WESTERN BEAVER COUNTY SCHOOL DISTRICT MIDLAND, PENNSYLVANIA JUNE 30, 2015

Transcription

1 WESTERN BEAVER COUNTY SCHOOL DISTRICT MIDLAND, PENNSYLVANIA JUNE 30, 2015 AUDIT REPORT

2 MIDLAND, PENNSYLVANIA TABLE OF CONTENTS Page Independent Auditor s Report 1 2 Management s Discussion and Analysis (MD&A) i x Statement of Net Position 3 Statement of Activities 4 Balance Sheet Governmental Funds 5 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 6 Statement of Revenues, Expenditures, Changes in Fund Balance - Governmental Fund Types 7 Reconciliation of the Governmental Funds, Statement of Revenues, Expenditures, Changes in Fund Balance to the Statement of Activities 8 Statement of Net Position Proprietary Fund Types 9 Statement of Revenues, Expenses, Changes in Fund Net Position Proprietary Fund Types 10 Statement of Cash Flows - Proprietary Fund Types 11 Statement of Net Position Fiduciary Funds 12 Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual General Fund 13 Notes to Financial Statements Required Supplementary Information 40 Postemployment Benefits Other Than Pension Benefits (OPEBs) Schedule of Funding Progress 41 Postemployment Benefits Other Than Pension Benefits (OPEBs) Factors and Trends Used in Actuarial Valuation 42

3 MIDLAND, PENNSYLVANIA TABLE OF CONTENTS Page Schedule of District s Proportionate Share of Net Pension Liability of The Public School Employees Retirement System (PSERS) 43 Schedule of Districts Contributions to The Public School Employees Retirement System (PSERS) 44 Notes to the Required Supplementary Information 45

4 Beaver Pittsburgh Peters Township INDEPENDENT AUDITOR S REPORT To the Board of Directors Western Beaver County School District 343 Ridgemont Drive Midland, Pennsylvania We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of Western Beaver County School District, as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the School District s basic financial statements as listed in the table of contents. 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. 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. 525 Third Street Beaver, Pennsylvania Phone: (724) Fax: (724)

5 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Western Beaver County School District, as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Change in Accounting Principle As discussed in Note 2 to the financial statements, for the period ending June 30, 2015 the entity adopted new accounting guidance GASB 68, Accounting and Financial Reporting for Pensions. The adoption of the new guidance resulted in a prior period adjustment to the beginning net position. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, budgetary comparison information, post-employment benefits other than pension benefits (OPEB) information, schedule of the District s proportionate share of the net pension liability, and schedule of District contributions on pages i-xi, 13, 41-42, and 43-45, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Beaver, PA February 29,

6 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2015 Required Supplementary Information (RSI) Our discussion and analysis of Western Beaver County School District s financial performance provides an overview of the School District s financial activities for the fiscal year ended June 30, Please review in conjunction with the School District s financial statements that begin on page 3. The Management s Discussion and Analysis (MD&A) is an element of the new reporting model adopted by the Governmental Accounting Standards Board (GASB) in their Statement No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments issued June Certain comparative information between the current year and the prior year is required to be presented in the MD&A. FINANCIAL HIGHLIGHTS The General Fund fund balance increased by $584,675 as opposed to an anticipated increase of $9,290. This was largely due to actual expenditures being significantly less than anticipated in student activity and debt service costs. USING THE BASIC FINANCIAL STATEMENT REPORT This Basic Financial Statement Report consists of the Management s Discussion and Analysis and a series of financial statements and notes to those statements. The Statement of Net Position and Statement of Activities, on pages 3 and 4, provide information about the activities of the School District as a whole and present a longer-term view of the School District s financial position. Fund Financial Statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term as well as what remains for future spending. The Fund Financial Statements also look at the School District s most significant funds with all other non-major funds presented in total in one column. For Western Beaver County School District, the General Fund is the most significant fund. Lastly, the financial statements include notes that explain some of the information in the financial statements and provide more detailed data. Figure A-1 shows how the required parts of the Financial Section are arranged and relate to one another. i

7 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2015 Figure A-1 Required Components of Western Beaver County School District s Financial Report Management s Discussion and Analysis Basic Financial Statements Required Supplementary Information Government- Wide Financial Statements Fund Financial Statements Notes to The Financial Statements REPORTING THE SCHOOL DISTRICT AS A WHOLE Statement of Net Position and the Statement of Activities This document contains all funds used by the School District to provide programs and activities. The view of the School District as a whole looks at all financial transactions and asks the question, How did we do financially during Fiscal Year Ended June 30, 2015? The Statement of Net Position and the Statement of Activities answer this question. These statements include all assets and liabilities using the accrual basis of accounting similar to the accounting used by most private-sector companies. The accrual basis of accounting takes into account all of the current year s revenues and expenses regardless of when cash is received or paid. These two statements report the School District s net position and changes in net position. This change in net position is important because it tells the reader, for the School District as a whole, whether or not the financial position of the School District has improved or diminished. The causes of this change may be the result of many factors, some financial, some not. Non-financial factors include the School District s property tax base, current property tax laws in Pennsylvania restricting revenue growth, facility conditions, required educational programs, and other factors. ii

8 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2015 OVERVIEW OF FINANCIAL STATEMENTS Government-Wide Statements The government-wide statements report information about the School District as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the government s assets and liabilities. All of the current year s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the School District s net position and how it has changed. Net position, the difference between the School District s assets and liabilities, is one way to measure the School District s financial health or position. Over time, increases or decreases in the School District s net position is an indication of whether its financial health is improving or deteriorating, respectively. To assess the overall health of the School District, you need to consider additional non-financial factors, such as changes in the School District s property tax base (growth) and the academic achievement of the students. In the Statement of Net Position and the Statement of Activities, the School District is divided into two distinct kinds of activities: Governmental activities Most of the School District s basic services are included here, such as instruction, support services, operation and maintenance of plant, pupil transportation services, and administrative services. Property taxes, state and federal subsidies and grants finance most of these activities. Business-type activities The School District operates a food service operation and charges fees to staff, students, and visitors to help it cover the costs of the food service and catering operations. REPORTING THE SCHOOL DISTRICT S MOST SIGNIFICANT FUNDS Fund Financial Statements Fund financial statements provide detailed information about the most significant funds not the School District as a whole. Some funds are required by state law and by bond requirements. Governmental funds Most of the School District s activities are reported in governmental funds, which focus on the determination of financial position and change in financial position, not on income determination. They are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed shortterm view of the School District s operations and the services it provides. Governmental fund information helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the School District s programs. The iii

9 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2015 relationship (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds is reflected in reconciliations on pages 6 and 8. Proprietary fund This fund is used to account for the School District activities that are similar to business operations in the private sector; or where the reporting is concerned with determining net income, financial position, changes in financial position, and a significant portion of funding through user charges. When the School District charges for services it provides whether to outside customers or to other units in the School District these services are generally reported in proprietary funds. The Food Service Fund is the School District s only major proprietary fund and uses the same basis of accounting as business-type activities; therefore, these statements will essentially match. FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE The School District s total net position was ($15,547,747) at June 30, Table A-1 Fiscal Year ended June 30, 2015 and June 30, 2014 Net Position Governmental Business-Type Governmental Business-Type Activities Activities Total Activities Activities Total Current and other assets: $ 2,924,958 $ (325,416) $ 2,599,542 $ 2,148,429 $ (289,056) $ 1,859,373 Capital assets 5,878,052 24,005 5,902,057 6,168,389 29,305 6,197,694 Total assets $ 8,803,010 $ (301,411) $ 8,501,599 $ 8,316,818 $ (259,751) $ 8,057,067 Deferred Outflows of Resources $ 1,080,399 $ 31,713 $ 1,112,112 $ 0 $ 0 $ 0 Current and other liabilities: $ 2,705,091 $ 37,790 $ 2,742,881 $ 1,523,489 $ 0 $ 1,523,489 Long-term liabilities 20,001, ,302 20,425,577 5,416,521 3,255 5,419,776 Total liabilities $ 22,706,366 $ 462,092 $ 23,168,458 $ 6,940,010 $ 3,255 $ 6,943,265 Deferred Inflows of Resources $ 1,936,168 $ 56,832 $ 1,993,000 $ 0 $ 0 $ 0 Net Investment in Capital Assets $ (241,948) $ 24,005 $ (217,943) $ 288,389 $ 29,305 $ 317,694 Restricted for: Capital Reserve Unrestricted (14,518,043) (812,627) (15,330,670) 1,087,544 (292,311) 795,233 Total Net Position $ (14,759,125) $ (788,622) $ (15,547,747) $ 1,376,808 $ (263,006) $ 1,113,802 A portion of the School District s net assets are invested in capital assets (buildings, land, and equipment). The remaining unrestricted net assets are a combination of restricted and unrestricted amounts. The restricted balances are amounts set-aside to fund future capital purchases or capital projects as planned by the School District and its Board of Directors. iv

10 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2015 The results of this year s operations as a whole are reported in the Statement of Activities on page 4. All expenses are reported in the first column. Specific charges, grants, revenues, and subsidies that directly relate to specific expense categories are represented to determine the final amount of the School District s activities that are supported by other general revenues. The two largest general revenues are the Basic Education Subsidy provided by the State of Pennsylvania, and the local taxes assessed to community taxpayers. Table A-2 takes the information from that Statement, rearranges it slightly, so you can see your total revenues for the year. This table also compares the prior year to the current year. Table A-2 Fiscal Year ended June 30, 2015 and June 30, 2014 Changes in Net Position Governmental Business-Type Governmental Business-Type Activities Activities Total Activities Activities Total Revenues Program revenues: Charges for services $ 51,353 $ 141,535 $ 192,888 $ 16,479 $ 147,783 $ 164,262 Operating grants and contributions 2,696, ,098 2,919,236 2,185, ,683 2,394,582 General revenues: Property taxes 3,069, ,069,015 2,998, ,998,444 Other taxes 659, , , ,424 Property tax reduction 292, , , ,702 Grants, subsidies and contributions, unrestricted 5,347, ,347,719 5,347, ,347,719 Investment earnings 100, ,923 96, ,873 Refund of prior year expenses 130, , Refund of prior year receipts (13,021) 0 (13,021) (14,782) 0 (14,782) Total revenues $ 12,334,786 $ 364,649 $ 12,699,435 $ 11,596,745 $ 356,479 $ 11,953,224 (Table continued on following page) v

11 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, Governmental Business-Type Governmental Business-Type Activities Activities Total Activities Activities Total Expenses Instruction (incl. Capital outlay) $ 7,788,875 $ 0 $ 7,788,875 $ 7,202,395 $ 0 $ 7,202,395 Pupil personnel 316, , , ,171 Instructional student support 145, , , ,385 Administrative & financial support 1,088, ,088, , ,017 Pupil health 131, , , ,660 Operation & maintenance of plant 1,055, ,055, , ,833 Business services 181, , , ,145 Pupil transportation services 961, , , ,401 Other support services 4, ,895 4, ,881 Student activities 286, , , ,722 Community services Interest on long-term debt 238, , , ,388 Capital Outlay (not subject to capitalization) 37, , Food services 0 444, , , ,774 Total expenses $ 12,236,364 $ 444,620 $ 12,680,984 $ 11,472,998 $ 433,774 $ 11,906,772 Increase (decrease) in net position $ 98,422 $ (79,971) $ 18,451 $ 123,747 $ (77,295) $ 46,452 before Transfers Transfers In (Out) $ (30,000) $ 30,000 $ 0 $ (50,000) $ 50,000 $ 0 Net Position, Beginning 1,376,808 (263,006) 1,113,802 1,450,566 (235,711) 1,214,855 Prior Period Adjustment (16,204,355) (475,645) (16,680,000) (147,505) 0 (147,505) Net Position, Ending $ (14,759,125) $ (788,622) $ (15,547,747) $ 1,376,808 $ (263,006) $ 1,113,802 The tables below present the expenses of both the Governmental Activities and the Business-type Activities of the School District. Table A-3 shows the School District s eight largest functions instructional programs, instructional student support, administrative, operation and maintenance of plant, pupil transportation services, student activities, community services, as well as each program s net cost (total cost less revenues generated by the activities). This table also shows the net costs offset by the other unrestricted grants, subsidies and contributions to show the remaining financial needs supported by local taxes and other miscellaneous revenues. vi

