Bellevue Community Schools

Transcription

1 FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT Year Ended

2 Table of Contents INDEPENDENT AUDITOR'S REPORT 1 ADMINISTRATION'S DISCUSSION AND ANALYSIS 3 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 14 Statement of Activities 15 Fund Financial Statements Governmental Funds Balance Sheet 16 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 17 Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances 18 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 19 Fiduciary Fund Statement of Fiduciary Assets and Liabilities 20 Notes to Financial Statements 21 REQUIRED SUPPLEMENTAL INFORMATION General Fund Budgetary Comparison Schedule 48 Debt Service Fund Statement of Revenues, Expenditures and Changes in Fund Balances 49 Schedule of the Reporting Unit's Proportionate Share of the Net Pension Liability 50 Schedule of the Reporting Unit's Pension Contributions 50 Notes to Required Supplementary Information 50 Notes to Required Supplementary Information 50 OTHER SUPPLEMENTAL INFORMATION Nonmajor Governmental Funds Combining Balance Sheet 52 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 53 AUDITORS' REPORTS 55

3 DOUGLAS WOHLBERG, CPA Certified Public Accountants th Street SW Byron Center, MI Phone (616) Fax (866) INDEPENDENT AUDITOR'S REPORT To the Board of Education 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, Michigan, as of and for the year ended, and the related notes to the financial statements, which collectively comprise the School District s basic financial statements as listed in the table of contents. We did not audit the district s proportionate share of the net pension liability of the Michigan Public School Employees' Retirement System and the related transactions and disclosures. Those balances and disclosures were audited by the State of Michigan Office of the Auditor General whose report has been furnished to us, and our opinion, insofar as it related to the amounts included for the district, is based solely on the report of the State of Michigan Office of the Auditor General. 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. Opinions In our opinion and the report of the State of Michigan Office of the Auditor General, 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 the, Michigan, as of, 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. 1

4 Change in Accounting Principle As described in Note 1 to the financial statements, in the year ended, the district adopted new accounting guidance, GASB Statement No. 68, Accounting and Financial Reporting for Pensions. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the administration s discussion and analysis and budgetary comparison information on pages 3 through 12 and pages 48 through 49 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 Bellevue Community Schools s basic financial statements. The combining nonmajor fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining fund financial statements are 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 October 28, 2015, on our consideration of the, Michigan 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, Michigan s internal control over financial reporting and compliance. Douglas Wohlberg, CPA Byron Center, Michigan October 28,

5 Administration's Discussion and Analysis For the year ended is a K-12 School District located in. This Administration's Discussion and Analysis Section, a requirement of GASB 34, is intended to be the Administration's discussion and analysis of the financial results for the fiscal year ended. Generally accepted accounting principles (GAAP) according to Governmental Accounting Standards Board Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, (GASB 34) requires the reporting of two types of financial statements: District-Wide Financial Statements and Fund Financial Statements Fund Financial Statements The fund statements are formatted to comply with the legal requirements of the Michigan Department of Education's "Accounting Manual." In the State of Michigan, the District's major instructional and instructional support activities are reported in the General Fund. Additional activities are reported in their relevant funds including: Debt Funds, Capital Projects, and the School Service Funds which are comprised of: Food Service and Student Activity accounts. In the fund financial statements, capital assets purchased by cash are reported as expenditures in the year of acquisition. No asset is reported. The issuance of debt is recorded as a financial resource. The current year's payments of principal and interest on long-term obligations are recorded as expenditures. Future years debt obligations are not recorded. District-Wide Financial Statements The District-Wide Financial Statements are presented on the full accrual basis statements. They report all of the District's assets and liabilities, both short and long-term, regardless if they are "currently available" or not. For example, assets that are restricted for use in the Debt Fund solely for the payment of long term principal or interest are grouped with unrestricted assets of the General Fund. Capital assets and long-term obligations of the District are reported in the Statement of Net Position of the District-Wide Financial Statements. 3

