IBDQ. North Slope Borough School District (A Component Unit of the North Slope Borough, Alaska)

Transcription

1 (A Component Unit of the North Slope Borough, Alaska) Basic Financial Statements, Required Supplementary Information, Additional Supplementary Information, and Single Audit Reports Year Ended June 30, 2015 This report was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee. IBDQ

2 (A Component Unit of the North Slope Borough, Alaska) Basic Financial Statements, Required Supplementary Information, Additional Supplementary Information, and Single Audit Reports Year Ended June 30, 2015

3 Contents FINANCIAL SECTION Exhibit Page Independent Auditor s Report 13 Basic Financial Statements GovernmentWide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Governmental Funds: Balance Sheet Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position Statement of Revenues, Expenditures and Changes in Fund Balances Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities A1 B1 C1 C2 C3 C Student Activities Agency Fund Statement of Fiduciary Assets and Liabilities D1 12 Notes to Basic Financial Statements 1332 Required Supplementary Information Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual: General (School Operating) Fund FY14 Maintenance Special Revenue Fund Public Employees Retirement System: Schedule of the District's Information on the Net Pension Liability Schedule of District Contributions Teachers Retirement System: Schedule of the District's Information on the Net Pension Liability Schedule of District Contributions E1 E2 F1 F2 F3 F Notes to Required Supplementary Information 40

4 Contents FINANCIAL SECTION, continued Exhibit Page Additional Supplementary Information Combining and Individual Fund Financial Statements and Schedules: Nonmajor Governmental Funds: Combining Balance Sheet G Combining Statement of Revenues, Expenditures and Changes in Fund Balances G General (School Operating) Fund Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual H Special Revenue Funds Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual: Student Transportation I1 57 Community Education I2 58 Healthy Communities I3 59 Alaska Staff Development I4 60 Moore Target Resource I5 61 Moore Teacher Retention I6 62 Moore 2Yr Kindergarten I7 63 Obesity Prevention and Control I8 64 Career and Technical Education I9 65 Early Literacy K3 I10 66 Nutritional Alaskan Foods I11 67 Curriculum & Alignment Mapping I12 68 Suicide Awareness, Prevention & Postvention I13 69 Food Service I14 70 Title IIIA English Language Acquisition I15 71 Title IA Basic I16 72 Title IA Homeless Education I17 73 Title IIA Teacher & Principal Training & Recruitment I18 74 Special Education Title VIB I19 75 Alternative School Kiita I20 76 Carl Perkins Vocational Education I21 77 Special Education Section 619 Preschool Disabled I22 78 Kiita Childcare I23 79 New Visions I24 80 Johnson O Malley I25 81 Preparing Students for Success I26 82

5 Contents FINANCIAL SECTION, continued Exhibit Page Additional Supplementary Information, continued Combining and Individual Fund Financial Statements and Schedules, continued: Special Revenue Funds, continued: Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual, continued: Indian Education I27 83 FY06 Indian Education I28 84 FY14 Alaska Native Education I29 85 FY15 Alaska Native Education I30 86 Autaaqtuq Program I31 87 ASRC Contribution I32 88 Residential Learning Center I A & 2A Sports Camps I34 90 Chevron Trapper School I35 91 Margaret A. Cargill Foundation I36 92 Exxon/Mobil Kaktovik General Operations Support I37 93 Chevron Nunamiut Projects I38 94 NPRA Meade River School Counselor I39 95 Inupiat Education Curriculum I40 96 Districtwide Maintenance I41 97 Teacher Housing I42 98 FY10 Maintenance I43 99 FY11 Maintenance I FY12 Maintenance I FY13 Maintenance I FY14 Maintenance I Statement of Compliance AS J1 104 Schedule of Expenditures of Federal Awards K Schedule of State Financial Assistance L1 108 Notes to Schedule of Expenditures of Federal Awards and Schedule of State Financial Assistance 109

