BERRIEN SPRINGS PUBLIC SCHOOLS FINANCIAL REPORT. June 30, 2016

Transcription

1 FINANCIAL REPORT June 30, 2016

2 FINANCIAL REPORT June 30, 2016 CONTENTS Page MANAGEMENT DISCUSSION AND ANALYSIS... I-VIII INDEPENDENT AUDITOR S REPORT BASIC FINANCIAL STATEMENTS District-Wide Financial Statements: Statement of Net Position... 4 Statement of Activities... 5 Fund Financial Statements: Balance Sheet - Governmental Funds... 6 Reconciliation of Governmental Fund Balances to Net Position of Governmental Activities... 7 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds... 8 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities... 9 Fiduciary Fund: Statement of Fiduciary Net Position Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION: Schedule of District s Proportionate Share of the Net Pension Liability Schedule of the District s Contributions Notes to Required Supplementary Information Budgetary Comparison Schedule - General Fund OTHER SUPPLEMENTAL INFORMATION: Combining Balance Sheet - Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds... 32

3 OTHER SUPPLEMENTARY INFORMATION CONTINUED: General Fund: Page Schedule of Revenues - Budget and Actual Schedule of Expenditures - Budget and Actual Special Revenue Funds: Combining Balance Sheet Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Debt Service Funds: Combining Balance Sheet Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Agency Funds: Combining Balance Sheet Detail of Bonded Debt: 2006 Energy Conservation Improvement Bond Qualified Zone Academy Bonds Refunded Issue Summary of Principal and Interest Requirements to Maturity: 2015 Refunding Debt Issue QZAB Amortization Schedule QZAB Amortization Schedule QZAB Amortization Schedule QSCB Amortization Schedule Federal Programs: 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 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs

4 MANAGEMENT DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2016 This section of the 2016 annual financial report presents administration s discussion and analysis of the District s financial performance during the fiscal year. FINANCIAL HIGHLIGHTS Berrien Springs Public Schools is a K-12 school district located in Berrien County in Southwest Michigan. The accompanying financial statements are completed in compliance with the provisions of accounting principles generally accepted in the United State of America (GAAP). The condition of the district funds and governmental activities continue to improve. The assets of the Berrien Springs Public School District exceeded liabilities at the close of the most recent fiscal year by $498,158, showing a positive net position in the Governmental Fund Balance. This is an increase from the previous year in the amount of $4,374,611. The liability and associated expense are only reported on the government-wide financial statements (Statement of Net Position and Statement of Activities) and are not included in the modified accrual fund level statements. As required by the Government Accounting Standards Board (GASB) the District adopted Statement Nos. 68 and 71. These standards required the inclusion of the District s proportionate share of the obligations related to the Michigan Public School Employees Retirement Plan in the District s financial statements. The net pension liability is the amount of the total pension benefit that is not funded by investment assets of the plan. This pension liability is reduced over time through the contribution rates and the system is designed to eliminate the liability over time (currently 24 more years). The effect of this reporting is to decrease the District s net position. The Districts proportionate share of the MPSERS net pension liability at September 30, 2015 (MPSERS plan fiscal year) is $31,088,812. The proportionate share of the pension liability is provided by MPSERS as a percentage of all public school employers in the state based on employer contributions during the fiscal year. Of the total net position of $498,158, there is a deficit of $16,442,756 in unrestricted net position. It is noted that the total net position includes the District s proportionate share of the MPERS net pension liability and is only reported on the government-wide financial statements. The District s general fund balance as of June 30, 2016 was $9,890,070. This is an increase of $3,058,048. The increase represents the degree to which revenue has exceeded on-going expenditures. I