12 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2015 Table A-3 Fiscal Year ended June 30, 2015 and 2014 Governmental Activities Functions/Programs Total Cost Net Cost Total Cost Net Cost of Services of Services of Services of Services Instruction $ 7,788,875 $ 5,721,615 $ 7,202,395 $ 5,532,271 Instructional Student Support 593, , , ,019 Administrative 1,270,023 1,172,812 1,149,162 1,067,031 Operation and Maintenance of Plant 1,055, , , ,566 Pupil Transportation Services 961, , , ,118 Other Support Services 4,895 4,895 4,881 4,881 Student Activities 286, , , ,346 Community Services Interest on Long-Term Debt 238, , , ,388 Capital Outlay (Not subject to capitalization) 37,082 37, Total Governmental Activities $ 12,236,364 $ 9,488,873 $ 11,472,998 $ 9,270,620 Less: Unrestricted grants, subsidies (5,347,719) (5,347,719) Total needs from local taxes and other revenues $ 4,141,154 $ 3,922,901 The dependence upon tax revenues for governmental activities is apparent. Approximately 56% of instructional activities are supported through taxes and other general revenues. The community, as a whole, is the primary support for Western Beaver County School District students. BUSINESS-TYPE ACTIVITY The only major business-type activity of the School District is the food service operations. As noted on the Statement of Revenues, Expenses, and Changes in Fund Net Position on page 10, this program had revenues of $394,649 and expenses of $444,620 for the Fiscal Year ended June 30, Business-type activities receive no support from local tax revenues. The Statement of Revenues, Expenses and Changes in Fund Net Position for this proprietary fund will further detail the actual results of operations. THE SCHOOL DISTRICT S FUNDS The General Fund, which accounts for the School District s operations, represents the School District s most significant major fund. All governmental funds had a fund balance of $1,205,529 as noted on page 5. vii

13 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) General Fund Budgeting Highlights JUNE 30, 2015 The School District s budget is prepared according to Pennsylvania law and is based on accounting for certain transactions on a basis of cash receipts, disbursements, and encumbrances. The most significant budgeted fund is the General Operating Fund. During the fiscal year, the School Board of Directors (The Board) authorizes revisions to the original budget to accommodate differences from the original budget to the actual expenditures of the School District. The budgeting systems are designed to tightly control budgets by administrators responsible for their individual areas. A schedule showing the School District s original and final budget amounts compared with amounts actually paid and received is provided on page 13. State Revenues were higher than budgeted amounts by $369,747. Total budgeted revenues exceeded actual amounts by $293,817. Expenditures were budgeted at $12,048,488 while actual expenditures were $12,017,515. The difference is due to a reduction of personnel through attribution, and the reduction of salaries and benefits due to successful contract negotiations. The School District has been diligent at reducing and eliminating unnecessary expenses while maintaining excellence in the classroom. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At June 30, 2015, the School District s Governmental Activities had $5,878,052 invested in a broad range of capital assets, including land, site improvements, buildings, furniture and equipment. Debt Administration Table A-4 Governmental Activities Capital assets net of depreciation (if applicable) Land $ 56,585 $ 56,585 Site Improvements 239, ,075 Buildings & Improvements 3,224,641 3,430,931 Furniture & Equipment 2,357,737 2,401,798 Totals $ 5,878,052 $ 6,168,389 As of June 30, 2015, the School District had total outstanding bond principal of $6,120,000 as listed in Note 8 in the notes to the financial statements. A general obligation refunding bond was issued in the amount of $6,120,000 during The proceeds were used to refund the General Obligation note, Series of 2010 and to cover the costs of refunding. viii

14 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2015 Table A-5 Outstanding Debt General Obligation Notes/Bonds -GOB, Series of 2010 $ 0 $ 5,880,000 -GOB, Series of ,120,000 0 Total Outstanding Debt $ 6,120,000 $ 5,880,000 Other obligations include accrued and compensated vacation pay, sick leave pay, and postemployment benefits for qualifying employees who retire from the School District. ECONOMIC FACTORS AND NEXT YEAR S BUDGETS AND RATES The School District continues to realize little growth in population. The expected inflationary increases in expenses within the Western Beaver County School District puts additional burden on local taxpayers to meet student needs and demand. Facilities must continually be updated and expanded to meet these enrollment trends. The School District will continue to upgrade facilities such as parking areas, window blinds, and security systems. In addition to growth, both health care insurance rates and retirement contribution rates continue to grow. The School District experienced an increase in the retirement contribution rate from 16.93% in 2014 to 21.40% in 2015, an increase of 26%. Additionally, the retirement contribution rate for has increased 21% to 25.84% and has projected annual increases through the next 3-5 years. Budget Comparison The comparison of revenue and expenditure categories is as follows: Table A-6 BUDGETED REVENUES Local $ 3,975,900 $ 4,089,302 State 7,988,807 7,492,735 Federal/Other 355, ,741 Other Financial Sources 120, ,000 Total Budgeted Revenues $ 12,440,448 $ 12,057,778 ix

15 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) JUNE 30, 2015 BUDGETED EXPENDITURES Instruction $ 7,715,632 $ 7,156,183 Support Services 3,728,800 3,839,366 Non-Instruction/Community 527, ,939 Facilities 8,000 8,000 Debt Service 401, ,000 Interfund Transfers 60,000 33,000 Budgetary Reserve 0 0 Total Budgeted Expenditures $ 12,440,488 $ 12,048,488 The Western Beaver County School District has committed itself to financial excellence for many years. CONTACTING THE DISTRICT FINANCIAL MANAGEMENT Our financial report is designed to provide our citizens, taxpayers, parents, students, investors, and creditors with a general overview of the School District s finances and to show the School Board of Directors accountability for the money it receives. If you have questions about this report or wish to request additional financial information, contact the business office at Western Beaver County School District, 343 Ridgemont Drive, Midland, PA x

16 STATEMENT OF NET POSITION AS OF JUNE 30, 2015 Governmental Business-type Activities Activities Total ASSETS Current Assets Cash and Cash Equivalents $ 1,682,596 $ 0 $ 1,682,596 Taxes Receivable, net Property Taxes 458, ,151 Earned Income Taxes 72, ,340 Internal Balances 335,789 (335,789) 0 Due From Other Governments 376,080 3, ,599 Other Receivables Inventories 0 6,854 6,854 Total Current Assets $ 2,924,958 $ (325,416) $ 2,599,542 Noncurrent Assets Land $ 56,585 $ 0 $ 56,585 Site Improvements (net of depreciation) 239, ,089 Building & Building Improvements (net of depreciation) 3,224, ,224,641 Furniture & Equipment (net of depreciation) 2,357,737 24,005 2,381,742 Total Noncurrent Assets $ 5,878,052 $ 24,005 $ 5,902,057 TOTAL ASSETS $ 8,803,010 $ (301,411) $ 8,501,599 DEFERRED OUTFLOWS OF RESOURCES Related to Pensions $ 1,080,399 $ 31,713 $ 1,112,112 TOTAL DEFERRED OUTFLOWS OF RESOURCES $ 1,080,399 $ 31,713 $ 1,112,112 LIABILITIES Current Liabilities Accounts Payable $ 69,785 $ 5,461 $ 75,246 Current Portion of Long-Term Debt 280, ,371 Accrued Salaries and Benefits 1,274, ,274,536 Unearned Revenue Net Pension Liability - Current Portion 1,080,399 31,713 1,112,112 Total Current Liabilities $ 2,705,091 $ 37,790 $ 2,742,881 Noncurrent Liabilities Long-Term Bonds Payable $ 5,870,000 $ 0 $ 5,870,000 Unamortized Bond Discount/Premium (26,707) 0 (26,707) Leases Payable 23, ,353 LT Portion of Other Post-Employment Benefits (302,248) 0 (302,248) LT Portion of Compensated Absences 97,880 3, ,291 LT Portion of Net Pension Liability 14,338, ,891 14,759,888 Total Noncurrent Liabilities $ 20,001,275 $ 424,302 $ 20,425,577 TOTAL LIABILITIES $ 22,706,366 $ 462,092 $ 23,168,458 DEFERRED INFLOWS OF RESOURCES Related to Pensions $ 1,936,168 $ 56,832 $ 1,993,000 TOTAL DEFERRED INFLOWS OF RESOURCES $ 1,936,168 $ 56,832 $ 1,993,000 NET POSITION Net Investment in Capital Assets $ (241,948) $ 24,005 $ (217,943) Restricted for: Capital Reserve Unrestricted (deficit) (14,518,043) (812,627) (15,330,670) TOTAL NET POSITION $ (14,759,125) $ (788,622) $ (15,547,747) See Accompanying Notes to Financial Statements 3

17 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 Net (Expense) Revenue and Program Revenues Changes in Net Assets Operating Capital Charges for Grants and Grants and Governmental Business-type Function/Programs Expenses Services Contributions Contributions Activities Activities Total GOVERNMENTAL ACTIVITIES Instruction: Regular Instruction $ 4,703,492 $ 42,400 $ 943,821 $ 0 $ (3,717,271) $ 0 $ (3,717,271) Special Instruction 1,616, ,236 0 (762,715) 0 (762,715) Vocational Instruction 636, ,945 0 (601,561) 0 (601,561) Other Instructional Programs 547, ,043 0 (540,842) 0 (540,842) Instruction Programs for Pre-Kindergarten 284, ,815 0 (99,226) 0 (99,226) Total Instructional Services $ 7,788,875 $ 42,400 $ 2,024,860 $ 0 $ (5,721,615) $ 0 $ (5,721,615) Support Services: Pupil Personnel $ 316,857 $ 0 $ 29,034 $ 0 $ (287,823) $ 0 $ (287,823) Instructional Staff 145, ,754 0 (131,433) 0 (131,433) Administration 1,088, ,759 0 (1,003,615) 0 (1,003,615) Pupil Health 131, ,359 0 (117,721) 0 (117,721) Business Services 181, ,452 0 (169,197) 0 (169,197) Operation of Plant and Maintenance Services 1,055, ,810 0 (976,831) 0 (976,831) Student Transportation Services 961, ,353 0 (540,922) 0 (540,922) Central and Other Support Services 4, (4,895) 0 (4,895) Total Support Services $ 3,884,958 $ 0 $ 652,521 $ 0 $ (3,232,437) $ 0 $ (3,232,437) Non-Instructional Services: Student Activities $ 286,636 $ 8,953 $ 18,757 $ 0 $ (258,926) $ 0 $ (258,926) Interest on Long-Term Debt 238, (238,813) 0 (238,813) Capital Outlay (Not subject to capitalization) 37, (37,082) 0 (37,082) Total Non-Instructional Services $ 562,531 $ 8,953 $ 18,757 $ 0 $ (534,821) $ 0 $ (534,821) TOTAL GOVERNMENTAL ACTIVITIES $ 12,236,364 $ 51,353 $ 2,696,138 $ 0 $ (9,488,873) $ 0 $ (9,488,873) BUSINESS-TYPE ACTIVITIES Food Services 444, , , (79,987) (79,987) TOTAL PRIMARY GOVERNMENT $ 12,680,984 $ 192,888 $ 2,919,236 $ 0 $ (9,488,873) $ (79,987) $ (9,568,860) GENERAL REVENUES Taxes: Property taxes, levied for general purposes, net $ 3,069,015 $ 0 $ 3,069,015 Other taxes levied for general purposes, net 659, ,159 Grants, subsidies & contributions not restricted 5,347, ,347,719 Refund of Prior Year Receipts (13,021) 0 (13,021) Refund of Prior Year Expenses 130, ,595 Tax Anticipation Note Proceeds 2,647, ,647,459 Tax Anticipation Note Principle (2,647,459) 0 (2,647,459) Investment earnings 100, ,923 Property tax reduction 292, ,921 Interfund Transfers (30,000) 30,000 0 TOTAL GENERAL REVENUES AND TRANSFERS $ 9,557,295 $ 30,016 $ 9,587,311 CHANGE IN NET POSITION $ 68,422 $ (49,971) $ 18,451 NET POSITION - BEGINNING OF YEAR 1,376,808 (263,006) 1,113,802 PRIOR PERIOD ADJUSTMENT (Note 15) (16,204,355) (475,645) (16,680,000) NET POSITION - BEGINNING OF YEAR - RESTATED (14,827,547) (738,651) (15,566,198) NET POSITION - END OF YEAR $ (14,759,125) $ (788,622) $ (15,547,747) See Accompanying Notes to Financial Statements 4