6 Contents SINGLE AUDIT SECTION 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 Federal Program and Report on Internal Control Over Compliance Required by OMB Circular A Independent Auditor s Report on Compliance For Each Major State Program and Report on Internal Control Over Compliance Required by the State of Alaska Audit Guide and Compliance Supplement for State Single Audits Schedule of Findings and Questioned Costs Summary Schedule of Prior Audit Findings 121 Corrective Action Plan

7 Tel: C Street, Suite 600 IBDQ Fax: Anchorage, AK Independent Auditor's Report Members of the School Board Barrow, Alaska 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 North Slope Borough School District, a component unit of the North Slope Borough, Alaska, as of and for the year ended June 30, 2015, 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. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 1

8 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 as of June 30, 2015, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 15 to the financial statements, in 2015 the District adopted the provisions of Governmental Accounting Standards Board (GASB) Statement Number 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 budgetary comparison information on pages 3435 and the Schedules of Net Pension Liability and Pension Contributions on pages 3639, 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. Management has omitted the Management s Discussion and Analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing 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. Our opinion on the basic financial statements is not affected by this missing information. 2

9 Additional Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the s basic financial statements. The accompanying Schedule of Expenditures of Federal Awards, the Schedule of State Financial Assistance, and the combining and individual fund financial statements and schedules listed in the table of contents 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 and the Schedule of State Financial Assistance are required by OMB Circular A133, Audits of States, Local Governments, and Nonprofit Organizations and the State of Alaska Audit Guide and Compliance Supplement for State Single Audits, respectively. The accompanying Schedule of Expenditures of Federal Awards, the Schedule of State Financial Assistance, and the combining and individual fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 31, 2015 on our consideration of 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 North Slope Borough School District s internal control over financial reporting and compliance. Anchorage, Alaska December 31,

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11 Basic Financial Statements 5

12 Statement of Net Position Exhibit A1 June 30, 2015 Governmental Activities Assets and Deferred Outflows Assets Cash and imprest cash Accounts receivable: Federal government State of Alaska Other Inventories Prepaid items Equipment Accumulated depreciation $ 3,167, , ,159 9,733, ,167 17,815 8,376,764 (6,854,287) Total Assets 16,039,521 Deferred Outflows pension related 1,890,304 Total Assets and Deferred Outflows $ 17,929,825 Liabilities, Deferred Inflows and Net Position Liabilities Accounts payable Payroll accruals and liabilities Selfinsurance liability Unearned revenue Noncurrent liabilities: Accrued leave due within one year Net pension liability due in more than one year $ 968, ,000 1,638, , ,625 20,617,644 Total Liabilities 25,066,757 Deferred Inflows pension related 2,449,100 Net Position Investment in capital assets 1,522,477 Restricted 10,879 Unrestricted (deficit) (11,119,388) Total Net Position (9,586,032) Total Liabilities, Deferred Inflows and Net Position $ 17,929,825 See accompanying notes to basic financial statements. 6

13 Exhibit B1 Statement of Activities Program Revenues Operating Capital Net (Expense) Charges Grants & Grants & Revenue and for Contri Contri Change in Net Year Ended June 30, 2015 Expenses Services butions butions Position Governmental Activities Instruction $ 28,686,592 $ $ 9,460,648 $ $ (19,225,944) Special education instruction 3,685, ,978 (2,754,440) Special education support services students 1,381, ,669 (731,629) Support services students 3,695, ,658 (2,732,845) Support services instruction 9,433,800 2,552, ,708 (6,650,607) School administration 3,877,549 1,162,892 (2,714,657) School administration support services 1,181,869 44,747 (1,137,122) District administration 1,687, ,604 (1,494,855) District administration support services 3,630, ,279 (3,233,912) Operations and maintenance of plant 18,183,974 4,216, , ,204 (12,653,180) Student activities 2,785, ,567 (2,004,498) Student transportation 2,166,145 2,184, , ,538 Community services 317,422 2,199 (315,223) Food service 3,111, ,663 1,004,362 (1,962,870) Construction and facilities acquisition 4,347 21,000 16,653 Total Governmental Activities $ 83,828,527 $ 4,360,733 $ 20,654,741 $ 1,337,462 (57,475,591) General Revenues Borough appropriation 33,375,626 State grants and entitlements not restricted to specific programs 16,978,613 Federal grants and entitlements not restricted to specific programs 7,980,488 Erate 2,138,461 Other 301,346 Total General Revenues 60,774,534 Change in Net Position 3,298,943 Net Position, beginning of year as restated (Note 15) (12,884,975) Net Position, end of year $ (9,586,032) See accompanying notes to basic financial statements. 7