6 Administration's Discussion and Analysis For the year ended Summary of Net Position The following summarizes the net position at fiscal year ended Restated ASSETS Current assets $ 1,816,702 $ 2,459,962 Capital assets 21,921,444 22,906,945 Total assets 23,738,146 25,366,907 Deferred outflows of resources 713, ,913 LIABILITIES Current liabilities 1,413,965 1,981,588 Long-term liabilities 31,067,700 31,505,203 Total liabilities 32,481,665 33,486,791 Deferred inflows of resources 700, ,201 NET POSITION Net investment in capital assets 901,444 1,856,945 Restricted: Debt service 40,109 72,586 Food service 80,506 73,684 Capital projects 93, ,067 Unrestricted (9,845,243) (10,249,454) Total net position $ (8,729,807) $ (8,106,172) Change of Significant Accounting Policy Effective for the year ending the district implemented Governmental Accounting Standards Board (GASB) Statements Number 68, Accounting and Financial Reporting for Pensions, and Statement Number 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. Implementation of these new accounting standards required a restatement of beginning net position for the net pension liability related to the defined benefit retirement plan. The plan is the Michigan Public School Employees' Retirement System (MPSERS). This plan is a cost-sharing, multiple employer, state-wide, defined benefit public employee retirement plan governed by the State of Michigan (State) originally created under Public Act 136 of 1945, recodified and currently operating under the provisions of Public Act 300 of 1980, as amended. Previously GASB Statement Number 27, Accounting for Pensions by State and Local Governmental Employers, excluded this net pension liability from the entity-wide financial statements of the district. The above restatements had the following impact on previously reported balances. Net position (deficit) as previously reported $ (1,382,014) The effect of the addition of the net pension liability (6,724,158) Net pension (deficit) restated $ (8,106,172) 4

7 Administration's Discussion and Analysis For the year ended Analysis of Financial Position During fiscal year ended, the District's net position decreased by $623,635. Depreciation Expense GASB 34 requires School Districts to maintain a record of annual depreciation expense and accumulated depreciation. The net increase in accumulated depreciation expense is a reduction in net position. For fiscal year ended, the net increase in accumulated depreciation was $1,032,221. Depreciation expense is recorded on a straight-line basis over the estimated useful lives of assets. In accordance with generally accepted accounting principles (GAAP), depreciation expense is recorded based on the original cost of the asset less an estimated salvage value. One way to think of depreciation expense is that in order to maintain net position at the same level, acquisitions of capital outlay and capitalized major maintenance projects would have to equal the annual depreciation expense. In other words, to stay even in net position the District would have had to capitalize $1,032,221 in assets during the year. Capital Outlay Acquisitions Actual capital outlay acquisitions for fiscal year ended were $46,720. Combined with the increase in accumulated depreciation, net position (i.e., net book value) invested in capital assets decreased by $985,501 during the year. This is the additional amount the District would have had to spend to maintain the same net value of assets. Since accumulated depreciation is based on original cost, it does not take into consideration inflation. As a result, the actual investment in capital outlay would have to be more than depreciation expense in order to maintain assets at the same level of maintenance and upkeep. Debt Administration At year end, the District had $24,733,930 in outstanding long-term debt including compensated absences. Long-term liabilities had a net decrease of $33,403. Increase in the School Bond Loan Fund of $524,751 and in compensated absences of $15,659 was partially offset by principal payments on bonds payable of $505,000 and a reduction of compensated absences of $19,728. See note 8 in the notes to basic financial statements for additional information. 5

8 Administration's Discussion and Analysis For the year ended Results of Operations For the fiscal year ended, the district-wide results of operations were: 2015 % of Total General Revenues Michigan's Foundation Grant Allowance: Property taxes levied for general operations $ 368,469 % State of Michigan Aid, unrestricted 3,499,988 % 2014 Restated % of Total 5.4 $ 359, % ,626, % Michigan's Foundation Grant Allowance 3,868, % 3,985, % Property taxes levied for debt service 1,099, % 1,073, % Other 24, % 95, % Total General Revenues 4,992, % 5,153, % Program Revenues Charges for services 121, % 94, % Operating grants - Federal and State 1,722, % 1,455, % Total Revenues 6,836, % 6,703, % Expenses Instructional 2,997, % 3,029, % Support services 2,024, % 1,854, % Food services 253, % 263, % Athletics 134, % 92, % Community services 3,694 % 4, % Interest on long-term debt 1,099, % 1,105, % Depreciation (unallocated) 946, % 972, % Total Expenses 7,460, % 7,323, % Increase (Decrease) in Net Position $ (623,634) $ (619,899) 6

9 Administration's Discussion and Analysis For the year ended Property Taxes levied for General Operations (General Fund Property Taxes) The District levied mills of property taxes for operations (General Fund) on Non-Homestead Properties. Under Michigan law, the taxable levy is based on the taxable valuation of properties. Annually, the taxable valuation increase in property values is capped at the rate of the prior year's CPI increase or 5%, whichever is less. At the time of sale, a property's taxable valuation is readjusted to the State Equalized Value, which is, theoretically, 50% of the market value. The District's non-homestead property levy for the fiscal year was $359,437. The non-homestead tax levy increased by 5.65% over the prior year levy of $340,964. The following summarizes the District's non-homestead levy the past five years: Fiscal Year The average increase over the last 5 years was 3.53%. Non Homestead Tax Levy Percent change $ 359, % , , % , % ,729 (0.29)% 7

10 Administration's Discussion and Analysis For the year ended State of Michigan Aid, Unrestricted The State of Michigan aid, unrestricted, is determined by the following variables: a. State of Michigan State Aid Act per student foundation allowance b. Student Enrollment - Blended at 90% of current year fall count and 10% of prior year winter count c. The District's non-homestead levy Per Student, Foundation Allowance: Annually, the State of Michigan sets the per student foundation allowance. The foundation allowance was $7,126 per student for the school year. This represents an increase of $100 per pupil from the District's foundation allowance. Student Enrollment: The District's student enrollment in was 559 students. The District's enrollments have gradually declined in the last five years. The following summarizes fall student enrollments in the past five years: Fiscal year Student Membership Increase (Decrease) from Prior Year (23.98) (11.50) (21.89) (15.32) (19.21) Subsequent to year end, preliminary student enrollments for indicate that enrollments will increase. Property Taxes levied for Debt Service The District's debt fund levy, which is used to pay the principal and interest on bond obligations, is based on the taxable valuation of all properties: homestead and non-homestead. For , the District's debt millage levy was 8.39 mills which generated a levy of $1,100,008. 8

11 Administration's Discussion and Analysis For the year ended Food Service Sales to Students and Adults The District's food and milk sales to students and adults decreased by approximately $6,931 to $40,564 from the prior school year. By working to carefully control the cost of food and labor, the administration was able to achieve an excess of revenues from operations over expenditures of $350. GENERAL FUND BUDGET & ACTUAL REVENUES & EXPENDITURES General Fund Revenue Budget vs. Actual 5-Year History Revenues Variance Actual & Original Budget Revenues Variance Actual & Final Budget Fiscal Year Revenues Original Budget Revenues Final Budget Revenues Actual $ 5,413,262 $ 5,434,597 $ 5,455, % 0.39 % ,332,249 5,391,824 5,362, % (0.54)% ,004,006 5,065,884 5,059, % (0.14)% ,114,462 5,273,810 5,276, % 0.05 % ,622,415 5,399,959 5,428,280 (3.45)% 0.52 % General Fund Expenditures Budget vs. Actual 5-Year History Expenditures Variance Actual & Original Budget Expenditures Variance Actual & Final Budget Fiscal Year Expenditures Original Budget Expenditures Final Budget Expenditures Actual $ 5,419,986 $ 5,358,806 $ 5,485,939 (1.22)% (2.37)% ,293,056 5,285,348 5,107, % 3.37 % ,373,956 5,394,917 5,306, % 1.63 % ,268,189 5,371,632 5,287,038 (0.36)% 1.57 % ,007,439 6,253,644 6,130,398 (2.05)% 1.97 % Original vs. Final Budget The Uniform Budget Act of the State of Michigan requires that the local Board of Education approve the original budget for the upcoming fiscal year prior to July 1, the start of the fiscal year. As a matter of practice, amends its budget during the school year. For fiscal year the budget was amended one time in June of

12 Administration's Discussion and Analysis For the year ended Change from Original to Final Budget General Fund Revenues The District's budget for revenues changed as follows during the year: Total Revenues Original Budget $ 5,413,262 Total Revenues Final Budget 5,434,597 Increase (Decrease) in Budgeted Revenues $ 21,335 The District's General Fund actual revenues differed from the final budget by $21,311, a variance of 0.39%. General Fund Expenditures The District's budget for expenditures changed as follows during the year: Total Expenditures Original Budget $ 5,419,986 Total Expenditures Final Budget 5,358,806 Increase (Decrease) in Budgeted Expenditures $ (61,180) The District's General Fund actual expenditures differed from the final budget by $100,133, a variance of 1.86%. 10

13 Administration's Discussion and Analysis For the year ended Factors Bearing on the District's Future It is the District's goal to maintain a General Fund equity balance adequate to allow the District to operate without borrowing for cash flow purposes. We were able to maintain the General Fund fund balance at a positive balance of $263,878. This is as expected as employee contract increases are tied to changes in the General Fund fund balance. It is still uncertain if the State economy will continue to improve and when the legislation will be passed to stabilize school funding. Dramatic declines in the economic activity in the State have resulted in stagnant funding for public education in. The District has seen lower student counts because families are moving as parents seek employment in other regions. These factors have caused reduced District revenue. The General Fund equity remains below the Board's target of a minimum of 10%. The School Board and the Superintendent are aware that difficult changes still need to be made and continue the work to boost the General Fund equity to the Board's target. The Board of Education and staff continue to work together on school improvement plans to make the District more attractive to new residents and to the current residents. The Board is committed through the school improvement process to attract and retain families by offering quality programs and services in the. Following is a graph of the fund balance of the General Fund over the last five years. 11

14 Administration's Discussion and Analysis For the year ended Contacting the District's Financial Management This financial report is designed to provide our citizens and taxpayers with a general overview of the District's finances. If you have questions about this report or need additional information, please contact the Business Office. The address is 904 W. Capital, Bellevue, Michigan The telephone number is (269)

15 13 BASIC FINANCIAL STATEMENTS

16 Statement of Net Position Governmental Activities ASSETS Cash and investments $ 592,320 Property tax receivable 1,133 Receivables (net of allowance for uncollectibles) 429,999 Intergovernmental receivable 766,056 Inventories 3,075 Prepaid expenses 24,119 Capital assets, net of accumulated depreciation of $12,004,493 21,921,444 Total assets 23,738,146 DEFERRED OUTFLOWS OF RESOURCES Deferred pension contributions 480,210 Pension plan changes in assumptions 233,703 Total deferred inflows of resources 713,913 LIABILITIES Accounts payable 28,551 Accrued payroll and other liabilities 594,888 Accrued interest 78,208 Unearned revenue 17,020 State aid note payable 695,298 Long-term liabilities: Bonds payable, due within one year 555,000 Bonds payable, due in more than one year 19,940,000 Other obligations, due in more than one year 4,238,930 Net pension liability 6,333,770 Total liabilities 32,481,665 DEFERRED INFLOWS OF RESOURCES Pension plan earnings differences 700,201 NET POSITION Net investment in capital assets 901,444 Restricted: Debt service 40,109 Food service 80,506 Capital projects 93,377 Unrestricted (9,845,243) Total net position $ (8,729,807) The Notes to Financial Statements are an integral part of this statement. 14

17 Statement of Activities For the year ended Expenses Program Revenues Charges for services Operating grants and contributions Net (Expense) Revenue and Changes in Net Position Governmental Activities Functions/Programs: Governmental activities: Instruction $ 2,997,788 $ 6,780 $ 1,439,337 $ (1,551,671) Support services 2,024,628 38,508 42,846 (1,943,274) Food service 253,523 40, ,950 27,150 Athletics 134,706 27,932 - (106,774) Community services 3,694 7,711-4,017 Interest on long-term debt 1,099, (1,099,376) Depreciation (unallocated) 946, (946,562) Total governmental activities $ 7,460,277 $ 121,654 $ 1,722,133 (5,616,490) General revenues Taxes: Property taxes, levied for general operations 368,469 Property taxes, levied for debt service 1,099,898 State of Michigan aid, unrestricted 3,499,988 Interest and investment earnings 372 Other revenues 24,129 Total general revenues 4,992,856 Change in net position (623,634) Net position-beginning (8,106,173) Net position-ending $ (8,729,807) The Notes to Financial Statements are an integral part of this statement. 15

18 Governmental Funds Balance Sheet General Fund Debt Service Fund Nonmajor Funds Total Governmental Funds ASSETS Cash and investments $ 304,684 $ 130,134 $ 157,502 $ 592,320 Receivables: Property taxes ,133 Accounts receivable 67,796-32, ,650 Due from other funds 92, ,597 Intergovernmental 1,092,130-3,275 1,095,405 Inventories - - 3,075 3,075 Prepaids 24, ,119 Total assets $ 1,581,461 $ 130,848 $ 196,990 $ 1,909,299 LIABILITIES Accounts payable $ 28,497 $ - $ 54 $ 28,551 Accrued payroll and related liabilities 592,288-2, ,888 Due to other funds - 90,739 1,858 92,597 Unearned revenue 1,500-15,520 17,020 State aid note payable 695, ,298 Total liabilities 1,317,583 90,739 20,032 1,428,354 FUND BALANCES Nonspendable: Inventories - - 3,075 3,075 Prepaid items 24, ,119 Restricted: Debt service - 40,109-40,109 Food service ,506 80,506 Capital projects ,377 93,377 Unassigned 239, ,759 Total fund balances 263,878 40, , ,945 Total liabilities and fund balances $ 1,581,461 $ 130,848 $ 196,990 $ 1,909,299 The Notes to Financial Statements are an integral part of this statement. 16

19 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position Total fund balances - total governmental funds $ 480,945 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 in the funds. 21,921,444 Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds. Balances at were: Bonds payable (20,495,000) School Bond Loan Fund payable (4,218,512) Deferred compensated absences (20,418) Net pension liability (6,333,770) The pension expense reported in the statement of activities does not require the use of current financial resources and, therefore, is not reported as an expenditure in the governmental funds. 713,913 The net difference between the projected and actual pension plan investments earnings is recorded as deferred inflows of resources on the statement of net position, but not on the balance sheet of the funds. (700,201) Interest on long-term debt is accrued as a liability in the district-wide statements, but is not recognized in the governmental funds until due. (78,208) Total net position - governmental activities $ (8,729,807) The Notes to Financial Statements are an integral part of this statement. 17

20 Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances For the year ended General Fund Debt Service Fund Nonmajor Funds Total Governmental Funds REVENUES Local sources $ 476,574 $ 1,100,007 $ 40,776 $ 1,617,357 State sources 4,208,521-8,228 4,216,749 Federal sources 162, , ,072 Intermediate sources 608, ,463 Total revenues 5,455,908 1,100, ,726 6,836,641 EXPENDITURES Current: Instruction 3,356, ,356,841 Support services 1,996, ,996,802 Food service , ,346 Athletics 128, ,602 Community services 3, ,694 Debt service: Principal - 525, ,000 Interest - 964, ,760 Fees - 1,563-1,563 Capital outlay ,720 46,720 Total expenditures 5,485,939 1,491, ,066 7,273,328 Excess (deficiency) of revenues over expenditures (30,031) (391,316) (15,340) (436,687) OTHER FINANCING SOURCES (USES) Operating transfer in 31, ,000 Operating transfer out - - (31,000) (31,000) Issuance of long-term debt - 358, ,857 Total other financing sources (uses) 31, ,857 (31,000) 358,857 Net change in fund balances 969 (32,459) (46,340) (77,830) Fund balances-beginning 262,909 72, , ,775 Fund balances-ending $ 263,878 $ 40,109 $ 176,958 $ 480,945 The Notes to Financial Statements are an integral part of this statement. 18

21 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the year ended Net change in fund balances - total governmental funds $ (77,830) Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statements of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Depreciation expense $ (1,032,221) Capital outlay 46,720 Capital outlay in excess of depreciation expense (985,501) Accrued interest is recorded in the statement of activities when incurred; it is not reported in governmental funds until paid. 2,194 Repayments of bond principal is an expenditure in the governmental funds, but not in the statement of activities (where it reduces long-term debt). 525,000 Increases in the School Bond Loan are reported as expenditures when financial resources are used in the governmental funds in accordance with GASB Interpretation No. 6. (495,666) Increases in compensated absences are reported as expenditures when financial resources are used in the governmental funds in accordance with GASB Interpretation No. 6. (15,659) Reductions of compensated absences is an expenditure in the governmental funds, but not in the statement of activities (where it reduces long-term debt). 19,728 Governmental funds report pension contributions as expenditures. However, in the statement of activities the pension expense is determined by the pension plan. This is the amount by which the pension expense exceeded the contributions. 404,100 Change in net position of governmental activities $ (623,634) The Notes to Financial Statements are an integral part of this statement. 19

22 Fiduciary Fund Statement of Fiduciary Fund Net Position ASSETS Cash and cash equivalents $ 111,699 LIABILITIES Due to student groups $ 41,348 Accounts payable 70,351 Total liabilities $ 111,699 The Notes to Financial Statements are an integral part of this statement. 20

23 Notes to Financial Statements NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of (the "School District") conform to accounting principles generally accepted in the United States of America (GAAP) as applicable to governmental units. The following is a summary of the significant accounting policies used by the School District. A. Reporting Entity The School District is governed by an elected seven-member Board of Education. The accompanying financial statements have been prepared in accordance with criteria established by the Governmental Accounting Standards Board for determining the various governmental organizations to be included in the reporting entity. These criteria include significant operational financial relationships that determine which of the governmental organizations are a part of the School District's reporting entity, and which organizations are legally separate component units of the School District. The School District has no component units. B. District-wide and Fund Financial Statements The district-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. All of the School District's district-wide activities are considered governmental activities. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program revenues include (1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes, intergovernmental payments, and other items not properly included among program revenues are reported as general revenue. Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the district-wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements. 21

24 Notes to Financial Statements C. Measurement Focus, Basis of Accounting and Financial Statement Presentation District-wide Financial Statements - The district-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants, categorical aid, and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, are generally followed in the district-wide financial statements to the extent that those standards do not conflict with the standards of the Governmental Accounting Standards Board. As a general rule, the effect of interfund activity has been eliminated from the district-wide financial statements. When both restricted and unrestricted resources are available for use, it is the School District's policy to use restricted resources first, then unrestricted resources as they are needed. Amounts reported as program revenue include (1) charges to customers or applicants for goods, services, or privileges provided, (2) operating grants and contributions, and (3) capital grants and contributions. Internally dedicated resources are reported as general revenue rather than as program revenue. Likewise, general revenues include all taxes and unrestricted State aid. Fund Financial Statements - Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available if they are collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the School District considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, unrestricted State aid, intergovernmental grants, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be available only when cash is received by the School District. Fiduciary fund statements also are reported using the economic resources measurement focus and the accrual basis of accounting. 22

25 Notes to Financial Statements The School District reports the following major governmental funds: General Fund - The General Fund is the School District's primary operating fund. It accounts for all financial resources of the School District, except those required to be accounted for in another fund. Debt Service Fund - The Debt Service Fund accounts for property taxes and other revenues to be used to pay principal, interest and fees related to long-term debt. Additionally, the School District reports the following fund types: Special Revenue Funds - Special Revenue Funds are used to account for the proceeds of specific revenue sources that are restricted to expenditure for specified purposes. The School District's Special Revenue Fund accounts for the School District's food service activity. Any operating deficit generated by this activity is the responsibility of the General Fund Capital Projects Fund - The 2008 Capital Projects Fund accounts for bond proceeds and other revenues used to finance additions and improvements to the District's buildings and facilities. Fiduciary Fund - The Agency Fund is used to account for assets held by the School District in a trustee capacity for individuals or school-related organizations. The Agency Fund is custodial in nature and does not involve measurement of results of operations. 23

26 Notes to Financial Statements D. Assets, Liabilities, and Net Position or Equity Cash and Investments - Cash and cash equivalents include cash on hand, demand deposits, and short-term investments with a maturity of three months or less when acquired. Investments are stated at fair value. Receivables and Payables - In general, outstanding balances between funds are reported as "due to/from other funds." Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as "advances to/from other funds." Property tax and other trade receivables are shown net of an allowance for uncollectible amounts. The School District considers all receivables to be fully collectible; accordingly, no allowance for uncollectible amounts is recorded. Property taxes are assessed as of December 31 and the related property taxes become a lien on December 1 of the following year. These taxes are billed on December 1. At this time, penalties and interest are assessed and the total obligation is added to the county tax rolls. Inventories and Prepaid Items - Inventories are valued at cost, on a first-in, first-out basis. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. United States Department of Agriculture Commodities inventory received by the Food Service Fund are recorded as inventory until used. When payments to vendors reflect costs applicable to future fiscal years they are recorded as prepaid items in both District-wide and fund financial statements. Capital Assets - Capital assets, which include land, buildings, equipment, and vehicles, are reported in the applicable governmental activities column in the district-wide financial statements. Capital assets are defined by the School District as assets with an initial individual cost of more than $10,000. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Costs of normal repair and maintenance that do not add to the value or materially extend asset lives are not capitalized. The School District does not have infrastructure-type assets. Buildings, equipment, and vehicles are depreciated using the straight-line method over the following useful lives: Buildings and building improvements Land improvements Buses and other vehicles Furniture and equipment years years 5-10 years 5-10 years Deferred Outflows/Inflows of Resources - In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District has no items that qualify for reporting in this category. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The District has no items that qualify for reporting in this category. 24

27 Notes to Financial Statements Compensated Absences - The liability for compensated absences reported in the district-wide statements consists of earned but unused accumulated vacation and sick leave benefits. The liability has been calculated using the vesting method, in which leave amounts for both employees who are currently eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included. Long-term Obligations - In the district-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the statement of net position. Net Position and Fund Equity - The difference between fund assets and liabilities is "Net Position" on the government-wide and fiduciary fund statements and "Fund Balance" on governmental fund statements. Net Position are classified as "Invested in Capital Assets, Net of Related Debt," legally "Restricted" for a specific purpose, or "Unrestricted" and available for appropriation for the general purposes of the fund. In governmental fund financial statements, fund balances are classified as follows: Nonspendable--Amounts that cannot be spent either because they are a) not in spendable form or; b) legally or contractually required to be maintained intact. Restricted--Amounts with constraints placed on the use of resources are either a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or b) imposed by law through constitutional provisions or enabling legislation. Committed--Amounts that can be used only for specific purposes determined by a formal action by Board of Education resolution, and that remain binding unless removed in the same manner. Assigned--Amounts neither restricted nor committed for which a School District has a stated intended use as established by the Board of Education or a body or official to which the Board of Education has delegated the authority to assign amounts for specific purposes. Unassigned--Amounts that cannot be properly classified in one of the other four categories. The General Fund is the only fund that reports a positive unassigned fund balance amount. Unassigned balances also include negative balances in the governmental funds reporting resources restricted for specific programs. Use of Restricted Resources - When an expense is incurred that can be paid using either restricted or unrestricted resources (net position), the School District's policy is to first apply the expense toward restricted resources and then toward unrestricted resources. In governmental funds, the School District's policy is to first apply the expenditure toward restricted fund balance and then to other, less-restrictive classifications - committed and then assigned fund balances before using unassigned fund balances. Comparative Data/Reclassifications - Comparative data is not included in the School District's financial statements. Use of Estimates - The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of the following: assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. 25

28 Notes to Financial Statements E. Change in Accounting Principle Effective for the year ending the district implemented Governmental Accounting Standards Board (GASB) Statements Number 68 and 71. Implementation of these new accounting standards required a restatement of beginning net position for the net pension liability related to the defined benefit retirement plan. The plan is the Michigan Public School Employees' Retirement System (MPSERS). This plan is a cost-sharing, multiple employer, state-wide, defined benefit public employee retirement plan governed by the State of Michigan (State) originally created under Public Act 136 of 1945, recodified and currently operating under the provisions of Public Act 300 of 1980, as amended. Previously GASB Statement Number 27 excluded this net pension liability from the financial statements of the district. The above restatements had the following impact on previously reported balances. Net position as previously reported $ (1,382,014) Net pension liability (6,724,158) Net pension restated $ (8,106,172) NOTE 2 - STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY Budgetary Information - Annual budgets are adopted on a basis consistent with generally accepted accounting principles and State law for the General and Special Revenue Funds. All annual appropriations lapse at fiscal year end. The budget document presents information by fund and function. The legal level of budgetary control adopted by the governing body (i.e., the level at which expenditures may not legally exceed appropriations) is the function level. State law requires the School District to have its budget in place by July 1. Expenditures in excess of amounts budgeted are a violation of Michigan Law. State law permits districts to amend their budgets during the year. During the year, the budgets were amended in a legally permissible manner. Encumbrance accounting is employed in governmental funds. Encumbrances (e.g., purchase orders, contracts, etc.) outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the goods or services have not been received as of year end; the commitments will be reappropriated and honored during the subsequent year. Excess of Expenditures Over Appropriations in Budgeted Funds - For the year ended, expenditures exceeded appropriations in the following departments (the legal level of budgetary control). Final Budget Actual Variance % Variance General Fund Basic Programs $ 2,589,390 $ 2,650,992 $ 61, % Added needs 686, ,849 19, General administration 133, ,727 18, School administration 328, ,432 14, Business services 115, ,245 7, Operations and maintenance 803, ,737 14, Pupil transportation 256, ,536 25, Athletics 124, ,602 3,

29 Notes to Financial Statements NOTE 3 - DEPOSITS AND INVESTMENTS State statutes and the School District's investment policy authorize the School District to make deposits in the accounts of federally insured banks, credit unions, and savings and loan associations that have an office in Michigan. The School District is allowed to invest in U.S. Treasury or agency obligations, U.S. government repurchase agreements, bankers' acceptances, commercial paper rated prime at the time of purchase that matures not more than 270 days after the date of purchase, mutual funds, and investment pools that are composed of authorized investment vehicles. The School District's deposits are in accordance with statutory authority. Deposits are carried at cost. The District has designated two banks for deposit of its funds. The investment policy adopted by the Board in accordance with Public Act 20 of 1943, as amended, has authorized investment in the instruments described in the preceding paragraph. The School District's deposits and investment policy are in accordance with statutory authority. As of, the District had the following deposits. Michigan Liquid Asset Fund $ 584,354 Hastings City Bank 249,501 Petty cash 100 Total $ 833,955 At year end, the School District's deposits and investments were reported in the basic financial statements in the following categories: Governmental Activities Fiduciary Funds Total Primary Government Cash and investments $ 592,320 $ 111,699 $ 704,019 Custodial Credit Risk of Bank Deposits - Custodial credit risk is the risk that in the event of a bank failure, the School District's deposits may not be returned to it. The School District does not have a deposit policy for custodial credit risk of bank deposits. At year end, the bank balance of the School District's deposits is $833,955, of which $250,000 is covered by federal depository insurance. The remaining $583,955 is uninsured and uncollateralized. Interest Rate Risk - The District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk - State law limits investments in commercial paper, corporate bonds, and mutual bond funds to the top two ratings issued by nationally recognized statistical rating organizations. The District has no investment policy that would further limit its investment choices. 27