18 BALANCE SHEET - GOVERNMENTAL FUNDS AS OF JUNE 30, 2015 ASSETS General Total Governmental Funds Cash and Cash Equivalents $ 1,682,596 $ 1,682,596 Taxes Receivable: Property Taxes 458, ,151 Earned Income Taxes 72,340 72,340 Interfund Receivables 335, ,789 Intergovernmental Receivables 376, ,080 TOTAL ASSETS $ 2,924,956 $ 2,924,956 LIABILITIES Accounts Payable $ 69,785 $ 69,785 Accrued Salaries & Benefits 1,274,536 1,274,536 TOTAL LIABILITIES $ 1,344,321 $ 1,344,321 DEFERRED INFLOWS OF RESOURCES Unavailable Revenue -Property Taxes $ 375,106 $ 375,106 FUND BALANCES Spendable: Assigned for Capital Reserve $ 866 $ 866 Unassigned 1,204,663 1,204,663 TOTAL FUND BALANCES $ 1,205,529 $ 1,205,529 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES $ 2,924,956 $ 2,924,956 See Accompanying Notes to Financial Statements 5

19 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION AS OF JUNE 30, 2015 TOTAL FUND BALANCES - GOVERNMENTAL FUNDS $ 1,205,529 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities that are not financial and therefore are not reported as assets in governmental funds. Add: Capital Assets 13,289,454 Deduct: Accumulated Depreciation (7,411,400) Certain tax revenues are recognized in the period for which levied than when "available." A portion of the certain deferred tax revenues are not available. Add: Property Taxes 375,106 Some liabilities, including net pension obligations, are not due and payable in the current period and, therefore, are not reported in governmental funds Deferred outflows and inflows or resources related to pensions are applicable to future periods and, therefore, are not reported in governmental funds Deduct: Net Pension Liability (15,419,396) Add: Deferred Outflows of Resources Related to Pensions 1,080,399 Deduct: Deferred Inflows of Resources Related to Pensions (1,936,168) Long-term liabilities, including bonds payable, are not due and payable in the current period, and therefore are not reported as liabilities in the funds. Long-term liabilities at year end consist of: Deduct: Bonds/Leases Payable $ (6,173,724) Add: Unamortized Discount/Premium 26,707 Add: Compensated Absences and Other Post-Employment Benefits 204,368 (855,769) (5,942,649) TOTAL NET POSITION - GOVERNMENTAL ACTIVITIES $ (14,759,125) See Accompanying Notes to Financial Statements 6

20 REVENUES STATEMENT OF REVENUES, EXPENDITURES, CHANGES IN FUND BALANCE GOVERNMENTAL FUND TYPES FOR THE YEAR ENDED JUNE 30, 2015 General Total Governmental Funds Local Sources $ 4,096,479 $ 4,096,479 State Sources 7,862,482 7,862,482 Federal Sources 272, ,634 TOTAL REVENUES $ 12,231,595 $ 12,231,595 EXPENDITURES Instruction $ 7,428,088 $ 7,428,088 Support Services 3,883,831 3,883,831 Non-Instructional Services 260, ,182 Capital Outlay 37,082 37,082 Debt Services 338, ,594 TOTAL EXPENDITURES $ 11,947,777 $ 11,947,777 Excess (Deficiency) of Revenues Over Expenditures $ 283,818 $ 283,818 OTHER FINANCING SOURCES (USES) Refund of Prior Year Receipts $ (13,031) $ (13,031) Refund of Prior Year Expenditures 130, ,595 Refunding Bond Principal Payments (5,880,000) (5,880,000) Refunding Bond Proceeds 6,120,000 6,120,000 Refunding Bond Premium/(Discount) (26,707) (26,707) Tax Anticipation Note Proceeds 2,647,459 2,647,459 Tax Anticipation Note Principle Payment (2,647,459) (2,647,459) Interfund Transfers (30,000) (30,000) TOTAL OTHER FINANCING SOURCES (USES) $ 300,857 $ 300,857 NET CHANGE IN FUND BALANCES $ 584,675 $ 584,675 FUND BALANCE - JUNE 30, , ,854 FUND BALANCE - JUNE 30, 2015 $ 1,205,529 $ 1,205,529 See Accompanying Notes to Financial Statements 7

21 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2015 NET CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS $ 584,675 Amounts reported for governmental activities in the Statement of Activities are different because: Capital outlays are reported in governmental funds as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlay exceeds depreciation in the period. Capital Outlays $ 123,712 Less: Depreciation Expense (414,049) (290,337) Because some property and earned income taxes will not be collected for several months after the District's fiscal year ends, they are not considered as "available" revenues in the governmental funds. Deferred tax revenues decreased by this amount this year. (13,761) Governmental funds report district pension contributions as expenditures. However in the statement of activities, the cost of pension benefits earned net of employee contributions is reported as pension expense Add: District pension contributions $ 1,080,399 Less: Cost of benefits earned net of employee contributions (1,151,207) The governmental funds report proceeds from debt as an other financing source, while the repayment of debt principal is reported as an expenditure. Also, governmental funds report the effect of issuance costs and premiums when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. Interest is recognized as an expenditure in the governmental funds when it is due. In the Statement of Activities, interest expense is recognized as it accrues, regardless of when it is due. The net effect of these differences in the treatment of bonds and leases is as follows: Repayment of Bond Principal $ (240,000) Repayment of Lease Principal 28,291 Interest Expense 71,490 Amortization and Acquisition of Bond Premium/Discount 26,707 (70,808) (113,512) In the Statement of Activities, certain operating expenses-compensated absences and other post-employment benefits-are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). During this year, the total amount of the liability decreased by this amount. (27,835) CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 68,422 See Accompanying Notes to Financial Statements 8

22 STATEMENT OF NET POSITION PROPRIETARY FUND TYPES AS OF JUNE 30, 2015 Food Service ASSETS Current Assets: Cash and Cash Equivalents $ 0 Intergovernmental Receivables 3,519 Inventories 6,854 Total Current Assets $ 10,373 Noncurrent Assets: Machinery & Equipment (net) $ 24,005 Total Noncurrent Assets $ 24,005 TOTAL ASSETS $ 34,378 DEFERRED OUTFLOWS OF RESOURCES Related to Pension $ 31,713 LIABILITIES Current Liabilities: Interfund Payables $ 335,789 Accounts Payable 5,461 Unearned Revenue 616 Current Portion of Net Pension Liability 31,713 Total Current Liabilities $ 373,579 Noncurrent Liabilities: Compensated Absences Payable $ 3,411 Net Pension Liability 420,891 Total Noncurrent Liabilities $ 424,302 TOTAL LIABILITIES $ 797,881 DEFERRED INFLOWS OF RESOURCES Related to Pension $ 56,832 NET POSITION Invested in Capital Assets, Net of Related Debt $ 24,005 Unrestricted (812,627) TOTAL NET POSITION $ (788,622) See Accompanying Notes to Financial Statements 9

23 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUND TYPES FOR THE YEAR ENDED JUNE 30, 2015 Food Service OPERATING REVENUES: Food Service Revenue $ 141,535 TOTAL OPERATING REVENUES $ 141,535 OPERATING EXPENSES: Salaries $ 164,066 Employee Benefits 64,437 Purchased Property Services 6,135 Other Purchased Services 2,344 Supplies 202,338 Depreciation 5,300 TOTAL OPERATING EXPENSES $ 444,620 OPERATING INCOME (LOSS) $ (303,085) NON-OPERATING REVENUES (EXPENSES): Earnings on Investments $ 16 State Sources 34,648 Federal Sources 188,450 TOTAL NON-OPERATING REVENUES (EXPENSES) $ 223,114 INCOME (LOSS) BEFORE OPERATING TRANSFERS $ (79,971) Operating Transfers In (Out) 30,000 CHANGE IN NET POSITION $ (49,971) TOTAL NET POSITION - JUNE 30, 2014 (263,006) PRIOR PERIOD ADJUSTMENT (NOTE 15) (475,645) TOTAL NET POSITION - JUNE 30, 2014 RESTATED (738,651) TOTAL NET POSITION - JUNE 30, 2015 $ (788,622) See Accompanying Notes to Financial Statements 10

24 STATEMENT OF CASH FLOWS PROPRIETARY FUND TYPES AS OF AND FOR THE YEAR ENDED JUNE 30, 2015 Food Service CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Users $ 142,151 Cash Payments to Employees for Services (197,252) Cash Payments to Suppliers for Goods and Services (204,870) Cash Payments for Other Operating Expenses (2,344) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (262,315) CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Interfund Transfers $ 30,000 State Sources 34,418 Federal Sources 185,161 NET CASH PROVIDED BY NON-CAPITAL FINANCING ACTIVITIES $ 249,579 CASH FLOWS FROM INVESTING ACTIVITIES Earnings on Investments $ 16 NET CASH PROVIDED (USED) FROM INVESTING ACTIVITIES $ 16 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (12,720) CASH AND CASH EQUIVALENTS - JUNE 30, ,720 CASH AND CASH EQUIVALENTS - JUNE 30, 2015 $ 0 Reconciliation of Operating Income to Net Cash Provided (Used) by Operating Activities Operating Income (Loss) $ (303,085) Depreciation and Net Amortization $ 5,300 Change in Assets and Liabilities (Increase) Decrease in Inventories (1,858) (Increase) Decrease in Deferred Outflows of Resources (31,713) Increase (Decrease) in Interfund Payables 29,017 Increase (Decrease) in Unearned Revenue 616 Increase (Decrease) in Accounts Payable 5,461 Increase (Decrease) in Net Pension Liability (23,041) Increase (Decrease) in Deferred Inflows of Resources 56,832 Increase (Decrease) in Compensated Absences 156 Total Adjustments $ 40,770 Net Cash Provided (Used) by Operating Activities $ (262,315) See Accompanying Notes to Financial Statements 11

25 STATEMENT OF NET POSITION FIDUCIARY FUNDS AS OF JUNE 30, 2015 Student Activities Fund ASSETS Cash and Cash Equivalents $ 82,352 TOTAL ASSETS $ 82,352 LIABILITIES Due to Student Groups $ 82,352 TOTAL LIABILITIES $ 82,352 TOTAL NET POSITION $ 0 TOTAL LIABILITIES AND NET POSITION $ 82,352 See Accompanying Notes to Financial Statements 12