14 Exhibit C1 Governmental Funds Balance Sheet Major Fund FY14 Other General Maintenance Nonmajor Total (School Special Governmental Governmental June 30, 2015 Operating) Revenue Fund Funds Funds Assets Cash $ 1,768,297 $ $ 1,399,648 $ 3,167,945 Accounts receivable: Federal government 643, ,877 State of Alaska 690, ,159 Other 7,624,492 1,321, ,047 9,733,081 Inventories 264, ,167 Prepaid items 7,815 10,000 17,815 Due from other funds 3,232,009 3,232,009 Total Assets $ 12,632,613 $ 1,321,542 $ 3,794,898 $ 17,749,053 Liabilities and Fund Balances (Deficit) Liabilities Accounts payable $ 433,294 $ 71,305 $ 463,577 $ 968,176 Payroll accruals and liabilities 501, ,000 Selfinsurance liability 1,638,262 1,638,262 Unearned revenue 11, , ,050 Due to other funds 1,250,237 1,981,772 3,232,009 Total Liabilities 2,583,811 1,321,542 2,988,144 6,893,497 Fund Balances (Deficits) Nonspendable 7, , ,982 Restricted 10,879 10,879 Assigned 795, ,875 Unassigned (deficit) 10,040,987 (274,167) 9,766,820 Total Fund Balances 10,048, ,754 10,855,556 Total Liabilities and Fund Balances $ 12,632,613 $ 1,321,542 $ 3,794,898 $ 17,749,053 See accompanying notes to basic financial statements. 8

15 Exhibit C2 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position June 30, 2015 Total fund balances for governmental funds $ 10,855,556 Amounts reported for governmental activities in the statement of net position are different because: Capital assets net of accumulated depreciation used in governmental activities are not financial resources and therefore are not reported in the funds. 1,522,477 Longterm liabilities are not due and payable in the current period and therefore are not reported as fund liabilities. Longterm liabilities reported in these statements consist of: Accrued leave $ (787,625) Net pension liability (20,617,644) Total longterm liabilities (21,405,269) Certain changes in net pension liabilities are deferred rather than recognized immediately. These are amortized over time. Deferred outflows related to pensions 1,890,304 Deferred inflows related to pensions $ (2,449,100) Total deferred pension items (558,796) Net Position of Governmental Activities $ (9,586,032) See accompanying notes to basic financial statements. 9

16 Exhibit C3 Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances Major Fund FY14 Other General Maintenance Nonmajor Total (School Special Governmental Governmental Year Ended June 30, 2015 Operating) Revenue Fund Funds Funds Revenues Local sources: Borough appropriation $ 33,375,626 $ $ $ 33,375,626 Borough inkind contribution 2,583,150 2,583,150 Rental Income 1,609,449 1,609,449 Other 301, ,713 1,527,759 2,796,818 Erate revenue 2,138,461 2,138,461 State sources 66,357,921 3,301,125 69,659,046 Federal sources: Direct 7,980,488 1,378,405 9,358,893 Passed through the State of Alaska 2,030,794 2,030,794 Passed through other intermediate sources 37,541 37,541 Total Revenues 112,736, ,713 9,885, ,589,778 Expenditures Current: Instruction 48,969,305 1,460,391 50,429,696 Special education instruction 6,258,269 5,951 6,264,220 Special education support services students 1,271, ,409 1,780,208 Support services students 5,291, ,300 5,600,367 Support services instruction 10,476,392 32,616 1,740,386 12,249,394 School administration 7,012,056 7,012,056 School administration support services 1,412,870 1,412,870 District administration 2,252, ,253,284 District administration support services 3,939, ,250 4,205,516 Operations and maintenance of plant 16,033, ,097 2,953,920 19,922,075 Student activities 2,669, ,668 3,271,934 Student transportation 399,420 2,002,212 2,401,632 Community services 8, , ,650 Food service 406,684 3,099,181 3,505,865 Construction and facilities acquisition 21,000 21,000 Total Expenditures 106,400, ,713 13,281, ,648,767 Excess of Revenues Over (Under) Expenditures 6,336,945 (3,395,934) 2,941,011 Other Financing Sources (Uses) Transfers in 3,589,421 3,589,421 Transfers out (3,589,421) (3,589,421) Total Other Financing Sources (Uses) (3,589,421) 3,589,421 Net Change in Fund Balances 2,747, ,487 2,941,011 Fund Balances, beginning 7,301, ,267 7,914,545 Fund Balances, ending $ 10,048,802 $ $ 806,754 $ 10,855,556 See accompanying notes to basic financial statements. 10

