COVINA-VALLEY UNIFIED SCHOOL DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2016

Transcription

1 ANNUAL FINANCIAL REPORT

2 TABLE OF CONTENTS FINANCIAL SECTION Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 17 Statement of Activities 18 Fund Financial Statements Governmental Funds - Balance Sheet 19 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 20 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 22 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 23 Proprietary Funds - Statement of Net Position 25 Proprietary Funds - Statement of Revenues, Expenses, and Changes in Fund Net Position 26 Proprietary Funds - Statement of Cash Flows 27 Fiduciary Funds - Statement of Net Position 28 Notes to Financial Statements 29 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 73 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 74 Schedule of the District's Proportionate Share of the Net Pension Liability 75 Schedule of District Contributions 76 Note to Required Supplementary Information 77 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 79 Local Education Agency Organization Structure 81 Schedule of Average Daily Attendance 82 Schedule of Instructional Time 83 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 84 Schedule of Financial Trends and Analysis 85 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 86 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 87 General Fund Selected Financial Information 88 Note to Supplementary Information 89

3 TABLE OF CONTENTS INDEPENDENT AUDITOR'S REPORTS 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 92 Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance 94 Report on State Compliance 97 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 101 Financial Statement Findings 102 Federal Awards Findings and Questioned Costs 103 State Awards Findings and Questioned Costs 107 Summary Schedule of Prior Audit Findings 110 Management Letter 111

4 FINANCIAL SECTION 1

5 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITOR'S REPORT Governing Board Covina-Valley Unified School District Covina, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Covina-Valley Unified School District (the District) 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; and the Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, issued by the California Education Audit Appeals Panel as regulations. 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 District'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 District'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 Foothill Blvd., Suite 300 Rancho Cucamonga, CA Tel: Fax:

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, the business-type activities, each major fund, and the aggregate remaining fund information of the Covina-Valley Unified School District, as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Change in Accounting Principles As discussed in Note 17 to the financial statements, in 2016, the District began receiving a dedicated revenue source for its Adult Education Fund. As a result, the Adult Education Fund meets the definition of a special revenue fund under GASB Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definition and is reported accordingly. 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 on pages 5 through 16, budgetary comparison schedule on page 73, schedule of other postemployment benefits funding progress on page 74, schedule of the District's proportionate share of the net pension liability on page 75, and the schedule of District contributions on page 76, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Covina-Valley Unified School District's basic financial statements. The accompanying supplementary information such as the combining and individual non-major fund financial statements and Schedule of Expenditures of Federal Awards, 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 the other supplementary information as listed on the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying supplementary information 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, Schedule of Expenditures of Federal Awards and accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3

7 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 12, 2016, on our consideration of the Covina-Valley Unified School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Covina-Valley Unified School District's internal control over financial reporting and compliance. Rancho Cucamonga, California December 12,

8 District Superintendent Richard M. Sheehan, Ed.D. Board of Education Sonia Frasquillo Charles M. Kemp Sue L. Maulucci Darrell A. Myrick Richard M. White This section of Covina-Valley Unified School District's (the District) annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, 2016, with comparative information for the year ending June 30, Please read it in conjunction with the District's financial statements, which immediately follow this section. OVERVIEW OF THE FINANCIAL STATEMENTS The Financial Statements The financial statements presented herein include all of the activities of the District and its component units using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement No. 34. The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities and business-type activities separately. These statements include all assets of the District (including capital assets), as well as all liabilities (including long-term obligations). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables, and receivables. Governmental and Business-Type Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. The Fund Financial Statements include statements for each of the three categories of activities: governmental, proprietary, and fiduciary. The Governmental Funds are prepared using the current financial resources measurement focus and modified accrual basis of accounting. The Proprietary Funds are prepared using the economic resources measurement focus and the accrual basis of accounting. The Fiduciary Funds are prepared using the economic resources measurement focus and the accrual basis of accounting. Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach. The Primary unit of the government is the Covina-Valley Unified School District E. Badillo Street Covina, California FAX

