Harbor Beach Community Schools

Transcription

1 Financial Statements

2 Table of Contents Section Page 1 Members of the Board of Education and Administration Independent Auditors Report Management s Discussion and Analysis Basic Financial Statements District-wide Financial Statements Statement of Net Position 4-1 Statement of Activities 4-3 Fund Financial Statements Governmental Funds Balance Sheet 4-4 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 4-6 Statement of Revenues, Expenditures and Changes in Fund Balances 4-7 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 4-9 Fiduciary Funds Statement of Fiduciary Net Position 4-10 Notes to Financial Statements Required Supplementary Information Budgetary Comparison Schedule General Fund Schedule of School District s Proportionate Share of Net Pension Liability Schedule of School District s Contributions

3 Section Page 6 Other Supplementary Information General Fund Comparative Balance Sheet Report on Internal Controls Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Schedule of Findings and Responses Corrective Action Plan

4 Members of the Board of Education and Administration Members of the Board of Education President Vice President Secretary Treasurer Trustee Trustee Trustee Ron Hiller Allan Booth Nancy Krueger Gail Roggenbuck Paul Hunter Michael Climer Gary Waun Administration Superintendent Lawrence Kroswek Business Manager Stacey Viers Huron Intermediate School District 1-1

5 Independent Auditors Report Management and the Board of Education Harbor Beach Community Schools 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 Harbor Beach Community Schools, as of and for the year ended, and the related notes to the financial statements, which collectively comprise the School District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2-1

6 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 Harbor Beach Community Schools, as of, 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. Adoption of New Accounting Standards As described in Note 1 to the financial statements, during the year ended, the School District adopted GASB Statement No. 68 Accounting and Financial Reporting for Pensions, and Statement No. 71 Pension Transition for Contributions Made Subsequent to the Measurement Date. Our opinions are not modified with respect to this matter. Other Matters: Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, schedule of school district s proportionate share of net pension liability, and schedule of school district s contributions, and budgetary comparison information identified in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information, because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Harbor Beach Community Schools basic financial statements. The other supplementary information, as identified in the table of contents, is presented for the purpose of additional analysis and is not a required part of the basic financial statements. The other supplementary information, as identified in the table of contents, is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplementary information, as identified in the table of contents, is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 2-2

7 Prior Year Supplementary Information We also have previously audited, in accordance with auditing standards generally accepted in the United States, and the standards applicable to basic financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, Harbor Beach Community Schools basic financial statements as of and for the year ended June 30, 2014, which are not presented with the accompanying financial statements. In our report dated September 29, 2014, we expressed unmodified opinions on the respective basic financial statements of the governmental activities, the each major fund, and the aggregate remaining fund information. That audit was conducted for the purpose of forming opinions on the basic financial statements that collectively comprise Harbor Beach Community Schools basic financial statements as a whole. The 2014 information in the comparative supplementary schedules is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the 2014 financial statements. The information has been subjected to the auditing procedures applied in the audit of those 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 2014 information in the comparative supplementary schedules are fairly stated in all material respects in relation to the basic financial statements from which they have been derived. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 22, 2015 on our consideration of Harbor Beach Community Schools' 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 Harbor Beach Community Schools internal control over financial reporting and compliance. Saginaw, MI October 22,