26 STATEMENT OF REVENUES, EXPENDITURES, CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2015 Variance with Final Budget Budget to Actual Budgeted Amounts Actual Positive GAAP Amounts Original Final (Budgetary Basis) (Negative) Difference GAAP Basis REVENUES Local Sources $ 4,089,302 $ 4,089,302 $ 4,096,479 $ 7,177 $ 0 $ 4,096,479 State Sources 7,492,735 7,492,735 7,862, , ,862,482 Federal Sources 355, , ,634 (83,107) 0 272,634 TOTAL REVENUES $ 11,937,778 $ 11,937,778 $ 12,231,595 $ 293,817 $ 0 $ 12,231,595 EXPENDITURES Regular Programs $ 4,156,787 $ 4,156,787 $ 4,394,127 $ (237,340) $ 0 $ 4,394,127 Special Programs 1,540,047 1,540,047 1,570,336 (30,289) 0 1,570,336 Vocational Programs 602, , ,889 (31,377) 0 633,889 Other Instructional Programs 511, , ,410 (35,552) 0 547,410 Instructional Programs for Pre-Kindergarten 344, , ,326 62, ,326 Pupil Personnel Services 339, , ,681 25, ,681 Instructional Staff Services 236, , ,168 92, ,168 Administrative Services 1,033,842 1,033,842 1,082,128 (48,286) 0 1,082,128 Pupil Health 121, , ,096 (8,617) 0 130,096 Business Services 158, , ,116 7, ,116 Operation & Maintenance of Plant Services 1,071,745 1,071,745 1,117,817 (46,072) 0 1,117,817 Student Transportation Services 877, , ,930 (61,930) 0 938,930 Central & Other Support Services 0 0 4,895 (4,895) 0 4,895 Student Activities 506, , , , ,182 Facilities Acquisition and Construction 8,000 8,000 37,082 (29,082) 0 37,082 Debt Services 505, , , , ,594 TOTAL EXPENDITURES $ 12,015,488 $ 12,015,488 $ 11,947,777 $ 67,711 $ 0 $ 11,947,777 Excess (deficiency) of revenues over expenditures $ (77,710) $ (77,710) $ 283,818 $ 361,528 $ 0 $ 283,818 OTHER FINANCING SOURCES (USES) Tax Anticipation Note Proceeds $ 0 $ 0 $ 2,647,459 $ 2,647,459 $ 0 $ 2,647,459 Tax Anticipation Note Principle Payment 0 0 (2,647,459) (2,647,459) 0 (2,647,459) Refunding Bond Principal Payments 0 0 (5,880,000) (5,880,000) 0 (5,880,000) Refunding Bond Proceeds 0 0 6,120,000 6,120, ,120,000 Refunding Bond Premium/(Discount) 0 0 (26,707) (26,707) 0 (26,707) Refund of Prior Year Receipts 0 0 (13,031) (13,031) 0 (13,031) Other Financing Sources 120, , ,595 10, ,595 Interfund Transfers (33,000) (33,000) (30,000) 3,000 0 (30,000) TOTAL OTHER FINANCING SOURCES (USES) $ 87,000 $ 87,000 $ 300,857 $ 213,857 $ 0 $ 300,857 NET CHANGE IN FUND BALANCE $ 9,290 $ 9,290 $ 584,675 $ 575,385 $ 0 $ 584,675 FUND BALANCE - JUNE 30, , , , , ,854 FUND BALANCE - JUNE 30, 2015 $ 149,163 $ 149,163 $ 1,205,529 $ 1,056,366 $ 0 $ 1,205,529 See Accompanying Notes to Financial Statements 13

27 NOTE 1 - REPORTING ENTITY NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 The Western Beaver County School District ( School District ) is organized under Title 24 of the Pennsylvania Statutes. The School District provides educational services as authorized by State statute and/or federal guidelines. A reporting entity is comprised of the primary government, component units, and other organizations that are included to insure that the financial statements of the School District are not misleading. The primary government consists of all funds, departments, boards, and agencies that are not legally separate from the School District. For the Western Beaver County School District, this includes general operations, food service, and student related activities of the School District. Component units are legally separate organizations for which the School District is financially accountable. The School District is financially accountable for an organization if the School District appoints a voting majority of the organization s governing board and (1) the School District is able to significantly influence the programs or services performed or provided by the organization; or (2) the School District is legally entitled to or can otherwise access the organization s resources; the School District is legally obligated or has otherwise assumed the responsibility to finance the deficits of, or provide financial support to, the organization; or the School District is obligated for the debt of the organization. Component units may also include organizations that are fiscally dependent on the School District in that the School District approves the budget, the issuance of debt, or the levying of taxes. The Western Beaver County School District does not have any component units. The Beaver Valley Intermediate Unit and Beaver County Career and Technology Center were considered as possible component units, but were excluded based on the above criteria. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Western Beaver County School District have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to local government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The School District also applies Financial Accounting Standards Board (FASB) statements and interpretations issued on or before November 30, 1989, to its governmental and business-type activities and to its proprietary funds provided they do not conflict with or contradict GASB pronouncements. The more significant accounting policies of the School District are described below. A. Basis of Presentation The School District s basic financial statements consist of government-wide statements, including a statement of net position and a statement of activities, and fund financial statements which provide a more detailed level of financial information. Government-wide financial statements The statement of net position and the statement of activities display information about the School District as a whole. These statements include the 14

28 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED financial activities of the primary government, except for fiduciary funds. The statements distinguish between those activities of the School District that are governmental and those that are considered business-type activities. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. The statement of net position presents the financial condition of the governmental and business-type activities of the School District at year-end. The statement of activities presents a comparison between direct expenses and program revenues for each program or function of the School District s governmental and business-type activities. Direct expenses are those that are specifically associated with a service, program, or department and therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program, grants and contributions that are restricted to meeting the operational or capital requirements of a particular program and interest earned on grants that is required to be used to support a particular program. Revenues which are not classified as program revenues are presented as general revenues of the School District, with certain limited exceptions. The comparison of direct expenses with program revenues identifies the extent to which each business activity or governmental function is self-financing or draws from the general revenues of the School District. Fund financial statements During the year, the School District segregates transactions related to certain School District functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Fund financial statements are designed to present financial information of the School District at this more detailed level. The focus of governmental and proprietary fund financial statements is on major funds. Each major fund is presented in a separate column. Non-major funds, if applicable, are aggregated and presented in a single column. The fiduciary funds are reported by type. B. Measurement Focus/Basis of Accounting Fund Accounting The School District uses funds to maintain its financial records during the year. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts. There are three categories of funds: governmental, proprietary, and fiduciary. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the School District considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, early retirement, arbitrage rebates, and post-employment healthcare benefits, are recorded only when payment is due. Property taxes and interest associated with past and current fiscal periods are considered to 15

29 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED be susceptible to accrual and so have been recognized as revenues of the current fiscal period if they are collected within 60 days of the end of the current fiscal period. All other property taxes associated with past and current fiscal periods are deferred in the Governmental fund financial statements. The School District reports the following major governmental funds: General Fund - The General Fund is the operating fund of the School District and is used to account for all financial resources except those required to be accounted for in another fund. Proprietary funds may be used to account for any activity for which a fee is charged to external users for goods or services. Proprietary funds are accounted for on a flow of economic resources measurement focus. All assets and all liabilities associated with the operation of these funds are included on the statement of net position. The statement of revenues, expenses and changes in fund net position presents increases (i.e., revenues) and decreases (i.e., expenses) in net total position. Operating revenues, such as charges for services, result from the exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non-operating revenues, such as subsidies and investment earnings, result from non-exchange transactions or ancillary activities. The statement of cash flows provides information about how the School District finances and meets the cash flow needs of its proprietary activities. All proprietary funds are shown on the government-wide statements as business-type activities. The School District reports the following major proprietary fund: Food Service Fund The Food Service Fund accounts for the financial transactions related to the food service operations of the School District. Fiduciary Funds are used to account for assets held by the School District in a trustee capacity or as an agent for individuals, private organizations, or other governments. These include privatepurpose trust and agency funds. Private-purpose trust funds account for resources, including both principal and earnings, which must be expensed according to the provision of a trust agreement, and are accounted for in essentially the same manner as proprietary funds. Agency funds are purely custodial and thus do not involve measurement of results or operations. Accordingly, the statement shown for the School District is only the statement of fiduciary net position. There is no statement required for the changes in fiduciary net position. The School District reports the following Fiduciary Fund which is not subject to major fund reporting: Student Activities Fund - These funds are agency funds which are used to account for net position held in a purely custodial capacity for specific other persons or organizations or governments. 16

30 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund financial statements. Revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. C. Budgetary Process The School District passed an original budget for the fiscal year ending June 30, 2015 with revenues totaling $12,057,778 and expenditures totaling $12,048,488. The budget was balanced with the prior year fund balance. The School District is required by state law to adopt an annual budget for the General Fund only. The budget is presented on the modified accrual basis of accounting, which is consistent with generally accepted accounting principles ( GAAP ). The state does not require any other funds to have an annual budget adopted; therefore, no budgetary comparisons schedules are shown except for the General Fund. The following procedures are followed in establishing the budgetary data reflected in the financial statements: Preliminary Budget: The preliminary budget for each year must be adopted (via Board vote) 90 days prior to the Primary Election, unless the School District adopts a Resolution indicating that it will not raise the rate of any tax by more than its index. The Resolution must be adopted 110 days prior to the Primary Election, and the School District must adopt a Resolution that follows traditional budget guidelines. A proposed version must be prepared at least 20 days before adoption; this work-in-progress budget, defined as the proposed preliminary budget, must be made available for public inspection no later than 110 days prior to the Primary Election. Public notice of the intent to adopt the preliminary budget must be published no later than 10 days before adoption of the preliminary budget (100 days before Primary Election). Final Budget: The final budget for each year must be adopted (via Board vote) by June 30 of the preceding school fiscal year. A proposed version must be prepared and adopted (via Board vote) no later than May 30 of the preceding school fiscal year (at least 30 days before adoption); this work-in-progress budget, defined as the proposed final budget, must be made available for public inspection no later than June 10 of the preceding school fiscal year (20 days before adoption on June 30). Public notice of the intent to adopt the final budget must be published no later than June 20 of the preceding school fiscal year (10 days before adoption on June 30). 17

31 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Note: For the adopted preliminary budget to become the proposed final budget, the School Board must take action. Once the budget is approved, it can be amended at the Function and Fund level only by approval of a majority of the members of the Board of Directors. Amendments are presented to the Board at their regular meetings. Each amendment must have Board approval. Such amendments are made before the fact, are reflected in the official minutes of the Board, and are not made after fiscal year-end as dictated by law. Each budget is prepared and controlled by the budget coordinator at the revenue and expenditure function/object level. Budgeted amounts are as amended by the Board of Directors. All budget appropriations lapse at year-end, unless the School District chooses to utilize encumbrance accounting. Encumbrances (e.g., purchase orders and contracts) outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be re-appropriated and honored during the subsequent year. D. Cash, Cash Equivalents, and Investments The School District s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. The School District s general policy is to report money market investments and short-term participating interest-earning investment contracts at amortized cost and to report nonparticipating interest-earning investment contracts using a cost-based measure. However, if the fair value of an investment is significantly affected by the impairment of the credit standing of the issuer or by other factors, it is reported at fair value. All other investments are reported at fair value unless a legal contract exists which guarantees a higher value. The term short-term refers to investments, which have a remaining term of one year or less at the time of purchase. The term nonparticipating means that the investment s value does not vary with market interest rate changes. E. Interfund Balances On fund financial statements, receivables and payables resulting from short-term interfund loans are classified as interfund receivables/payables. These amounts are offset against each other in the governmental and business-type activities columns of the statement of net position, except for amounts due to/from other funds which are not presented in the statement of net position. F. Inventories On government-wide financial statements, inventories are stated at cost using the purchase method. The purchase method means that food products, materials, and supplies are charged as expenditures when acquired. Inventory on hand at the end of the period is then recorded as an asset by offsetting the appropriate expense account. Inventory for governmental activities are 18

32 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED not reported as of June 30, 2015 due to their immaterial balance. The inventory for businesstype activities at June 30, 2015 is $6,854. On fund financial statements, inventories are stated at cost using the purchase method for proprietary funds. Inventories are not maintained in governmental funds for fund financial statement reporting. G. Capital Assets General capital assets are those assets not specifically related to activities reported in the proprietary funds. These assets generally result from expenditures in the governmental funds. These assets are reported in the governmental activities column of the government-wide statement of net position but are not reported in the fund financial statements. Capital assets utilized by the proprietary funds are reported both in the business-type activities column of the governmentwide statement of net position and in the respective fund statement. All capital assets are capitalized at cost (or estimated historical cost) and updated for additions and retirements during the year. Donated fixed assets are recorded at their fair market values as of the date received. The School District maintains a capitalization threshold of $4,000 for assets acquired after June 30, Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset s life are not. All reported capital assets except land and construction in progress are depreciated. Improvements are depreciated over the remaining useful lives of the related capital assets. Depreciation is computed using the straight-line method over the following useful lives: Governmental Business-Type Activities Activities Description Estimated Lives Estimated Lives Site Improvements 20 years N/A Buildings and Improvements years N/A Furniture and Equipment 5-20 years 5-15 years The School District has elected not to prorate portions of buildings utilized by the Food Service Fund to the Food Service Fund. All buildings are capitalized and included as a Governmental Activity on the Statement of Net Position. H. Compensated Absences/Retirement Incentives Compensated Absences School District employees accrue sick leave and personal leave annually. The liability recorded in the government wide statement of net position is based on the employees contract rate and accumulated days as of June 30, The School District s governmental liability is as follows: 19

33 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Compensated absences liability at 6/30/14 $ 90,298 Increase in liability 7,582 Compensated absences liability at 6/30/15 $ 97,880 The School District s liability for business-type employees is as follows: Retirement Incentives Compensated absences liability at 6/30/14 $ 3,255 Increase in liability 156 Compensated absences liability at 6/30/15 $ 3,411 The School District has agreed to pay hospitalization insurance premiums and cash incentives to certain individuals who have previously accepted early retirement. The School District measured and recognized an other post-employment benefit (OPEB) liability in accordance with provisions of Governmental Accounting Standards Board (GASB) Statement No. 45, Accounting and Financial Reporting by Employers for Post-Employment Benefits Other than Pensions. This statement provides guidance on accounting and financial reporting for OPEB accounted for in financial statements of plan sponsors and employers. OPEB refers to nonpension benefits provided after the termination of employment. Governmental entities have traditionally accounted for OPEB on a pay-as-you-go basis. The guidance in this statement rests on the assumption that OPEB should be accrued as service is provided by employees. More information on these liabilities is presented later in these notes. The liabilities for the above items are reported on the government-wide financial statements. For governmental funds, the current portion of the liabilities is the amount that is normally expected to be paid using expendable financial resources. In proprietary funds, if applicable, the entire amount of the liabilities is reported as a fund liability. I. Accrued Liabilities and Long-Term Obligations All payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements, and all payables, accrued liabilities and long-term obligations payable from proprietary funds are reported on the proprietary fund financial statements. In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the funds. However, claims, judgments, compensated absences, special termination benefits, and contractually required pension contributions that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment in the current year. Bonds and capital leases are recognized as a liability on the governmental fund financial statements when due. 20

34 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED J. Bond Premium and Discount In the government-wide financial statements, bond discounts and premiums are deferred and accreted over the term of the bonds. Bond discounts and premiums are presented as a reduction or addition to the face amount of the bonds. K. Net Position Net position represents the difference between assets and deferred outflows of resources, and liabilities and deferred inflows of resources. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the School District or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. All other net position is reported as unrestricted. The School District applies restricted resources first when an expense is incurred for purposes for which both restricted and unrestricted net position are available. L. Fund Balance Items The GASB issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions (GASB 54) are effective for reporting periods after June 15, The School adopted GASB 54 as part of its fiscal year reporting. The intention of the GASB Statement is to provide a more structured classification of fund balance and to improve the usefulness of fund balance reporting to the users of the School s financial statements. The reporting standard establishes a hierarchy for fund balance classifications and the constraints imposed on the uses of those resources. GASB 54 provides for two major types of fund balances, which are non-spendable and spendable. Non-spendable fund balances are balances that cannot be spent because they are not expected to be converted to cash, or they are legally or contractually required to remain intact. Examples of this classification are prepaid items and inventories. In addition to the non-spendable fund balance, GASB 54 has provided a hierarchy of spendable fund balances, based on a hierarchy of spending constraints. Restricted Fund balances that are constrained by external parties, constitutional provisions, or enabling legislation. Committed Fund balances that contain self-imposed constraints of the government from its highest level of decision making authority, the Western Beaver County School District Board of Directors. Commitments may be established, modified, or rescinded only through resolutions approved by the Western Beaver County School District Board of Directors. 21

35 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Assigned Fund balances that contain self-imposed constraints of the government to be used for a particular purpose. As of June 30, 2015, the Western Beaver County School District Board of Directors has not authorized other personnel to assign fund balance. Unassigned Fund balance of the general fund that is not constrained for any particular purpose. The School District considers the use of funds in the order of the most restrictive to the least restrictive based on the fund balance hierarchy. M. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. N. Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position and/or balance sheet includes a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The School District reported $1,080,399 in Government Activities and $31,713 in Business-type Activities as deferred outflows of resources related to pension. In addition to liabilities, the statement of net position and/or the balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The School District reported $1,936,168 in the Government Activities and $56,832 in the Businesstype Activities as deferred inflows of resources related to pension. The School District also had $375,106 of deferred inflow of resources from unavailable property tax revenue reported on the balance sheet as of June 30, O. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions and pension expense, information about the fiduciary net position of the Public School Employees Retirement System (PSERS) and additions to/deductions from PSERS s fiduciary net position have been determined on the same basis as they are reported by PSERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with benefit terms. Investments are reported at fair value. 22

36 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED P. Impact of Recently Issued Accounting Principles Recently Issued and Adopted Accounting Pronouncements GASB Statement No. 68, Accounting and Financial Reporting for Pensions, establishes standards of accounting and financial reporting for defined benefit pensions and defined contribution pensions provided to the employees of state and local governmental employers through pension plans that are administered through trusts or equivalent arrangements in which: Contributions from employers and non-employer contributing entities to the pension plan and earnings on those contributions are irrevocable. Pension plan assets are dedicated to providing pensions to plan members in accordance with the benefit terms. Pension plan assets are legally protected from the creditors of employers, non-employer contributing entities, and the pension plan administrator. If the plan is a defined benefit pension plan, plan assets also are legally protected from creditors of the plan members. NOTE 3 CASH / INVESTMENTS Custodial Credit Risk Deposits Custodial credit risk is the risk that in the event of a bank failure, the School District s deposits may not be returned to it. The School District does not have a policy for custodial credit risk. As of June 30, 2015, $1,719,641 of the School District s bank balance of $1,969,641 was exposed to custodial credit risk as: Uninsured and uncollateralized $ 0 Collateralized with securities held by the pledging financial institution $ 0 Uninsured and collateral held by the pledging bank's trust department not in the District's name $ 1,719,641 23

37 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 3 CASH / INVESTMENTS CONTINUED Reconciliation to Financial Statements Custodial Credit Risk Uncollateralized Amount Above $ 1,719,641 Petty Cash 200 Collateralized Amount Above 250,000 Carrying Amount - Bank Balances $ 1,969,841 Less: Outstanding Items (204,893) Less: Fiduciary Funds (82,352) Total $ 1,682,596 For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the School District will not be able to recover the value of its investments or collateral security that are in the possession of an outside party. The School District has no investment subject to custodial credit risk. Interest Rate Risk The School District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Statutory Authority School Districts are to adopt local investment policies. The local investment policy must be written, primarily emphasize the safety of principal and liquidity, and address investment diversification, yield, maturity and the quality and capability of investment management. Each School District should customize its policies to meet board and administrative objectives as defined. School Districts should review their investment policies and investment strategies annually. According to Section 440.1(c) of the Pennsylvania School Code, this section authorizes the types of investments school districts may have as follows: 1. United States Treasury bills 2. Short-term obligations of the United States Government or its agencies or instrumentalities. Short-term obligations usually refer to investments of less than thirteen months. 3. Deposits in savings accounts or time deposits or share accounts of institutions insured by: a. The Federal Deposit Insurance Corporation (FDIC), or b. The Federal Savings and Loan Insurance Corporation, or c. The National Credit Union Share Insurance Fund to the extent that such accounts are so insured, and for any amounts above maximum, provided that approved collateral as provided by law therefore shall be pledged by the depository 24

38 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 3 CASH / INVESTMENTS CONTINUED 4. Obligations of the United States of America or any of its agencies or instrumentalities backed by the full faith and credit of the United States of America, the Commonwealth of Pennsylvania or any of its agencies or instrumentalities. Full faith and credit means the obligation is backed by the government s ability to levy taxes to repay debt. These investments include any bonds issued by the Commonwealth of Pennsylvania or any municipality or school district carrying the backing of the taxation of the governmental unit issuing the debt. Some investments of the Federal government do not have full faith and credit backing. Fannie-Mae (FNMA) and Freddy-Mach (FNMC) bonds do not. Ginnie-Mae (GNMA) bonds do have full faith and credit backing. 5. Shares of an investment company registered under the Investment Company Act of 1940 whose shares are registered under the Securities Act of 1933 provided that the following are met: NOTE 4 TAXES Property Taxes a. Only investments of that company are in the authorized investments for school district funds listed in the categories above, and repurchase agreements fully collateralized by such investments. b. The investment company is managed so as to maintain its shares as a constant net asset value in accordance with 17 CFR 270 2a-7 (relating to money market funds). c. The investment company is rated in the highest category by a nationally recognized rating agency. This classification includes pooled investments such as the Pennsylvania School District Liquid Asset Fund, Pennsylvania Local Government Investment Trust, and the Pennsylvania State Treasurer s Invest Program. Based upon assessed valuations provided by the County, the municipal tax collector bills and collects property taxes on behalf of the School District. The schedule for property taxes levied for is as follows: July 1 Tax levy date Through August 31 2% discount period Through October 31 face payment period Beginning November 1 5% penalty period 3rd Monday in April lien date The School District tax rate for all purposes in was mills ($49.00 per $1,000 assessed valuation). Collections for the year were $2,852,442. As of June 30, 2015, property taxes receivable by the School District includes uncollected taxes assessed as of July 1, 2014 or earlier. It is estimated that 90% of all assessed taxes (including 25

39 NOTE 4 TAXES CONTINUED NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 delinquencies plus accrued interest and penalties) will be collected; therefore, property taxes receivable reflect this estimate. Delinquent property tax receivable is recognized as revenue in the government-wide financial statements. Only the portion of property taxes receivable that meets the revenue recognition criteria is reported as revenue in the fund financial statements. Income Taxes The School District levies a vote continuing tax of 0.50 % for general operations on the income of residents. Taxpayers are required to file an annual return. The collector makes periodic distributions to the School District after withholding amounts for administrative fees. Income tax receipts are credited to the general fund. NOTE 5 CAPITAL ASSETS Depreciation expense was charged to functions of the School District as follows: Governmental Activities: Instruction: Regular Instruction $ 301,380 Special Instruction 35,555 Support Services: Operation of Plant and Maintenance Services 29,603 Student Transportation Services 22,345 Non-Instructional Services: Student Activities 25,166 Total Depreciation expense, Governmental Activities: $ 414,049 Business-Type Activities: Food Services $ 5,300 Total Depreciation expense, Business-Type Activities: $ 5,300 Total Depreciation expense, Governmental and Business Type Activities $ 419,349 Capital asset activity for the year ended June 30, 2015 is as follows: 26

40 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 5 CAPITAL ASSETS CONTINUED Governmental activities: Beginning Ending Balance Increases Decreases Balance Capital assets, not being depreciated: Land $ 56,585 $ 0 $ 0 $ 56,585 Total Capital assets, not being depreciated $ 56,585 $ 0 $ 0 $ 56,585 Capital assets, being depreciated: Site Improvements $ 946,134 $ 0 $ 0 $ 946,134 Building and Building Improvements 9,102, , ,207,464 Furniture and Equipment 3,060,724 18, ,079,269 Total capital assets, being depreciated $ 13,109,155 $ 123,712 $ 0 $ 13,232,867 Accumulated depreciation for: Site Improvements $ (667,059) $ (39,986) $ 0 $ (707,045) Building and Building Improvements (5,671,366) (311,457) 0 (5,982,823) Furniture and Equipment (658,926) (62,606) 0 (721,532) Total accumulated depreciation $ (6,997,351) $ (414,049) $ 0 $ (7,411,400) Total capital assets, being depreciated, net: $ 6,111,804 $ (290,337) $ 0 $ 5,821,467 Governmental activities capital assets, net: $ 6,168,389 $ (290,337) $ 0 $ 5,878,052 Business-type activities: Capital assets, being depreciated: Building and Building Improvements $ 0 $ 0 $ 0 $ 0 Furniture and Equipment 147, ,021 Total capital assets, being depreciated $ 147,021 $ 0 $ 0 $ 147,021 Accumulated depreciation for: Building and Building Improvements $ 0 $ 0 $ 0 $ 0 Furniture and Equipment (117,716) (5,300) 0 (123,016) Total accumulated depreciation $ (117,716) $ (5,300) $ 0 $ (123,016) Total capital assets, being depreciated, net: $ 29,305 $ (5,300) $ 0 $ 24,005 Business-type activities capital assets, net: $ 29,305 $ (5,300) $ 0 $ 24,005 Total Governmental & Business-type activities, net $ 6,197,694 $ (295,637) $ 0 $ 5,902,057 NOTE 6 RISK MANAGEMENT Western Beaver County School District is a member district of the Beaver County School Health Care Insurance Consortium (the Consortium) which was formed on July 1, The Consortium is a cooperative joint venture to provide hospitalization, medical and surgical services, professional services, and drug benefits to its member districts on a pooled risk basis. The Western Beaver County School District pays an annual premium to the Consortium for its+ health and medical insurance coverage, and this rate is adjusted annually based on amounts required to fund anticipated benefits and claims as well as other administrative costs. 27

41 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 6 RISK MANAGEMENT CONTINUED The formation agreement of the Consortium provides that the Consortium will be self-sustaining through annually determined member premiums and will reinsure through commercial companies for excess claims of amounts as defined in the insurance contract. The agreement permits participating districts to withdraw from the Consortium. If Western Beaver County School District would withdraw, the Articles of Agreement state that the School District would be entitled to their respective share of the Consortium s net assets. This is calculated by multiplying net assets by the fraction of dividing the withdrawing member s total contributions over the last three years by the total of the all member district contribution over that same time period. The distribution would be required to be paid within one year of the date of withdrawal. The following chart illustrates the published Consortium Net Assets as well as Western Beaver County School District s Annual Contributions over the past three years. Fiscal Year Ended June 30, Total Consortium Net Assets* Western Beaver County School District Annual Contributions* Total Consortium Contributions* 2015 $4,242,114 $926,175 $31,592, $4,569,005 $958,405 $33,278, $4,848,700 $1,100,570 $33,329,717 *Net assets for the fiscal years presented are recorded on the full accrual basis of accounting. The Consortium s financial statements are on file with the Western Beaver County School District. NOTE 7 - SHORT-TERM DEBT Short-term debt activity for the year ended June 30, 2015, was as follows: Beginning Ending Balance Balance July 1, 2014 Issued Redeemed June 30, 2015 Tax and revenue anticipation note $ 0 $ 2,647,459 $ (2,647,459) $ 0 Total Short-Term Debt $ 0 $ 2,647,459 $ (2,647,459) $ 0 Tax and Revenue Anticipation Note On July 1, 2014, the School District issued a Tax and Revenue Anticipation Note (TRAN), Series of 2014/2015 for $2,647,459. Note proceeds were used to pay fiscal year School District operating expenditures prior to the receipt of various tax revenues. The note was paid in June NOTE 8 - LONG-TERM DEBT Long-term liability for the year ended June 30, 2015 is as follows: 28

42 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 8 - LONG-TERM DEBT - CONTINUED Governmental activities: Beginning Ending Due Within Balance Additions Reductions Balance One Year Bonds Payable: General obligation bonds/notes $ 5,880,000 $ 6,120,000 $ (5,880,000) $ 6,120,000 $ 250,000 Deferred amounts for issuance premium/(discount)/(issue costs) 0 (26,707) 0 (26,707) 0 Total bonds payable, net $ 5,880,000 $ 6,093,293 $ (5,880,000) $ 6,093,293 $ 250,000 Capital Lease Obligations 82,015 0 (28,291) 53,724 30,371 Compensated Absences 90,298 7, ,880 0 Net Pension Liability 0 15,419, ,419,396 1,080,399 Other Post-Employment Benefits (322,501) 20,253 0 (302,248) 0 Total governmental activity longterm liabilities $ 5,729,812 $ 21,540,524 $ (5,908,291) $ 21,362,045 $ 1,360,770 Business-type Activities Compensated Absences 3, ,411 0 Net Pension Liability 0 452, ,604 31,713 Total business-type activity long term liabilities $ 3,255 $ 452,760 $ 0 $ 456,015 $ 31,713 Payments on general obligation bonds are made by the General Fund and the Capital Projects Fund. Total interest and debt fees incurred of $328,581 were charged to expense; no interest costs were capitalized during the period. The annual requirements to amortize all general obligation bonds/notes outstanding as of June 30, 2015, including interest payments are as follows: Year ending June 30, Principal Interest Total 2016 $ 250,000 $ 146,020 $ 396, , , , , , , , , , , , , ,075, ,525 2,510, ,305, ,170 2,498,170 Total $ 6,120,000 $ 1,286,355 $ 7,406,355 29

43 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 8 - LONG-TERM DEBT - CONTINUED On February 24, 2015, the Western Beaver County School District issued $6,120,000 in General Obligation Bonds, Refunding Series of Total interest and principal payments over the scheduled life of the Bond is $7,406,355, with interest rates between 1.00% and 3.00%. The bonds are scheduled to mature on March 1, The proceeds of the bond were used to refund the School District s General Obligation Bonds, Series 2010, and to pay the cost of issuing the bonds. As a result, the 2010 Bonds are considered to be defeased, and the liability for these bonds has been removed from the balance of bonds payable. The total interest and principal payments of the defeased amounts to be paid out over the life of the bond issue at the time of refunding was $7,821,943, with interest rates between 2.50% and 4.25%. The bonds were originally scheduled to mature on March 1, General Obligation Bonds General obligation bonds payable at June 30, 2015, with their outstanding balance as follows: $6,120, general obligation bonds, due in annual installments of $250,000 to $485,000, beginning March 1, 2016, through March 1, 2030, interest from 1.00% to 3.00% $ 6,120,000 NOTE 9 PENSION PLAN Public School Employees Retirement System (PSERS) General Information about the Pension Plan $ 6,120,000 Plan Description: The Public School Employees Retirement System (PSERS) is a governmental cost-sharing multi-employer defined benefit pension plan that provides retirement benefits to public school employees of the Commonwealth of Pennsylvania. The members eligible to participate in the System include all full-time public school employees, part-time hourly public school employees who render at least 500 hours of service in the school year, and part-time per diem public school employees who render at least 80 days of service in the school year in any of the reporting entities in Pennsylvania. PSERS issues a publicly available financial report that can be obtained at Benefits Provided: PSERS provides retirement and disability, and death benefits. Members are eligible for monthly retirement benefits upon reaching (a) age 62 with at least 1 year credited service; (b) age 60 with 30 or more years of credited service; or (c) 35 or more years of service regardless of age. Act 120 of 2010 (Act 120) preserves the benefits of existing members and introduced benefit reductions for individuals who become new members on or after July 1, Act 120 created two new membership classes: Membership Class T-E (Class T-E) and Members Class T-F (Class T-F). To qualify for normal retirement, Class T-E and Class T-F members must work until age 65 with a minimum of 3 years of service or attain a total combination of age and service that is equal to or greater than 92 with a minimum of 35 years of 30

44 NOTE 9 PENSION PLAN CONTINUED NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 service. Benefits are generally equal to 2% or 2.5%, depending upon membership class, of the member s final average salary (as defined in the Code) multiplied by the number of years of credited service, a member s right to the defined benefits is vested and early retirement benefits may be elected. For Class T-E and Class T-F members, the right to benefits is vested after 10 years of service. Participants are eligible for disability retirement benefits after completion of 5 years of credited service. Such benefits are generally equal to 2% or 2.5%, depending upon membership class, of the member s final average salary (as defined in the Code) multiplied by the number of years of credited service, but not less than one-third of such salary nor greater than the benefit the members would have had at normal retirement age. Members over normal retirement age may apply for disability benefits. Death benefits are payable upon the death of an active member who has reached age 62 with at least 1 year of credited service (age 65 with at least 3 years of credited service for Class T-E and Class T-F members) or who has at least 5 years of credited service (10 years for Class T-E and Class T-F members). Such benefits are actuarially equivalent to the benefit that would have been effective if the member had retired on the day before death. Contributions Member Contributions: Active members who joined the System prior to July 22, 1983, contribute at 5.25% (Membership Class T-C) or at 6.50% (Membership Class T-D) of the qualifying compensation. Members who joined the System on or after July 22, 1983 and who were active or inactive as of July 1, 2001, contribute at 6.25% (Membership Class T-C) or at 7.50% (Membership Class T-D) of the member s qualifying compensation. Members who joined the System after June 30, 2001, but before July 1, 2011, contribute at 7.50% (automatic Membership Class T-D). For all new hires and for members who elected Class T-D membership, the higher contribution rates began with service rendered on or after January 1, Members who joined the System after June 30, 2011, automatically contribute at the Membership Class T-E rate of 7.50% (base rate) of the member s qualifying compensation. All new hires after June 30, 2011, who elect Class T-F membership, contribute at 10.30% (base rate) of the member s qualifying compensation. Membership Class T-E and Class T-F are affected by a shared risk provision in Act 120 of 2010 that in future fiscal years could cause the Membership Class T-E contribution rate to fluctuate between 7.50% and 9.50% and Membership Class T-F contribution rate to fluctuate between 10.30% and 12.30%. 31

45 NOTE 9 PENSION PLAN CONTINUED Employer Contributions: NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 The School District s contribution rate for the year ended June 30, 2015 was 21.40% of covered payroll, actuarially determined as an amount that, when combined with employee contributions, is expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Contributions to the pension plan from the School District were $1,112,112 for the year ended June 30, Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2015, the School District reported a liability of $15,872,000 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2014, and the total pension liability used to calculate the net pension liability was determined by rolling forward the System s total pension liability as of June 30, 2013 to June 30, The School District s proportion of the net pension liability was calculated utilizing the employer s 1-year reported covered payroll as it related to the total 1-year reported covered payroll. At June 30, 2014, the School District s proportion was %, which was a decrease of % from its proportion measured as of June 30, For the year ended June 30, 2015, the School District recognized pension expense of $1,184,070. At June 30, 2015, the School District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows Deferred Inflows of Resources of Resources Differences between expected and actual experience $ 0 $ 0 Changes in assumptions 0 0 Net difference between projected and actual investment earnings 0 1,135,000 Changes in proportions 0 858,000 Difference between employer contributions and proportionate share of total contributions 0 0 District contributions subsequent to the measurement date 1,112,112 0 Total $ 1,112,112 $ 1,993,000 The School District reported $1,112,112 as deferred outflows of resources related to pensions resulting from School District contributions subsequent to the measurement date and will be recognized as a reduction of the net pension liability in the year ended June 30, Other 32

46 NOTE 9 PENSION PLAN CONTINUED NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expenses as follows: Year ended June 30: 2016 $ (490,000) 2017 (490,000) 2018 (490,000) 2019 (31,000) Actuarial assumptions: The total pension liability as of June 30, 2014 was determined by rolling forward the System s total pension liability as of the June 30, 2013 actuarial valuation to June 30, 2014 using the following actuarial assumptions, applied to all periods included in the measurement: Actuarial cost method Entry Age Normal level % of pay Inflation 3.00 % Salary Increases Effective average of 5.50% (Reflects allowance for inflation, real wage growth of 1.00%, and merit or seniority increases of 1.50%) Investment Rate of Return 7.50 % including inflation Mortality rates are based on the RP-2000 Combined Healthy Annuitant Tables (male and female) with age set back 3 years for both males and females. Disabled annuitants rates were based on the RP-2000 Combined Disabled Tables (male and female) with age set back 7 years for males and 3 years for females. The actuarial assumptions used in the June 30, 2013 valuation were based on the experience study that was performed for the 5-year period ending June 30, The recommended assumption changes based on this experience study were adopted by the Board at its March 11, 2011 Board meeting and were effective beginning with the June 30, 2011 actuarial valuation. The long-term expected rate of return on pension plan investments was determined using a buildingblock method 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 pension plan s policy in regard to the allocation of invested plan assets is established and may be amended by the Board. Plan assets are managed with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the pension. 33

47 NOTE 9 PENSION PLAN CONTINUED NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 Long-Term Target Expected Real Asset Class Allocation Rate of Return Public markets global equity 19% 5.0% Private markets (equity) 21% 6.5% Private real estate 13% 4.7% Global fixed income 8% 2.0% U.S. long treasuries 3% 1.4% TIPS 12% 1.2% High yield bonds 6% 1.7% Cash 3% 0.9% Absolute return 10% 4.8% Risk parity 5% 3.9% MLPs/Infrastructure 3% 5.3% Commodities 6% 3.3% Financing (LIBOR) -9% 1.1% 100% The above was the Board s adopted asset allocation policy and best estimates of geometric real rates of return for each major asset class as of June 30, Discount Rate: The discount rate used to measure the total pension liability was 7.50 %. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and that contributions from employers will be made at contractually required rates, actuarially determined. Based on those assumptions, the pension plan s fiduciary net position was 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. Sensitivity of the School District s proportionate share of the Net Pension Liability: The following presents the School District s proportionate share of the net pension liability, calculated using the discount rate of 7.50%, as well as what the School District s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower (6.50%) or 1-percentage point higher (8.50%) than the current rate: Current 1% Decrease Discount Rate 1 % Increase 6.50% 7.50% 8.50% School District's proportionate share of net pension liability $ 19,798,000 $ 15,872,000 $ 12,520,000 Plan Fiduciary Net Position: Detailed information about the PSERS fiduciary net position is available in PSERS Comprehensive Annual Financial Report, which can be found on the System s website at 34

48 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 10 OTHER POST-EMPLOYMENT BENEFITS Post-retirement benefits From an accrual accounting perspective, the cost of post-employment healthcare benefits, like the cost of pension benefits, generally should be associated with the periods in which the cost occurs, rather than in the future year when it will be paid. In accordance with the requirements of GASB No. 45, the School District recognizes the cost of post-employment healthcare in the year when the employee services are received, reports the accumulated liability from prior years, and provides information useful in assessing potential demands on the School District s future cash flows. Recognition of the liability accumulated from prior years will be phased in over fifteen years, commencing with the liability. Plan description In addition to the pension benefits described above, the School District provides post-retirement health care benefits, in accordance with State statutes, to certain employees accepting special retirement incentives. The School District has agreed to provide health insurance coverage for the retiree and spouse until the retiree reaches age 65 or becomes deceased. The School District shall pay monthly, an amount equal to the premium rate currently in effect, less reimbursement available to the retiree through the PSERS Premium Assistance Program as specified in Act 23 of A triennial actuarial valuation, because there are less than 200 plan participants, is made to determine whether the contributions are sufficient to meet the plan obligations. The latest actuarial valuation was made July 1, The post-retirement plan does not issue standalone financial reports. The contribution requirements of plan members and the School District are established and may be amended by the School District. The School District determines the required contribution using the Projected Unit Credit Method. Membership in the plan consisted of the following at July 1, 2012, the date of the last actuarial evaluation: Retirees and beneficiaries receiving benefits 18 Active plan members 68 Total 86 Annual OPEB Cost and Net OPEB Obligation For the year ended June 30, 2015, the School District s annual OPEB cost for the Plan was $93,478. The School District s annual OPEB cost, the percentage of annual OPEB cost contributed to the Plan, and the net OPEB obligation for the year ended June 30, 2015, were as follows: 35

49 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 10 OTHER POST-EMPLOYMENT BENEFITS - CONTINUED Annual Required Contribution $ 66,744 Adjustment to Annual Required Contribution 27,809 Annual OPEB Cost $ 94,553 Estimated Contributions Made (74,300) Increase (Decrease) in Net OPEB Obligation $ 20,253 Net OPEB Obligation - June 30, 2014 (322,501) Net OPEB Obligation - June 30, 2015 $ (302,248) The School District s annual other post-employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The actuarial accrued liability as of July 1, 2012 is estimated to be $535,100. The School District s contributions represent payments made for premiums for insured individuals. Trend Information The School District s five-year trend information is as follows: GASB 45 Schedule of Employer Contributions ($000's) Percentage of Annual OPEB Annual OPEB Cost Net OPEB Fiscal Year Ending Cost Contributed Obligation June 30, 2015 $ % $ (302) June 30, 2014 $ % $ (323) June 30, 2013 $ % $ (333) June 30, 2012 $ % $ (334) June 30, 2011 $ % $ (210) Funded Status and Funding Progress Since the year ended June 30, 2010 was the year of implementation, based on an actuarial valuation done as of July 1, 2012, the Plan was not funded as of the date, and, therefore, there is no funded status of the Plan as of the actuarial valuation date. GASB 45 Schedule of Funding Progress ($000's) Actuarial Actuarial Actuarial Covered UAAL as a Valuation Value of Accrued Unfunded Funded Payroll Percentage Date Assets Liability AAL Ratio (Total) of Payroll July 1, 2012 $ 0 $ 535 $ % TBD TBD 36

50 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 10 OTHER POST-EMPLOYMENT BENEFITS - CONTINUED Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples included assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit cost between the employer and plan members to that point. The actuarial methods and assumptions used included techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The annual OPEB cost was determined as part of the actuarial valuation. Additional information as of the last actuarial valuation follows: NOTE 11 - INTERFUND ACTIVITIES Valuation Date: July 1, 2012 Actuarial Cost Method: Projected Unit Credit Asset Valuation Method: Market Value Amortization Method: Level dollar Actuarial Assumptions: Investment rate of return None Inflation rate 3.25% Interfund balances at June 30, 2015, consisted of the following receivables and payables: Receivable Fund Payable Fund Amount General Fund Food Service Fund $ 335,789 Total $ 335,789 Balances resulted from the General Fund covering costs for the Proprietary Fund. The entire balance is not expected to be collected in the subsequent year. Interfund transfers for the year ended June 30, 2015, were as follows: Transfer from: Transfer to: Amount : General Fund Food Service Fund $ 30,000 The General Fund transfer is related to subsidizing the Food Service Fund for expenditures during the year ended June 30,

51 NOTE 12 - CONTINGENCIES A. Litigation NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 The School District is potentially liable for any expenditure that may be disallowed pursuant to the terms of grant programs. Management is not aware of any material items of noncompliance, which would result in the disallowance of program expenditures. B. Grants The School District received financial assistance from federal and state agencies in the form of grants. The expenditure of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the general fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the School District at June 30, NOTE 13 FUTURE GASB PRONOUNCEMENTS In February 2015, GASB issued Statement No. 72, Fair Value Measurement and Application. The primary objectives of this Statement are to address issues regarding the measurement of fair value and the applicability of fair value guidance. This Statement will be effective for fiscal year In June 2015, GASB issued Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets that are not Within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. The primary objectives of this Statement are to establish requirements for pensions and pension plans not administered through trusts and to amend certain provisions of GASB Statements 67 and 68. This Statement will be effective for fiscal year In June 2015, GASB issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. The primary objectives of this Statement are to address the financial reports of defined benefit OPEB plans administered through a trust and to address certain disclosure requirements for such plans. This Statement will be effective for fiscal year In June 2015, GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. The primary objective of this Statement is to address the reporting requirements for OPEB liabilities and the related disclosure requirements. This Statement will be effective for fiscal year In June 2015, GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The primary objectives of this Statement are to reduce the GAAP hierarchy to two categories of authoritative GAAP, to provide implementation guidance, and to address the use of authoritative and non-authoritative literature. This Statement will be effective for fiscal year

52 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 NOTE 13 FUTURE GASB PRONOUNCEMENTS - CONTINUED In August 2015, GASB issued Statement No. 77, Tax Abatement Disclosures. This Statement defines tax abatements and provides disclosure guidance for governments that have granted tax abatements. This Statement will be effective for fiscal year The effects of implementing GASB Statements No. 72 through 77 on the School District s financial statements have not yet been determined. NOTE 14 SUBSEQUENT EVENTS Western Beaver County School District evaluated its June 30, 2015 financial statements for subsequent events through the date of the Independent Auditor s Report, the date the financial statements were available to be issued. The School District is not aware of subsequent events that would require disclosure or recognition in the financial statements. NOTE 15 PRIOR PERIOD ADJUSTMENT During the year ended June 30, 2015, the School District implemented GASB No. 67 Financial Reporting for Pension Plans and GASB No. 68 Accounting and Financial Reporting for Pensions. Reporting under the above GASB standards, which requires new reporting requirements for state and local governments that provide their employees with pension benefits, was not reflected in the Governmental Activities, Business-Type Activities or Food Service Fund for the year ended June 30, Net positions at July 1, 2014 have been restated to include implementation of GASB No. 67 and 68 as follows: Business-Type Governmental Activities Activities (Proprietary Fund) Total Net Position at June 30, 2014 $ 1,376,808 $ (263,006) $ 1,113,802 Less: Net Pension Liability (16,204,355) (475,645) (16,680,000) Restated Net Position at July 1, 2014 $ (14,827,547) $ (738,651) $ (15,566,198) 39

53 REQUIRED SUPPLEMENTAL INFORMATION 40

54 POSTEMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (OPEBs) SCHEDULE OF FUNDING PROGRESS YEAR ENDING JUNE 30, 2015 The schedule below reports the funding progress made by the School District. GASB 45 Schedule of Funding Progress ($000's) Actuarial Actuarial Actuarial Covered UAAL as a Valuation Value of Accrued Unfunded Funded Payroll Percentage Date Assets Liability AAL Ratio (Total) of Payroll July 1, 2012 $ 0 $ 535 $ % TBD TBD July 1, 2009 $ 0 $ 1,141 $ 1, % $ 5, % 41

55 POSTEMPLOYMENT BENEFITS OTHER THAN PENSION BENEFITS (OPEBs) FACTORS AND TRENDS USED IN ACTUARIAL VALUATION YEAR ENDING JUNE 30, 2015 The information presented in the required supplementary schedules was determined as part of the actuarial valuations at the District. The actuarial methods and assumptions stated below are for the July 1, 2012 actuarial report. Valuation Date: July 1, 2012 Actuarial Cost Method: Projected Unit Credit Asset Valuation Method: Market Value Amortization Method: Level dollar Actuarial Assumptions: Investment rate of return None Inflation rate 3.25% Health cost trend rates Healthcare costs and premium rates are assumed to increase as shown in the following table (selected years shown) Fiscal Year Ending June 30 Increase in Health Cost over Prior Year % % % % % % % % % % 2084 and later 4.50% 42

