30, 2016 This section of Vanderbilt Area School s (the School District ) annual financial report presents our discussion and analysis of the School District s financial performance during the year ended June 30, It is to be read in conjunction with the School District s financial statements, which immediately follow. This is a requirement of the Governmental Accounting Standards Board Statement No. 34 (GASB 34) Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Governments and is intended to provide the financial results for the fiscal year ending June 30, Financial Highlights For fiscal year ended 2016, the Board of Education adopted a final general fund budget with a projected increase in fund balance of $48,357. The actual results of operation in the general fund showed that actual expenditures were approximately $8,469 more than the final general fund budget and that actual revenues were approximately $42,044 more than the final general fund budget, resulting in an actual increase in fund balance of $81,932. At June 30, 2016 the total net position was $226,679 of which $(1,485,155) was unrestricted, $1,687,354 was the net investment in capital assets, and $27,480 was restricted for specific purposes. The governmental activities total net position increased $304,040 from $(74,361) as of June 30, 2015 to $229,679 as of June 30, Refer to the government-wide financial statements change in net position for fiscal year ended June 30, 2016 and June 30, 2015 for explanations regarding the net position increase. At June 30, 2016, the total fund balance for the general fund was $(55,429). Overview of the Financial Statements This annual report consists of three parts: management's discussion and analysis (this section), the basic financial statements, and supplemental information. The basic financial statements include two kinds of statements that present different views of the School District: The first two statements, the statement of net position and the statement of activities, are district-wide financial statements that provide both short-term and long-term information about the School District s overall financial status

7 Management s Discussion and Analysis June 30, 2016 The remaining statements are fund financial statements that focus on individual parts of the School District, reporting the School District s operations in more detail than the district-wide statements. o Governmental funds statements tell how basic services such as regular and special education were financed in the short-term as well as what remains for future spending. o Fiduciary funds statements provide information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. The basic financial statements also include the notes to the financial statements that explain the information in the basic financial statements and provide more detailed data. Supplementary information follows and includes combining and individual fund statements, a budgetary comparison schedule for the general fund, and pension schedules. District-wide Financial Statements The district-wide financial statements report information about the School District as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the School District s assets, deferred inflows / outflows, and liabilities. All of the current year's revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two district-wide statements report the School District s net position, and how they have changed. Net position the difference between the School District s assets, deferred inflows / outflows, and liabilities - is one way to measure the School District s financial health or position. Over time, increases or decreases in the School District s net position are an indicator of whether its financial position is improving or deteriorating, respectively. To assess the School District s overall health, one should consider additional non-financial factors such as changes in the School District s property tax-base and the condition of school buildings and other facilities. In the district-wide financial statements, the School District s activities are presented as governmental activities. Governmental activities include the School District s basic services, such as regular and special education, instructional support, transportation, administration, community services, food service, and athletics. State aid and property taxes finance most of these activities

8 Management s Discussion and Analysis June 30, 2016 Financial Analysis of the School District as a Whole The following is a comparative highlight of the current and prior year financial activities from the district-wide financial statements: Governmental Activities ASSETS Current Assets Cash & Cash Equivalents $ 189,929 $ 181,047 Receivables 108,772 56,304 Due from State 18,367 19,776 Prepaid Items 4,011 4,369 Total Current Assets 321, ,496 Noncurrent Assets Capital Assets, net 2,773,001 2,909,777 Total Assets 3,094,080 3,171,273 DEFERRED OUTFLOWS OF RESOURCES Pension 232, ,380 LIABILIITES Current Liabilities Accounts Payable 9,596 5,116 Salaries Payable 63,948 51,810 Accrued Employee Benefits 43,807 36,950 Accrued Interest 8,189 10,427 Current Portion of Long-term Debt 185, ,022 State Aid Note Payable 225, ,000 Total Current Liabilities 535, ,325 Noncurrent Liabilities Long-term Debt 900,647 1,089,088 Compensated Absences 15,560 19,541 Net Pension Liability 1,557,286 1,494,199 Total Liabilities 3,009,033 3,236,153 DEFERRED INFLOWS OF RESOURCES Pension 87, ,861 NET POSITION Net Investment in Capital Assets 1,687,354 1,541,667 Restricted 27,480 43,447 Unrestricted (1,485,155) (1,659,475) Total Net Position $ 229,679 $ (74,361) - 6 -

9 Management s Discussion and Analysis June 30, 2016 Restricted net position decreased from $43,447 as of June 30, 2015 to $27,480 as of June 30, The most significant reason for this decrease was the School District using $22,705 of restricted funds for debt service payments. The School District s net investment in capital assets increased from $1,541,667 as of June 30, 2015 to $1,687,354 as of June 30, This is the result of the School District paying its debt obligations and purchasing capital assets at a cost that exceeded depreciation expense for the current year. The results of the fiscal year s operations for the School District as a whole are presented in the statement of activities, which shows the change in total net position for the year. The statement of activities presents the following changes in net position from operating results: Governmental Activities Revenues Program Revenues Charges for Services $ 6,037 $ 3,547 Operating Grants & Contributions 464, ,283 Total Program Revenues 470, ,830 General Revenues Local Sources 1,345,602 1,362,161 Unrestricted State Sources 4,343 39,810 Other Revenue 13,680 - Total General Revenues 1,363,625 1,401,971 Total Revenues 1,834,010 1,741,801 Expenses Instruction 833, ,949 Supporting Services 426, ,801 Community Services 3,832 - Food Services 76,460 71,110 Athletics 9,512 8,063 Interest on Long-term Debt 49,577 61,311 Unallocated Depreciation 131, ,213 Total Expenses 1,529,970 1,566,447 Change in Net Position 304, ,354 Net Position at Beginning of Period (74,361) (249,715) Net Position at End of Period $ 229,679 $ (74,361) - 7 -

10 Management s Discussion and Analysis June 30, 2016 Revenues increased from $1,741,801 for the year ended June 30, 2015 to $1,834,010 for the year ended June 30, 2016, an increase of $92,209. Some of the significant changes were total operating grants and contributions increased by $128,065 and total local sources of revenue decreased by $16,559 in comparison to the prior year. Total expenses also decreased from $1,566,447 in 2015 to $1,529,970 in 2016, a decline of $36,477. Some of the significant decreases were expenses related to instruction decreased by $30,481 and interest on long-term debt decreased by $11,734 in comparison to the prior year. Fund Financial Statements The fund financial statements provide more detailed information about the School District s funds, focusing on its most significant or "major" funds - not the School District as a whole. Funds are accounting devices the School District uses to keep track of specific sources of funding and spending on particular programs. The School District utilizes two kinds of funds: Governmental funds: Most of the School District s basic services are included in governmental funds, which generally focus on 1) how cash and other financial assets that can readily be converted to cash flow in and out and 2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that 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. Since the district-wide financial statements and the fund financial statements use different methods of accounting to report the School District s financial condition, a reconciliation is included in the financial statements showing the differences between the two types of statements. Fiduciary funds: The School District is the trustee, or fiduciary, for assets that belong to others, such as scholarship funds and student activities funds. The School District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The School District excludes these activities from the district-wide financial statements because it cannot use these assets to finance its operations. Financial Analysis of the School District s Funds The School District uses funds to record and analyze financial information. The School District has two major funds, its general and 2007 debt funds. The general fund is the School District s primary operating fund. The general fund had revenues of $1,457,923 and expenditures of $1,375,991. The School District ended the year with a $81,932 increase in fund balance for a total fund balance of $(55,429) as of June 30, 2016, up from $(137,361) as of June 30, This increase in fund balance is related to the actual revenues and - 8 -