17 Exhibit C4 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year Ended June 30, 2015 Net change in fund balances total governmental funds $ 2,941,011 The change in net position reported for governmental activities in the statement of activities is different because: Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation of $662,437 exceeded capital outlays of $431,164 in the current period. (231,273) Changes in net pension liability and related accounts can increase or decrease net position. This is the net increase in equity due to changes in net pension liability and the related deferred outflows and inflows. 422,997 Other longterm liabilities reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. This is the decrease in accrued leave. 166,208 Change in Net Position of Governmental Activities $ 3,298,943 See accompanying notes to basic financial statements. 11

18 Exhibit D1 Student Activities Agency Fund Statement of Fiduciary Assets and Liabilities June 30, 2015 Assets Cash Accounts receivable $ 372,601 39,942 Total Assets $ 412,543 Liabilities Accounts payable Due to student organizations $ 15, ,887 Total Liabilities $ 412,543 See accompanying notes to basic financial statements. 12

19 Notes to Basic Financial Statements June 30, Summary of Significant Accounting Policies The basic financial statements of the (the District) have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the accepted standardsetting body for establishing governmental accounting and financial reporting principles. The more significant of the District's accounting policies are described below. Reporting Entity Pursuant to Alaska Statutes, Title , the North Slope Borough (the Borough) has the responsibility of establishing, maintaining and operating a system of public schools. The Borough has delegated the administrative responsibilities for these functions to the School Board of the. Members of the School Board are elected by the public. The School Board has control over hiring and firing employees and the power to contract and purchase equipment. The School Board is required to submit an annual budget to the Borough Assembly for approval, and all bonded indebtedness is through the Borough. Based on these criteria, financial interdependency, budget approval, responsibility for debt, and financial accountability, the North Slope Borough School District is a component unit of the North Slope Borough. No other entity engages in activities which benefit the District, nor do any special financial relationships exist between the District and any other entity. Therefore, the District does not have any component units, as defined in GASB Statement 14, as amended by Statements 39 and 61, which require inclusion in the financial statements. Basis of Presentation The basic financial statements consist of governmentwide statements, including a statement of net position and a statement of activities, and fund financial statements which provide a more detailed level of financial information. The governmentwide financial statements include the financial information about the District as a whole. These statements include all financial activity of the District. The District does not have any activities that are considered businesstype activities. The statement of net position presents the financial condition of the governmental activities of the District at yearend. The statement of activities presents a comparison between direct expenses and program revenues for each function of the District s governmental activities. Direct expenses are those that are specifically associated with a service, program or department and are clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues which are not classified as program revenues are presented as general revenues of the District. The comparison of direct expenses with program revenues identifies the extent to which each governmental function is selffinancing or draws from the general revenues of the District. 13