8 MANAGEMENT S DISCUSSION AND ANALYSIS

9 Management's Discussion and Analysis For Fiscal Year Ended Harbor Beach School District, a K-12 school district located in Huron County, Michigan has implemented the provisions of Governmental Accounting Standards Board Statement 34 (GASB 34). The Management's Discussion and Analysis, a requirement of GASB 34, is intended to be the Harbor Beach School District administration's discussion and analysis of the financial results for the fiscal years ended and June 30, Generally accepted accounting principles (GAAP), according to GASB 34, require the reporting of two types of financial statements: fund financial statements and government-wide financial statements. Fund Financial Statements For the most part, the fund financial statements are comparable to financial statements prepared prior to GASB 34. The primary difference is that the Account Groups (General Fixed Assets and General Long-term Debt) are no longer reported. The fund level statements are reported on a modified accrual basis in that only those assets that are "measurable" and "currently available" are reported. Liabilities are recognized to the extent they are normally expected to be paid with current financial resources. The fund statements are formatted to comply with the legal requirements of the Michigan Department of Education's "Accounting Manual". In the State of Michigan, school district's major instructional and instructional support activities are reported in the General Fund. Additional activities are reported in various other funds. These include Special Revenue Funds, Debt Service Funds, and Capital Projects Funds. In the fund financial statements, capital assets purchased are reported as expenditures in the year of acquisition with no asset being reported. The issuance of debt is recorded as a financial resource. The current year's payments of principal and interest on long-term obligations are recorded as expenditures. The obligations for future years' debt service are not recorded in the fund financial statements. Government-wide Financial Statements The government-wide financial statements are required by GASB 34. These statements are calculated using full accrual accounting and more closely represent those presented by business and industry. All of the District's assets and liabilities, both short and long-term, are reported. As such, these statements included capital assets, net of related depreciation, as well as the bonded debt of the District. New Accounting Guidance Effective for the year ended, the District adopted new accounting guidance, GASB Statement No. 68 Accounting and Financial Reporting for Pensions, and Statement No. 71 Pension Transition for Contributions Made Subsequent to the Measurement Date. 3-1

10 Management's Discussion and Analysis For Fiscal Year Ended Summary of Net Assets The following schedule summarizes the net position at fiscal years ended: Assets June 30, 2014 Current Assets $ 4,438,194 $ 5,196,343 Capital Assets 9,371,632 9,560,731 Total assets 13,809,826 14,757,074 Deferred Outflows of Resources 1,048,649 - Liabilities Total assets and deferred outflows of resources $ 14,858,475 $ 14,757,074 Current liabilities $ 502,334 $ 488,154 Long-term liabilities 13,273,739 8,285,000 Total liabilities 13,776,073 8,773,154 Deferred Inflows of Resources 606,395 - Total liabilities and deferred inflows of resources 14,382,468 8,773,154 Net Position Invested in capital assets, net of related debt 2,286,632 1,275,731 Restricted 888,104 1,292,458 Unrestricted (2,698,729) 3,415,731 Total net position 476,007 5,983,920 Total liabilities, deferred inflows of resources and net position $ 14,858,475 $ 14,757,

11 Management's Discussion and Analysis For Fiscal Year Ended Analysis of Financial Position During the fiscal year ended, the District's net assets increased by $32,542. A few of the more significant factors affecting net assets during the year are discussed below. 1. Depreciation Expense GASB 34 requires school districts to maintain a record of annual depreciation expense and the accumulation of depreciation expense over time. The net increase in accumulated depreciation expense is a reduction in net assets. Depreciation expense is recorded on a straight-line basis over the estimated useful lives of the assets. In accordance with GAAP, depreciation expense is calculated based on the original cost of the asset less an estimated salvage value, where applicable. For the fiscal years ended June 30, 2015 and June 30, 2014, $442,987 and $431,537 was recorded for depreciation expense. 3-3

12 Management's Discussion and Analysis For Fiscal Year Ended Results of Operations For the fiscal years ended and June 30, 2014, the results of operations, on a District-wide basis were: June 30, 2014 Amount % of Total Amount % of Total General Revenues Property Taxes $ 1,983, % $ 2,036, % Investment earnings 1, % 1, % State sources 3,031, % 2,755, % Other 37, % 25, % Total general revenues 5,052, % 4,819, % Program Revenues Charges for services 108, % 81, % Operating grants 620, % 632, % Total revenues 5,781, % 5,533, % Expenses Instruction 3,162, % 2,797, % Support services 2,012, % 1,959, % Community services 5, % 6, % Food services 246, % 246, % Interest on long-term debt 211, % 396, % Bond Issuance Cost 110, % % Total expenses 5,748, % 5,407, % Increase (decrease) in net assets $ 32,542 $ 125,