11 Management s Discussion and Analysis June 30, 2016 expenditures closely matching the budgeted amounts and both budgeted and actual revenues exceeding expenses for year. The 2007 debt fund is used to accumulate resources for the payment of debt service expenditures related to the 2007 bond refunding. The 2007 debt fund had a decrease in fund balance during the year of $22,705, bringing its ending fund balance to $11,912. Given that the debt service millage is intended to service the debt without any surplus, the ending fund balance of the 2007 debt fund will eventually decrease to zero over the life of the bonds. The nonmajor governmental funds had an increase in fund balance for the year of $1,881 for total nonmajor governmental fund balances of $15,568 as of June 30, 2016, up from $13,687 as of June 30, General Fund Budgetary Highlights During the year the School District revised its budget to attempt to match changes in the school funding environment and current needs of students and faculty. State law requires that budgets be amended during the year so actual expenditures do not exceed appropriations. The initial budget for the year ended June 30, 2016, was adopted by the Board of Education on June 26, 2015, with the final amendments made on June 22, Original budget compared to final budget. The were no amendments made between the original and final budgets. Final budget compared to actual results. The School District had the following significant expenditures in excess of the amounts appropriated in the general fund during the year; basic programs expenditures exceeded the final budget by $36,695, general administration expenditures exceeded the final budget by $21,778, and transportation expenditures exceeded the final budget by $6,286. Capital Asset and Debt Administration Capital Assets At June 30, 2016, the School District had $2,773,001 invested in capital assets. This included a net decrease during the past fiscal year of $136,776 consisting of depreciation charges of $131,120, loss on disposal of $78,933, and capital asset additions of $73,277. The School District s current year additions totaled $73,277, in two areas: $30,239 for various building improvements $43,038 for various pieces of furniture and equipment - 9 -

12 Management s Discussion and Analysis June 30, 2016 The following table represents the School District s investment in capital assets: More detailed information about the School District s capital assets can be found in the notes to the financial statements section of this document. Long-term Debt Vanderbilt Area School Capital Assets as of June 30, 2016 Governmental Activities Land $ 11,500 Buildings & Land Improvements 4,682,240 Vehicles & Buses 1,992 Furniture & Equipment 623,334 Subtotal 5,319,066 Accumulated Depreciation 2,546,065 Net Capital Assets $ 2,773,001 At year end, the School District had total long-term liabilities of $1,085,647, of which $1,065,000 were bonds payable. The remainder was bond premiums amortized over the life of the bond. The School District continued to pay down its debt, retiring $180,000 of outstanding bonds during the year. The School District issued no new debt during the current year. The School District s other long-term obligation is for accumulated sick/vacation leave in the amount of $15,560. The State limits the amount of general obligation debt that schools can issue based on the assessed value of all taxable property within a district s boundaries. The School District is well under the State limit as of June 30, More detailed information about the School District s long-term debt can be found in the notes to the financial statements section of this document. Economic Factors and Next Year s Budget and Rates The projected general appropriations budget for the fiscal year includes $1,329,497 in total revenues and $1,339,000 in total expenditures, resulting in a projected $9,503 decrease in general fund balance. This projected budget is very similar to the current year s actual total

13 Management s Discussion and Analysis June 30, 2016 revenues of $1,457,923 and actual total expenses of $1,375,991 in the general fund, and shows the continued effort of the School District to match revenues with expenditures and eliminate the deficit fund balance in the general fund. Requests for Information This financial report is designed to provide our citizens, taxpayers, customers and investors and creditors with a general overview of the School 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, contact: Vanderbilt Area School Rick Heitmeyer, Superintendent 947 Donovan Street Vanderbilt, MI Ph

14 BASIC FINANCIAL STATEMENTS

15 Statement of Net Position June 30, 2016 Primary Government Governmental Activities ASSETS Current Assets Cash & Cash Equivalents $ 189,929 Taxes Receivable 6,677 Other Receivables 102,095 Due from State 18,367 Prepaid Items 4,011 Total Current Assets 321,079 Noncurrent Assets Capital Assets not Being Depreciated 11,500 Capital Assets Being Depreciated 2,761,501 Total Assets 3,094,080 DEFERRED OUTFLOWS OF RESOURCES Pension Related Deferred Outflows 232,468 Total Deferred Outflows of Resources 232,468 LIABILITIES Current Liabilities Accounts Payable 9,596 Salaries Payable 63,948 Accrued Employee Benefits 43,807 Accrued Interest 8,189 Current Portion of Long-term Debt 185,000 State Aid Note Payable 225,000 Total Current Liabilities 535,540 Noncurrent Liabilities Long-term Debt 900,647 Compensated Absences 15,560 Net Pension Liability 1,557,286 Total Liabilities 3,009,033 DEFERRED INFLOWS OF RESOURCES Pension Related Deferred Inflows 87,836 Total Deferred Inflows of Resources 87,836 NET POSITION Net Investment in Capital Assets 1,687,354 Restricted for: Food Service 10,887 Debt Service 11,912 Sinking Fund 4,681 Unrestricted (1,485,155) Total Net Position $ 229,679 The Notes to the Financial Statement are an integral part of these Financial Statements

16 Functions/Programs Primary Government Governmental Activities: Vanderbilt Area School Statement of Activities For the Year Ended June 30, 2016 Expenses Charges for Services Program Revenues Operating Grants and Contributions Capital Grants and Contributions Net (Expense) Revenue Primary Government Governmental Activities Instruction $ 833,468 $ -- $ 378,572 $ -- $ (454,896) Supporting Services 426, , (421,774) Community Services 3, (3,832) Athletic Events 9,512 2, (7,116) Food Services 76,460 3,641 81, ,730 Interest on Long-term Debt 49, (49,577) Unallocated Depreciation 131, (131,120) Total Primary Government $ 1,529,970 $ 6,037 $ 464,348 $ -- $ (1,059,585) General Purpose Revenues and Transfers: Revenues Local Sources State Sources Other Revenue Total General Revenues and Transfers Change in Net Position Net Position at Beginning of Period Net Position at End of Period 1,345,602 4,343 13,680 1,363, ,040 (74,361) $ 229,679 The Notes to the Financial Statement are an integral part of these Financial Statements