20 Notes to Basic Financial Statements The fund financial statements include activities relating to certain functions or activities segregated in separate funds in order to aid financial management and to demonstrate legal compliance. Fund financial statements are designed to present financial information of the District at this more detailed level. The focus of governmental fund financial statements is on major funds. The major funds are presented in separate columns. Nonmajor funds are aggregated and presented in a single column. Measurement Focus, Basis of Accounting and Financial Statement Presentation Governmentwide financial statements The governmentwide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting. All assets and all liabilities associated with the operation of the District are included on the statement of net position. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of timing of related cash flow. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Current assets and current liabilities generally are included on the balance sheet. The statement of revenues, expenditures, and changes in fund balances reports on the sources (i.e., revenues and other financing sources) and uses (i.e., expenditures and other financing uses) of current financial resources. The District uses funds to maintain its financial records during the fiscal year. A fund is a separate accounting entity. The operations of each fund is accounted for with a separate set of selfbalancing accounts which comprise its assets, liabilities, fund balance, revenues and expenditures. There are three categories of funds: governmental, proprietary and fiduciary. Of these three, the District maintains only governmental and fiduciary funds. Governmental funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District s major governmental funds: The General (School Operating) Fund is the District s primary operating fund. It accounts for all financial resources except those required to be accounted for in another fund. The Major Maintenance Special Revenue Fund accounts for revenue received and expenditures incurred by the District for the structural repairs and major maintenance costs. The other governmental funds of the District are considered nonmajor and are as follows: Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than major capital projects) that are legally restricted to expenditures for specified purposes. In addition, the District reports a single fiduciary fund the Student Activities Agency Fund. 14

21 Notes to Basic Financial Statements The basis of accounting determines when transactions are recorded in the financial records and reported on the financial statements. Governmentwide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Differences in the accrual and modified accrual basis arise in the recognition of revenue, the recording of unearned revenue and in the presentation of expenses versus expenditures. Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the District, available means expected to be received within sixty days of fiscal year end. Nonexchange transactions, in which the District receives value without directly giving equal value in return include certain grants, entitlements, and donations. On an accrual basis, revenue is recognized in the fiscal year in which all eligibility requirements have been satisfied. On a modified accrual basis, revenue from nonexchange transactions must also be available before it can be recognized. The School District follows the Uniform Chart of Accounts for School Districts, 2014 Edition as required by the State of Alaska, Department of Education and Early Development. Summarized below are the major sources of revenue and the applicable revenue recognition policies: Intergovernmental Revenue State of Alaska Foundation Program revenue is recorded in the year to which it relates. Federal Impact Aid revenue is recognized when received. State of Alaska and federal government cost reimbursable grants and contracts are recorded to the extent of allowable expenditures in the period the expenditures are incurred. Rental Income and Other Revenues Rental income is reported in the period to which it relates. Lunch sales and other miscellaneous revenues are recognized when received. Budgets Annual budgets for operations are adopted by the School Board for all operating revenues, expenditures, and interfund transfers. Budgets are prepared and presented on the modified accrual basis of accounting. The adopted General (School Operating) Fund budget is submitted to the State of Alaska, Department of Education and Early Development for review to determine compliance with Alaska statutes and Department regulations. The School Board authorizes formal budget revisions several times each year to adjust the revenues and expenditures to available resources and program needs. The original and final revised and approved budget is presented in these financial statements. Expenditure authority for the General (School Operating) Fund is limited to the total approved budget. There are no specific line item or category limitations. 15