13 Analysis of Significant Revenues and Expenses Harbor Beach Community Schools Management's Discussion and Analysis For Fiscal Year Ended Significant revenues and expenditures are discussed in the segments below: 1. Property Taxes The District levies 18 mills of property taxes for operations on non-homestead properties, less the mandatory reductions required by the Headlee Amendment, Article IX, Section 3l. According to Michigan law, the taxable levy is based on the taxable valuation of properties. The annual taxable valuation increases are capped at the rate of the prior year's Consumer's Price Index increase or 5%, whichever is less. At the time property is sold, its taxable valuation is readjusted to the State Equalized Value, which in theory is half of the property's market value. For the fiscal year, the District levied $1,307,014 in non-homestead property taxes. This represented a decrease of 2.87% from the prior year. The following table summarizes the non-homestead property tax levies for operations for the past five years: 2. State Sources Non-homestead % Increase (Decrease) Fiscal Year Tax Levy from Prior Year $ 1,307, % $ 1,345, % $ 1,348, % 0.59% $ 1,340, % $ 1,388, % The majority of the state sources is comprised of the per student foundation allowance. The State of Michigan funds districts based on a blended student enrollment. The blended enrollment consists of 90% of the current year's fall count and 10% of the prior year's spring count. The District s foundation allowance was $7,126 per student FTE, which was an increase of $100 over the amount received in the fiscal year. 3-5

14 Management's Discussion and Analysis For Fiscal Year Ended 3. Student Enrollment The following schedule lists the actual FTE for the blended student enrollment for the past five fiscal years. 4. Operating Grants The District funds a significant portion of its operations with grant sources. For the fiscal year ended, federal, state, and other grants accounted for $568, County Special Education Allocation For the fiscal year ended, the District received an allocation from the Huron Intermediate School District in the amount of $267,710, to assist with the education of students with special needs. This amount represents a decrease of $56,876 from the prior fiscal year. 6. Interest Earnings Actual Blended Student FTE The District received interest on its investments in the amount of $757 for the fiscal year ended. This amount represents an increase of $67 from the prior fiscal year. 3-6

15 Management's Discussion and Analysis For Fiscal Year Ended 7. General Fund Budgetary Highlights The Uniform Budget Act of the State of Michigan requires that the local Board of Education approve the original budget for the upcoming fiscal year prior to its starting on July 1. Any amendments made to the operating budget must be approved by the Board prior to the close of the fiscal year on June 30. For the fiscal year, the District s board amended the general fund budget several times. The following schedule shows a comparison of the original general fund budget, the final amended general fund budget, and actual totals from operations: Original Budget Final Budget Variance with Final Budget positive (negative) % Variance Actual Revenues Local sources $1,408,987 $1,364,852 $1,391,309 $26, % State sources 2,782,754 3,042,797 3,037,271 (5,526) -.18% Federal sources 174, , ,621 (34,158) % Interdistrict sources 340, , ,788 (14,507) -4.66% Total revenues $4,706,755 $4,874,723 $4,846,989 $(27,734) -.57% Expenditures Instruction $2,871,252 $2,946,023 $2,911,002 $(35,021) -1.19% Supporting services 1,783,711 1,786,731 1,776,380 (10,351) -.58% Community services 2,813 6,135 5,497 (638) -10.4% Capital Outlay 112, , ,516 (1,837) -.62% Total expenditures $4,770,251 $5,036,242 $4,988,395 $(47,847) -.95% The original revenue budget of $4,706,755 was increased to $4,874,723 primarily as a result of a lower than expected reduction in number of students coupled with an increase in foundation allowance. 3-7