17 Balance Sheet Governmental Funds June 30, 2016 Debt Service Other Governmental Funds Total Governmental Funds General 2007 Debt ASSETS Cash & Cash Equivalents $ 168,250 $ 2,455 $ 19,224 $ 189,929 Taxes Receivable 6, ,677 Other Receivables 102, ,095 Due from State 17, ,367 Prepaid Items 4, ,011 Due from Other Funds 4,085 9, ,542 Total Assets $ 303,056 $ 11,912 $ 19,653 $ 334,621 LIABILITIES Accounts Payable $ 9,596 $ -- $ -- $ 9,596 Salaries Payable 63, ,948 Accrued Employee Benefits 43, ,807 State Aid Note Payable 225, ,000 Due to Other Funds 9, ,085 13,542 Total Liabilities 351, , ,893 DEFERRED INFLOWS OF RESOURCES Unavailable Revenue 6, ,677 Total Liabilities and Deferred Inflows of Resources 358, , ,570 FUND BALANCE Nonspendable 4, ,011 Restricted -- 11,912 15,568 27,480 Unassigned (59,440) (59,440) Total Fund Balance (55,429) 11,912 15,568 (27,949) Total Liabilities, Deferred Inflows of Resources and Fund Balance $ 303,056 $ 11,912 $ 19,653 $ 334,621 The Notes to the Financial Statement are an integral part of these Financial Statements

18 Reconciliation of Governmental Funds Balance Sheet to the Statement of Net Position June 30, 2016 Total Fund Balance - Governmental Funds $ (27,949) Capital assets used in governmental activities are not financial resources, and therefore are not reported in governmental funds. This is the sum of capital assets not being depreciated of $11,500 and net capital assets being depreciated of $2,761,501. 2,773,001 Certain liabilities, such as bonds payable, are not due and payable in the current period and therefore are not reported in the funds. This is the sum of bonds payable of $1,065,000, premium on bonds payable, net, of $20,647, accrued interest on long-term debt of $8,189, and compensated absences of $15,560. (1,109,396) Certain liabilities are not due and payable in the current period and, therefore, are not reported in the funds. This represents the sum of the net pension liability and its related deferred inflows and deferred outflows. (1,405,977) Total Net Position - Governmental Funds $ 229,679 The Notes to the Financial Statement are an integral part of these Financial Statements

19 Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Funds For the Year Ended June 30, 2016 Debt Service Other Governmental Funds Total Governmental Funds General 2007 Debt Revenues Local Sources $ 1,160,937 $ 210,983 $ 65,944 $ 1,437,864 State Sources 91, ,511 93,070 Federal Sources 203, , ,069 Athletic Activities 2, ,396 Other Revenue ,321 17,321 Total Revenues 1,457, , ,814 1,833,720 Expenditures Instruction 928, ,475 Supporting Services 432, , ,800 Athletic Events 9, ,512 Community Services 3, ,832 Food Services ,460 76,460 Capital Outlay ,277 73,277 Debt Service - Principal , ,000 Debt Service - Interest 1,568 53, ,256 Total Expenditures 1,375, , ,933 1,772,612 Excess of Revenues Over (Under) Expenditures 81,932 (22,705) 1,881 61,108 Other Financing Sources (Uses) Transfers In ,681 6,681 Transfers Out (6,681) (6,681) Net Other Financing Sources (Uses) Net Change in Fund Balance 81,932 (22,705) 1,881 61,108 Fund Balance at Beginning of Period (Restated - Note 16) (137,361) 34,617 13,687 (89,057) Fund Balance at End of Period $ (55,429) $ 11,912 $ 15,568 $ (27,949) The Notes to the Financial Statement are an integral part of these Financial Statements

20 Reconciliation of Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balance with Statement of Activities For the Year Ended June 30, 2016 Total Net Change in Fund Balances - Governmental Funds $ 61,108 Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This amount represents current year depreciation expense of $131,120, and loss on disposal of $78,933 less capital outlay of $73,277. (136,776) Repayment of bond principal is an expenditure in the governmental funds, but is recorded as a reduction in long-term debt on the statement of net position. This amount represents current year principal payments of $180,000, discharge of installment loan payable of $99,022, and amortization of bond premiums of $3, ,463 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in the funds. This amount represents the decrease in accrued interest of $2,238 and the decrease in compensated absences of $3,981. 6,219 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the funds. This amount represents the change in net pension liability, and the related deferred inflows and outflows, during the year. 91,026 Changes in Net Position - Governmental Funds $ 304,040 The Notes to the Financial Statement are an integral part of these Financial Statements

21 Statement of Fiduciary Net Position Fiduciary Funds June 30, 2016 Trust & Agency ASSETS Cash & Cash Equivalents $ 3,776 Total Assets 3,776 LIABILITIES Due to Student Groups 3,776 Total Liabilities 3,776 NET POSITION Held in Trust $ -- The Notes to the Financial Statement are an integral part of these Financial Statements

22 NOTES TO THE FINANCIAL STATEMENTS

23 Notes to the Financial Statements Note 1 - Summary of Significant Accounting Policies The accounting policies of Vanderbilt Area School (the School District or government ) conform to generally accepted accounting principles as applicable to school districts. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The School District s significant accounting policies are described below. Reporting Entity The school district is governed by an elected seven-member Board of Education. The accompanying financial statements have been prepared in accordance with criteria established by the Governmental Accounting Standards Board for determining the various governmental organizations to be included in the reporting entity. These criteria include significant operational financial relationships that determine which of the governmental organizations are a part of the School District s reporting entity, and which organizations are legally separate, component units of the School District. Based on the application of the criteria, the School District does not contain any component units. District-wide and Fund Financial Statements The district-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. All of the School District s activities are considered governmental activities. 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 to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided 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. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the district-wide financial statements. Major individual funds are reported as separate columns in the fund financial statements

24 Notes to the Financial Statements Measurement Focus, Basis of Accounting and Financial Statement Presentation District-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Agency funds also use the accrual basis of accounting, but do not have a measurement focus. 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 grantor or provider have been met. 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 government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period, or one year for reimbursementbased grants. 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. Revenues susceptible to accrual are property taxes, state aid, federal and inter-district revenues and interest income and, accordingly, have been recognized as revenues of the current fiscal year. Other revenues are recognized when received. The School District reports the following major funds: The general fund is the general operating fund of the School District. It is used to account for all financial resources, except those required to be accounted for in another fund. Included are all transactions related to the current operating budget. The 2007 debt fund is used to record tax, interest, and other revenue for the payment of general long-term debt principal, interest, and related costs. Additionally, the School District reports the following fund types: Special revenue funds are used to account for the proceeds of specific revenue sources that are restricted to expenditures for specified purposes. Debt service funds are used to account for the accumulation of resources for, and the payment of, long-term debt (bonds, notes, loans, and leases) principal, interest, and related costs. Capital projects funds account for the accumulation and disbursement of resources for the construction of governmental fund capital projects. Fiduciary funds account for resources held for student activities