9 MANAGEMENT'S DISCUSSION AND ANALYSIS REPORTING THE DISTRICT AS A WHOLE The Statement of Net Position and the Statement of Activities The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the District's net position and changes in them. Net position is the difference between assets and deferred outflows of resources, and liabilities and deferred inflows of resources, which is one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net position will serve as a useful indicator of whether the financial position of the District is improving or deteriorating. Other factors to consider are changes in the District's property tax base and the condition of the District's facilities. The relationship between revenues and expenses is the District's operating results. Since the governing board's responsibility is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation. In the Statement of Net Position and the Statement of Activities, we separate the District activities as follows: Governmental Activities - Most of the District's services are reported in this category. This includes the education of kindergarten through grade twelve students, adult education students, the operation of child development activities, and the on-going effort to improve and maintain buildings and sites. Property taxes, State income taxes, user fees, interest income, Federal, State, and local grants, as well as general obligation bonds, finance these activities. Business-Type Activities - The District charges fees to help it cover the costs of certain services it provides. The District's Daycare Before and After School programs and services are included here. REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS Fund Financial Statements The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education. 6

10 MANAGEMENT'S DISCUSSION AND ANALYSIS Governmental Funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement. Proprietary Funds - When the District charges users for the services it provides, whether to outside customers or to other departments within the District, these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Fund Net Position. In fact, the District's enterprise funds are the same as the business-type activities we report in the government-wide statements, but provide more detail and additional information, such as cash flows, for proprietary funds. We use internal service funds (the other component of proprietary funds) to report activities that provide supplies and services for the District's other programs and activities, such as the District's Self-Insurance Fund. The internal service funds are reported with governmental activities in the government-wide financial statements. THE DISTRICT AS A TRUSTEE Reporting the Districts Fiduciary Responsibilities The District is the trustee, or fiduciary, for funds held on behalf of others, like our funds for associated student body activities, scholarships, employee retiree benefits, pensions and pass through of special education funding. The District's fiduciary activities are reported in the Fiduciary Funds - Statement of Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. 7

11 MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL HIGHLIGHTS The Local Control Funding Formula (LCFF) was adopted in the State Budget Act under Assembly Bill AB97. In , enrollment decreased by 2.98 percent and funded ADA decreased by 2.49 percent which resulted in a loss of $2.48 million in revenue. Using the as the base student enrollment, the District projects cumulatively during fiscal years , , and a potential loss of $7.1 million due to declining enrollment. Enrollment Date Projections for Grades K-12 8

12 MANAGEMENT'S DISCUSSION AND ANALYSIS THE DISTRICT AS A WHOLE Net Position The District's net position was $(91,266,339) for the fiscal year ended June 30, Of this amount. $(110,758,104) was unrestricted. Restricted net position are reported separately to show legal constraints from debt covenants and enabling legislation that limit the governing board's ability to use those net position for day-today operations. Our analysis below, in summary form, focuses on the net position (Table 1) and change in net position (Table 2) of the District's governmental activities. Table 1 Governmental Activities Business-Type Activities Total Assets Current and other assets $ 84,136,759 $ 52,659,981 $ 704,532 $ 607,025 $ 84,841,291 $ 53,267,006 Capital assets 138,945, ,595, ,945, ,595,001 Total Assets 223,081, ,254, , , ,786, ,862,007 Deferred Outflows of Resources 30,393,844 7,308, ,393,844 7,308,991 Liabilities Current liabilities 29,879,621 21,334,965 34, ,286 29,913,673 21,485,251 Long-term obligations 179,940, ,227, ,940, ,227,215 Aggregate net pension liability* 112,883,978 86,716, ,883,978 86,716,607 Total Liabilities 322,703, ,278,787 34, , ,737, ,429,073 Deferred Inflows of Resources 22,708,772 23,977, ,708,772 23,977,894 Net Position Investment in capital assets, net of related debt (2,847,752) 5,128, (2,847,752) 5,128,612 Restricted 21,669,037 16,962, , ,739 22,339,517 17,419,093 Unrestricted (Deficit) (110,758,104) (117,783,674) - - (110,758,104) (117,783,674) Total Net Position $ (91,936,819) $ (95,692,708) $ 670,480 $ 456,739 $ (91,266,339) $ (95,235,969) * Directly paid by CalPERS and CalSTRS and not reflected in the government fund financial statements. The $(110,758,104) in unrestricted net position of governmental activities represents the accumulated results of all past years' operations. 9