22 Notes to Basic Financial Statements Annual budgets of the various Special Revenue Funds are prepared in connection with the application for the special programs' funding and are reviewed and approved by the School Board. Expenditure authority for Special Revenue Fund programs is limited to the actual combined revenues and transfers from other funds. Unexpended balances of grants from the State and federal governments for the Special Revenue Funds lapse at June 30, except for Indian Education which lapse on September 30 and Migrant Education Summer grants which lapse on August 31. Expenditures are reimbursed by the various entities on a cost basis. Encumbrances Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is employed as an extension of formal budgetary integration in the General (School Operating) Fund and Special Revenue Funds. Inventories Inventories are valued at cost (firstin, firstout). Inventory consists of expendable supplies held for consumption. The cost is recorded as an expenditure at the time individual inventory items are consumed. Reported inventories are equally offset by nonspendable fund balance, which indicates that they do not constitute "available spendable resources" even though they are a component of net current assets. Capital Assets General capital assets result from expenditures in the governmental funds. These assets are reported in the governmental activities column of the governmentwide statement of net position but are not reported on the balance sheet of the fund financial statements. All purchased capital assets are valued at cost. Donated capital assets are valued at their estimated fair market value on the date received. The District maintains a capitalization threshold of $5,000. The District does not possess any infrastructure. The buildings (and the related debt) are owned and capitalized by the Borough and are not recorded in these financial statements. All reported capital assets except land are depreciated. Depreciation is computed on the straight line method over the estimated useful life of the assets, generally 3 to 7 years for equipment and vehicles. Maintenance and repairs of a routine nature that do not add to the value of the asset are charged as expenditures as incurred and are not capitalized. Compensated Absences All classified and certified twelvemonth employees earn and accrue annual leave. All classified school year employees earn and accrue annual leave. All certified school year employees earn personal leave up to 5 days earned and 10 days accrued. Unused annual leave is accrued at current salary cost as earned by employees. All certified employees earn sick leave, which is available for use while remaining in a permanent position. Sick leave pay is recorded as an expenditure during the period it is used. Employees' unused sick leave balances are carried forward. 16

23 Notes to Basic Financial Statements For governmental funds, the current portion of unpaid compensated absences is the amount that is matured. There is no matured portion as of yearend. The noncurrent portion of the liability is not reported in the fund financial statements. However, the entire compensated absence liability is reported on the governmentwide financial statements. Unearned Revenue Amounts received from grantor agencies, which are restricted as to use and have not been expended for the intended use are shown on the balance sheet as unearned revenue. Accrued Liabilities and LongTerm Obligations All payables, accrued liabilities and loan obligations are reported in the governmentwide financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, and paid in a timely manner and in full from current financial resources, are reported as obligations of the funds. Claims and judgments, compensated absences, special termination benefits and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are matured. Interfund Transactions During the course of normal operations, the District has numerous transactions between funds, including expenditures and transfers of resources to provide services and construct assets. The accompanying financial statements generally reflect such transactions as operating transfers. Operating subsidies are also recorded as operating transfers. The classification of amounts recorded as subsidies or advances is determined by the School Board. Interfund receivables, payables and transfers have been eliminated for the governmentwide financial statements. Fund Equity In the fund financial statements, governmental funds report aggregate amounts for five classifications of fund balances based on the constraints imposed on the use of these resources. The nonspendable fund balance classification includes amounts that cannot be spent because they are either (a) not in spendable form prepaid items or inventories; or (b) legally or contractually required to be maintained intact. The spendable portion of the fund balance comprises the remaining four classifications: restricted, committed, assigned, and unassigned. Restricted fund balance This classification reflects the constraints imposed on resources either (a) externally by creditors, grantors, contributors, or laws or regulations of other governments; or (b) imposed by law through constitutional provisions or enabling legislation. 17

24 Notes to Basic Financial Statements Committed fund balance These amounts can only be used for specific purposes pursuant to constraints imposed by formal resolutions of the School Board the government s highest level of decision making authority. Those committed amounts cannot be used for any other purpose unless the School Board removes the specified use by taking the same type of action imposing the commitment. This classification also includes contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements. Assigned fund balance This classification reflects the amounts constrained by the District s intent to be used for specific purposes, but are neither restricted nor committed. The School board and Superintendent have the authority to assign amounts to be used for specific purposes. Assigned fund balances include all remaining amounts (except negative balances) that are reported in governmental funds, other than the General Fund, that are not classified as nonspendable and are neither restricted nor committed. Unassigned fund balance This fund balance is the residual classification for the General Fund. It is also used to report negative fund balances in other governmental funds. When both restricted and unrestricted resources are available for use, it is the District s policy to use externally restricted resources first, then unrestricted resources committed, assigned, and unassigned in order as needed. Net Position Net position represents the difference between assets and liabilities in the governmentwide financial statements. Investment in capital assets, net of related debt, consists of capital assets, net of accumulated depreciation, reduced by the outstanding borrowings used for the acquisition, construction or improvement of those assets. Net positions are reported as restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors or laws or regulations of other governments. The District has restricted net position of $10,879 at June 30, Extraordinary and Special Items Extraordinary items are transactions or events that are both unusual in nature and infrequent in occurrence. Special items are transactions or events that are within the control of the School Board of Education and that are either unusual in nature or infrequent in occurrence. Management Estimates and Assumptions 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. 18