25 Notes to the Financial Statements Budgets and Budgetary Accounting Budgets are adopted for general and special revenue funds as required by state law and are adopted on a basis consistent with generally accepted accounting principles (GAAP). The legal level of budgetary control adopted by the Board of Education (i.e., the level at which expenditures may not legally exceed appropriations) is the function level. The School District follows these procedures in establishing the budgetary data reflected in the financial statements: Starting in the spring, School District administrative personnel and department heads work with the Superintendent and Business Manager to establish proposed operating budgets for the fiscal year commencing the following July 1. In June, preliminary operating budgets are submitted to the Board of Education. These budgets include proposed expenditures and the means of financing them. Prior to June 30, a public hearing is held to obtain taxpayer comments on the proposed budgets. After the budgets are finalized, the Board of Education adopts an appropriations resolution setting forth the amount of the proposed expenditures and the sources of revenue to finance them. The original general and special revenue funds budgets were amended during the year in compliance with State of Michigan Public Act 621 (the Uniform Budgetary and Accounting Act). Budgets for the general and special revenue funds were adopted on the modified accrual basis of accounting, which is consistent with accounting principles generally accepted in the United States of America. Appropriations lapse at year-end and amounts may be reappropriated for expenditures to be incurred in the following fiscal year. Property Taxes Property taxes are recognized as revenue in the general, capital project, and debt service funds on a levy year basis. The 2015 levy amounts are recognized as current property tax revenue to the extent that they are collected during the year or within 60 days after year-end. Collections of delinquent taxes in subsequent years are recognized as property tax revenues. Property taxes are levied July 1 on the assessed valuation of property located within the School District as of the preceding December 31, the lien date. These taxes are due on September 15 with the final collection date of February 28 the following year at which time they are added to the County delinquent tax rolls. The County operates a delinquent tax revolving fund and normally pays to the School District all current-year taxes annually prior to June 30. Assessed values are established

26 Notes to the Financial Statements annually by the various governmental units within the School District and are equalized by the State of Michigan. Pension For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Michigan Public School Employees Retirement System (MPSERS) and additions to/deductions from MPSERS fiduciary net position have been determined on the same basis as they are reported by MPSERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Assets, Liabilities, and Fund Equity Cash & Cash Equivalents The School District considers all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents. The State of Michigan, as well as the School District s investment policy, allows a political subdivision to authorize its Treasurer or other chief fiscal officer to invest surplus funds belonging to and under the control of the entity as follows: Bonds, bills, and other direct obligations of the United States or its agencies. Certificates of deposit and other savings instruments issued by a federally insured bank, savings and loan or credit union maintaining an office in Michigan. Commercial paper rated prime at the time of purchase and maturing not more than 270 days after the date of purchase. Mutual Funds comprised of investments which are legal for direct investment by local units of government in Michigan. U.S. Government or federal agency obligation repurchase agreements. The Board of Education is authorized to designate depositories for District funds, and the funds are invested in accordance with State of Michigan statutory authority

27 Notes to the Financial Statements Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year and all other outstanding balances between funds are referred to as due to/from other funds (i.e., the current portion of interfund loans). All receivables are shown net of an allowance for uncollectibles, as applicable. All amounts deemed to be uncollectible are charged against the allowance for doubtful accounts in the period that determination is made. No amounts have been deemed uncollectable during the current year. Inventories and Prepaids Inventories are valued at cost using the first-in/first-out (FIFO) method and consist of food commodities and related supplies. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the district-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. Capital Assets Capital assets, which include land, land improvements, buildings, vehicles, and furniture and equipment, are reported in the district-wide financial statements. Assets having a useful life in excess of two years and whose costs exceed $1,000 are capitalized. Capital assets are stated at historical cost or estimated historical cost where actual cost information is not available. Donated capital assets are stated at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of an asset or materially extend an asset s useful life are not capitalized. Improvements are capitalized and depreciated over the remaining useful life of the related assets. Land improvements, buildings and additions, furniture and equipment and vehicles are depreciated using the straight-line method over the following estimated useful lives: Description Buildings, Building Additions, & Land Improvements Vehicles & Buses Furniture & Equipment Useful Life Years 7-15 Years 2-15 Years Net Pension Liability The net pension liability is deemed to be a noncurrent liability and is recognized on district-wide financial statements as the School District s proportionate share of the Michigan Public School

28 Notes to the Financial Statements Employees Retirement System s (MPSERS) total pension liability, less the pension plan s fiduciary net position. Deferred Outflows / Inflows of Resources In addition to assets and liabilities, the statement of financial position or balance sheet will, when applicable, report separate sections for deferred outflows of resources and deferred inflows of resources. Deferred outflows of resources, a separate financial statement element, represents a consumption of net position or fund balance, respectively, that applies to a future period and so will not be recognized as an outflow of resources (expense/expenditure) until that time. Deferred inflows of resources, a separate financial statement element, represents an acquisition of net position or fund balance, respectively, that applies to a future period and so will not be recognized as an inflow of resources (revenue) until that time. The School District has several items that qualify for reporting in these categories and are reported in the district-wide financial statement of net position. These items relate to the School District s net pension liability. The net pension liability amounts are related to differences between expected and actual experience, changes in assumptions, differences between projected and actual pension plan investment earnings, and contributions made subsequent to the measurement date. These amounts are deferred and recognized as an outflow or inflow of resources in the period to which they apply. Salaries Payable and Accrued Employee Benefits A liability is recorded at June 30 for those amounts owed to teachers and other employees of the School District who do not work during the summer when school is not in session but have elected to have their salaries paid over an entire year. This has the effect of properly charging their salaries to expenditures in the fiscal year in which their services are received, even though they are not paid until July and August of the following fiscal year. The liability for accrued retirement and the employer share of FICA related to the salaries payable has been recorded as has the liability for the employee health insurance premiums for the months of July and August. The School District pays these insurances for this period as part of the compensation for services rendered in the preceding school year. Compensated Absences School District employees are granted vacation and sick leave in varying amounts based on length of service. Unused vacation time and sick leave accumulate from year to year at varying rates, depending on the employees applicable rate of pay and/or employment category. The liability for compensated absences includes salary-related payments. In the fund financial statements, only the matured liability for compensated absences is reported. The total liability is reported in the district-wide financial statements

29 Notes to the Financial Statements Short-term Obligations Short-term debt is recognized as a liability of a governmental fund and is included on the balance sheet of the applicable fund. During the current year, the School District borrowed funds to meet short-term cash flow borrowing needs. The final payment is due November 2016, and anticipated state aid is expected to be sufficient to cover this commitment. Long-term Obligations In the district-wide financial statements, long-term debt and other long-term obligations are reported as liabilities on the statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds. Bond issuance costs are recorded as a period expense. Bonds payable are reported at the total amount of bonds issued. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuance are reported as other financing sources while discounts on debt issuance are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as expenditures. Net Position Flow Assumption Sometimes the School District will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the district-wide financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the School District s policy to consider restricted net position to have been depleted before unrestricted net position is applied. Fund Balance Flow Assumptions Sometimes the School District will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the School District s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last