13 MANAGEMENT'S DISCUSSION AND ANALYSIS Changes in Net Position The results of this year's operations for the District as a whole are reported in the Statement of Activities on page 18. Table 2 takes the information from the Statement, rounds off the numbers, and rearranges them slightly so you can see our total revenues for the year. Table 2 Governmental Activities Business Activities School District Activities Revenues Program revenues: Charges for services $ 4,598,602 $ 3,612,661 $ - $ - $ 4,598,602 $ 3,612,661 Operating grants and contributions 31,295,761 22,671, ,295,761 22,671,224 General revenues: Federal and State aid not restricted 96,690,016 85,183, ,690,016 85,183,840 Property taxes 29,912,268 23,968, ,912,268 23,968,751 Other general revenues 2,879,480 5,695, ,828 3,047,559 3,827,308 8,742,624 Total Revenues 165,376, ,131, ,828 3,047, ,323, ,179,100 Expenses Instruction-related 110,986, ,368, ,986, ,368,932 Pupil services 14,437,374 14,033, ,437,374 14,033,998 Administration 7,844,312 7,681, ,844,312 7,681,048 Plant services 16,434,258 13,846, ,434,258 13,846,441 Other 11,917,986 12,035, ,087 2,863,891 12,652,073 14,899,563 Total Expenses $ 161,620,238 $ 147,966,091 $ 734,087 $ 2,863,891 $ 162,354,325 $ 150,829,982 Governmental Activities As reported in the Statement of Activities on page 18, the cost of all of our governmental activities this year was $161,620,238. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $29,912,268 because the cost was paid by those who benefited from the programs $(4,598,602) or by other governments and organizations who subsidized certain programs with grants and contributions $(31,295,761). We paid for the remaining "public benefit" portion of our governmental activities with $99,569,496 in State funds and with other revenues, like interest and general entitlements. 10

14 MANAGEMENT'S DISCUSSION AND ANALYSIS In Table 3, we have presented the cost and net cost of each of the District's largest functions: instruction-related, pupil services, administration, plant services, and all other costs. As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits they believe are provided by that function. Table 3 Total Cost of Services Net Cost of Services Instruction-related $ 110,986,308 $ 100,368,932 $ 87,457,069 $ 84,486,903 Pupil services 14,437,374 14,033,998 6,299,705 6,899,061 Administration 7,844,312 7,681,048 6,829,848 6,318,496 Plant services 16,434,258 13,846,441 15,702,545 13,575,892 Other 11,917,986 12,035,672 9,436,708 10,401,854 Total $ 161,620,238 $ 147,966,091 $ 125,725,875 $ 121,682,206 THE DISTRICT'S FUNDS As the District completed this year, our governmental funds reported a combined fund balance of $52,672,815, which is an increase of $22,494,921 from last year (Table 4). Table 4 Balances and Activity July 1, 2015, as restated Revenues Expenditures June 30, 2016 General Fund $ 15,297,336 $ 143,547,043 $ 136,313,034 $ 22,531,345 Building Fund 2,798,165 37,231,537 25,538,823 14,490,879 Bond Interest and Redemption Fund 5,986,240 12,380,084 10,318,126 8,048,198 Adult Education Fund 16,669 4,000,943 3,615, ,383 Child Development Fund 17,611 1,702,891 1,634,533 85,969 Cafeteria Fund 5,879,561 6,216,763 5,617,037 6,479,287 Capital Facilities Fund 182, ,550 1, ,004 Special Reserve Fund for Capital Outlay Projects - 532, ,368 78,750 Total $ 30,177,894 $ 205,986,929 $ 183,492,008 $ 52,672,815 11