25 Notes to Basic Financial Statements 2. Cash The District uses a central treasury concept for cash of all funds, except imprest cash and cash held in a checking account for health insurance claims, which are maintained separately. Imprest cash on hand as of June 30, 2015 was $22,557. The District maintains its bank balances at one financial institution. At June 30, 2015, all of the District s bank balances were fully collateralized. 3. Receivables All accounts receivable are considered collectible; therefore, no allowance for uncollectible accounts has been provided. 4. Capital Assets The Borough owns and accounts for all school buildings and land, which are provided to the District without charge. Furniture and equipment are accounted for by the District. Capital asset activity for the year ended June 30, 2015 was as follows: Balance Balance July 1, 2014 Additions Deletions June 30, 2015 Equipment $ 7,945,600 $ 431,164 $ $ 8,376,764 Accumulated depreciation (6,191,850) (662,437) (6,854,287) Total Governmental Capital Assets Net of Depreciation $ 1,753,750 $ (231,273) $ $ 1,522,477 Depreciation expense was charged to governmental functions as follows for the year ended June 30, 2015: Instruction $ 74,716 Special education instruction 1,119 Support services special education 5,048 Support services instruction 44,491 District administration support services 2,242 Operations and maintenance of plant 338,141 Student activities 3,455 Student transportation 163,149 Food service 18,980 Community services 6,749 Construction and facilities acquisition 4,347 Total Depreciation Allocated to Functions $ 662,437 19

26 Notes to Basic Financial Statements 5. Fund Balances Fund balances, reported for the major funds and the nonmajor funds in the aggregate on the governmental funds balance sheet are subject to the following constraints at June 30, 2015: Nonmajor General Fund Funds Totals Nonspendable: Inventory $ $ 264,167 $ 264,167 Prepaid items 7,815 10,000 17,815 Total nonspendable 7, , ,982 Restricted summer leadership 10,879 10,879 Assigned: Community education 197, ,110 Childcare 27,235 27,235 Transportation 571, ,530 Total assigned 795, ,875 Unassigned (deficit) 10,040,987 (274,167) 9,766,820 Total Fund Balances $ 10,048,802 $ 806,754 $ 10,855, Risk Management The District faces a considerable number of risks of loss, including: (a) damage and loss of property and contents, (b) employee torts, (c) professional liability; i.e., errors and omissions, (d) environmental damage, (e) workers' compensation; i.e., employee injuries, and (f) medical insurance costs of employees. The District maintains property and general liability, errors and omissions, automobile and worker s compensation insurance to help mitigate the potential liabilities. Additional risk of loss exists for employee health benefits. The District established an Employee Health Care Benefit Plan to provide health insurance for employees and their dependents. The District pays premiums into the Plan based on estimated claims and adjusted for actual claims paid during the year. Stoploss insurance limits the District s liability for individual claims to $150,000 and $1,000,000 in aggregate. Health and medical insurance expense was $9,305,722 for the year ended June 30, 2015, and consisted of paid claims, stoploss premiums, and administrative fees. 20