30 Notes to the Financial Statements Fund Balance Policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. Governmental funds report nonspendable fund balance for amounts that cannot be spent because they are either a) not in spendable form or b) legally or contractually required to be maintained intact. Restricted fund balance is reported when externally imposed constraints are placed on the use of resources by grantors, contributors, or laws or regulations of other governments. The School District itself can establish limitations on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance). The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the School District s highest level of decision-making authority. The Board of Education is the highest level of decision-making authority for the government that can, by adoption of a resolution prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the resolution remains in place until a similar action is taken (the adoption of another resolution) to remove or revise the limitation. Amounts in the assigned fund balance classification are intended to be used by the School District for specific purposes but do not meet the criteria to be classified as committed. The Board of Education can assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year s appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. Unassigned fund balance is the residual classification for the School District s general fund and includes all spendable amounts not contained in the other classifications and is therefore available to be spent as determined by the Board of Education. Interfund Activity Outstanding balances between funds are reported as due from/to other funds at year-end. Use of Estimates The preparation of financial statements requires estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates

31 Notes to the Financial Statements Note 2 - Stewardship, Compliance and Accountability Excess of expenditures over appropriations in budgeted funds - During the year ended June 30, 2016, the School District had the following significant expenditures in excess of appropriations: Variance Amended (Negative) Function Budget Actual Final to Actual Basic Programs $ 700,462 $ 737,157 $ (36,695) Instruction Staff 8,467 30,245 (21,778) School Administration 80,187 83,747 (3,560) Transportation 57,697 63,983 (6,286) Community Activities - 3,832 (3,832) The general fund had a deficit fund equity balance of $55,429 as of June 30, A deficit elimination plan has been submitted to the Michigan Department of Education. Note 3 - Cash and Cash Equivalents At year-end, the School District s deposits and investments were reported in the basic financial statements in the following categories: Governmental Activities Statement of Net Position Cash and Cash Equivalents $ 189,929 Statement of Fiduciary Net Position Cash and Cash Equivalents 3,776 Total Deposits $ 193,705 Deposits and Investments Checking and Savings Accounts $ 193,505 Petty Cash 200 Total $ 193,

32 Notes to the Financial Statements Custodial Credit Risk - Deposits Custodial credit risk is the risk that, in the event of a bank failure, the School District s deposits might not be returned. State law does not require and the School District does not have a policy for deposit custodial credit risk. As of year-end, none of the School District s bank balance of $212,353 was exposed to custodial credit risk. Interest Rate Risk Interest rate risk is the risk that the market rate of securities in the portfolio will fall due to changes in market interest rates. State law limits the allowable investments and the maturities of some of the allowable investments as identified in the summary of significant accounting policies. The School District s investment policy does not have specific limits in excess of state law on investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of the School District s investment in a single issuer. State law limits allowable investments but does not limit concentration of credit risk as identified in the list of authorized investments in the summary of significant accounting policies. The School District s investment policy does not limit investments in a single financial institution of a single security type (with the exception of U.S. treasuries and agencies and authorized pools) to a % of the total investment portfolio. The School District had no investments held at year-end. Note 4 - Interfund Receivables, Payables, and Transfers Interfund balances at June 30, 2016 consisted of fund receivables and payables listed below: Interfund balances resulted primarily 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. Interfund transfers are as follows: Receivable Fund Payable Fund Amount Debt Service General Fund $ 9,457 General Fund Food Service $ 4,085 13,542 Transfers In Transfers Out Amount Sinking Food Service $ 6,

33 Notes to the Financial Statements Note 5 - State of Michigan School Aid The School District reports State of Michigan school aid in the fiscal year in which the School District is entitled to the revenue as provided by State of Michigan School aid appropriation acts. State funding provided approximately 5 percent of the total revenues to the School District during the 2016 fiscal year. Note 6 - Capital Assets Capital asset activity for the year ended June 30, 2016 was as follows: Governmental Activities June 30, 2015 Additions Reductions June 30, 2016 Capital Assets Being Depreciated: Land $ 11,500 $ - $ - $ 11,500 Capital Assets Being Depreciated: Buildings & Land Improvements 4,652,002 30, ,839 4,486,402 Vehicles & Buses 349, ,992 1,992 Furniture & Equipment 785,421 43,038 9, ,172 Total Capital Assets Being Depreciated 5,787,407 73, ,118 5,307,566 Less Accumulated Depreciation: Buildings & Land Improvements 1,978,044 81, ,839 1,863,569 Vehicles & Buses 249,187 20, , Furniture & Equipment 661,899 28,888 9, ,500 Total Accumulated Depreciation 2,889, , ,185 2,546,065 Net Capital Assets Being Depreciated 2,898,277 (57,843) 78,933 2,761,501 Net Capital Assets $ 2,909,777 $ (57,843) $ 78,933 $ 2,773,001 Depreciation expense for the fiscal year ended June 30, 2016 amounted to $131,120. The School District determined that is was impractical to allocate depreciation expense to the various government activities as the capital assets serve multiple functions. The loss on disposal was due to the School District canceling a capital lease for two school buses, which also led to a discharge in debt

34 Notes to the Financial Statements Note 7 - Long-term Debt Bonds Payable 2007 Refunding General Obligation Bonds Original issue - $2,500, Refunding Bonds due in annual installments as scheduled below. Interest rates vary from 4.0% to 5.0% throughout the life of the bond issue. The final payment is due May 1, Capital Lease 2013 Lease Purchase Agreement During the 2012/13 school year the district financed two school buses with an installment debt obligation. The original loan amount was $157,866 and the agreement called for twelve quarterly payments of $5,780 and a balloon payment August 1, The interest rate is 2.98% per annum. The school district cancelled this lease during the current fiscal year. The following is a summary of the changes in long-term debt (including current portion) of the School District for the year ended June 30, 2016: June 30, 2015 Additions Reductions June 30, 2016 Due Within One Year Bonds Payable 2007 Refunding Bonds $ 1,245,000 $ - $ (180,000) $ 1,065,000 $ 185,000 Premium on 2007 Bonds 24,088 - (3,441) 20,647 - Total Bonds Payable 1,269,088 - (183,441) 1,085, ,000 Capital Lease Payable 2013 Lease Purchase Agreement 99,022 - (99,022) - - Compensated Absences 19,541 - (3,981) 15,560 - Total Long-term Liabilities $ 1,387,651 $ - $ (286,444) $ 1,101,207 $ 185,