15 MANAGEMENT'S DISCUSSION AND ANALYSIS The primary reasons for these increases are: As the District's principal operating funding, the General Fund, is comprised of unrestricted as well as restricted dollars. The General Fund is used to account for the ordinary operations of the District. All transactions except those accounted for in another fund are accounted for in this fund. In accordance with GASB Statement No. 54 requirements, the fund balance for the General Fund is inclusive of all financial activity recorded in the Deferred Maintenance Fund. In addition, the fund balance includes all the financial activity for the East San Gabriel Valley SELPA. The District serves as the Administrative Unit for the SELPA and records all financial activity under a sub fund within the District's General Fund. In total, the General Fund balance increased by $7.2 million. A breakdown of the changes is shown on the table below: Unrestricted General Fund Restricted General Fund SELPA Reserve Fund $6.5 million $1.2 million ($0.5 million) The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the Nutrition Services program. The Cafeteria Fund increased by $0.6 million. The Building Fund is primarily utilized to account bond proceeds and record expenditures in accordance with bond language. The fund balance in the Building Fund increased by $11.7 million. The Bond Interest and Redemption Fund are used for the repayment of bonds issued by the District. The Bond Interest and Redemption fund increased by $2.1 million primarily due to an increase in tax collection. General Fund Budgetary Highlights Over the course of the year, the District revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. (A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report on page 73.) The anticipated ending balance for the General Fund was projected at $20.9 million, based on final budgetary revisions through June 30, Based on year-end totals, the ending fund balance was $22.5 million, reflecting an increase over earlier projections. 12

16 MANAGEMENT'S DISCUSSION AND ANALYSIS CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At June 30, 2016, the District had $138,945,014 in a broad range of capital assets (net of depreciation), including land, buildings, furniture, and equipment. This amount represents a net increase (including additions, deductions, and depreciation) of just over $14,350,013, or 11.5 percent, from last year (Table 5). Table 5 Governmental Activities Business-Type Activities Total Land and construction in progress $ 31,449,322 $ 25,220,385 $ - $ - $ 31,449,322 $ 25,220,385 Buildings and improvements 106,323,478 97,961, ,323,478 97,961,648 Equipment 1,172,214 1,412, ,172,214 1,412,968 Total $ 138,945,014 $ 124,595,001 $ - $ - $ 138,945,014 $ 124,595,001 This year's additions included site and building improvements, and classroom equipment such as computers. No new debt was issued for these additions. Several capital projects are planned for the year. We present more detailed information about our capital assets in Note 5 to the financial statements. Long-Term Obligations At the end of this year, the District had $179,940,065 in long-term obligations outstanding versus $148,227,215 last year, an increase of 21.4 percent. Those long-term obligations consisted of: Table 6 Governmental Activities Business-Type Activities Total General Obligation Bonds - net (financed with property taxes) $ 172,699,855 $ 138,331,364 $ - $ - $ 172,699,855 $ 138,331,364 Qualified Zone Academy Bonds 2,922,807 3,264, ,922,807 3,264,693 Early retirement incentives 435,000 3,515, ,000 3,515,397 Capitalized lease obligations - 108, ,790 Other postemployment benefits 363, ,913 - Compensated absences 1,505,229 1,422, ,505,229 1,422,001 Claims liability 2,013,261 1,584, ,013,261 1,584,970 Total $ 179,940,065 $ 148,227,215 $ - $ - $ 179,940,065 $ 148,227,215 13

17 MANAGEMENT'S DISCUSSION AND ANALYSIS The District's General Obligation Bond rating continues to be "Aa3." The State limits the amount of general obligation debt that districts can issue to five percent of the assessed value of all taxable property within the District's boundaries. The District's outstanding net obligation debt of $172.7 million is below statutorily-imposed limit of $207.6 million. Other obligations include payable compensated absences, other postemployment benefits, and other long-term obligations. We present more detailed information regarding our long-term obligations in Note 9 of the financial statements. SIGNIFICANT ACCOMPLISHMENTS OF FISCAL YEAR ARE NOTED BELOW: Accomplishments to support student learning during the school year included professional development activities for teachers, administrators and classified staff to support the District's priorities to increase student achievement, close the achievement gap, and create a four-year college going culture. The primary goal for C-VUSD is to prepare all students for the 21 st century and ensure college and career readiness. The District focused on its Theory of Action in which leadership and collaboration lead to innovation. A 21 st Century Advisory Committee and LCAP Advisory Committee were utilized to bring District stakeholders together to refine the District's mission. Also implemented was a District Gold Standard that focused on academic competencies and habits of mind; college readiness course of study; engaging 21 st century skills; connectedness; safe learning environment; highly qualified team; and uniform practices and decision-making. The District continued to analyze data specific to subgroups and Program Improvement sites. The Local Control Accountability Plan (LCAP) was carefully revised and monitored to ensure that these recommendations were integrated into all District program areas. The District continued to ensure alignment of expenditures and purchases toward achievement of the recommendations through the review of each of the Single Plans for Student Achievement, professional development, and purchase orders. The budget was built with a focus on the goals of the District, specific actions noted in the LCAP, and major support to Program Improvement schools and subgroups exhibiting gaps. The school district did issue the second series of bond issuance in the amount of $37,000,000 to continue to finance the repair, upgrading, acquisition, construction and equipping of District property and facilities. In addition, the ending fund balance for the General Fund increased from the prior year due primarily to the one-time outstanding mandate claims funds received in the amount of $6.4 million. 14