5 Tables 1 and 2 show the actual revenues and expenditures vs. the budgeted figures, over a fiveyear time period. Table 1 Revenue Variance (Actual Received to Budget) Year Budget Actual Variance $21,305,978 $21,288, % $22,500,635 $22,464, % $24,344,206 $24,270, % $29,770,702 $29,760, % $33,476,337 $33,457, % 5 Year Average is -.12% Variance Table 2 Expenditure Variance (Actual Spent to Budget) Year Budget Actual Variance $21,603,761 $20,957, % $22,500,635 $21,700, % $25,454,584 $24,529, % $30,006,025 $28,554, % $32,315,534 $30,399, % 5 Year Average is -4.26% Variance USING THIS ANNUAL REPORT This annual report consists of a series of financial statements and notes to those statements. The statements are organized so the reader can understand the District as a whole (government-wide statements), and then they proceed to provide an increasingly detailed look at specific financial activities. Financial Reports Basic Financial Statements District-Wide Financial Statements Fund Financial Statements Fiduciary Fund Notes to Financial Statements Required Supplementary Information Schedule of Proportionate Share of the Net Pension Liability Schedule of the Reporting Unit s Contributions Notes to Required Supplementary Information Budgetary Comparison Schedules Other Supplemental Information Combining Balance Sheet Non-Major Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Non-Major Governmental Funds Schedule of Bonded Indebtedness II

6 Reporting the District as a Whole (District-Wide Financial Statements) The Statement of Net Position and Statement of Activities One of the first questions asked about the District s finances is, Is the District in better or worse condition this fiscal reporting year? The Statement of Net Position and The Statement of Activities report information about the District as a whole and about its activities in a manner that helps to answer this question. The statements include all assets and liabilities of the District, using the accrual basis of accounting similar to corporate accounting. All of the current year s revenues and expenses are taken into consideration regardless of when cash is received or paid. Both of the government-wide financial statements include instruction, support services, transfers to local districts and debt, capital projects and school service accounts (which includes food service). The two statements report the District s net assets and changes in them. The change in net position assists the reader in determining whether the District s financial health is improving or deteriorating. The reader will need to consider other non-financial factors such as property tax base, student enrollment growth, birth rates and facility conditions in arriving at their conclusion regarding the overall well-being of the District. Another factor to consider when comparing the net position from last year to this year is the impact that the new GASB 68 reporting for the pension liability had on the District s net position. The government-wide financial reports can be found on pages 3 and 4 of this report. The following summarizes the net position at fiscal year ended June 30, 2016: III

7 Table 3 SUMMARY OF NET POSITION June 30, 2015 June 30, 2016 Assets Current Assets $11,122,293 $16,599,936 Restricted Cash $ 2,245,767 $ 963,312 Capital Assets 34,006,544 36,729,853 Less: Accumulated depreciation (12,564,806) (13,863,667) Capital assets, net book value $23,687,505 $23,829,498 Total Assets $34,809,798 $40,429,434 Deferred Outflow of Resources-Pension 2,835,869 4,885,530 Total Assets and Deferred Outflow of Resources $37,645,667 $45,314,964 Liabilities Current Liabilities $ 3,827,196 $ 4,351,481 Long-Term Liabilities 34,890,037 40,362,350 Total Liabilities $38,717,233 $44,713,831 Deferred Inflow of Resources-Pension 2,804, ,975 Net Position Net Investment in Capital Assets $11,119,740 $12,840,565 Restricted for Debt Service 2,302,893 2,705,345 Restricted for Capital Additions 1,142,740 1,288,475 Restricted for School Lunch 96, ,529 Unrestricted (18,538,411) (16,442,756) Total Net Position $ (3,876,453) $ 498,158 Total Liabilities, Deferred Inflows of Resources and Net Position $37,645,667 $45,314,964 The above report focuses on the net position (see Table 3). The District s net position was $498,158 as of June 30, Net investment in capital assets totaled $12,840,565. This compares the original cost, less depreciation of the District s capital assets, to long-term debt used to finance the acquisition of those assets. Most of the debt will be repaid by property taxes (voter approved in September, 1999) that are collected annually and Qualified Zone Academy Bonds that will be repaid by annual payments to debt sinking funds. Restricted net assets, totaling $4,100,349 are reported separately because of legal restraints from using those net assets for daily operations. There are unrestricted net assets in the amount of ($16,442,756). The effect of the GASB 68 pension reporting on the unrestricted net position is a decrease of $26,306,257. The increase in net position from the previous year is $7,669,297. The ($16,442,756) reported in unrestricted net assets of governmental activities includes the new GASB 68 reporting in the amount of ($26,306,257) and the remaining $9,863,501 is the accumulated result of past years operations. Keep in mind; this is a district-wide report, mirroring corporate accounting. The governmental fund accounting operating balance is $9,890,070 (consisting of $9,841,577 unassigned and $48,493 non-spendable.) This is used for working capital and cash flow needs. IV