35 Notes to the Financial Statements Annual debt service requirements, exclusive of compensated absences and bond premiums, for long-term debt outstanding as of June 30, 2016 follows: $11,912 is available in the 2007 debt retirement fund to service the general obligation bonds. Accumulated unpaid compensation for termination leave pay at June 30, 2016 has been computed and recorded in the financial statements as a long-term liability as the liability is expected to be liquidated from future financial resources. At present, eligible School District employees are entitled to a termination leave payment based on their unused absence days at current pay rate and eligible teachers and certain administrators are entitled to supplemental retirement stipends according to guidelines set forth by the School District. At June 30, 2016, the accumulated liability (expected to be financed by general fund resources) amounted to $15,560. Note 8 - Short-term Debt Short-term Debt Activity The School District issues state aid anticipation notes in advance of State of Michigan state aid payments, depositing the proceeds in its general fund. These notes are necessary because the School District s cash flow obligation to operating expense precede the collection of state aid. Summary information for the state aid notes payable are below: Note 9 - Employee's Retirement System Defined Benefit Plan Plan Description Year Ending June 30, Principal Governmental Activities Interest Total 2017 $ 185,000 $ 44,662 $ 229, ,000 35, , ,000 28, , ,000 21, , ,000 14, , ,000 7, ,012 Totals: $ 1,065,000 $ 150,322 $ 1,215,322 Interest Rate Maturity June 30, 2015 Additions Reductions June 30, 2016 State Aid Anticipation Note 1.49% November 2, 2016 $ 250,000 $ 225,000 $ (250,000) $ 225,000 The Michigan Public School Employees' Retirement System (System or MPSERS) is a costsharing, multiple employer, state-wide, defined benefit public employee retirement plan governed by the State of Michigan (State) originally created under Public Act 136 of 1945, recodified and

36 Notes to the Financial Statements currently operating under the provisions 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 board consists of twelve members - eleven appointed by the Governor and the State Superintendent of Instruction, who serves as an ex-officio member. The System is administered by the Office of Retirement Services (ORS) within the Michigan Department of Technology, Management & Budget. The Department Director appoints the Office Director, with whom the general oversight of the System resides. The State Treasurer serves as the investment officer and custodian for the System. The System s financial statements are available at Benefits Provided 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. Depending on the plan option selected, member retirement benefits for are determined by final average compensation, years of service, and a pension factor ranging from 1.25 percent to 1.50 percent. 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 plan member who leaves Michigan public school employment may request a refund of his or her member contributions to the retirement system account if applicable. 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. Contributions and Funded Status Employers are required by Public Act 300 of 1980, as amended, to contribute amounts necessary to finance the coverage of active and retired members. Contribution provisions are specified by State statute and may be amended only by action of the State Legislature. Employer contributions to the System are determined on an actuarial basis using the entry age normal actuarial cost method. Under this method, the actuarial present value of the projected benefits of each individual included in the actuarial valuation is allocated on a level basis over the service of the individual between entry age and assumed exit age. The portion of this cost allocated to the current valuation year is called the normal cost. The remainder is called the actuarial accrued liability. Normal cost is funded on a current basis. The unfunded (overfunded) actuarial accrued liability as of the September 30, 2015 valuation will be amortized over a 21 year period for the 2015 fiscal year. The schedule below summarizes pension contribution rates in effect for fiscal year

37 Notes to the Financial Statements Pension Contribution Rates Benefit Structure Member Employer Basic % % Member Investment Plan Pension Plus Defined Contribution Required contributions to the pension plan from the School District were $122,997 for the year ended September 30, Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2016, the School District reported a liability of $1,557,286 for its proportionate share of the MPSERS net pension liability. The net pension liability was measured as of September 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation rolled forward from September The School District s proportion of the net pension liability was determined by dividing each employer s statutorily required pension contributions to the system during the measurement period by the percent of pension contributions required from all applicable employers during the measurement period. At September 30, 2015, the School District s proportion was percent, which was a decrease of percent from its proportion measured as of September 30, For the year ended June 30, 2016, the School District recognized pension expense of $112,423. At June 30, 2016, the School District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience $ - $ 5,158 Changes of assumptions 38,344 - Net difference between projected and actual earnings on pension plan investments 7,949 - Changes in proportion and differences between Employer contributions and proportionate share of contributions 4,653 76,001 School District contributions subsequent to the measurement date 181,522 - Total $ 232,468 $ 81,

38 Notes to the Financial Statements $181,522 reported as deferred outflows of resources related to pensions resulting from employer contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, Other amounts as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Plan Year Ended September 30 Amount: 2016 $ (14,831) 2017 (14,831) 2018 (16,910) ,359 Actuarial Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Additional information as of the latest actuarial valuation follows: Summary of Actuarial Assumptions Actuarial Assumptions Valuation Date: September 30, 2014 Actuarial Cost Method: Entry Age, Normal Wage Inflation Rate: 3.5% Investment Rate of Return - MIP and Basic Plans (Non-Hybrid): 8.0% - Pension Plus Plan (Hybrid): 7.0% Projected Salary Increases: %, including wage inflation at 3.5% Cost-of-Living Pension Adjustments: 3% Annual Non-Compounded for MIP Members Mortality: RP-2000 Male and Female Combined Healthy Life Mortality Tables, adjusted for mortality improvements to 2025 using projection scale BB. This assumption was first used for the September 30, 2014 valuation of the System. For retirees, 100% of the table rates were used. For active members, 80% of the table rates were used for males and 70% of the table rates were used for females. Notes: Assumption changes as a result of an experience study for the period 2007 through 2012 have been adopted by the System for use in the annual pension valuations beginning with the September 30, 2014 valuation. The total pension liability as of September 30, 2015, is based on the results of an actuarial valuation date of September 30, 2014, and rolled forward using generally accepted actuarial procedures, including the experience study

39 Notes to the Financial Statements Recognition period for liabilities is the average of the expected remaining service lives of all employees in years is Recognition period for assets in years is Full actuarial assumptions are available in the 2015 MPSERS Comprehensive Annual Financial Report ( Long-term Expected Return on Plan Assets The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan s target asset allocation as of September 30, 2015, are summarized in the following table: Target Long-term Expected Asset Class Allocation Real Rate of Return* Domestic Equity Pools 28.0 % 5.9 % % Alternative Investment Pools International Equity Fixed Income Pools Real Estate and Infrastructure Pools Absolute Return Pools Short-term Investment Pools Total % * Long-term rate of return does not include 2.1% inflation. Discount Rate A discount rate of 8.0% was used to measure the total pension liability (7.0% for the Pension Plus plan, a hybrid plan provided through non-university employers only). This discount rate was based on the long-term expected rate of return on pension plan investments of 8.0% (7.0% for the Pension Plus plan). The projection of cash flows used to determine this discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on these assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members