18 MANAGEMENT'S DISCUSSION AND ANALYSIS ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES In considering the District Adopted Budget for the fiscal year, the Governing Board and management used the following criteria: The key assumptions in our revenue forecast are: LCFF Revenue is budgeted at $9,800 per ADA, comprised zero percent COLA, 69.4 percent Unduplicated and percent LCFF Funding Gap. Enrollment projections indicate a decline in student population that directly affects the LCFF Revenue Funding. Projected Second Period Apportionment (P2 ADA) is projected at 11,317, included LACOE operated programs ADA. The District will be funded on the prior year P2 ADA of 11, LCFF income is budgeted at $110.2 million, an increase of $2.6 million, or 2.4 percent from the prior year. This included property tax revenues budgeted at $16.8 million and EPA revenues budgeted at $16.4 million. Federal Income is budgeted at $6.3 million, a decrease of $0.6 million. Other state income is budgeted at $20.0 million, a decrease of $4.7 million. The decrease is mainly attributed to the decrease in one-time funds for outstanding mandated claims. Other Local Revenue is budgeted at $4.9 million, an increase of $0.3 million. Interest income from reserves held at the Los Angeles County Treasury Office is projected at $130 thousand with an interest rate of 0.7 percent. Unrestricted Lottery Revenue is budgeted at $1.7 million, a decrease of $41 thousand over the prior year due to projected declining enrollment. Restricted Lottery Revenue is budgeted at $0.50 million, a decrease of $42 thousand from prior year. Expenditures are based on the following forecasts: Health and Welfare costs are expected to increase by $0.7 million from the prior year. The contribution for statutory benefits is equal to percent for certificated personnel and percent for classified personnel. Salary projections incorporate added costs for step, column, and longevity totaling approximately $4.1 million. Substitute teacher costs are budgeted at $1.4 million. Liability and property damage insurance is budgeted at $0.5 million. Utilities and other operating costs are budgeted at $3.6 million. 15

19 MANAGEMENT'S DISCUSSION AND ANALYSIS The following represent projected certificated personal staffing ratios: Staffing Ratio Enrollment Grades kindergarten through three 26:1 3,149 Grades four through sixth Grades sixth through eighth 32:1 34:1 2,391 1,686 Grades ninth through twelfth 34:1 4,381 CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If you have questions about this report or need any additional financial information, contact Robert McEntire, the Chief Business Officer at Covina-Valley Unified School District, 519 East Badillo Street, Covina, California, or at rmcentire@c-vusd.org 16

20 STATEMENT OF NET POSITION ASSETS Governmental Business-Type Activities Activities Total Deposits and investments $ 77,446,445 $ 689,233 $ 78,135,678 Receivables 6,531,831 1,861 6,533,692 Prepaid expenses 16,767-16,767 Stores inventories 141,716 13, ,154 Capital Assets Land and construction in process 31,449,322-31,449,322 Other capital assets 210,335, ,335,880 Less: Accumulated depreciation (102,840,188) - (102,840,188) Total Capital Assets 138,945, ,945,014 Total Assets 223,081, , ,786,305 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pensions 30,393,844-30,393,844 LIABILITIES Accounts payable 28,339,353 34,052 28,373,405 Accrued interest payable 1,490,866-1,490,866 Unearned revenue 49,402-49,402 Long-Term Obligations: Current portion of long-term obligations other than pensions 7,583,940-7,583,940 Noncurrent portion of long-term obligations other than pensions 172,356, ,356,125 Total Long-Term Obligations 179,940, ,940,065 Aggregate net pension liability 112,883, ,883,978 Total Liabilities 322,703,664 34, ,737,716 DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pensions 22,708,772-22,708,772 NET POSITION Invested in capital assets, net of related debt (2,847,752) - (2,847,752) Restricted for: Debt service 6,557,332-6,557,332 Capital projects 556, ,004 Educational programs 6,615,261-6,615,261 Other restrictions 7,940, ,480 8,610,920 Unrestricted (110,758,104) - (110,758,104) Total Net Position $ (91,936,819) $ 670,480 $ (91,266,339) The accompanying notes are an integral part of these financial statements. 17