8 Table 4 STATEMENT OF ACTIVITIES For the fiscal years ended June 30, 2015 and 2016, the District-Wide results of operations were: June 30, 2015 June 30, 2016 % of Change General Revenue: Property Taxes Levied for General Purposes $ 1,697,590 $ 1,686, % State of Michigan Aid, Unrestricted 21,508,439 25,475, % Property Taxes Levied for Debt Service 657, , % Property Taxes Levied for Sinking Fund 356, , % Interest and Investment Earnings 36,659 48, % Loss/Gain on Sale of Assets (1,854) 6, % Other - Local, State and Federal 351, , % Total General Revenue $ 24,605,890 $ 28,726,730 Program Revenue: (Notation Purposes Only) Charges for Services - Local $1,403,401 $1,347,444 Operating Grants - Federal and State 5,297,692 5,311,791 Total Program Revenue $6,701,093 $6,659,235 Expenses: Instruction and Instructional Support $ (9,352,596) $ (10,868,961) 16.21% Support Services (9,317,563) (8,803,782) -5.51% Athletics (363,049) (381,922) 5.20% Food Services (8,148) 37, % Community Services (1,853,949) (2,128,514) 12.90% Capital Outlay - (50,263) % Interest on Long-Term Debt (118,461) (600,305) % Depreciation (Unallocated) (1,071,572) (1,527,267) 42.53% Other - (28,830) % Total Expenses $(22,085,338) $(24,352,119) Decrease/Increase in Net Position $ 2,520,552 $ 4,374,611 The cost of all governmental activities this year was $24,352,119. Included in the interest longterm debt is the remaining balance of amortized premium on the 2005 debt that was retired due to refinancing the bond. Not included are charges for certain activities ($1,347,444) and federal and state operating grants ($5,311,791). The revenues of $28,726,730 are mainly from local property taxes and unrestricted state aid. Each year it is necessary to carefully evaluate the amount of revenues expected and the financial needs of the District. Analysis of Financial Position During fiscal year ended June 30, 2016, the District s net position increased by $4,374,611. The increase is mostly due to the following factors: Capital/Building and Site Improvements Increase in Enrollment - State Aid V

9 GASB 34 requires districts to maintain a record of annual depreciation expense and accumulated depreciation. The District s annual increase in accumulated depreciation of $1,527,267, less additional capital outlay in the amount of $2,951,717, caused an increase in net position of $1,424,450. Capital assets purchased or acquired are capitalized at historical cost for GASB 34 compliance. Donated fixed assets are valued at their estimated fair market value on the date received. Improvements (not repairs or maintenance) are capitalized and depreciated over the remaining useful lives of the related fixed assets. Depreciation on all assets is provided on the straight-line basis over the estimated useful lives as follows: Buildings and additions Buses and other vehicles Furniture and other equipment years 5-10 years 5-20 years Administration shall determine a capitalization threshold, which ensures that at least 80% of the value of assets (with useful lives greater than one year) is reported; however, the threshold should not be greater than $5,000 (the federal threshold). Administration maintains more detailed records for insurance and fund reporting purposes. To stay even in net assets, the District would need to capitalize the amount of depreciation during the year. Reporting the District s Most Significant Funds Fund Financial Statements The fund level financial statements are reported on a modified accrual basis. Only assets that are measurable and currently available are reported. Liabilities are recognized to the extent that they are normally expected to be paid with current financial resources. The fund financial statements begin on page 6 and provide detailed information about the most significant funds, not the District as a whole. The analysis of the District s major funds begins on page 38. The fund statements must comply with the legal requirements of the Michigan Department of Education s Accounting Manual. The District s two types of funds, governmental funds and fiduciary funds, use different accounting approaches as further discussed in the notes to the financial statements. In the fund financial statements, capital assets purchased by cash are reported as expenditures in the year of acquisition. No assets are reported and the issuance of debt is recorded as a financial resource. The current year s principal and interest payments on long-term obligations are recorded as expenditures. Future years debt obligations are not reported. VI