16 Management's Discussion and Analysis For Fiscal Year Ended Capital Asset and Debt Administration Capital Assets - By the end of the fiscal year, the District had invested $17,484,599 in a broad range of capital assets, including school buildings and facilities, school buses and other vehicles, and various types of equipment. This represents a net increase of $79,635 over the prior fiscal year. Depreciation expense for the year amounted to $442,987, bringing the accumulation to $8,112,967 as of. Long-term Debt - At, the District had $7,085,000 in bonded debt outstanding. This represents a decrease of $1,200,000 over the amount outstanding at the close of the prior fiscal year. This decrease is due, in part, to the Advance Refunding of bond that the district elected. Factors Bearing on the District's Future At the time that these financial statements were prepared and audited, the District was aware of the following items that could significantly affect its financial health in the future: The foundation allowance is $7,391. This represents a slight increase from the amount of $7,251. The relatively stagnant funding level combined with a slight but steady decline in student enrollment will result in less total revenue in the future. The use of one time payments and performance based incentives to supplement the foundation allowance for schools in Michigan results in uncertain revenue forecasts. The District s retirement contribution will continue to increase, albeit at a slower rate than in recent years. The District pays a maximum in of 36.31% for retirement benefits. This is a slight increase from the 34.54% maximum in Contacting the District's Financial Management This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the District's finances and to demonstrate the District's accountability for the money it receives. If you have questions about this report, or need additional financial information, please contact the Superintendent's Office, Harbor Beach Community School District, 402 South Fifth Street, Harbor Beach, Michigan

17 BASIC FINANCIAL STATEMENTS

18 Statement of Net Position Governmental Activities Assets Cash $ 246,568 Accounts receivable 8,134 Due from other governmental units 734,913 Inventory 4,628 Investments 3,398,068 Prepaid items 45,883 Capital assets not being depreciated 106,676 Capital assets - net of accumulated depreciation 9,264,956 Total assets 13,809,826 Deferred Outflows of Resources Deferred amount on refunding 463,374 Deferred amount of pension expense related to net pension liability 585,275 Total deferred outflows of resources 1,048,649 Total assets and deferred outflows of resources 14,858,475 Liabilities Accounts payable 56,339 Due to other governmental units 37 Payroll deductions and withholdings 148,898 Accrued expenditures 23,293 Accrued salaries payable 262,389 Unearned revenue 11,378 Noncurrent liabilities Net pension liability 5,485,231 Debt due within one year 475,000 Debt due in more than one year 7,313,508 Total liabilities 13,776,073 See Accompanying Notes to the Financial Statements 4-1

19 Statement of Net Position Governmental Activities Deferred Inflows of Resources Deferred amount on net pension liability $ 606,395 Total liabilities and deferred inflows of resources 14,382,468 Net Position Net investment in capital assets 2,286,632 Restricted for: Food service 41,094 Debt service 223,053 Capital projects 623,957 Unrestricted (2,698,729) Total net position $ 476,007 See Accompanying Notes to the Financial Statements 4-2

20 Statement of Activities For the Year Ended Program Revenues Net (Expense) Operating Revenue and Charges for Grants and Changes in Expenses Services Contributions Net Position Functions/Programs Governmental activities Instruction $ 3,162,519 $ 27,734 $ 445,151 $ (2,689,634) Supporting services 2,012,983 12,167 16,106 (1,984,710) Food services 246,231 68, ,822 (18,860) Community services 5, (5,194) Interest on long-term debt 211, (211,851) Bond issuance cost 110, (110,145) Total governmental activities $ 5,748,923 $ 108,450 $ 620,079 (5,020,394) General revenues Property taxes, levied for general purposes Property taxes, levied for debt service State aid - unrestricted Interest and investment earnings Loss on sale of capital assets Other 1,307, ,061 3,031,803 1,035 (6,614) 43,637 Total general revenues 5,052,936 Change in net position 32,542 Net position - beginning, as restated 443,465 Net position - ending $ 476,007 See Accompanying Notes to the Financial Statements 4-3

21 Governmental Funds Balance Sheet Nonmajor Governmental Total General 2015 Refunding Capital Funds - Food Governmental Fund Bonds Projects Service Funds Assets Cash $ 52,740 $ 171,346 $ - $ 22,482 $ 246,568 Accounts receivable 6, ,223 8,134 Due from other funds - 51,707-19,253 70,960 Due from other governmental units 734, ,913 Inventory ,628 4,628 Investments 2,774, ,957-3,398,068 Prepaid items 45, ,883 Total assets $ 3,614,558 $ 223,053 $ 623,957 $ 47,586 $ 4,509,154 Liabilities, Deferred Inflows of Resources, and Fund Balance Liabilities Accounts payable $ 55,828 $ - $ - $ 511 $ 56,339 Due to other funds 70, ,960 Payroll deductions and withholdings 148, ,898 Accrued salaries payable 261, ,389 Unearned revenue 5, ,448 11,378 Total liabilities 543, , ,001 See Accompanying Notes to the Financial Statements 4-4