21 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED Program Revenues Charges for Operating Services and Grants and Functions/Programs Expenses Sales Contributions Governmental Activities: Instruction $ 94,316,528 $ 2,251,574 $ 17,444,831 Instruction-related activities: Supervision of instruction 4,855, ,193 1,678,254 Instructional library, media, and technology 1,655,705-61,247 School site administration 10,158, ,959 1,536,181 Pupil services: Home-to-school transportation 2,351, ,176 Food services 5,365, ,471 5,127,484 All other pupil services 6,720, ,359 2,095,054 Administration: Data processing 2,279,499-4,064 All other administration 5,564,813 91, ,661 Plant services 16,434, , ,004 Enterprise services 10, Interest on long-term obligations 5,367, Other outgo 6,539, ,473 1,815,805 Total Governmental Activities 161,620,238 4,598,602 31,295,761 Business-Type Activities Enterprise services 734, Total School District Activities $ 162,354,325 $ 4,598,602 $ 31,295,761 General revenues and subventions: Property taxes, levied for general purposes Property taxes, levied for debt service Taxes levied for other specific purposes Federal and State aid not restricted to specific purposes Interest and investment earnings Transfers Miscellaneous Subtotal, General Revenues Change in Net Position Net Position - Beginning, as restated Net Position - Ending The accompanying notes are an integral part of these financial statements. 18

22 Net (Expenses) Revenues and Changes in Net Position Business- Governmental Type Activities Activities Total $ (74,620,123) $ - $ (74,620,123) (2,891,981) - (2,891,981) (1,594,458) - (1,594,458) (8,350,507) - (8,350,507) (2,349,374) - (2,349,374) 449, ,496 (4,399,827) - (4,399,827) (2,275,435) - (2,275,435) (4,554,413) - (4,554,413) (15,702,545) - (15,702,545) (10,293) - (10,293) (5,367,955) - (5,367,955) (4,058,460) - (4,058,460) (125,725,875) - (125,725,875) - (734,087) (734,087) (125,725,875) (734,087) (126,459,962) 19,753,843-19,753,843 9,562,356-9,562, , ,069 96,690,016-96,690, ,436 3, , ,000 (100,000) - 2,291,044 1,044,256 3,335, ,481, , ,429,592 3,755, ,741 3,969,630 (95,692,708) 456,739 (95,235,969) $ (91,936,819) $ 670,480 $ (91,266,339) 18

23 GOVERNMENTAL FUNDS BALANCE SHEET Bond Interest General Building and Redemption Fund Fund Fund ASSETS Deposits and investments $ 34,642,587 $ 22,013,711 $ 8,048,198 Receivables 4,860,610 80,479 - Prepaid expenditures 16, Stores inventories 65, Total Assets $ 39,585,697 $ 22,094,190 $ 8,048,198 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 17,004,950 $ 7,603,311 $ - Unearned revenue 49, Total Liabilities 17,054,352 7,603,311 - Fund Balances: Nonspendable 117, Restricted 6,615,261 14,490,879 8,048,198 Assigned 7,333, Unassigned 8,465, Total Fund Balances 22,531,345 14,490,879 8,048,198 Total Liabilities and Fund Balances $ 39,585,697 $ 22,094,190 $ 8,048,198 The accompanying notes are an integral part of these financial statements. 19

24 Non-Major Governmental Funds Total Governmental Funds $ 6,460,944 $ 71,165,440 1,487,282 6,428,371-16,767 75, ,716 $ 8,024,209 $ 77,752,294 $ 421,816 $ 25,030,077-49, ,816 25,079,479 75, ,483 7,434,516 36,588,854 91,894 7,424,994-8,465,484 7,602,393 52,672,815 $ 8,024,209 $ 77,752,294 19

25 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION, (Continued) Total Fund Balance - Governmental Funds $ 52,672,815 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, therefore, are not reported as assets in governmental funds. The cost of capital assets is $ 241,785,202 Accumulated depreciation is (102,840,188) Net Capital Assets 138,945,014 Expenditures relating to contributions made to pension plans were recognized on the modified accrual basis, but are not recognized on the accrual basis. 8,337,134 In governmental funds, unmatured interest on long-term obligations is recognized in the period when it is due. On the government-wide financial statements, unmatured interest on long-term obligations is recognized when it is incurred. (1,490,866) An internal service fund is used by the District's management to charge the costs of the workers' compensation insurance program to the individual funds. The assets and liabilities of the internal service fund are included with governmental activities. 1,061,928 The net change in proportionate share of net pension liability as of the measurement date is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis over the expected remaining service life of members receiving pension benefits. 9,086,685 The difference between projected and actual earnings on pension plan investments are not recognized on the modified accrual basis, but are recognized on the accrual basis as an adjustment to pension expense. (8,133,171) The differences between expected and actual experience in the measurement of the total pension liability are not recognized on the modified accrual basis, but are recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. (216,600) 20

26 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION, (Continued) The changes of assumptions is not recognized as an expenditure under the modified accrual basis, but is recognized on the accrual basis over the expected average remaining service life of members receiving pension benefits. $ (1,388,976) Net pension liability is not due and payable in the current period, and is not reported as a liability in the funds. (112,883,978) Long-term obligations at year-end consist of: General obligation bonds $ (143,793,135) Unamortized premium (9,567,703) Qualified zone academy bonds (2,922,807) Compensated absences (vacations) (1,505,229) Other postemployment benefits (OPEB) (363,913) Early retirement incentives (435,000) In addition, the District has issued "capital appreciation" bonds. The accretion of interest on those bonds to date is: (19,339,017) Total Long-Term Obligations (177,926,804) Total Net Position - Governmental Activities $ (91,936,819) 21

27 GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED Bond Interest General Building and Redemption Fund Fund Fund REVENUES Local Control Funding Formula $ 107,598,928 $ - $ - Federal sources 6,431, Other State sources 23,477,758-79,682 Other local sources 5,939, ,537 9,588,675 Total Revenues 143,447, ,537 9,668,357 EXPENDITURES Current Instruction 82,844, Instruction-related activities: Supervision of instruction 4,840, Instructional library, media, and technology 1,628, School site administration 8,826, Pupil services: Home-to-school transportation 2,081, Food services All other pupil services 6,148, Administration: Data processing 2,240, All other administration 7,736, Plant services 12,660, Facility acquisition and construction 19,414 24,780,035 - Other outgo 6,539, Debt service Principal 106, ,886 5,795,000 Interest and other 14, ,902 4,523,126 Total Expenditures 135,688,469 25,538,823 10,318,126 Excess (Deficiency) of Revenue Over Expenditures 7,758,574 (25,307,286) (649,769) Other Financing Sources (Uses) Transfers in 100, Other sources - proceeds of bonds - 37,000,000 2,711,727 Transfers out (624,565) - - Net Financing Sources (Uses) (524,565) 37,000,000 2,711,727 NET CHANGE IN FUND BALANCES 7,234,009 11,692,714 2,061,958 Fund Balance - Beginning, as restated 15,297,336 2,798,165 5,986,240 Fund Balance - Ending $ 22,531,345 $ 14,490,879 $ 8,048,198 The accompanying notes are an integral part of these financial statements. 22