10 For the year , the District s governmental funds reported a combined fund balance of $13,992,618, an increase of $3,614,483 from the prior year. The changes are as follows: Table 5 Fund Balance General Fund Special Revenue Debt Funds Capital Funds Total 07/01/15 $6,832,022 $100,328 $2,303,045 $1,142,740 $10,378,135 Increase/Decrease $3,058,048 $8,924 $401,776 $145,735 $3,614,483 06/30/16 $9,890,070 $109,252 $2,704,821 $1,288,475 $13,992,618 Fiduciary Funds The District is the fiduciary for various student group activities. They are reported in the Statement of Fiduciary Net Position on Page 10. These activities are not included in the District s other financial statements because the assets cannot be used by the District to finance its operations. Factors Bearing on the District s Future: With a general fund balance of $9,890,070 as of June 30, 2016, this District has a solid financial foundation going into the next fiscal year. Berrien Springs Public Schools continue to attract new students due to the wide variety of educational programs and delivery methods we offer. The District is again expanding off-site programs for the school year that offer education to many populations that have often been neglected services because of difficult situations. The District is continuing to benefit from programs designed to serve our campus population and off-site locations through our alternative education model. The District has also benefited from taking advantage of opportunities to cut costs through privatizing custodial services, implementing the state imposed insurance hard cap co-pay, and eliminating programs that are no longer effective. The District continues to expand programs to offer all students a choice to tailor their education to their needs. The District has invested a large amount of capital and resources to implement the PLTW (Project Lead the Way) curriculum. This is a science, technology, math and engineering project based curriculum that will be offered to students through a selective application process. The District has purchased and renovated a facility dedicated to this program and it has already had many favorable reviews from students and parents. The PLTW elementary level curriculum is being expanded in our elementary grades for the school year. VII

11 Table 7 (K-12 Fall Student Headcount) Funding from the State has been increased by $120 per student for the school year. The District anticipates student enrollment to remain stable for the on-campus population and will be increasing the number of districts that are served off-site by Berrien Springs alternative education programs. These off-site programs have provided the District with enhanced revenue sources to maintain quality educational programming for our constituents. The Board of Education is committed to maintaining the fund balance at 15% or more. The Board s philosophy has been to maintain an excellent school system, and is expanding programs from which students can choose how they are educated by providing virtual learning either fulltime or part-time, accelerated or extended education options along with traditional classroom education. VIII

12 September 23, 2016 INDEPENDENT AUDITOR S REPORT To the Board of Education Berrien Springs Public Schools Berrien Springs, 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 Berrien Springs Public Schools, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the 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. 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. 1

13 INDEPENDENT AUDITOR S REPORT - Continued 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 Berrien Springs Public Schools, as of June 30, 2016, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 7 to the financial statements, in 2015 the District adopted new accounting guidance, GASB Statement No. 68, Accounting and Financial Reporting for Pensions. Our opinion is 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, pension defined benefit information, and budgetary comparison information on pages I through VIII and 30 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 Berrien Springs Public Schools basic financial statements. The combining and individual nonmajor fund financial statements and supporting schedules are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The schedule of expenditures of federal awards 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 schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. The combining and individual nonmajor fund financial statements and supporting schedules have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. 2

14

15 Statement of Net Position June 30, 2016 Governmental Governmental Activities Activities Assets Liabilities Current Assets Current Liabilities Cash and cash equivalents $ 9,990,782 Accounts payable $ 709,216 Investments 624,874 Accrued salaries and withholding 2,325,466 Accounts receivable 14,501 Accrued interest 33,919 Taxes receivable 6,811 Due to other governmental units 174,006 Due from other governmental units 5,911,752 Unearned revenue 325,653 Inventory 51,216 Bonds payable, due within one year - NOTE 4 665,600 Compensated absences and severance pay - current - NOTE 4 31,138 Contracts payable, due within one year - NOTE 4 86,483 Total Current Assets $ 16,599,936 Total Current Liabilities $ 4,351,481 Noncurrent Liabilities Bonds payable - NOTE 4 $ 8,133,288 Bonds payable from restricted assets - NOTE 4 963,312 Contracts payable - NOTE 4 176,938 Net pension liability - NOTE 7 31,088,812 Noncurrent Assets Total Noncurrent Liabilities $ 40,362,350 Restricted cash $ 963,312 Capital assets: Nondepreciable 248,989 Total Liabilities $ 44,713,831 Depreciable, net of accumulated depreciation 22,617,197 Deferred Inflow of Resources - Pension - NOTE 7 $ 102,975 Total Noncurrent Assets $ 23,829,498 Net Position Total Assets $ 40,429,434 Net investment in capital assets $ 12,840,565 Restricted for debt service 2,705,345 Deferred Outflow of Resources - Pension - NOTE 7 4,885,530 Restricted for capital additions 1,288,475 Restricted for school lunch 106,529 Unrestricted (16,442,756) Total Net Position $ 498,158 TOTAL LIABILITIES, DEFERRED INFLOW OF RESOURCES, TOTAL ASSETS AND DEFERRED OUTFLOW OF RESOURCES $ 45,314,964 AND NET POSITION $ 45,314,964 The accompanying notes are an integral part of these financial statements. 4