27 Notes to Basic Financial Statements As of June 30, 2015, an estimated liability for incurred but unreported claims of approximately $1,638,262 was recorded in the General (School Operating) Fund. This estimate was calculated based on subsequent to yearend claims filed and past experience. Changes in the balances of claim liabilities for years ending June 30, 2015 and 2014 are as follows: 2015 Unpaid claims, beginning of year Incurred claims (including IBNR s) Less: claim payments $ 1,889,959 9,305,722 (9,557,419) Unpaid claims (including IBNR s), end of year $ 1,638, Defined Benefit (DB) Pension Plans The District participates in two defined benefit pension plans. The Teachers Retirement System (TRS) is a costsharing multiple employer plan which covers teachers and other eligible participants. The Public Employees Retirement System (PERS) is a costsharing multiple employer plan which covers eligible State and local government employees, other than teachers. Both Plans were established and are administered by the State of Alaska to provide pension, postemployment healthcare, death, and disability benefits. Benefit and contribution provisions are established by State law and may be amended only by the State Legislature. Both Plans are included in comprehensive annual financial reports that include financial statements and other required supplemental information. Those reports are available via the internet at Actuarial valuation reports, audited financial statements, and other detailed plan information are also available on this website. Both Plans provide for retirement, death and disability, and postemployment health care benefits. There are three tiers of employees, based on entry date. For all tiers within the DB pension plans, full retirement benefits are generally calculated using a formula comprised of a multiplier times the average monthly salary (AMS) times the number of years of service. The multiplier is increased at longevity milestone markers for most employees. The tiers within the Plans establish differing criteria regarding normal retirement age, early retirement age, and the criteria for calculation of AMS, COLA adjustments, and other OPEB benefits. A complete benefit comparison chart is available at the website noted above. Both PERS and TRS DB Plans were closed to new entrants on July 1, New employees hired after that date participate in the PERS/TRS Defined Contribution (DC) Plans described later in these notes. Historical Context and Special Funding Situation Historically, the TRS plan has been a costsharing plan, while originally, PERS was an agentmultipleemployer plan. In April 2008, the Alaska Legislature passed legislation converting the PERS agentmultiple employer plan to a costsharing plan with an effective date of July 1, In connection with this conversion, the State of Alaska passed additional legislation which statutorily capped the employer contribution rate for both plans, established a state funded onbehalf contribution (subject to funding availability), and required that employer contributions be calculated against all PERS/TRS eligible wages, including wages paid to participants of the PERS/TRS defined contribution plans described later in these notes. 21

28 Notes to Basic Financial Statements Although current statutes call for the State of Alaska to contribute to the Plans, the Alaska Department of Law has determined that the statutes do not create a legal obligation to assume the liabilities of the Plans; rather it establishes a contribution mechanism to provide employer relief against the rising contribution rates. This relief payment is subject to funding availability, and therefore not legally mandated. As a result, the State has determined that the Plans are not in a special funding situation. Management of the District disagrees with the State s position and believes that AS and AS do constitute a special funding situation under GASB 68 rules and has recorded all pension related liabilities, deferred inflows/outflows, and disclosures on this basis, pending a final legal determination, as may be required to settle the matter. The District records the onbehalf contributions as revenue and expenditures in the fund financial statements. However, current year expenditures are adjusted to deferred outflows in the governmentwide financial statements. Prior year expenditures and onbehalf contributions (and other adjustments) reflect expenses at the governmentwide level. Employee Contribution Rates NonTeacher School District employees are required to contribute 9.6% of their annual covered salary for PERS. Teachers and other certificated employees are required to contribute 8.65% of annual covered salary for TRS. Employer and Other Contribution Rates There are several contribution rates associated with the pension and healthcare contributions and related liabilities. These amounts are calculated on an annual basis. Employer Effective Rate: This is the contractual employer payin rate. Under current legislation, this rate is statutorily capped at 22% of eligible wages for PERS and 12.56% of eligible wages for TRS, subject to a wage floor, and other termination events. These rates are applied to all PERS/TRS participating wages, respectively, including those wages attributable to employees in the defined contribution plan. Contributions derived from the defined contribution employees are referred to as the Defined Benefit Unfunded Liability or DBUL contribution. ARM Board Adopted Rate: This is the rate formally adopted by the Alaska Retirement Management Board. This rate is actuarially determined and used to calculate annual Plan funding requirements, without regard to the statutory rate cap or the GASB accounting rate. Prior to July 1, 2015, there were no constraints or restrictions on the actuarial cost method or other assumptions used in the ARM Board valuation. Effective July 1, 2015, the Legislature requires the ARM Board to adopt employer contribution rates for past service liabilities using a level percent of pay method over a closed 25 year term which ends in This will result in lower ARM Board rates in future years. 22