40 Notes to the Financial Statements Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the School District s Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the School District s proportionate share of the net pension liability calculated using the discount rate of 8.0% (7.0% for the Hybrid Plan), as well as what the School District s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage higher: 1% Decrease (Non-Hybrid/Hybrid) 7.0% / 6.0% 2,007,741 Michigan Public School Employees Retirement System (MPSERS) Fiduciary Net Position Detailed information about the pension plan s fiduciary net position is available in the separately issued MPSERS CAFR. See the 2015 MPSERS CAFR ( orsschools/mpsers_cafr_2015_final_510211_7.pdf) Postemployment Benefits Current Single Discount Rate Assumption (Non-Hybrid/Hybrid) 8.0% / 7.0% 1% Increase (Non-Hybrid/Hybrid) 9.0% / 8.0% $ $ $ 1,557,286 1,177,534 Under the MPSERS act, all retirees participating in the MPSERS pension plan have the option of continuing health, dental, and vision coverage through MPSERS. Retirees electing this coverage contribute an amount equivalent to the monthly cost for Part B Medicare and 10 percent, or 20 percent for those not Medicare eligible, of the monthly premium amount for the health, dental, and vision coverage at the time of receiving the benefits. The MPSERS board of trustees annually sets the employer contribution rate to fund the benefits on a pay-as-you-go basis. Participating employers are required to contribute at that rate. The employer contribution rate ranged from 5.52 percent to 6.45 percent of covered payroll for the period from July 1, 2014 through September 30, 2014, and from 2.20 percent to 2.71 percent of covered payroll for the period from October 1, 2014 through June 30, 2016, dependent upon the employee s date of hire and plan election as noted above. Members can choose to contribute 3 percent of their covered payroll to the Retiree Healthcare Fund and keep this premium subsidy benefit, or they can elected not to pay the 3 percent contribution and instead choose the Personal Healthcare Fund, which can be used to pay healthcare expenses in retirement. Members electing the Personal Healthcare Fund will be automatically enrolled in a 2 percent employee contribution into their 457 account as of their transition date and create a 2 percent employer match into the employee s 401(k) account

41 Notes to the Financial Statements Note 10 - Risk Management The School District participates in the MASB-SEG Property and Casualty Pool and Workers Compensation Pool. The MASB-SEG Property/Casualty Pool, Inc. was created on May 23, 1985 and organized under Public Act 138 of 1982 as amended, as a governmental group property and casualty self-insurance pool. Approximately 375 educational institutions within the State of Michigan participate in the Pool. The Pool limits the maximum net loss that may arise from large risks or in concentrated areas of exposure by reinsuring certain levels of risks with other insurers or reinsurers. The Pool purchases excess liability coverage from one or more insurers or reinsurers to provide 100 percent coverage at each insured level. The School District has had no settled claims resulting from these risks that exceeded their coverage in any of the past three fiscal years. Note 11 Operating Lease The School District leases a copier for $279 per month. The lease contract began August 15, 2011 and runs for 60 months, with the final payment due 8/15/16. Annual payments total $3,348. The School District entered into an operating lease for two buses, with quarterly payments of $6,589. Payments are scheduled as follows: Note 12 - Subsequent Events Fiscal Year Ended June 30, Principal Interest 2017 $ 22,522 $ 3, ,145 3, , $ 51,554 $ 7,745 Subsequent events were evaluated through October 27, 2016, the date the financial statements were available to be issued. Management is not aware of any subsequent events that would have a significant impact on the financial condition of the School District

42 Notes to the Financial Statements Note 13 - Fund Balances Governmental Funds The School District reports fund balance in governmental funds based on the provisions of GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. GASB 54 establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Detailed information on fund balances of governmental funds is as follows: General Fund 2007 Debt Nonmajor Funds Total Nonspendable: Prepaid Items $ 4,011 $ - $ - $ 4,011 Total Nonspendable 4, ,011 Restricted for: Debt Service - 11,912-11,912 Sinking Fund - - 4,681 4,681 Food Service ,887 10,887 Total Restricted - 11,912 15,568 27,480 Unassigned (59,440) - - (59,440) Total Fund Balances - Governmental Funds $ (55,429) $ 11,912 $ 15,568 $ (27,949) Note 14 - Sinking Funds The School District s sinking fund records capital project activities funded with a sinking fund millage. For this fund, the School District has complied with the applicable provisions of Section 1212(1) of the Revised School Code and the State of Michigan Department of Treasury Letter No Note 15 - Upcoming Accounting Pronouncement In June 2015, the GASB issued Statement No. 73, Accounting and Financial Reporting for Pension and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. The statement establishes requirements for those pensions and pension plans that are not administered through a trust meeting specified criteria. The School District is currently evaluating the impact this standard will have on the financial statements when adopted during the School District s fiscal year

43 Notes to the Financial Statements In June 2015, the GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. The statement replaces the requirements of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. The statement requires governments providing other postemployment benefits (OPEB) to recognize their unfunded OPEB obligation as a liability for the first time, and to more comprehensibly and comparably measure the annual costs of OPEB benefits. The statement also enhances accountability and transparency through revised note disclosures and required supplementary information (RSI). The School District is currently evaluating the impact this standard will have on the financial statements when adopted during the School District s fiscal year. In August 2015, the GASB issued Statement No. 77, Tax Abatement Disclosures. The statement improves financial reporting through the disclosure of information about the nature and magnitude of tax abatements that are not consistently or comprehensively reported to the public at present. The School District is currently evaluating the impact this standard will have on the financial statements when adopted during the School District s fiscal year. Note 16 - Restatement of Beginning Net Position Beginning fund balance has been restated for general and sinking funds to account for insurance proceeds that had been receipted into the incorrect fund, as follows: General Fund Sinking Fund Fund Balance - June 30, 2015 $ (119,550) $ (12,954) Restatement for Insurance Recovery (17,811) 17,811 Restated Fund Balance - June 30, 2016 $ (137,361) $ 4,

44 REQUIRED SUPPLEMENTARY INFORMATION

45 Schedule of Revenues, Expenditures, and Changes in Fund Balance-Budget and Actual General Fund For the Year Ended June 30, 2016 Variance Favorable Budgeted Amounts (Unfavorable) Original Final Actual Final to Actual Revenues Local Sources $ 1,080,000 $ 1,038,185 $ 1,163,333 $ 125,148 State Sources 200, ,724 91,559 (94,165) Federal Sources 130, , ,031 40,613 Other Revenue 38,000 29, (29,552) Total Revenues 1,448,000 1,415,879 1,457,923 42,044 Expenditures Instruction Basic Programs 665, , ,157 (36,695) Added Needs 220, , ,318 61,530 Total Instruction 885, , ,475 24,835 Supporting Services Instruction Staff 20,000 8,467 30,245 (21,778) General Administration 82, , ,435 (37) School Administration 100,500 80,187 83,747 (3,560) Business 2,750 6,079 4,529 1,550 Operations / Maintenance 140, , , Transportation 78,650 57,697 63,983 (6,286) Total Supporting Services 423, , ,172 ( 29,477 ) Athletics 9,000 9,517 9,512 5 Community Activities ,832 (3,832) Total Expenditures 1,318,425 1,367,522 1,375,991 (8,469) Other Financing Uses Transfers Out 1, Total Expenditures and Other Financing Uses 1,319,925 1,367,522 1,375,991 (8,469) Excess (Deficiency) of Revenues Over Expenditures and Other Uses 128,075 48,357 81,932 33,575 Net Change in Fund Balance 128,075 48,357 81,932 33,575 Fund Balance at Beginning of Period (137,361) (137,361) (137,361) -- Fund Balance at End of Period $ (9,286) $ (89,004) $ (55,429) $ 33,