22 Governmental Funds Balance Sheet Nonmajor Governmental Total General 2015 Refunding Capital Funds - Food Governmental Fund Bonds Projects Service Funds Deferred Inflows of Resources Unavailable revenue Grants received $ 41,700 $ - $ - $ - $ 41,700 Fund Balance Non-spendable Inventory ,628 4,628 Prepaid items 45, ,883 Restricted for Food service ,466 36,466 Debt service - 223, ,053 Capital projects , ,957 Assigned 519, ,201 Unassigned 2,464, ,464,265 Total fund balance 3,029, , ,957 41,094 3,917,453 Total liabilities and fund balance $ 3,614,558 $ 223,053 $ 623,957 $ 47,586 $ 4,509,154 See Accompanying Notes to the Financial Statements 4-5

23 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position Total fund balances for governmental funds $ 3,917,453 Total net position for governmental activities in the statement of net position is different because Certain receivables are not available to pay for current period expenditures and, therefore, are unavailable in the funds. Grants 41,700 Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Capital assets not being depreciated 106,676 Capital assets - net of accumulated depreciation 9,264,956 Other long-term assets are not deferred in the governmental funds. 463,374 Deferred outflows (inflows) of resources Deferred inflows of resources resulting from net pension liability (606,395) Deferred outflows of resources from subsequent pension expense from measurement date 585,275 Certain liabilities are not due and payable in the current period and are not reported in the funds. Accrued interest (23,293) Long-term liabilities applicable to governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. Bonds payable (7,788,508) Net pension liability (5,485,231) Net position of governmental activities $ 476,007 See Accompanying Notes to the Financial Statements 4-6

24 Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended Nonmajor Governmental Total General 2015 Refunding Capital Funds - Food Governmental Fund Bonds Projects Service Funds Revenues Local sources $ 1,391,309 $ 676,243 $ 96 $ 68,549 $ 2,136,197 State sources 3,037, ,441 3,045,712 Federal sources 121, , ,002 Interdistrict sources 296, ,788 Total revenues 4,846, , ,371 5,750,699 Expenditures Current Education Instruction 2,911, ,911,002 Supporting services 1,776, ,776,380 Food services , ,471 Community services 5, ,497 Capital outlay 295,516-65, ,516 Debt service Principal - 490, ,000 Interest and other expenditures - 249, ,823 Bond issuance costs - 110, ,145 Payment to bond refunding escrow agent - 275, ,000 Total expenditures 4,988,395 1,124,968 65, ,471 6,407,834 Excess (deficiency) of revenues over expenditures (141,406) (448,725) (64,904) (2,100) (657,135) See Accompanying Notes to the Financial Statements 4-7

25 Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances For the Year Ended Nonmajor Governmental Total General 2015 Refunding Capital Funds - Food Governmental Fund Bonds Projects Service Funds Other financing sources (uses) Proceeds from refinancing debt $ - $ 7,085,000 $ - $ - $ 7,085,000 Payment to bond refunding escrow agent - (7,687,042) - - (7,687,042) Premium on issuance of bonds - 713, ,417 Total other financing sources (uses) - 111, ,375 Net change in fund balance (141,406) (337,350) (64,904) (2,100) (545,760) Fund balance - beginning 3,170, , ,861 43,194 4,463,213 Fund balance - ending $ 3,029,349 $ 223,053 $ 623,957 $ 41,094 $ 3,917,453 See Accompanying Notes to the Financial Statements 4-8

26 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended Net change in fund balances - Total governmental funds $ (545,760) Total change in net position reported for governmental activities in the statement of activities is different because Revenues in the statement of activities that do not provide current financial resources are not reported as revenue in the funds Operating grants 41,700 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. Depreciation expense (442,987) Capital outlay 264,822 Expenses are recorded when incurred in the statement of activities. Interest 34,589 The statement of net position reports the net pension liability and deferred outflows of resources and deferred inflows related to the net pension liability and pension expense. However, the amount recorded on the governmental funds equals actual pension contributions. Net change in net pension liability 349,291 Net change in the deferred inflow of resources related to the net pension liability (606,395) Net change between actual pension contributions and the cost of benefits earned net of employee contributions 291,208 Bond and note proceeds and capital leases are reported as financing sources in the governmental funds and thus contribute to the change in fund balance. In the statement of net position, however, issuing debt increases long-term liabilities and does not affect the statement of activities. Similarly, repayment of principal is an expenditure in the governmental funds but reduces the liability in the statement of net position. Also, governmental funds report the effect of premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. When debt refunding occurs, the difference in the carrying value of the refunding debt and the amount applied to the new debt is reported the same as regular debt proceeds or repayments, as a financing source or expenditure in the governmental funds. However, in the statement of net position, debt refunding may result in deferred inflows of resources or deferred outflows of resources, which are then amortized in the statement of activities. Debt issued (7,798,417) Repayments of long-term debt 8,452,042 Amortization of premiums 3,383 Change in net position of governmental activities $ 32,542 See Accompanying Notes to the Financial Statements 4-9

27 Fiduciary Funds Statement of Fiduciary Net Position Agency Funds Assets Cash $ 104,540 Liabilities Due to agency fund activities $ 104,540 See Accompanying Notes to the Financial Statements 4-10

28 Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies The accounting policies of the Harbor Beach Community Schools (School District) conform to accounting principles generally accepted in the United States of America as applicable to governmental units. The following is a summary of the School District s significant accounting policies: 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. The School District has no component units. District-wide Financial Statements The School District s basic financial statements include both districtwide (reporting for the School District as a whole) and fund financial statements (reporting the School District s major funds). The district wide financial statements categorize all nonfiduciary activities as either governmental or business type. All of the School District s activities are classified as governmental activities. The statement of net position presents governmental activities on a consolidated basis, using the economic resources measurement focus and accrual basis of accounting. This method recognizes all long-term assets and receivables as well as long-term debt and obligations. The School District s net position are reported in three parts (1) net investment in capital assets, (2) restricted net position, and (3) unrestricted net position. The statement of activities reports both the gross and net cost of each of the School District s functions. The functions are also supported by general government revenues (property taxes and certain intergovernmental revenues). The statement of activities reduces gross expenses (including depreciation) by related program revenues, operating and capital grants. Program revenues must be directly associated with the function. Operating grants include operatingspecific and discretionary (either operating or capital) grants. The net costs (by function) are normally covered by general revenue (property taxes, state sources and federal sources, interest income, etc.). In creating the district-wide financial statements the School District has eliminated interfund transactions. The district-wide focus is on the sustainability of the School District as an entity and the change in the School District s net position resulting from current year activities. Fund Financial Statements Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the districtwide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenue is recognized as soon as it is both measurable and available. Revenue is considered to be available if it is collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the School District considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated 4-11

29 Notes to Financial Statements absences and claims and judgments, are recorded only when payment is due. generated by these activities are generally transferred from the General Fund. Property taxes, unrestricted state aid, intergovernmental grants, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenue of the current fiscal period. All other revenue items are considered to be available only when cash is received by the government. Fiduciary fund statements also are reported using the economic resources measurement focus and the accrual basis of accounting. The School District reports the following major governmental funds: General Fund The General Fund is used to record the general operations of the School District pertaining to education and those operations not required to be provided for in other funds Refunding Bonds Fund This Debt Fund is used to record tax, interest, and other revenue and the payment of interest, principal, and other expenditures on long-term debt, related to a 2015 Refunding Debt Issue. Capital Projects Fund The Capital Project Fund is used to record bond proceeds or other revenue and the disbursement of invoices specifically for acquiring new school sites, buildings, equipment, and for remodeling and repairs. The fund is kept open until the purpose for which the fund was created has been accomplished. Additionally, the School District reports the following fund types: Special Revenue Fund Special Revenue Fund is used to account for the proceeds of specific revenue sources that are restricted to expenditures for specified purposes. The School District s Special Revenue Fund includes the Food Service Fund. Operating deficits 4-12 Fiduciary Funds Fiduciary Funds are used to account for assets held by the School District in a trustee capacity or as an agent. The Agency Fund is custodial in nature (assets equal liabilities) and does not involve the measurement of results of operations. This fund is used to record the transactions of student groups for school and school-related purposes. Assets, Liabilities and Net Position or Equity Receivables and Payables Generally, outstanding amounts owed between funds are classified as due from/to other funds. These amounts are caused by transferring revenues and expenses between funds to get them into the proper reporting fund. These balances are paid back as cash flow permits. All trade and property tax receivables are shown net of an allowance for uncollectible amounts. The School District considers all accounts receivable to be fully collectible; accordingly, no allowance for uncollectible amounts is recorded. Property taxes collected are based upon the approved tax rate for the year of levy. For the fiscal year ended, the rates are as follows per $ 1,000 of assessed value. General Fund Non-principal residence exemption Commercial personal property Debt Service Funds School property taxes are assessed and collected in accordance with enabling state legislation by cities and townships within the School District s boundaries. Approximately 87% of the School District s tax roll lies within Huron County and 13% lies within Sanilac County.

30 Notes to Financial Statements The property tax levy runs from July 1 to June 30. Property taxes become a lien on the first day of the levy year and are due on or before September 14 or February 14. Collections are forwarded to the School District as collected by the assessing municipalities. Real property taxes uncollected as of March 1 are purchased by the County of Huron or the County of Sanilac and remitted to the School District by May 15. Investments Investments are stated at fair value based on a quoted market price. Certificates of deposit are stated at cost which approximates fair value. Inventories and Prepaid Items Inventories are valued at cost, on a first-in, first-out basis. Inventories of governmental funds are recorded as expenditures when consumed, rather than when purchased. Certain payments to vendors reflect costs applicable to future fiscal years. For such payments in governmental funds the School District follows the consumption method, and they therefore are capitalized as prepaid items in both district-wide and fund financial statements. Capital Assets Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated capital assets are recorded at their estimated fair market value at the date of donation. The School District defines capital assets as assets with an initial individual cost in excess of $5,000. Costs of normal repair and maintenance that do not add to the value or materially extend asset lives are not capitalized. The School District does not have infrastructure assets. Buildings, equipment, and vehicles are depreciated using the straight-line method over the following useful lives: Buildings and additions Equipment and furniture Buses and other vehicles years 5-20 years 8-10 years Deferred Outflows of Resources A deferred outflow of resources is a consumption of net position by the government that is applicable to a future reporting period. Compensated Absences Each teacher is allowed to accumulate up to a maximum of 100 compensated sick leave days. These sick days must be used during the school year. Any unused number of days over 100 from the current year will be paid out at $40 per day, with a maximum of $480 per year. This is paid prior to June 30; therefore, no liability is recorded for accumulated compensated absences. Long-term Obligations In the district-wide financial statements, longterm debt and other long-term obligations are reported as liabilities in the statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts during the current period. Deferred Inflows of Resources A deferred inflow of resources is an acquisition of net position by the government that is applicable to a future reporting period. For governmental funds this includes unavailable revenue in connection with receivables for revenues that are not considered available to liquidate liabilities of the current period. In the School District s fund financial statements, the face amount of the debt issued is reported as other financing sources. Premiums received on debt issuance are reported as other financing sources while discounts are reported as other financing uses. Fund Equity In the fund financial statements, governmental funds report fund balance in the following categories: Non-spendable - amounts that are not available in a spendable form. 4-13