16 Statement of Activities June 30, 2016 Functions/Programs Governmental Activities: Instruction and instructional support 16,550,579 Governmental Program Revenues Activities Net (Expense) Revenue and Charges for Operating Changes in Net Expenses Service Grants Position $ $ 1,139,596 $ 4,542,022 $ (10,868,961) Support services 8,803, (8,803,782) Athletics 416,509 34,587 - (381,922) Food services 850, , ,822 37,725 Community services 2,128, (2,128,514) Capital outlay 50, (50,263) Interest on long-term debt 655,252-54,947 (600,305) Depreciation (unallocated) 1,527, (1,527,267) Other 28, (28,830) Total Governmental Activities $ 31,011,354 $ 1,347,444 $ 5,311,791 $ (24,352,119) General Revenues: Taxes: Property taxes, levied for general operations $ 1,686,933 Property taxes, levied for capital projects 349,908 Property taxes, levied for debt service 660,031 State of Michigan aid, unrestricted 25,475,028 Interest and investment earnings 48,748 Gain on sale of capital assets 6,650 Other 499,432 Total General Revenues $ 28,726,730 Change In Net Position $ 4,374,611 Net Position, Beginning of Year (3,876,453) NET POSITION, END OF YEAR $ 498,158 The accompanying notes are an integral part of these financial statements. 5

17 Balance Sheet Governmental Funds June 30, 2016 Nonmajor Total Governmental Governmental General Funds Funds Assets Cash and cash equivalents $ 7,434,057 $ 2,556,725 $ 9,990,782 Restricted cash - 963, ,312 Investments - 624, ,874 Accounts receivable 14,501-14,501 Due from other funds 51,062 3,280 54,342 Due from other governmental units 5,878,145 33,607 5,911,752 Inventory 48,493 2,723 51,216 TOTAL ASSETS $ 13,426,258 $ 4,184,521 $ 17,610,779 Liabilities and Fund Balances Liabilities Accounts payable $ 708,868 $ 348 $ 709,216 Salaries and benefits payable 2,324,385 1,081 2,325,466 Interest payable - 29,478 29,478 Due to other funds 3,280 51,062 54,342 Due to other governmental units 174, ,006 Unearned revenues 325, ,653 Total Liabilities $ 3,536,188 $ 81,973 $ 3,618,161 Fund Balances Nonspendable: Inventory $ 48,493 $ 2,723 $ 51,216 Restricted for: Debt service - 2,705,345 2,705,345 Capital projects - 1,288,475 1,288,475 School lunch - 106, ,529 Assigned for: Debt service Unassigned 9,841,577 (524) 9,841,053 Total Fund Balances $ 9,890,070 $ 4,102,548 $ 13,992,618 TOTAL LIABILITIES AND FUND BALANCES $ 13,426,258 $ 4,184,521 $ 17,610,779 The accompanying notes are an integral part of these financial statements. 6

18 Reconciliation of Governmental Fund Balances to Net Position of Governmental Activities Year Ended June 30, 2016 Total Governmental Fund Balances $ 13,992,618 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources, and are not reported in the funds. The cost of the capital assets is $ 36,729,853 Accumulated depreciation (13,863,667) 22,866,186 Long-term liabilities are not due and payable in the current period and are not reported in the funds. Bonds payable, including unamortized premiums (9,762,200) Compensated absences and severance plan (31,138) Contracts payable (263,421) Net pension liability (31,088,812) Pension deferred inflow and outflow of resources are not financial resources, and are not reported in the funds. Deferred outflow of resources 4,885,530 Deferred inflow of resources (102,975) Balance of taxes receivable at June 30, 2016 less amounts to be collected within 60 days. 6,811 Accrued interest is not included as a liability in governmental funds. (4,441) Net Position of Governmental Activities $ 498,158 The accompanying notes are an integral part of these financial statements. 7

19 Revenues: Local sources: Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended June 30, 2016 Nonmajor Total Governmental Governmental General Funds Funds Property taxes $ 1,687,067 $ 1,009,939 $ 2,697,006 Interest earned 22,626 26,122 48,748 Charges for services 46, , ,958 Other local revenue 269, ,864 Noneducational entity 213, ,049 State sources: Unrestricted 25,475,028-25,475,028 State operating grants 3,569,733 35,080 3,604,813 Federal sources: Federal operating grants 972, ,689 1,706,978 Interdistrict sources: Charges for services 1,127,486-1,127,486 Other interdistrict revenue 16,519-16,519 Total Revenues $ 33,400,358 $ 1,979,091 $ 35,379,449 Expenditures: Instruction $ 16,012,814 $ - $ 16,012,814 Supporting services 11,657,570-11,657,570 Food services - 829, ,224 Community services 2,111,498-2,111,498 Facility acquisition and improvements 167, ,328 Total Expenditures $ 29,949,210 $ 829,224 $ 30,778,434 Excess of Revenues Over Expenditures $ 3,451,148 $ 1,149,867 $ 4,601,015 Other Financing Sources (Uses): Transfers in $ 50,598 $ 543,955 $ 594,553 Transfers out (331,022) (263,531) (594,553) Bond refinancing costs - (49,946) (49,946) Debt Service: Principal (85,185) (695,600) (780,785) Interest and fiscal charges (5,311) (128,310) (133,621) Other (28,830) - (28,830) Gain on sale of capital assets 6,650-6,650 Total Other Financing Sources (Uses) $ (393,100) $ (593,432) $ (986,532) Net Change in Fund Balances $ 3,058,048 $ 556,435 $ 3,614,483 Fund Balances - July 1, ,832,022 3,546,113 10,378,135 FUND BALANCES - JUNE 30, 2016 $ 9,890,070 $ 4,102,548 $ 13,992,618 The accompanying notes are an integral part of these financial statements. 8

20 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year Ended June 30, 2016 Net Change in Fund Balance - Total Governmental Funds $ 3,614,483 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures; in the statement of activities, these costs are allocated over their estimated lives as depreciation. Depreciation Expense $ (1,527,267) Capital Outlay 2,951,717 1,424,450 Principal and interest on long-term debt is recorded in the statement of activities but not the governmental funds. Changes in compensated absences are recorded in the statement of activities but not the governmental funds. Delinquent personal property taxes are recorded in the statement of activities but not the governmental funds. Changes in the pension liability are recorded in the statement of activities but not the governmental funds. 309,100 (8,072) (134) (965,216) Changes in Net Position of Governmental Activities $ 4,374,611 The accompanying notes are an integral part of these financial statements. 9

21 Statement of Fiduciary Net Position June 30, 2016 Agency Funds Assets Cash $ 229,999 Liabilities Due to student groups $ 229,999 The accompanying notes are an integral part of these financial statements. 10

22 Notes to Financial Statements June 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of Berrien Springs Public Schools (the District ) conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to government units. The following is a summary of the significant accounting policies used by the District: A. Reporting Entity The 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 District's reporting entity, and which organizations are legally separate component units of the District. Based on the application of the criteria, the District does not contain any component units. B. Basic Financial Statements: Government-Wide Statements - The District s basic financial statements include both government-wide (reporting the District as a whole) and fund financial statements (reporting the District s major funds). The government-wide financial statements categorize nonfiduciary activities of the primary government as either governmental or business-type. All of the District s activities are classified as governmental activities. In the government-wide Statement of Net Position, the governmental activities column is (a) presented on a consolidated basis, and (b) reported on a full accrual, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. The government-wide Statement of Activities reports both the gross and net cost of each of the District s functions. The functions are also supported by general government revenues (property taxes, certain intergovernmental revenues, interest, and charges, etc.). 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 operating-specific 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 government-wide financial statements, the District has eliminated interfund transactions. This government-wide focus is more on the sustainability of the District as an entity and the change in the District s net position resulting from the current year s activities. 11

23 Notes to Financial Statements June 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B. Basic Financial Statements - Continued: The District reports three categories of net position, as follows: Net Investment in Capital Assets - consists of net capital assets reduced by outstanding balances of any related debt obligations and deferred inflows of resources attributable to the acquisition, construction, or improvement of those assets and increase by balances of deferred outflows of resources to those assets. Restricted Net Position - Net position is considered restricted if their use is constrained to a particular purpose. Restrictions are imposed by external organizations such as federal or state laws or buyers of the District's bonds. Restricted net position is reduced by liabilities and deferred inflows of resources related to the restricted assets. Unrestricted Net Position - consists of all other net position that does not meet the definition of the above two components and is available for general use by the District. Fund Statements - The accounts of the District are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund balance, revenue, and expenditures. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Fund balance is comprised of five classifications as follows: Nonspendable Fund Balance - The nonspendable fund balance category represents amounts that are not in a spendable form or are required to be maintained intact. Restricted Fund Balance - The restricted fund balance category represents amounts constrained to specific purposes by their providers, through constitutional provisions, or by enabling legislation. Committed Fund Balance - The committed fund balance category represents amounts constrained to specific purposes by the Board; to be reported as committed, amounts cannot be used for any other purpose unless the Board takes action to remove or change the constraint. Assigned Fund Balance - The assigned fund balance category represents amounts the Board intends to use for a specific purpose; intent can be expressed by the Board or by an official or committee to which the Board delegates the authority. Unassigned Fund Balance - The unassigned fund balance category represents amounts that are available for any purpose; these amounts are reported only in the General Fund. The District applies restricted resources first when expenditures are incurred for purposes for which either restricted or unrestricted (committed, assigned, and unassigned) amounts are available. Similarly, within unrestricted fund balance, committed amounts are reduced first followed by assigned, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used. 12

24 Notes to Financial Statements June 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B. Basic Financial Statements - Continued: Governmental funds are defined as follows: General Fund - The General Fund is the general operating fund of the District. It is used to account for all financial resources except those required to be accounted for in another fund. Special Revenue Funds - Special Revenue Funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. Debt Service Funds - Debt Service Funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest. Capital Projects Fund - The Capital Projects Fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Fiduciary funds are defined as follows: Agency Funds - Agency Funds are used to account for assets held by the District as an agent for student activity organizations. Agency Funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. C. Basis of Accounting: Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. ACCRUAL Governmental activities in the government-wide financial statements are presented on the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred. MODIFIED ACCRUAL The governmental funds financial statements are presented on the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when they become measurable and available. Available means collectible in cash within the current period (unless legally restricted for some future period) or soon enough thereafter to be used to pay liabilities of the current period. Berrien Springs Public Schools considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred, provided the liability normally would be liquidated with expendable available financial resources. D. Encumbrances: Encumbrance accounting provides for the recording of purchase orders, contracts, and other commitments that have not been performed. The recording facilitates the reservation of the corresponding appropriation. No encumbrances were required to be recorded at June 30,

25 Notes to Financial Statements June 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued E. Budgets and Budgetary Accounting: The District follows these procedures in establishing the budgetary data reflected in the financial statements: G. Inventory: Prior to June 30, the superintendent of the District submits to the school board a proposed operating budget for the fiscal year commencing July 1 of that year. The operating budget includes proposed expenditures and the means of financing them for the General Fund, Special Revenue, Capital Projects, and Debt Service Funds. Prior to July 1, the budget is legally enacted through passage of a resolution, and in accordance with Public Act 621 of the State. Formal budgetary integration is employed as a management control device during the year for all budgetary funds. The District is required under Public Act 621 of 1978 and by accounting principles generally accepted in the United States of America to adopt a budget for the General Fund and any major Special Revenue Funds. Budget amounts are reported in the financial statements as originally adopted and as amended by the Board of Education. F. Cash and Cash Equivalents: For the purposes of balance sheet classification, the District considers its investments in highly liquid pooled money funds to be cash equivalents. Inventory is valued at the lower of cost (first-in, first-out) or market. Inventory in the General Fund consists of expendable supplies held for consumption. The cost is recorded as an expenditure at the time inventory items are purchased. H. Compensated Absences: Compensated absences is the liability for accrued vacation days of the support staff that can be carried over one year and will be paid out at termination. Deferred Outflows of Resources: The District reports decreases in net assets that relate to future periods as deferred outflows of resources in a separate section of its government-wide Statements of Net Position. The only deferred outflows of resources reported in this year's financial statements are deferred amounts related to the District's pension plan as discussed in Note 7. Deferred Inflows of Resources: The District's Statements of Net Position and its Governmental Fund Balance Sheet report a separate section for deferred inflows of resources. This separate financial statement element reflects an increase in net assets that applies to a future period. The only deferred inflows of resources reported in this year's financial statements are deferred amounts related to the District's pension plan as discussed in Note 7. 14

26 Notes to Financial Statements June 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued I. Capital Assets: Capital assets are defined by the District as assets with an initial individual cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost. Donated fixed assets are valued at their estimated fair market value on the date received. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Improvements are capitalized and depreciated over the remaining lives of the related fixed assets. Depreciation on all assets is provided on the straight-line basis over the estimated useful lives as follows: Building and site improvements Buses and other vehicles Furniture and equipment Leasehold improvements 5-50 years 5-10 years 5-20 years 3-5 years J. Property Tax Revenue: Property taxes attach as an enforceable lien on property as of December 31, and are levied on the following December 1. Property taxes become available for expenditure and are thus recognized as revenue in the fiscal year they are levied. K. Risk Management: The District carries commercial insurance for risks of loss, including torts; theft of, damage to, and destruction of assets; errors and omissions; workers compensation and employee health and accident insurance. The District has purchased commercial insurance for each of these risks, and participates in the SET-SEG (risk pool) for claims relating to worker's compensation and property/casual claims. Settled claims resulting from these risks have not exceeded commercial insurance coverage in the past fiscal year. The shared-risk pool program in which the District participates operates as a common risk-sharing management program for school districts in Michigan; member premiums are used to purchase commercial excess insurance coverage and to pay member claims in excess of deductible amounts. The pool does not maintain separate funds for members and consequently the District's share of total assets and total equity is unknown. Audited financial statements of the fund are available. The District made a contribution of $231,635 to the pool during the June 30, 2016 fiscal year. L. Total Columns on Combined Statements: Total columns on the Combined Statements are captioned Memorandum Only to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position, results of operations, or changes in financial position in conformity with accounting principles generally accepted in the United States of America. Neither is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. 15

27 Notes to Financial Statements June 30, 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued M. 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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. N. 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. NOTE 2 - DEPOSITS AND INVESTMENTS State statute and the District's investment policy authorizes the District to make deposits and invest in the accounts of federally insured banks, credit unions, and savings and loans associations that have offices in Michigan. The District is allowed to invest in bonds, securities, and other direct obligations of the United States or any agency or instrumentality of the United States; repurchase agreements; bankers' acceptances of United States banks; commercial paper rated within the two highest classifications, which matures not more than 270 days after the date of purchase; obligations of the State of Michigan or its political subdivisions, which are rated as investment grade; and mutual funds composed of investment vehicles that are legal for direct investment by school districts in Michigan. The District has designated four financial institutions for the deposits of its funds and are subject to the following risk: Custodial Credit Risk - Deposits - Custodial credit risk is the risk that in the event of a bank failure, the District s deposits may not be returned to it. The District does not have a deposit policy for custodial credit risk. As of June 30, 2016, the carrying value of the deposits was $5,490,605 and the respective bank balance totaled $6,856,873. Of the total bank balance, the FDIC covered $1,000,000, leaving $4,490,605 uninsured. The District voluntarily invests certain excess funds in an external pooled investment fund, the Michigan Investment Liquid Asset Fund (MILAF). As of June 30, 2016, the fair value of the District's investments is $4,952,096, the same as the value of the pool shares. This investment is subject to several types of risk, as listed below: Credit Risk - The issuer of a security could fail to pay interest or principal in a timely matter. The credit quality of the MILAF+ Portfolio's holdings could change rapidly in certain markets, and the default or decline in credit quality of even a single investment could cause the Portfolio's share price to fall. The District's investment policy does not directly address credit risk. The District's investments in MILAF were rated AAAm by Standard and Poor's rating services. Interest Rate Risk - When short-term interest rates fall, the MILAF+ Portfolio's yield is likely to fall. When interest rates rise, especially if the rise is sharp or unexpected, the Portfolio's share price could fall. The District's investment policy does not directly address interest rate risk. The weighted average maturity of its investments is 72 days. 16