46 Schedule of Proportionate Share of Net Pension Liability Michigan Public School Employee Retirement Plan Last Two Fiscal Years (Amounts were determined as of 9/30 of each fiscal year) School District's Portion of Net Pension Liability (%) % % School District's Proportionate Share of Net Pension Liability $ 1,557,286 $ 1,494,199 School District's Covered Employee Payroll $ 476,933 $ 420,716 Districts Proportionate Share of Net Pension Liability as a Percentage of its Covered Employee Payroll % % Plan Fiduciary Net Position as a Percentage of Total Pension Liability 63.17% 66.20%

47 Schedule of Contributions Michigan Public School Employee Retirement Plan Last Two Fiscal Years (Amounts were determined as of 6/30 of each fiscal year) Statutorily Required Contributions $ 122,997 $ 105,354 Contributions in Relation to Statutorily Required Contributions 122, ,354 Contribution Deficiency (Excess) $ - $ - School District's Covered Employee Payroll $ 476,933 $ 420,716 Contributions as a Percentage of Covered Employee Payroll 25.79% 25.04% Notes to Pension Required Supplemental Information Schedules Benefit Changes - There were no changes of benefit terms in Changes in Assumptions - There were no changes of benefit assumptions in

48 OTHER SUPPLEMENTARY INFORMATION

49 Combining Balance Sheet Nonmajor Governmental Funds June 30, 2016 Special Revenue Capital Projects Total Nonmajor Governmental Food Service Sinking Funds ASSETS Cash & Cash Equivalents $ 11,304 $ 7,920 $ 19,224 Due from State Total Assets $ 11,733 $ 7,920 $ 19,653 LIABILITIES Due to Other Funds $ 846 $ 3,239 $ 4,085 Total Liabilities 846 3,239 4,085 FUND BALANCE Restricted 10,887 4,681 15,568 Total Fund Balance 10,887 4,681 15,568 Total Liabilities and Fund Balance $ 11,733 $ 7,920 $ 19,

50 Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Nonmajor Governmental Funds For the Year Ended June 30, 2016 Special Revenue Capital Projects Total Nonmajor Governmental Food Service Sinking Funds Revenues Local Sources $ 8 $ 65,936 $ 65,944 State Sources 1, ,511 Federal Sources 80, ,038 Other Revenue 3,641 13,680 17,321 Total Revenues 85,198 79, ,814 Expenditures Supporting Services -- 13,196 13,196 Food Services 76, ,460 Capital Outlay -- 73,277 73,277 Total Expenditures 76,460 86, ,933 Excess of Revenues Over (Under) Expenditures 8,738 (6,857) 1,881 Other Financing Sources (Uses) Transfers In -- 6,681 6,681 Transfers Out (6,681) -- (6,681) Net Other Financing Sources (Uses) (6,681) 6, Net Change in Fund Balance 2,057 (176) 1,881 Fund Balance at Beginning of Period 8,830 4,857 13,687 Fund Balance at End of Period $ 10,887 $ 4,681 $ 15,

51 Combining Statement of Changes in Assets & Liabilities Fiduciary Funds June 30, 2016 July 1, 2015 Additions Deductions June 30, 2016 ASSETS Cash & Cash Equivalents $ 3,606 $ 7,826 $ 7,656 $ 3,776 Total Assets 3,606 7,826 7,656 3,776 LIABILITIES Due to Student Groups 3,606 7,826 7,656 3,776 Total Liabilites $ 3,606 $ 7,826 $ 7,656 $ 3,

52 October 27, 2016 To the Board of Education Vanderbilt Area School Vanderbilt, Michigan We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Vanderbilt Area School (the School District ) for the year ended June 30, Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated May 17, Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the School District are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the fiscal year ended June 30, We noted no transactions entered into by the School District during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the School District s financial statements was: The most sensitive estimates affecting the School District s financial statements were: Management s estimate of the useful lives of depreciable capital assets is based on the length of time it is believed that those assets will provide some economic benefit in the future. Management s estimate of the accrued compensated absences is based on current hourly rates and policies regarding payment of sick and vacation banks

53 The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to each opinion unit s financial statements taken as a whole. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated October 27, Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a second opinion on certain situations. If a consultation involves application of an accounting principle to the School District s financial statements or a determination of the type of auditor s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the School District s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention

54 Other Matters We applied certain limited procedures to the management s discussion and analysis, budgetary comparison schedules, and the schedule of proportionate share of net pension liability and contributions, which are required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the combining and individual financial statements, which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. Comments & Recommendations 2015/16 Budget / Fund Balance Deficit The State Aid Statutes and Public Act 621, (The Accounting and Budgeting Act) prohibit a district from budgeting for a fund balance deficit. The general fund had a deficit fund balance of $55,429, as of June 30, A deficit elimination plan has been filed by the District, and was accepted by the Michigan Department of Treasury. Property Tax Revenue / State Aid The present system for assuring that each school district gets its entire foundation allowance (which is a combination of property taxes and State Aid) is, at times, flawed. There are few controls in place to make certain all taxable value adjustments are timely and correctly processed. The responsibility primarily rests with each County Treasurer whose tax revenue (the County revenue) is not dependent on the accuracy of this system. With all of the Tax Tribunal adjustments, Board of Review adjustments and homestead/non-homestead adjustments it is very important that each district reconcile taxable values, as reported on the Michigan Department of Education website, monthly. Changes that occur on the web site are postings made by the county treasurers. These changes are then posted to your State Aid Status Report which directly affects the State Aid funds received each month. Reconciling those changes monthly is important

55 The best approach is to print the MDE taxable value data each month and then agree any changes in these reports to page two of your monthly status report. Tax Revenue Distribution All tax revenue is deposited directly to the general fund bank account including debt retirement and sinking fund taxes. While the entry recording the taxes properly credits a due to account in the general fund, the corresponding entry is not recorded into either the debt retirement fund or the sinking fund. In addition, the cash is not timely transferred. The cash transfers should occur each time taxes are received and due to/due from accounts should be -0- at year end. Written Procedures As a precondition to receive federal funds recipients must have effective administrative and financial internal controls. School districts are required to have written procedures to document these administrative and financial controls. The School District has not yet complied with this requirement. Segregation of Duties There is not adequate segregation of duties in the accounting area. One individual posts all journals, the general ledger and also prepares checks and reconciles the bank accounts. The same individual also initiates and posts all journal entries. The lack of segregation of duties is inherent because of staff limitations. The Board must recognize that all internal controls must be evaluated for cost effectiveness. The controls that could be added would have to be compared with the costs required to obtain those controls. Restriction on Use This information is intended solely for the use of the Board of Education and management of the School District and is not intended to be, and should not be, used by anyone other than these specified parties. Very truly yours, Gabridge & Company, PLC Grand Rapids, MI - 4 -

56 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 Vanderbilt Area School Vanderbilt, 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 Vanderbilt Area School (the School District ), as of and for the year ended June 30, 2016, 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 27, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the School District s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the School 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 entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified