LANETT CITY BOARD OF EDUCATION. ANNUAL FINANCIAL REPORT September 30, 2016

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1 ANNUAL FINANCIAL REPORT September 30, 2016

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3 ANNUAL FINANCIAL REPORT September 30, 2016 Independent Auditor s Report... 1 Management s Discussion and Analysis... 3 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position Statement of Activities Fund Financial Statements Balance Sheet - Governmental Funds Statement of Revenues, Expenditures and Changes In Fund Balances - Governmental Funds Reconciliation of the Statement of Revenues Expenditures and Changes In Fund Balances of Governmental Funds to the Statement of Activities Statement of Fiduciary Net Position Notes to the Financial Statements Required Supplementary Information General Fund Statement of Revenues, Expenditures and Changes In Fund Balances - Budget and Actual Food Services Fund Statement of Revenues, Expenditures and Changes In Fund Balances - Budget and Actual Explanation of Differences Between Budgetary Inflows and Outflows and GAAP Revenues and Expenditures Schedule of the Board s Proportionate Share of the Net Pension Liability - Teachers Retirement System of Alabama Schedule of the Board s Contributions Teachers Retirement System of Alabama Combining Financial Statements Nonmajor Governmental Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes In Fund Balances Other Supplementary Information Reconciliation of Audited Fund Balances To Unaudited Fund Balances Previously Reported to the State Department of Education Single Audit Section 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 the Uniform Guidance Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards Summary Schedule of Prior Audit Findings Schedule of Findings and Questioned Costs... 63

4 INDEPENDENT AUDITOR S REPORT To the Superintendent and Members of the Lanett City Board of Education Lanett, Alabama Report on the Financial Statements We have audited the accompanying financial statements of the the governmental activities, each major fund, and the aggregate remaining fund information of Lanett City Board of Education ( the Board ) (also known as Lanett City Schools ), as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the Board 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. 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 the Board, as of September 30, 2016, and the respective changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and the budgetary comparison information 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 financial statements, and other knowledge we obtained during our audit of the 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. Phone: Cahaba Heights Road, Suite 100 morgan@morgancpas.com Fax: Birmingham, AL

5 Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Board s basic financial statements. The combining financial statements and the other supplementary information are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance), and is also not a required part of the basic financial statements. The combining financial statements, the other supplementary information and the schedule of expenditures of federal awards 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 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 financial statements, the other supplementary information and the schedule of expenditures of federal awards 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 July 10, 2017, on our consideration of Board 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 Board s internal control over financial reporting and compliance. Birmingham, Alabama July 10, 2017 PHILLIP MORGAN & COMPANY P.C. Phone: Fax: Cahaba Heights Road, Suite 100 Birmingham, Alabama Pmorgan@Morgancpas.com

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7 Management s Discussion and Analysis September 30, 2016 Introduction The Management s Discussion and Analysis ( MD&A ) of Lanett City Board of Education s (the Board )(also known as, Lanett City Schools ) financial performance provides an overall review of the Board s financial activities for the fiscal year ended September 30, The intent of this discussion and analysis is to look at the Board s financial performance as a whole. Readers should also review the notes to the financial statements and the financial statements to enhance their understanding of the Board s financial performance. Financial Highlights The Board reported fund balance in the general fund at the end of FY 2016 in the amount of $525,335. This amount meets the one-month operating balance required by the State of Alabama. Overview of the Financial Statements This discussion and analysis serves as an introduction to the Board s basic financial statements which are the government-wide financial statements, fund financial statements, and the notes to the financial statements. This report also includes supplementary information in addition to the basic financial statements themselves. The first two statements are government-wide financial statements the Statement of Net Position and the Statement of Activities. These provide both long-term and short-term information about the Board s overall financial status. Although other governments may report governmental activities and business-type activities, the Board has no business-type activities. The Statement of Net Position presents information on all of the Board s assets less liabilities which results in net position. The statement is designed to display the financial position of the Board. Over time, increases and decreases in net position help determine whether the Board s financial position is improving or deteriorating. The Statement of Activities provides information which shows how the Board s net position changed as a result of the year s activities. The statement uses the accrual basis of accounting, which is similar to the accounting used by private-sector businesses. All of the revenues and expenses are reported regardless of the timing of when cash is received or paid. The statement identifies the extent to which each expenditure function draws from general revenues of the Board (primarily local taxes) or is financed through charges for services (such as lunchrooms) and intergovernmental aid (primarily federal programs and state appropriations). 3

8 The fund financial statements provide more detailed information about the Board s most significant funds not the Board as a whole. A fund is a grouping of related accounts that is used to keep track of specific sources of funding and spending for particular purposes. The Board uses fund accounting to ensure and demonstrate fiscal accountability. Governmental funds -The Board s activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. The governmental funds statements the Balance Sheet and the Statement of Revenues, Expenditures and Changes in Fund Balances are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. Fiduciary funds Fiduciary funds are used to account for assets held by the Board in a trustee capacity or as an agent for others. Activities from fiduciary funds are not included in the government-wide financial statements because the Board cannot use these assets for its operations. Fiduciary funds of the Board consist of agency funds, and are reported in the Statement of Fiduciary Net Position using the accrual basis of accounting. Agency funds held by the Board involve only the receipt, temporary investment, and remittance of resources to individuals, private organizations, or other governments in a purely custodial capacity (assets equal liabilities). The agency funds reported by the Board consist of student organization accounts such as clubs and classes. Notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements follow the basic financial statements. In addition to the basic financial statements and the accompanying notes, this report also presents certain Required Supplementary Information ( RSI ) other than the MD&A consisting of certain RSI pertaining to pension plans, and a budgetary comparison schedule for the general fund and each major special revenue fund that has a legally adopted annual budget. The schedule includes an accompanying note explaining the differences between actual amounts as reported on the basis of budgeting and the GAAP basis of reporting. [The remainder of this page intentionally left blank] 4

9 Financial Analysis of the Board as a Whole As noted earlier, the Lanett City Board of Education has no Business-Type Activities. Consequently, all of the Board s net position is reported under Governmental Activities. Summary Statements of Net Position Governmental Activities Assets Current and other assets... $ 2,200,090 $ 2,272,344 Capital assets... 3,479,535 3,802,339 Total Assets... 5,679,625 6,074,683 Deferred Outflows of Resources Deferred outflows related to pension... 1,392, ,476 Total Deferred Outflows of Resources... 1,392, ,476 Liabilities Current and other liabilities... 1,387,564 1,350,688 Accrued compensated absences... 15,121 15,046 Long-term debt , ,714 Proportionate share of collective net pension liability... 7,580,000 6,386,000 Total Liabilities... 9,676,068 8,640,448 Deferred Inflows of Resources Deferred inflows related to pension... 41, ,000 Total Deferred Inflows of Resources... 41, ,000 Net Position Invested in capital assets, net of related debt... 2,877,290 2,913,625 Restricted , ,188 Unrestricted... (5,725,844) (5,393,102) Total Net Position... $ (2,644,493) $ (2,283,289) The Board s liabilities and deferred inflows exceeded its assets and deferred outflows by $2,644,493 at the close of the fiscal year. A large portion of the Board s net position is invested in capital assets land, buildings, and building improvements owned by the Board. The deficit in net position was entirely related to its proportionate share of the collective net pension liability of the Teachers Retirement System. Unrestricted net position the part of net position that can be used to finance day-to-day operations without constraints established by enabling legislation, debt covenants, or other legal requirements was $(5,725,844) at the end of the year. 5

10 Revenues Summary Statements of Activities Governmental Activities Program revenues: Charges for services... $ 844,231 $ 786,620 Operating grants and contributions... 6,539,067 6,421,613 Capital grants and contributions , ,003 General revenues: Property taxes , ,994 Sales tax , ,859 Alcohol beverage tax... 34,787 27,174 Other taxes... 5,733 9,844 Grants and contributions not restricted to a program... 82,500 70,000 Investment earnings... 2,181 2,305 Gain (loss) on disposals of capital assets... (146) Other general revenues , ,508 Total Revenues... 9,371,885 9,187,774 Expenses Instructional services... 5,323,810 5,052,714 Instructional support services... 1,334,138 1,150,200 Operation and maintenance services , ,413 Student transportation services , ,886 Food services , ,677 General administrative services , ,037 Interest and fiscal charges... 29,679 36,478 Other expenses , ,665 Total Expenses... 9,733,089 8,952,070 Change in Net Position... (361,204) 235,704 Net Position, Beginning,... (2,283,289) (2,518,993) Net Position, Ending... $ (2,644,493) $ (2,283,289) Program revenues, specifically operating grants and contributions, are the largest component of total revenues (82%). Operating grants and contributions contribute 85% of program revenues and 70% of total revenues. The major sources of revenues in this category are state foundation program funds, state transportation operating funds, and state and federal funds restricted for specific programs. Capital grants and contributions include state capital outlay funds and state funds to replace buses. 6

11 Charges for services include federal reimbursement for meals, student meal purchases, and local school revenues. General revenues, primarily property taxes and sales taxes, are used to provide for expenses not covered by program revenues. Instructional services expenses, primarily salaries and benefits for classroom teachers, are the largest expense function of the Board (55%). In addition to teacher salaries and benefits, instructional services include teacher aides, substitute teachers, textbooks, depreciation of instructional buildings, professional development, and classroom instructional materials, supplies, and equipment. Instructional support services includes salaries and benefits for school principals, assistant principals, librarians, counselors, school secretaries, school bookkeepers, and school nurse, and professional development expenses. Operation and maintenance services include utilities, janitorial services, maintenance services, and depreciation of maintenance vehicles. In addition to bus driver salaries and benefits, student transportation services include vehicle maintenance and repair expenses, depreciation of buses, and fleet insurance. Food services includes salaries and benefits for the Child Nutrition Director, cooks, servers, lunchroom managers, and cashiers, as well as donated and purchased food, food preparation and service supplies, kitchen and lunchroom equipment, and depreciation of equipment and facilities. General administrative services include salaries and benefits for the superintendent, assistants, clerical and financial staff, and other personnel that provide system-wide support for the schools. Also included are legal expenses, liability insurance, training for board members and general administrative staff, printing costs, and depreciation of central office equipment and facilities. Debt service includes interest, but not principal payments, on long-term debt issues. Other expenses include the salaries and benefits for preschool teachers, and extended day personnel. Also included are the materials, supplies, equipment, related depreciation, and other expenses for operating programs outside of those for educating students in the K through 12 instructional programs. Financial Analysis of the Board s Funds The analysis of governmental funds serves the purpose of looking at what resources came into the funds, how they were spent, and what is available for future expenditures. Did the Board generate enough revenue to pay for current obligations? What is available for spending at the end of the year? The strong financial performance of the Board as a whole is reflected in its governmental funds as well. At the end of the fiscal year, the Board s governmental funds reported combined ending fund balances of $729,396. 7

12 General Fund Budgetary Highlights The original 2016 fiscal year budget was adopted on September 14, The original budget for the general fund was amended as necessary on February 8, The comparison of general fund original budget to the final amended budget and actual results is shown as required supplementary information. Food Services Fund Budgetary Highlights The food services fund budget for fiscal year 2016 was amended as necessary on February 8, The comparison of food services fund original budget to the final amended budget and actual results is shown as required supplementary information. Capital Assets and Debt Administration Capital Assets - the Board had the following investment in capital assets including land, buildings, building improvements, and vehicles. This amount is net of accumulated depreciation to date. Increases during the year represent additions to those categories. Capital Assets (net of depreciation) Governmental Activities Land and land improvements... $ 91,138 $ 91,138 Buildings & Improvements... 3,106,173 3,274,144 Vehicles and Equipment , ,057 $ 3,570,673 $ 3,802,339 Net capital assets decreased by $231,666 during the 2016 fiscal year due to depreciation. (Additional information on the Board s capital assets is presented in the notes to the basic financial statements). Long-Term Debt - At year-end, the Board had the following long-term liabilities outstanding. (Additional information on the Board s long-term liabilities is presented in the notes to the basic financial statements). 8

13 Outstanding Long-Term Debt Governmental Activities 2015 Net Change 2016 Bonds and warrants payable... $ 272,909 $ (60,033) $ 212,876 Note payable ,128 (80,290) 152,838 Capital lease obligations ,677 (55,008) 327,669 Total Long-term Debt... $ 888,714 $ (195,331) $ 693,383 Economic Factors and Next Year s Budget The following are currently known Lanett City economic factors considered in going into the fiscal year: The December 2016 unemployment rate in Chambers County (statistics for the City of Lanett were not available) was 5.20 percent, which is an increase from last year s rate of 5.60 percent in December The estimated population in the City of Lanett as of the year 2016 was 6,202. This is a slight decrease since the last ten-year census taken in The population is expected to decrease slightly by the 2020 census. There are several expansions taking place in the Cusseta Industrial Park and the Huguley Industrial Park. Norboard is in the process of reopening their facility and are projected to be in operation at some point in This is encouraging news for the City and the surrounding area. The System receives a percentage of the sales tax for equipment purchases for each expansion and new business. The financial prediction from the State Department of Education in an encouraging one. The FY 2017 proposed budget includes an increase in Other Current Expense (OCE), changes in divisors which might lead to more teaching positions, and a funding increase for transportation. CONTACTING THE SCHOOL BOARD S FINANCIAL MANAGEMENT This financial report is designed to provide citizens, taxpayers, investors, and creditors with a general overview of the Board s finances and to show the Board s accountability for the money it receives. If you have any questions about this report or need additional financial information, contact Anita Mitchell, Chief Financial Officer, 105 N. Lanier Avenue, Lanett, AL or by calling during regular office hours, Monday through Friday, from 8:00 a.m. to 4:30 p.m., eastern standard time. 9

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15 BASIC FINANCIAL STATEMENTS 11

16 STATEMENT OF NET POSITION September 30, 2016 Governmental Activities Assets Cash and cash equivalents... $ 1,173,667 Receivables ,754 Inventories... 15,088 Prepaids... 16,443 Capital assets, net of accumulated depreciation: Land... 91,138 Buildings and improvements... 3,106,173 Equipment ,362 Total Assets... 5,679,625 Deferred Outflows of Resources Deferred outflows related to pension... 1,392,950 Total Deferred Outflows of Resources... 1,392,950 Liabilities Accounts payable and other current liabilities... 87,625 Accrued payroll and related liabilities ,126 Unearned revenue ,813 Accrued compensated absences Due within one year... 15,121 Long-term debt: Due within one year ,655 Due in more than one year ,728 Proportionate share of collective net pension liability... 7,580,000 Total Liabilities... 9,676,068 Deferred Inflows of Resources Deferred inflows related to pension... 41,000 Total Deferred Inflows of Resources... 41,000 Net Position Invested in capital assets, net of related debt... 2,877,290 Restricted for: Food services ,281 Other programs... 68,780 Unrestricted... (5,725,844) Total Net Position... $ (2,644,493) The notes to financial statements are an integral part of this statement 12

17 STATEMENT OF ACTIVITIES For the Year Ended September 30, 2016 Governmental Activities Program Revenues Net Revenue Charges Operating Capital (Expense) and for Grants and Grants and Changes in Expenses Services Contributions Contributions Net Position Instructional services... $ 5,323,810 $ 107,863 $ 4,414,078 $ 127,302 $ (674,567) Instructional support services... 1,334,138 37,479 1,150,437 9,688 (136,534) Operation and maintenance services.. 854,742 5, ,748 78,273 (493,248) Student transportation services ,014 21, ,313 41,725 (73,633) Food services , ,125 40,661 (169,948) General administrative services , ,020 11,024 (394,684) Interest and fiscal charges... 29,679 30, Other ,244 47, ,810 (109,486) Totals... 9,733, ,231 6,539, ,099 (2,051,692) General Revenues Property taxes ,178 Sales taxes ,557 Alcohol beverage tax... 34,787 Other taxes... 5,733 Grants and contributions not restricted to a program... 82,500 Investment earnings... 2,181 Other general revenues ,552 Total General Revenues... 1,690,488 Change in Net Position... (361,204) Net Position Beginning... (2,283,289) Net Position - Ending... $ (2,644,493) The notes to financial statements are an integral part of this statement 13

18 BALANCE SHEET GOVERNMENTAL FUNDS September 30, 2016 Food Other Total General Services Governmental Governmental Fund Fund Funds Funds Assets Cash and cash equivalents... $ 788,084 $ 231,605 $ 153,978 $ 1,173,667 Receivables: Accounts Intergovernmental ,765 69,698 35, ,653 Due from other funds , ,369 Inventories... 15,088 15,088 Prepaids... 16,443 16,443 Total Assets... $ 1,750,762 $ 316,391 $ 189,168 $ 2,256,321 Liabilities and Fund Balances Liabilities Accounts payable and other liabilities $ 43,182 $ 33,592 $ 2,843 $ 79,617 Accrued payroll and related liabilities 589,859 31,482 75, ,126 Due to other funds ,740 34, ,369 Unearned revenue ,386 3,296 7, ,813 Total Liabilities... 1,225, , ,388 1,526,925 Fund Balances Nonspendable... 16,443 15,088 31,531 Restricted ,193 68, ,973 Committed... Assigned... Unassigned , ,892 Total Fund Balances , ,281 68, ,396 Total Liabilities and Fund Balances... $ 1,750,762 $ 316,391 $ 189,168 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not expendable, available financial resources and, therefore, are not reported in the fund... 3,570,673 Long-term liabilities are not due and payable in the current year, and, therefore are not reported in the funds: Accrued compensated absences... (15,121) Long-term debt... (693,383) Accrued interest... (8,008) Share of net pension liability and pension related deferred outflows and inflows... (6,228,050) Net Position of Governmental Activities... $(2,644,493) The notes to financial statements are an integral part of this statement 14

19 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended September 30, 2016 Food Other Total General Services Governmental Governmental Fund Fund Funds Funds Revenues State sources... $ 5,419,484 $ $ 298,099 $ 5,717,583 Federal sources... 66, ,457 1,012,624 1,688,380 Local sources... 1,506,006 37, ,351 1,885,005 Other sources... 58,952 17,850 4,115 80,917 Total Revenues... 7,050, ,955 1,656,189 9,371,885 Expenditures Current: Instructional services... 4,241, ,020 5,058,046 Instructional support services , ,303 1,325,280 Operation and maintenance services 638, , ,560 Student transportation services ,332 1, ,981 Food services , ,287 General administrative services ,113 47, ,210 Other ,809 62, ,779 Debt service: Principal , ,331 Interest and fiscal charges... 31,708 31,708 Capital outlays... Total Expenditures... 7,062, ,287 1,678,273 9,574,182 Excess (Deficiency) of Revenue Over (Under) Expenditures... (11,881) (168,332) (22,084) (202,297) Other Financing Sources (Uses) Transfers in , ,331 42, ,333 Transfers out... (363,755) (8,578) (372,333) Total Other Financing Sources (Uses)... (198,289) 164,331 33,958 Net Change In Fund Balances... (210,170) (4,001) 11,874 (202,297) Fund Balance at Beginning of Year , ,282 56, ,693 Fund Balance at End of Year... $ 525,335 $ 135,281 $ 68,780 $ 729,396 The notes to financial statements are an integral part of this statement 15

20 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Year Ended September 30, 2016 Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances total governmental funds... $ (202,297) Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlays... Depreciation expense... (231,666) In the statement of activities, only the gain on the sale of capital assets is reported. However, in the governmental funds, the proceeds from the sales increase financial resources. Thus, the change in net position differs from the change in fund balance by the cost of the assets sold less accumulated depreciation on those assets through the date of sale. Net book value of capital assets disposed... The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. Debt service - principal ,331 Some expenses 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. Change in accrued interest on long-term debt... 2,029 Change in compensated absences payable... (75) Change in share of net pension liability and pension related deferred outflows and inflows... (124,526) Change In Net Position of Governmental Activities... $ (361,204) The notes to financial statements are an integral part of this statement 16

21 STATEMENT OF FIDUCIARY NET POSITION September 30, 2016 Elementary Jr. High High School School School Total Agency Agency Agency Agency Fund Fund Fund Funds Assets Cash and cash equivalents... $ 16,649 $ 4,539 $ 18,866 $ 40,054 Liabilities Total Assets... $ 16,649 $ 4,539 $ 18,866 $ 40,054 Liabilities Accounts payable and other liabilities... $ $ $ 101 $ 101 Due to student groups... 16,649 4,539 18,765 39,953 Total Liabilities... $ 16,649 $ 4,539 $ 18,866 $ 40,054 The notes to financial statements are an integral part of this statement 17

22 Notes to Financial Statements September 30, 2016 Note 1 - Summary of Significant Accounting Policies Reporting Entity The Lanett City Board of Education (the Board or City Schools ) is a legally separate agency of the State of Alabama (the State ). The Board is under the general supervision and financial jurisdiction of the Alabama State Department of Education, and the Board receives some financial support from the City of Lanett, Alabama (the City ), including the fact that the City owns certain of the facilities that the Board uses. However, the School Board members are elected by the Citizens, and the City Schools are not fiscally dependent on the City. The Governmental Accounting Standards Board (the GASB ) has established standards for defining and reporting on the financial reporting entity. The definition of the reporting entity is based primarily on the notion of financial accountability. A primary government is financially accountable for agencies that make up its legal entity. It is also financially accountable for a legally separate agency if its officials appoint a voting majority of that agency s governing body and either it is able to impose its will on that agency or there is a potential for the agency to provide specific financial benefits to, or to impose specific financial burdens on, the primary government. There are no component units that should be included as part of the financial reporting entity of the Board. Likewise, the Board is not a component unit of the City or any other primary government. Description of Government-Wide Financial Statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the activities of the Board. All of the Board s activities are classified as Governmental activities, which normally are supported by taxes, intergovernmental revenues, and other nonexchange transactions. If the Board had any business-type activities, which rely to a significant extent on fees and charges to external customers for support, they would be reported separately. Basis of Presentation Government-Wide Financial Statements While separate government-wide and fund financial statements are presented, they are interrelated. The governmental activities column incorporates data from the Board s governmental funds. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Basis of Presentation Fund Financial Statements The fund financial statements provide information about the Board s funds. Separate statements for each fund category governmental and fiduciary are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. Major individual governmental funds are reported in separate columns in the fund financial statements. 18

23 Notes to Financial Statements September 30, 2016 Note 1 - Summary of Significant Accounting Policies - Continued Basis of Presentation - Fund Financial Statements Continued The Board reports the following major governmental funds: The general fund is the primary operating fund of the Board. General tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in this fund. Expenditures applicable to the general operations of the Board are paid from the general fund. The food services fund accounts for funds received from federal grants and other sources that are earmarked for the school lunch and breakfast programs. Additionally, the Board reports the following fund types: The Board s nonmajor special revenue funds are used to account for resources that are legally restricted to expenditure for specific purposes. The Board has various nonmajor special revenue funds. The capital projects fund accounts for resources used for the costs of constructing or acquiring major capital assets and major improvements. The debt service fund accounts for the accumulation of resources for, and the payment of principal and interest on long-term debt. Fiduciary funds are used to report assets held in a trustee or agency capacity for others and therefore cannot be used to support the Board s programs. The agency funds are fiduciary funds used to account for the assets held by the Board in a purely custodial capacity. The Board collects local school nonpublic funds and expends them at the request of the various school clubs and organizations. During the course of operations, the Board has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/due to other funds and advances to/advances from other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Balances between the funds included in governmental activities are eliminated so that only the net amount is included as internal balances in the governmental activities column. 19

24 Notes to Financial Statements September 30, 2016 Note 1 - Summary of Significant Accounting Policies - Continued Basis of Presentation - Fund Financial Statements Continued Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/transfers out. While reported in fund financial statements, certain eliminations are made in the preparation of government-wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. Measurement Focus and Basis of Accounting The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when the related liability is incurred. Property taxes are recognized as revenues in the year for which they are levied. 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. Revenues are recognized as soon as they are both measurable and available. Revenues are considered available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Board 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. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts and disclosures in the financial statements. Accordingly, actual results could differ from these estimates. Pension The Teachers Retirement System of Alabama (the Plan) financial statements are prepared using the economic resources measurement focus and accrual basis of accounting. Contributions are recognized as revenues when earned, benefits and refunds are recognized when due and payable in accordance with the terms of the plan, expenses are recognized with the corresponding liability is incurred, and investments are recorded at fair value. The Plan is considered a component unit of the State of Alabama. 20

25 Notes to Financial Statements September 30, 2016 Note 1 - Summary of Significant Accounting Policies Continued Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance Cash and Investments: Cash includes cash on hand, amounts in demand deposits, and short-term investments with a maturity date within three months of the date acquired by the Board. All investments are reported at fair value. Receivables and Payables: Activity between funds that are representative of lending and borrowing arrangements, as well as all other outstanding balances between funds at year end are referred to as either due to/from other funds (for the current portion) or advances to/from other funds (for the noncurrent portion). Advances to other funds are offset by a fund balance reserve in the fund financial statements to indicate that they are not available for appropriation and are not expendable available financial resources. All receivables are shown net of an allowance for uncollectibles. Inventories and Prepaid Items: All inventories are valued at cost using the first in/first out method. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future periods and are recorded as prepaid items in both government-wide and fund financial statements. Capital Assets: Capital outlays are recorded as expenditures in governmental fund financial statements. In contrast, capital assets, which include land, buildings, improvements other than buildings, equipment, and construction in progress, are reported in the government-wide financial statements. Capital assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset s life are not capitalized. Capital assets are defined by the Board as assets with an estimated useful life in excess of one year, and are depreciated using the straight-line method over their estimated useful lives. Capitalization thresholds (the dollar values above which asset acquisitions are added to the capital asset accounts) and the estimated useful lives of capital assets reported in the government-wide statements are as follows: Capitalization Estimated Asset Class Threshold Useful Life Land Improvements - Exhaustible $ 50, years Buildings 50, years Building Improvements 50, years Equipment 5, years Equipment Under Capital Lease 5, years Vehicles 5, years (The capitalization threshold for land, construction in progress, and inexhaustible land improvements is $1 or more. However, these capital assets are not depreciated.) 21

26 Notes to Financial Statements September 30, 2016 Note 1 - Summary of Significant Accounting Policies Continued Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance Continued 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. 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 then. Long-Term Obligations: In the government-wide financial statements, long-term debt and other longterm obligations are reported as liabilities. Premiums, discounts, and deferred amounts on refunding transactions are deferred and amortized over the life of the related debt using the straight-line method. Long-term debt is reported net of the unamortized portion of these amounts. Long-term obligations are not reported in governmental funds. Net Position Flow Assumption: Sometimes the Board will fund outlays for a particular purpose from both restricted and unrestricted sources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government-wide financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Board s policy to consider restricted net position to have been depleted before unrestricted net position is applied. Fund Balance Flow Assumption: Sometimes the Board will fund outlays for a particular purpose from both restricted and unrestricted resources. In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Board s policy to consider restricted fund balance to been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. 22

27 Notes to Financial Statements September 30, 2016 Note 1 - Summary of Significant Accounting Policies - Continued Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance - Continued Fund Balance Policies: Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The Board itself can establish limitation on the use of resources through either a commitment (committed fund balance) or and assignment (assigned fund balance). The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the Board. The Board is the highest level of decision-making authority for the Schools that can, by adoption of a resolution prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the resolution remains in place until a similar action is taken (the adoption of another resolution) to remove or revise the limitation. Amounts in the assigned fund balance classification are intended to be used by the Board for specific purposes but do not meet the criteria to be classified as committed. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Revenues and Expenditures/Expenses Program Revenues: Amounts reported as program revenues include 1 - Charges to individuals who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment of the Board and 2 - grants and contributions (including special assessments) that are restricted to meeting the operational or capital requirements of a particular function or segment. All taxes, including those dedicated for a specific purpose, and other internally dedicated resources are reported as general revenues rather than as program revenues. Accrued Revenues Governmental Fund Financial Statements: Property taxes, sales and use taxes, intergovernmental revenues 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 year. All other revenues are considered to be measurable and available only when cash is received by the Board. Property Tax Calendar: The Chambers County Commission levies property taxes for all jurisdictions including the school boards and municipalities within the county. Millage rates for property taxes are levied at the first regular meeting of the County Commission in February of each year. Property taxes are assessed for property as of October 1 of the preceding year based on the millage rates established by the County Commission. Property taxes are due and payable the following October 1 and are delinquent after December

28 Notes to Financial Statements September 30, 2016 Note 1 - Summary of Significant Accounting Policies - Continued Revenues and Expenditures/Expenses Continued Compensated Absences: For vacation leave and other compensated absences with similar characteristics, a liability is accrued as the benefits are earned by the employees, if both of these conditions are met: a. The employees right to receive compensation is attributable to services already rendered. b. It is probable that the employer will compensate the employees for the benefits through paid time off or some other means, such as cash payments at termination or retirement. An accrual for earned sick leave should be made only to the extent it is probable that the benefits will result in termination payments, rather than be taken as absences due to illness or other contingencies, such as medical appointments and funerals. Professional and support employees earn nonvesting sick leave at the rate of one day per month worked. Employees may accumulate an unlimited number of sick leave days. Employees may use their accrued sick leave as membership service in determining the total years of creditable service in the teachers retirement system, with no additional cost to the Board. Because employees do not receive compensation for unused sick leave at termination no liability is recorded on the financial statements. Professional and support personnel are provided five days of personal leave per year with pay. The State provides funding, at the substitute rate, for up to two days of personal leave per employee per year. The school system provides three additional days of personal leave with pay. If the employee chooses to use any of these additional days, they are required to pay for the cost of the substitute. Professional personnel may receive compensation for the two state funded unused personal leave at the end of the scholastic year. The employee is required to request, in writing, if they wish to be paid for unused personal leave. Any unused personal leave as of June 30 th is rolled over to sick leave; therefore, no liability for unpaid personal leave is recorded in the financial statements. All personnel employed on a twelve-month basis are allowed 5 days of vacation per year with pay. Vacation increases to 10 days per year after 3 years of service and 15 days per year after 10 years of service. Because unused vacation leave can be carried over to succeeding years (to a maximum of two years accrual) a liability for unpaid leave is accrued in the financial statements. 24

29 Notes to Financial Statements September 30, 2016 Note 1 - Summary of Significant Accounting Policies - Continued Revenues and Expenditures/Expenses Continued Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in the government-wide financial statements to the extent that those standards do not conflict with or contradict the guidance of the GASB. Subsequent Events: In preparing the financial statements, management evaluated subsequent events through July 10, 2017, the date the financial statements were available to be issued. Note 2 - Reconciliation of Government-Wide and Fund Financial Statements Explanation of certain differences between the governmental funds balance sheet and the government-wide statement of net position: The governmental funds balance sheet includes a reconciliation between fund balance - total governmental funds and net position governmental activities as reported in the statement of net position. One element of that reconciliation explains that long-term debt is not due and payable in the current year, and, therefore, is not reported in the funds. The details of this $693,383 difference are as follows: Warrants payable - leveraged bond funds... $ 212,876 Notes payable ,838 Obligations under capital leases ,669 Net adjustment to reduce fund balance total governmental funds to arrive at net position - governmental activities... $ 693,383 Note 3 - Stewardship, Compliance, and Accountability A. Budgets Annual budgets are adopted for all governmental funds. All annual appropriations lapse at fiscal year end. State law requires Alabama school boards to prepare and submit to the State Superintendent of Education the annual budget adopted by the local board of education. In accordance with the regulations of the State Board of Education, the due date for submission of the budget for the fiscal year was September 15, The Board approved its original annual budget on September 11, 2015, and submitted the budget on September 14,

30 Notes to Financial Statements September 30, 2016 Note 3 - Stewardship, Compliance, and Accountability - Continued A. Budgets - Continued The City superintendent of education or Board cannot approve any budget for operations of the school system for any fiscal year that shows expenditures in excess of income estimated to be available plus any balances on hand. The superintendent with the approval of the board has the authority to make changes within the approved budget provided that a deficit is not incurred by such changes. The superintendent may approve amendments to program budgets without board approval. B. Deficit Fund Balances in Individual Funds The Board has a deficit fund balance in its Title IV IDEA Part B, Preschool, Title I Part A NCLB, and Title II NCLB. These deficits are all the result of accrued payroll and related liabilities which will be funded in the upcoming year s appropriations. C. Excess of Expenditures Over Appropriations The General Fund, Food Service Fund, Title IV IDEA Part B, Preschool, Title I Part A NCLB, Title II NCLB, E-Rate SLC Refunds, Junior High School Public Funds, High Schools Public Funds, and Debt Service funds expenditures exceeded appropriations. The shortages in the Food Service Fund and Debt Service Fund required transfers from the General Fund. The remaining shortages were either covered by available fund balances or were caused by an increase in accrued payroll and related liabilities. Note 4 - Deposits and Investments As of September 30, 2016, the carrying amount of the Board s bank deposits (including deposits of the individual schools) was $1,170,917 and the bank balance was $1,701,315. Of the total bank balance, $500,000 was insured through the Federal Depository Insurance Corporation ( FDIC ). The remainder of the Board s deposits are covered by the Security for Alabama Funds Enhancement Program ( SAFE program). Under the SAFE program all public deposits are protected through a collateral pool administered by the Alabama State Treasurer s office. Public deposits include the funds of any covered public entity or covered public official placed on deposit in a qualified depository, including time and demand deposit accounts and certificates of deposit but excluding bonds, notes, money market mutual funds, repurchase agreements and similar investment instruments. Covered public entities include the state and its political subdivisions, including school boards. In the past, the bank pledged collateral directly to each public entity. Under SAFE, which is mandatory, each qualified public depository ( QPD ) is required to hold collateral for all of its public deposits on a pooled basis in a custody account (SAFE Custody Account) established for the State Treasurer as SAFE administrator. In the unlikely event a public entity should suffer a deposit loss due to QPD insolvency or default, a claim form would be filed with the State Treasurer, who would use the SAFE pool collateral or other means to reimburse the loss. The SAFE program is classified as a category 1 credit risk. 26

31 Notes to Financial Statements September 30, 2016 Note 5 - Receivables Receivables of the Board s individual major funds and non-major funds in the aggregate were as follows at year-end: Food General Services Other Total Accounts receivable... $ 101 $ $ $ 101 Intergovernmental receivables ,765 69,698 35, ,653 Gross receivables ,866 69,698 35, ,754 Allowance for uncollectibles... Net receivables... $ 798,866 $ 69,698 $ 35,190 $ 903,754 Note 6 - Capital Assets The following table summarizes the changes in capital assets during the year: Beginning Ending Governmental Activities: Balance Increases Decreases Balance Capital Assets Not Being Depreciated Land... $ 91,138 $ $ $ 91,138 Construction in progress... Total Capital Assets Not Being Depreciated... 91,138 91,138 Capital Assets Being Depreciated Buildings and improvements... 5,949,417 5,949,417 Equipment and vehicles , ,835 Total Capital Assets Being Depreciated... 6,887,252 6,887,252 Less accumulated depreciation on: Buildings and improvements... (2,675,273) (167,971) (2,843,244) Equipment and vehicles... Total Accumulated Depreciation... (500,778) (3,176,051) (63,695) (231,666) (564,473) (3,407,717) Net Capital Assets Being Depreciated... 3,711,201 (231,666) 3,479,535 Net Capital Assets Used In the Operation Of Governmental Activities... $ 3,802,339 $ (231,666) $ $ 3,570,673 27

32 Notes to Financial Statements September 30, 2016 Note 6 - Capital Assets - Continued Depreciation expense was charged to governmental functions as follows: Instructional services... $ 141,238 Instructional support services... 8,858 Operation and maintenance... 19,182 Student transportation services... 56,033 Food services... 1,447 General administrative services... 3,443 Other services... 1,465 Total depreciation expense - governmental activities... $ 231,666 Construction Commitments: The Board had no active construction projects at the end of the fiscal year. Note 7 - Interfund Receivables, Payables and Transfers The following is a detailed listing of interfund balances at year-end: Due To/From Other Funds Interfund Receivable Interfund Payable General Fund... $ 147,369 $ Food Services Fund ,740 Other Funds ,629 Interfund Transfers: Fund Purpose Transferred From Fund Transferred To $ 147,369 $ 147,369 To finance expenditures in excess of appropriations General Fund Food Services Fund... $ 164,331 Various needs Various Funds Various Funds ,002 Totals... $ 372,333 28

33 Notes to Financial Statements September 30, 2016 Note 8 - Long-term Debt Changes in long-term debt during the year are summarized as follows: Governmental Activities: Due Due in Beginning Ending Within More Than Balance Additions Reductions Balance One Year One Year Warrants payable... $ 272,909 $ $ (60,033) $ 212,876 $ 64,037 $ 148,839 Note payable ,128 (80,290) 152,838 82,448 70,390 Capital leases ,677 (55,008) 327,669 42, ,499 Governmental Activities long-term liabilities... $ 888,714 $ $ (195,331) $ 693,383 $ 188,655 $ 504,728 Warrants and Notes Payable The Board issues long-term bonds, warrants and notes to provide funds for the acquisition and construction of major capital facilities. Governmental Activities: Warrant payable bearing interest at 5.0%, annual principal installments through 2019, collateralized by future capital outlay funds from the State of Alabama... $ 212,876 Note payable to bank bearing interest at 2.6%, due in monthly principal and interest installments through 2018, unsecured ,838 Total... $ 365,714 [The remainder of this page intentionally left blank] 29

34 Notes to Financial Statements September 30, 2016 Note 8 - Long-term Debt - Continued The following schedules show debt service to maturity for warrants and notes payable outstanding at September 30, 2016: Fiscal Year Ending September 30 Principal Interest Total Capital Leases $ 146,485 $ 13,058 $ 159, ,077 9, , ,152 2,824 79,976 $ 365,714 $ 25,025 $ 390,739 The Board has entered into a capital leases to finance the acquisition of school buses. These lease agreements are classified as capital leases for accounting purposes and, therefore, are reported as long-term liabilities at the present value of their future minimum lease payments. The net carrying values of assets acquired under capital leases at year end were: Governmental Activities: Equipment... $ 729,447 Less: accumulated depreciation... (374,432) $ 355,015 [The remainder of this page intentionally left blank] 30

35 Notes to Financial Statements September 30, 2016 Note 8 - Long-term Debt - Continued The future minimum lease payments and the net present value of these minimum lease payments were as follows at year end: Governmental Activities Year ending September 30, $ 53, , , , ,511 Thereafter ,022 Total minimum lease payments ,577 Less: amounts representing interest... (46,908) Present value of minimum lease payments... $ 327,669 Note 9 - Payments or Services Furnished By Other Agencies The State and the City on behalf of the Board furnish certain payments or services. Included in these items are payments from bond issue proceeds (Public School and College Authority), and donated fixed assets. Also, the City holds legal title to some of the Board s land, buildings and equipment and the related amounts are not reported in the accompanying financial statements. As of September 30, 2016, the Board utilized such land, buildings and equipment with aggregate costs of approximately $6,500,000. Note 10 - Defined Benefit Pension Plan Plan Description The Teachers Retirement System of Alabama, a cost-sharing multiple-employer public employee retirement plan, was established on September 15, 1939, under the provisions of Act 419 of the Legislature of 1939 for the purpose of providing retirement allowances and other specified benefits for qualified persons employed by State-supported educational institutions. The responsibility for the general administration and operation of the TRS is vested in its Board of Control. The TRS Board of Control consists of 15 trustees. The plan is administered by the Retirement Systems of Alabama (RSA). Title 16-Chapter 25 of the Code of Alabama grants the authority to establish and amend the benefit terms to the TRS Board of Control. The plan issues a publicly available financial report that can be obtained at 31

36 Notes to Financial Statements September 30, 2016 Note 10 - Defined Benefit Pension Plan - Continued Benefits Provided State Law establishes retirement benefits as well as death and disability benefits and any ad hoc increase in postretirement benefits for the TRS. Benefits for TRS members vest after 10 years of creditable service. TRS members who retire after age 60 with 10 years or more of creditable service or with 25 years of service (regardless of age) are entitled to an annual retirement benefit, payable monthly for life. Service and disability retirement benefits are based on a guaranteed minimum or a formula method, with the member receiving payment under the method that yields the highest monthly benefit. Under the formula method, members of the TRS are allowed % of their average final compensation (highest 3 of the last 10 years) for each year of service. Act 377 of the Legislature of 2012 established a new tier of benefits (Tier 2) for members hired on or after January 1, Tier 2 TRS members are eligible for retirement after age 62 with 10 years or more of creditable service and are entitled to an annual retirement benefit, payable monthly for life. Service and disability retirement benefits are based on a guaranteed minimum or a formula method, with the member receiving payment under the method that yields the highest monthly benefit. Under the formula method, Tier 2 members of the TRS are allowed 1.65% of their average final compensation (highest 5 of the last 10 years) for each year of service. Members are eligible for disability retirement if they have 10 years of creditable service, are currently in-service, and determined by the RSA Medical Board to be permanently incapacitated from further performance of duty. Preretirement death benefits are calculated and paid to the beneficiary based on the member s age, service credit, employment status, and eligibility for retirement. Contributions Covered members of the TRS contributed 5% of earnable compensation to the TRS as required by statute until September 30, From October 1, 2011 to September 30, 2012, covered members of the TRS were required by statute to contribute 7.25% of earnable compensation. Effective October 1, 2012, covered members of the TRS are required by statute to contribute 7.50% of earnable compensation. Certified law enforcement, correctional officers, and firefighters of the TRS contributed 6% of earnable compensation to the TRS as required by statute until September 30, From October 1, 2011 to September 30, 2012, certified law enforcement, correctional officers, and firefighters of the TRS were required by statute to contribute 8.25% of earnable compensation. Effective October 1, 2012, certified law enforcement, correctional officers, and firefighters of the TRS are required by statute to contribute 8.50% of earnable compensation. 32

37 Notes to Financial Statements September 30, 2016 Note 10 - Defined Benefit Pension Plan - Continued Contributions - Continued Tier 2 covered members of the TRS contribute 6% of earnable compensation of the TRS as required by statute. Tier 2 certified law enforcement, correctional officers, and firefighters of the TRS are required by statute to contribute 7% of earnable compensation. Participating employers contractually required contribution rate for the year ended September 30, 2016 was 11.94% of annual pay for Tier 1 members and 10.84% of annual pay for Tier 2 members. These required contribution rates are a percent of annual payroll, actuarially determined as an amount that, when combined with member contributions, is expected to finance the costs of benefits earned by members during the year, with an additional amount to finance any unfunded accrued liability. Total employer contributions to the pension plan from the Board were $554,950 for the year ended September 30, Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At September 30, 2016 the Board reported a liability of $7,580,000 for its proportionate share of the collective net pension liability. The collective net pension liability was measured as of September 30, 2015 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of September 30, The Board s proportion of the collective net pension liability was based on the employers shares of contributions to the plan relative to the total employer contributions of all participating TRS employers. At September 30, 2015 the Board s proportion was %, which was an increase of % from its proportion measured as of September 30, For the year ended September 30, 2016, the Board recognized pension expense of $536,000. At September 30, 2016 the Board reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows Differences between expected and actual experience... $ $ 41,000 Net difference between projected and actual earnings on pension plan investments ,000 Changes in proportion and differences between employer contributions and proportionate share of contributions.. 342,000 Employer contributions after measurement date ,950 Total... $ 1,392,950 $ 41,000 33

38 Notes to Financial Statements September 30, 2016 Note 10 - Defined Benefit Pension Plan Continued Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions Continued $554,950 reported as deferred outflows of resources related to pensions resulting from Board contributions after the measurement date will be recognized as a reduction of the net pension liability in the year ending September 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Fiscal Year Ending September $ 176, , , , ,000 Thereafter... Actuarial Assumptions 34 $ 797,000 The total pension liability was determined by an actuarial valuation as of September 30, 2013 using the following actuarial assumptions, applied to all periods included in the measurement: Inflation % Investment rate of return* % Projected salary increases % % * Net of pension plan investment expense The actuarial assumptions used in the actuarial valuation as of September 30, 2014 were based on the results of an investigation of the economic and demographic experience for the TRS based upon participant data as of September 30, The Board of Control accepted and approved these changes on January 27, 2012, which became effective at the beginning of fiscal year Mortality rates for the TRS were based on the RP-2000 Combined Mortality Table for Males or Females, as appropriate, with adjustments for mortality improvements based on Scale AA projected to 2015 and set back one year for females.

39 Notes to Financial Statements September 30, 2016 Note 10 - Defined Benefit Pension Plan Continued Actuarial Assumptions Continued The long-term expected rate of return on pension plan investments was determined using a lognormal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target asset allocation and best estimates of geometric real rates of return for each major asset class are as follows: Target Allocation Long-Term Expected Rate of Return* Fixed Income 25.0% 5.0% U.S. Large Stocks 34.0% 9.0% U.S. Mid Stocks 8.0% 12.0% U.S. Small Stocks 3.0% 15.0% International Developed Market Stocks 15.0% 11.0% International Emerging Market Stocks 3.0% 16.0% Real Estate 10.0% 7.5% Cash 2.0% 1.5% Total 100.0% *Includes assumed rate of inflation of 2.5%. Discount Rate The discount rate used to measure the total pension liability was 8%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that the employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, components of the pension plan s fiduciary net position were projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 35

40 Notes to Financial Statements September 30, 2016 Note 10 - Defined Benefit Pension Plan Continued Sensitivity of the Board s Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following table presents the Board s proportionate share of the net pension liability calculated using the discount rate of 8%, as well as what the Board s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage lower (7%) or 1 percentage point higher (9%) than the current rate: 1% Current 1% Decrease Rate Increase 7.00% 8.00% 9.00% Board s Proportionate Share of the Collective Net Pension Liability... $10,028,000 $ 7,580,000 $5,504,000 Pension Plan Fiduciary Net Position Detailed information about the pension plan s fiduciary net position is available in the separately issued RSA Comprehensive Annual Report for the fiscal year ended September 30, The supporting actuarial information is included in the GASB Statement No. 67 Report for the TRS prepared as of September 30, The auditor s report on the total pension liability, total deferred outflows of resources, total deferred inflows of resources, total pension expense for the sum of all participating entities as of September 30, 2015 along with supporting schedules is also available. The additional financial and actuarial information is available at Note 11 - Risk Management The Board is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City of Lanett purchases commercial insurance for the buildings utilized by the Board and their contents. General liability and errors and omissions insurance is purchased by the Board from the Alabama Risk Management for Schools ( ARMS ), a public entity risk pool. The ARMS collects the premiums and purchases commercial insurance for the amount of coverage requested by pool participants. The Board purchases commercial insurance for fidelity bonds. Settled claims in the past three years have not exceeded the commercial insurance coverage. 36

41 Notes to Financial Statements September 30, 2016 Note 11 - Risk Management - Continued Employee health insurance is provided through the Public Education Employees Health Insurance Fund ( PEEHIF ) administered by the Public Education Employees Health Insurance Board. The fund was established to provide a uniform plan of health insurance for current and retired employees of state educational institutions and is self- sustaining. Monthly premiums for employee and dependent coverage are set annually by the plan s actuary and are based on anticipated claims in the upcoming year, considering any remaining fund balance on hand available for claims. The Board contributes the specified amount monthly to the PEEHIF for each employee. The Board contribution is applied against the employees premiums for the coverage selected and the employee pays any remaining premium. The State Board of Adjustments is a state agency with which people can file claims against the Board to collect reimbursement for damages when all other means have been exhausted. The Board does not have insurance coverage for job-related injuries. Claims for employee job-related injuries may be filed with the State Board of Adjustment. The Board of Adjustment determines if a claim is valid and determines the proper amount of compensation. Payments are made from state appropriated funds at no cost to the Board. Note 12 - Contingent Liabilities Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds or the general fund. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time although the Board expects such amounts, if any, to be immaterial. The Board is, from time to time, a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, in the opinion of the Board s attorney the resolution of these matters will not have a material adverse effect on the financial condition of the Board. 37

42 38

43 REQUIRED SUPPLEMENTARY INFORMATION 39

44 GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL For the Year Ended September 30, 2016 Variance Actual from Final Amounts Budget- Budget Amounts (Budgetary Positive Original Final Basis (Negative) Revenues State sources... $ 5,308,195 $ 5,328,985 $ 5,419,484 $ 90,499 Federal sources... 62,263 62,263 66,299 4,036 Local sources... 1,296,510 1,296,510 1,506, ,496 Other sources... 13,000 13,000 58,952 45,952 Total Revenues... 6,679,968 6,700,758 7,050, ,983 Expenditures Current: Instructional services... 3,971,678 4,019,768 4,190,396 (170,628) Instructional support services , , ,385 (86,034) Operation and maintenance services , , ,848 (238,091) Student transportation services , , ,069 (28,983) General administrative services , , ,520 (3,592) Other expenditures , , ,616 (52,533) Capital outlays... Debt service - principal... Debt service - interest... Total Expenditures... 6,323,894 6,412,973 6,992,834 (579,861) Excess (Deficiency) of Revenues Over (Under) Expenditures , ,785 57,907 (229,878) Other Financing Sources (Uses) Transfers in... 56,355 56, , ,111 Transfers out... (201,221) (181,810) (363,755) (181,945) Total Other Financing Sources (Uses).. (144,866) (125,455) (198,289) (72,834) Net Change In Fund Balances , ,330 (140,382) (302,712) Beginning Fund Balances, Beginning of Year 850,000 1,143,731 1,255, ,845 Ending Fund Balances, End of Year... $ 1,061,208 $ 1,306,061 $ 1,115,194 $ (190,867) 40

45 FOOD SERVICES FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL For the Year Ended September 30, 2016 Variance Actual from Final Amounts Budget- Budget Amounts (Budgetary Positive Original Final Basis (Negative) Revenues Federal sources... $ 508,000 $ 585,000 $ 609,457 $ 24,457 Local sources... 41,600 41,400 37,648 (3,752) Other sources... 16,000 17,000 17, Total Revenues , , ,955 21,555 Expenditures Current: Food services , , ,209 (97,588) Capital outlays... Total Expenditures , , ,209 (97,588) Excess (Deficiency) of Revenues Over (Under) Expenditures... (196,947) (92,221) (168,254) (76,033) Other Financing Sources (Uses) Transfers in , , ,331 Total Other Financing Sources (Uses) 172, , ,331 Net Change In Fund Balances... (24,120) 72,110 (3,923) (76,033) Beginning Fund Balances , , ,686 Ending Fund Balances... $ 146,566 $ 242,796 $ 166,763 $ (76,033) 41

46 EXPLANATION OF DIFFERENCES BETWEEN BUDGETARY INFLOWS AND OUTFLOWS AND GAAP REVENUES AND EXPENDITURES For the Year Ended September 30, 2016 General Fund Food Services Fund Reconciliation of Budgetary Outflows to GAAP Expenditures: Total expenditures - budgetary basis... $ 6,992,834 $ 833,209 Salaries of teachers and other personnel with contracts of less than twelve months are paid over a twelve-month period. Expenditures for salaries and related costs are budgeted on the amount that will actually be paid during the budget year. However, salaries and related costs incurred but not yet paid are reported as expenditures on the GAAP basis , Total expenditures - GAAP basis... $ 7,062,622 $ 833,287 42

47 SCHEDULE OF THE BOARD S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY - TEACHERS RETIREMENT SYSTEM OF ALABAMA Last Ten Fiscal Years Date Board s proportion of the net pension liability % % % % % % % % % % Board s proportionate share of the net pension liability $ 7,580,000 $ 6,386,000 $ $ $ $ $ $ $ $ Board s covered-employee payroll $ 4,608,123 $ 5,594,330 $ $ $ $ $ $ $ $ Board s proportionate share of the net pension liability as a percentage of its covered-employee payroll % % % % % % % % % % Plan fiduciary net position as a Percentage of the total pension liability 67.51% 71.01% % % % % % % % % Notes to Schedule This schedule is required to present information for 10 years. However, until a full 10-year trend is compiled, the Board will present information for those years for which information is available. 43

48 SCHEDULE OF THE BOARD S CONTRIBUTIONS TEACHERS RETIREMENT SYSTEM OF ALABAMA Last Ten Fiscal Years Date Contractually required contribution $ 554,950 $ 534,476 $ $ $ $ $ $ $ $ Contributions in relation to the contractually required contribution 554, ,476 Contribution deficiency (excess) $ $ $ $ $ $ $ $ $ $ Board s covered-employee payroll $ 4,746,740 $ 4,608,123 $ $ $ $ $ $ $ $ Contributions as a percentage of covered-employee payroll 11.69% 11.60% % % % % % % % % Notes to Schedule This schedule is required to present information for 10 years. However, until a full 10-year trend is compiled, the Board will present information for those years for which information is available. 44

49 COMBINING FINANCIAL STATEMENTS 45

50 NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET September 30, 2016 Special Revenue Funds Carl Total Title IV Perkins Title I Nonmajor IDEA Career Part A Title II Funds Part B Preschool Tech NCLB NCLB Assets Cash and cash equivalents... $ 153,978 $ $ $ $ 9,301 $ Receivables: Accounts... Intergovernmental... 35,190 19,946 1,886 1,233 Total Assets... $ 189,168 $ 19,946 $ $ 1,886 $ 9,301 $ 1,233 Liabilities and Fund Balances Liabilities Accounts payable and other liabilities $ 2,843 $ 474 $ $ $ 2,169 $ 86 Accrued payroll and related liabilities 75,785 22,918 1,143 42,550 9,174 Due to other funds... 34,629 19,471 1,886 1,147 Unearned revenue... 7,131 7,131 Total Liabilities ,388 42,863 1,143 1,886 51,850 10,407 Fund Balances Restricted... 68,780 (22,917) (1,143) (42,549) (9,174) Total Fund Balances... 68,780 (22,917) (1,143) (42,549) (9,174) Total Liabilities and Fund Balances... $ 189,168 $ 19,946 $ $ 1,886 $ 9,301 $ 1,233 The notes to financial statements are an integral part of this statement 46

51 Special Revenue Funds Title IV Part B E-Rate School Activity Public Funds Rural & Low SLC Junior High Income Refunds Elementary High School $ $ 13,076 $ 26,612 $ 5,308 $ 66,612 ` 12,125 $ 12,125 $ 13,076 $ 26,612 $ 5,308 $ 66,612 $ $ $ 46 $ $ 12,125 12, ,076 26,566 5,308 66,612 13,076 26,566 5,308 66,612 $ 12,125 $ 13,076 $ 26,612 $ 5,308 $ 66,612 47

52 NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET - CONTINUED September 30, 2016 School Activity - Public Total Special Debt Capital Funds Revenue Service Projects Athletics Funds Fund Fund Assets Cash and cash equivalents... $ 19,069 $ 139,978 $ $ 14,000 Receivables: Accounts... Intergovernmental... 35,190 Total Assets... $ 19,069 $ 175,168 $ $ 14,000 Liabilities and Fund Balances Liabilities Accounts payable and other liabilities $ 68 $ 2,843 $ $ Accrued payroll and related liabilities 75,785 Due to other funds... 34,629 Deferred revenue... 7,131 Total Liabilities ,388 Fund Balances Restricted... 19,001 54,780 14,000 Total Fund Balances... 19,001 54,780 14,000 Total Liabilities and Fund Balances... $ 19,069 $ 175,168 $ $ 14,000 48

53 49

54 NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES September 30, 2016 Special Revenue Funds Carl Total Title IV Perkins Title I Nonmajor IDEA Career Part A Title II Funds Part B Preschool Tech NCLB NCLB Revenues State sources... $ 298,099 $ $ $ $ $ Federal sources... 1,012, ,941 9,749 9, ,282 91,376 Local sources ,351 Other sources... 4,115 Total Revenues... 1,656, ,941 9,749 9, ,282 91,376 Expenditures Current: Instructional services , ,088 5, ,877 69,821 Instructional support services ,303 61,375 3, ,898 21,984 Operation and maintenance services. 197,195 Student transportation services... 1, General administrative services... 44,097 44,097 Other... 62,970 9,842 Debt service: Principal ,331 Interest and fiscal charges... 31,708 Capital outlays... Total Expenditures... 1,678, ,463 9,842 9, ,872 91,805 Excess (deficiency) of revenues over (under) expenditures... (22,084) (4,522) (93) (2,590) (429) Other Financing Sources (Uses) Transfers in... 42,536 Transfers out... (8,578) Total Other Financing Sources (Uses)... 33,958 Net Change In Fund Balances... 11,874 (4,522) (93) (2,590) (429) Beginning Fund Balances (Deficits)... 56,906 (18,395) (1,050) (39,959) (8,745) Ending Fund Balances (Deficits)... $ 68,780 $ (22,917) $ (1,143) $ $ (42,549) $ (9,174) 50

55 Special Revenue Funds Title IV Part B E Rate School Activity Public Funds Rural & SLC Junior High Low Income Refunds Elementary High School $ $ $ $ $ 18,494 86,237 34,250 6,585 94,194 4,115 18,494 90,352 34,250 6,585 94,194 14,567 5,000 17,293 7,167 25,762 3,927 5,168 2,588 33,374 86, , ,887 1,696 41,545 18,494 91,237 33,054 11, ,798 (885) 1,196 (5,177) (10,604) 7, ,977 (846) (114) (5,242) 6,676 (89) 8,735 (885) 7,872 (5,266) (1,869) 13,961 18,694 10,574 68,481 $ $ 13,076 $ 26,566 $ 5,308 $ 66,612 51

56 NONMAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - CONTINUED September 30, 2016 School Activity - Total Public Special Debt Capital Funds Revenue Service Projects Athletics Funds Fund Fund Revenues State sources... $ $ $ 136,542 $ 161,557 Federal sources... 1,012,624 Local sources... 79, ,192 40,159 Other sources... 4,115 Total Revenues... 79,926 1,317, , ,716 Expenditures Current: Instructional services... 69, ,683 13,337 Instructional support services ,303 Operation and maintenance services. 2,200 92, ,894 Student transportation services... 1,649 General administrative services... 44,097 Other... 62,970 Debt service: Principal ,298 60,033 Interest and fiscal charges... 18,736 12,972 Capital outlays... Total Expenditures... 71,894 1,333, , ,236 Excess (deficiency) of revenues over (under) expenditures... 8,032 (15,072) (17,492) 10,480 Other Financing Sources (Uses) Transfers in... 21,524 17,492 3,520 Transfers out... (2,376) (8,578) Total Other Financing Sources (Uses)... (2,376) 12,946 17,492 3,520 Net Change In Fund Balances... 5,656 (2,126) 14,000 Beginning Fund Balances (Deficits)... 13,345 56,906 Ending Fund Balances (Deficits)... $ 19,001 $ 54,780 $ $ 14,000 52

57 OTHER SUPPLEMENTARY INFORMATION 53

58 RECONCILIATION OF AUDITED FUND BALANCES TO UNAUDITED FUND BALANCES PREVIOUSLY REPORTED TO THE STATE DEPARTMENT OF EDUCATION September 30, 2016 Fiduciary Governmental Fund Types Fund Type Special Debt Capital School General Revenue Service Projects Activity Fund balances as previously reported by to the State Department of Education... $1,026,585 $ 297,477 $ $ 14,000 $ 42,374 To adjust for: Accrued revenue correction... 86,190 Accrued payroll and related... (589,859) (107,267) Due to student groups... (39,953) Reclassification of equity between fund types... 2,420 (2,420) Other, net... (1) (149) (1) Fund balances as reported in audited fund financial statements... $ 525,335 $ 190,061 $ $ 14,000 $ 54

59 GOVERNMENT AUDIT SECTION 55

60 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 To the Superintendent and Members of the Lanett City Board of Education Lanett, Alabama We have audited, in accordance with the 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, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Lanett City Board of Education ( the Board ) as of and for the year ended September 30, 2016, and the related notes to the financial statements which collectively comprise Board s basic financial statements and have issued our report thereon dated July 10, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered Board s internal control over financial reporting (internal control) to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Board s internal control. Accordingly, we do not express an opinion on the effectiveness of the Board s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Phone: Fax Cahaba Heights Road, Suite 100 Birmingham, Alabama pmorgan@morgancpas.com

61 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Board s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Board s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Board s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Birmingham, Alabama July 10, 2017 PHILLIP MORGAN & COMPANY P.C. 57

62 INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Superintendent and Members of the Lanett City Board of Education Lanett, Alabama Report on Compliance for Each Major Federal Program We have audited Lanett City Board of Education s ( the Board s ) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Board s major federal programs for the year ended September 30, The Board s major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of the Board s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Board s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major program. However, our audit does not provide a legal determination of the Board s compliance. Phone: Fax: Cahaba Heights Road, Suite 100 Birmingham, Alabama pmorgan@morgancpas.com