31 Notes to Financial Statements Restricted amounts that are legally imposed or otherwise required by external parties to be used for a specific purpose. Committed amounts that have been formally set aside by the Board of Education for specific purposes. A fund balance commitment may be established, modified, or rescinded by a resolution of the Board of Education. Assigned amounts intended to be used for specific purposes, as determined by the Board of Education. The Board of Education has granted the Superintendent and the business manager the authority to assign funds. Residual amounts in governmental funds other than the general fund are automatically assigned by their nature. The following amounts have been assigned by the School Board for the described purposes: Athletics $ 100,866 Curriculum revision - math 57,036 Curriculum revision - english 75,450 Curriculum revision - science 72,875 Curriculum revision - social studies 62,877 Retirement 50,292 Technology 38,688 Unemployment 61, ,201 Unassigned all other resources; the remaining fund balances after non-spendable, restrictions, commitments and assignments. $ When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the School District s policy is to consider restricted funds spent first. When an expenditure is incurred for purposes for which committed, assigned, or unassigned amounts could be used, the School District s policy is to consider the funds to be spent in the following order: (1) committed, (2) assigned, (3) unassigned. The School District has not adopted a minimum fund balance policy. Eliminations and Reclassifications In the process of aggregating data for the statement of net position and the statement of activities, some amounts reported as interfund activity and balances in the funds were eliminated or reclassified. Interfund receivables and payables were eliminated to minimize the grossing up effect on assets and liabilities within the governmental activities column. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, as well as deferred inflows of deferred outflows of resources at the date of the financial statements and the reported amounts of revenue and expenditures during the reporting period. Actual results could differ from those estimates. Adoption of New Accounting Standards The Governmental Accounting Standards Board has issued Statement 68, Accounting and Financial Reporting for Pensions, and Statement 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. Statement 68 requires governments participating in public employee pension plans to recognize their portion of the longterm obligation for the pension benefits as a liability and to measure the annual costs of the pension benefits. The net pension liability is 4-14

32 Notes to Financial Statements recorded on the government-wide statements. Statement 71 amends Statement 68 to address an issue concerning transition provisions related to certain pension contributions made to defined benefit pension plans prior to implementation of Statement 68 by employers and non-employer contributing entities. Statements 68 and 71 are effective for the year ending. Upcoming Accounting and Reporting Changes The Governmental Accounting Standards Board ( The GASB ) has issued Statement No. 72 Fair Value Measurements and Applications. Statement 72 provides guidance for accounting and financial reporting issues related to fair value measurement. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The guidance establishes a three level hierarchy of inputs for valuation of fair value. The School District is evaluating the impact GASB 72 will have on its financial reporting. Statement 72 is effective for the year ending June 30, In addition, the Governmental Accounting Standards Board has released the following three Statements. Statement No. 73 Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statement 67 and 68. The first objective of this Statement is provide the readers of the financial statements information about the effects of the pensionrelated transactions on the financial statements of state and local government employers. It will assist in assessing the relationship between a government s inflows of resources and its total cost (including pension expense) of providing government services each period in addition to providing information about the government s pension obligation. The second objective of this Statement is to improve the information about financial support provided by certain nonemployer entities for pensions that are provided to the employees of other entities that are not within the scope of Statement No. 68. These requirements are effective for the fiscal year ending June 30, The third objective is to improve the quality of information associated with governments that hold assets accumulated for purposes of providing defined benefit pensions that are not within the scope of Statement 68 and to clarify the application of certain provisions of Statement No. 67 and 68. These requirements are effective for the fiscal year ending June 30, Statement No. 74 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans addresses the other postemployment benefits plans (OPEB) defined benefit and defined contribution administered through trusts. This Statement will improve the financial reporting primarily through enhanced note disclosures and schedules of required supplementary information that will be presented by OPEB plans that are administered through trusts. This information will enhance the transparency by providing information about measures of net OPEB liabilities and explanations of how and why those liabilities changed from year to year. Statement No. 74 is effective for the fiscal year ending June 30, Statement No. 75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined OPEB plans, this Statement identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee services. It also requires additional note disclosures and required supplementary information. Statement No. 75 is effective for the fiscal year ending June 30,