28 Non-Major Governmental Funds Total Governmental Funds $ - $ 107,598,928 5,289,389 11,720,707 4,678,947 28,236,387 2,235,364 17,994,615 12,203, ,550,637 2,908,638 85,753, ,350 4,955,558-1,628,732 1,143,376 9,970,124-2,081,131 5,315,334 5,315, ,938 6,293,729-2,240, ,627 8,368,597 1,060,236 13,721,026-24,799,449-6,539,738 2,525 6,245, ,954,049 11,322, ,867, ,675 (17,316,806) 624, ,565-39,711,727 - (624,565) 624,565 39,811,727 1,506,240 22,494,921 6,096,153 30,177,894 $ 7,602,393 $ 52,672,815 22

29 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED Total Net Change in Fund Balances - Governmental Funds $ 22,494,921 Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital outlays to purchase or build capital assets are reported in governmental funds as expenditures; however, for governmental activities, those costs are shown in the Statement of Net Position and allocated over their estimated useful lives as annual depreciation expenses in the Statement of Activities. This is the amount by which capital outlays exceeds depreciation in the period. Capital outlays $ 22,522,155 Depreciation expense (8,172,142) Net Expense Adjustment 14,350,013 In the Statement of Activities, certain operating expenses, such as compensated absences (vacations) are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). This year, early retirement incentives paid were $3,080,397. Vacation earned was more than the amounts used by $83,228 2,997,169 Contributions for postemployment benefits are recorded as an expense in the governmental funds when paid. However, the difference between the annual required contribution and the actual contribution made, if less, is recorded in the government wide statements as an expense. The actual amount of the contribution was less than the annual OPEB cost by $422,220. (422,220) In the governmental funds, pension costs are based on employer contributions made to pension plans during the year. However, in the Statement of Activities, pension expense is the net effect of all changes in the deferred outflows, deferred inflows and net pension liability during the year. (1,813,396) Proceeds received from issuance of debt is a revenue in the governental funds, but it increases long-term liabilities in the Statement of Net Position and does not affect the Statement of Activities. This year the District issued General Obligation Bonds. (39,711,727) 23

30 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES, (Continued) FOR THE YEAR ENDED Governmental funds report the effect of premiums, discounts, and the deferred charges on a refunding when the debt is issued, whereas the amounts are deferred and amortized in the Statement of Activities. Premium on issuance $ 728,954 Repayment of debt obligations is an expenditure in the governmental funds, but it reduces long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: General obligation bonds 5,795,000 Qualified zone academy bonds 341,886 Capital lease obligations 108,790 Interest on long-term obligations in the Statement of Activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. The additional interest reported in the Statement of Activities is the result of two factors. First, accrued interest on the general obligation bonds decreased by $37,858, and second, $1,180,718 of accumulated interest was accreted on the District's "capital appreciation" general obligation bonds. (1,142,860) An internal service fund is used by the District's management to charge the costs of the workers' compensation program to the individual funds. The net revenue of the Internal Service Fund is reported with governmental activities. 29,359 Change in Net Position of Governmental Activities $ 3,755,889 24

31 PROPRIETARY FUNDS STATEMENT OF NET POSITION Business-Type Enterprise Fund Child Care Fund ASSETS Current Assets Deposits and investments 689,233 Governmental Activities Internal Service Fund $ $ 6,281,005 Receivables 1, ,460 Stores inventories 13,438 - Total Current Assets 704,532 6,384,465 LIABILITIES Current Liabilities Accounts payable 34,052 3,309,276 Current portion of long-term obligations - 797,460 Total Current Liabilities 34,052 4,106,736 Noncurrent Liabilities Noncurrent portion of long-term obligations - 1,215,801 NET POSITION Restricted 670,480 1,061,928 Total Net Position $ 670,480 $ 1,061,928 25

32 PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED Business-Type Activities Enterprise Fund Child Care Fund Governmental Activities Internal Service Fund OPERATING REVENUES Local and intermediate sources $ 944,255 $ 16,100,169 OPERATING EXPENSES Payroll costs 580,220 - Supplies and materials 39,629 - Other operating cost 14,238 16,092,866 Total Operating Expenses 634,087 16,092,866 Operating Income 310,168 7,303 NONOPERATING REVENUES Interest income 3,573 22,056 Transfers out (100,000) - Total Nonoperating Revenues (96,427) 22,056 Change in Net Position 213,741 29,359 Total Net Position - Beginning 456,739 1,032,569 Total Net Position - Ending $ 670,480 $ 1,061,928 26