56 SCHEDULE OF DISTRICT S PROPORTIONATE SHARE OF NET PENSION LIABILITY OF THE PUBLIC SCHOOL EMPLOYEES RETIREMENT SYSTEM (PSERS) YEAR ENDING JUNE 30, 2015 The schedule below reports the School District s proportionate share of the net pension liability. The Public School Employees Retirement System Last 10 Fiscal Years (As of years ended 6/30) 2015 District's Proportion of the Net Pension Liability (Asset) % District's Proportionate Share of the Net Pension Liability (Asset) $ 15,872,000 District's Covered-Employee Payroll $ 5,112,215 District's Proportionate Share of the Net Pension Liability (Asset) as a Percentage of its Covered-Employee Payroll % Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 57.24% The amounts presented for each fiscal year are determined as of the calendar year-end that occurred within the fiscal year. This schedule is presented to illustrate the requirement to disclose information for 10 years; however, until a full 10-year trend is compiled, governments are required to present information for those years for which information is available. 43

57 SCHEDULE OF DISTRICT S CONTRIBUTIONS TO THE PUBLIC SCHOOL EMPLOYEES RETIREMENT SYSTEM (PSERS) YEAR ENDING JUNE 30, 2015 The schedule below reports the School District s annual contributions to the Public School Employees Retirement System as of the June 30 year end Contractually Required Contribution $ 1,112,112 Contributions in Relation to Contractually Required Contribution (1,112,112) Contribution Deficiency (Excess) $ 0 District's Covered Employee Payroll $ 5,576,667 Contribution as a Percentage of Covered Employee Payroll 19.94% This schedule is presented to illustrate the requirement to disclose information for 10 years; however, until a full 10-year trend is compiled, governments are required to present information for those years for which information is available. 44

58 NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION YEAR ENDING JUNE 30, 2015 NOTE 1 - CHANGES OF BENEFIT TERMS/ASSUMPTIONS Changes of Benefit Terms There were no changes of benefit terms for the year ended June 30, Changes of Benefit Assumption There were no changes of benefit assumptions for the year ended June 30,

59 Beaver Pittsburgh Peters Township To the Board of Directors Western Beaver County School District 343 Ridgemont Drive Midland, PA We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Western Beaver County School District for the year ended June 30, Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards (and, if applicable, Government Auditing Standards and OMB Circular A-133), as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated March 2, Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by Western Beaver County School District are described in Note 2 to the financial statements. As described in Note 2 to the financial statements, Western Beaver County School District changed accounting policies related to the presentation of its financial condition by adopting Statement of Governmental Accounting Standards (GASB Statement) No. 68, Accounting and Financial Reporting for Pensions, in the year ended June 30, The effects of this statement were applied retroactively by reporting the cumulative effect of the application as a restatement of beginning net position or fund balance, as appropriate. The change resulted in the restatement and reduction of the government-wide governmental activities beginning net position of $16,204,355. The adoption had no effect on the governmental fund financial statements. The adoption had a reduction of $475,645 on the proprietary fund financial statements. We noted no transactions entered into by Western Beaver County School District during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting Western Beaver County School District s financial statements were: Management s estimate of the earned income taxes receivable; Management s estimate of the liability for post-employment benefits other than pensions. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were: 525 Third Street Beaver, Pennsylvania Phone: (724) Fax: (724)

60 The disclosure of cash and investments in Note 3 to the financial statements; The disclosure of risk management in Note 6 to the financial statements; The disclosure of long-term debt in Note 8 to the financial statements; The disclosure of other post-employment benefits in Note 10 to the financial statements The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated February 29, Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a second opinion on certain situations. If a consultation involves application of an accounting principle to Western Beaver County School District s financial statements or a determination of the type of auditor s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as Western Beaver County School District s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to postemployment benefits other than pension benefits (OPEBs) schedule of funding progress, factors and trends used in actuarial valuation, the schedule of the District s proportionate share of the net pension liability of the Public Employees Retirement System, and the schedule of the District contributions to the Public Employees Retirement System, which are required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. 2

61 We were engaged to report on the MD&A, which accompany the financial statements but is not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. Restriction on Use This information is intended solely for the use of Western Beaver County School District Board of Directors and management of Western Beaver County School District and is not intended to be, and should not be, used by anyone other than these specified parties. Beaver, PA February 29,

62 Beaver Pittsburgh Peters Township To the Board of Directors Western Beaver County School District 343 Ridgemont Drive Midland, Pennsylvania In planning and performing our audit of the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Western Beaver County School District as of and for the year ended June 30, 2015, in accordance with auditing standards generally accepted in the United States of America, we considered Western Beaver County School District s internal control over financial reporting (internal control) as a basis for designing audit 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 School District s internal control. Accordingly, we do not express an opinion on the effectiveness of the School District s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies: therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as discussed below, we identified certain deficiencies in internal control that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies. 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. We consider the following deficiencies in Western Beaver County School District s internal control to be material weaknesses: Preparation of Financial Statements During the audit, the District did not present financial statements reported in compliance with accounting principles generally accepted in the United States of America. The District s annual financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The District relies on Cottrill, Arbutina & Associates, P.C., as its auditors, to prepare its annual financial statements in order to conform to accounting principles generally accepted in the United States of America. We realize that additional staffing costs would be needed to acquire the internal expertise to perform this function which could significantly outweigh the benefits derived. We, as your auditors, can propose adjustments and assist the District in assembling or drafting of the financial statements; however, we cannot establish or maintain the District s controls over preventing or detecting material misstatements in the preparation of financial statements. We proposed and you approved 38 various adjusting journal entries to properly report on the modified accrual basis of accounting, and 14 journal entries to convert District books from modified accrual to full accrual in order to properly report in accordance with GASB 34. All of these journal entries were presented to the District along with the letter of representation, in which you took responsibility and approved each of these entries. 525 Third Street Beaver, Pennsylvania Phone: (724) Fax: (724)

63 Concentration of Duties The District has a limited staff responsible for or access to: a. receipts d. account coding b. check writing e. posting to the general ledger c. bank reconciliations f. fixed asset records g. inventory records Because of very limited staff, we realize segregation of the above duties is not practical, if not impossible. Because of this internal control situation, the responsibility of the Business Manager is greatly increased because the Board must rely on her knowledge of the everyday operations to discover any material changes in the District s financial position. The small size of the District s office staff limits the extent of separation of duties. If the District determines that it is not cost beneficial to hire additional staff, we want to make sure that the District understands the risks that come with having such a small staff. In addition, even if the District determines that it is not cost beneficial to hire additional staff, we strongly recommend the District evaluate the current segregation of duties and make the most use out of current employees to achieve the best segregation of duties with such a limited staff. The basic premise in an ideal accounting office is that no one employee should have access to both physical assets and the related accounting records or to all phases of a transaction. For example, if the District is able to use four different District personnel, a good segregation would be as follows: Employee 1: Record accounts receivable entries, reconcile petty cash, write checks, record general ledger entries, reconcile bank statements, record credits/debits in accounting records. Employee 2: Receive cash, disburse petty cash, authorize purchase orders, authorize check requests, mail checks. Employee 3: Complete deposit slips, process vendor invoices, approve invoices for payment. Employee 4: Sign checks, perform interbank and interfund transfers, review bank reconciliations. Some examples of current lack of segregation of duties at the District are as follows: General Fund: One individual is responsible for, or has access to, the handling, recording, and mailing of cash disbursements. In an ideal accounting office, these duties would all be separated. One individual is responsible for, or has access to, the handling, recording, and receiving of cash receipts. In an ideal accounting office, these duties would all be separated. The individual who records and maintains the subsidiary ledger for fixed assets also has access to general ledger, cash, purchasing, payable and capital expenditure authorizing functions. In addition, this individual also is able to make deletions to the fixed assets and is the only individual who reconciles the fixed assets. In an ideal accounting office, these duties would all be separated. One individual is responsible for reconciling the bank accounts. This individual also has access to cash receipts, cash disbursements, payroll, and general ledger posting. The reconciliations are not reviewed by 2

64 any other individual. In an ideal accounting office, someone without access to other accounting functions would reconcile the bank statement, and another individual would review the reconciliation. Personnel in the payables function are not completely independent of functions such as receiving, disbursing, inventory, and general ledger functions. In an ideal accounting office, these duties would be separated. Personnel preparing the payroll are not independent of other payroll duties (e.g., timekeeping, distribution of checks), and personnel preparing payroll have access to other District cash and reconcilement functions. In an ideal accounting office, these duties would be separated. Activity Fund One individual is responsible for all aspects of the bookkeeping from initiation of receipts and disbursements to recording in the general ledger to generating and signing the checks. In an ideal accounting office, these duties would all be separated Fixed Assets It was difficult to determine the physical presence of assets recorded in the District s records because the system for determining the location of fixed assets is quite cumbersome. Because the assets are not tagged, it is very difficult to determine if the proper asset is being inspected. We also continue to note that property and equipment acquisitions were not prepared for entry into the various computerized fixed asset subsidiary ledgers until after year-end. Additionally, we noted that the District s fixed asset policy states that the capitalization threshold is $4,000; however, the fixed asset appraisal report indicates that the threshold is $5,000. We also continue to note that management must communicate with all District employees regarding acquisition, disposing of, and moving fixed assets. This issue has still not been formally addressed in the policy on fixed assets. The District should begin tagging all assets acquired for inclusion in the master fixed asset listing. We recommend that the Business Manager, indicate on the purchase order which items should be added to the fixed asset subsidiary schedules. When invoices are matched with purchase orders and receiving reports, someone other than the Business Manager should enter property and equipment acquisitions into the subsidiary ledger. Monthly comparisons of capital expenditure guideline reports with fixed asset additions will help ensure all capital expenditures are entered into fixed asset detail records. The District should also formally address all aspects of fixed asset reporting in their policies and procedures manual including the threshold that would be most suitable for the District SAS 99 We continue to note that the District has not formally adopted a fraud policy in accordance with Statement on Auditing Standards No. 99. The District should adopt a fraud policy in accordance with Statement on Auditing Standards No. 99. As part of this policy, the District should specifically analyze all areas of weakness within the accounting/internal control system and describe programs and controls which are established to mitigate specific fraud risks the entity has identified, or that otherwise help to prevent, deter, and detect fraud, and how management monitors those programs and controls Payroll Function At present, there is a concentration of duties within the payroll department. One employee maintains the payroll master file, including making changes to it for pay rate changes, prepares the payroll, and creates 3

65 checks. This same employee is also involved with the payroll bank reconciliation. When bank accounts are not being properly reconciled, it may lead to inaccurate account balances, and irregularities in the account to go undetected for a period of time. We recommend that someone in management (board, superintendent, etc.) be charged with reviewing and initialing the bank reconciliation. It is imperative that the payroll bank statement be properly reconciled in a timely manner and that the reconciliation be reviewed by higher management. A benefit of monthly reconciliations is that errors do not accumulate but can be identified and attributed to a particular period, which makes it easier to perform future reconciliations. Additionally, because of the concentration of duties, we recommend that a change report be reviewed and signed off on each pay that details any changes made to the employee s information, e.g. change of name, address, social security number, pay rate Balance Sheet Reconciliations We noted during our audit that some of the balance sheet accounts are not reconciled on a regular basis. We recommend that, at least quarterly, if not monthly, all balance sheet accounts be reconciled with the accounting system. In reconciling all accounts, the District can ensure that all taxes, withholdings, and deductions are properly and promptly paid and assets are accounted for. Reconciling items are much easier to track and monitor on a monthly or quarterly basis rather than attempting to resolve these issues annually Adopting a Fund Balance Policy in Accordance with GASB 54 During the audit, it was noted that the School has not adopted a fund balance policy in response to the issuance of GASB Statement No. 54. For periods beginning after June 15, 2010, the Governmental Accounting Standards Board released Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This Statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in the governmental funds. We noted that Western Beaver County School District has not adopted a fund balance policy in response to the issuance of Statement No. 54 and previously existing classifications of fund balance were defaulted to the new classifications based on similar definitions of constraint. A fund balance policy should include, at minimum, who the highest level of decision making authority is to commit fund balance and the formal action that is required to take or establish this commitment. It should include the authorized position that can assign amounts to a specific purpose with any maximum threshold limitations. The policy should state if the District has a minimum fund balance policy. The policy should also include whether the government considers restricted or unrestricted amounts to have been spent when an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, and whether committed, assigned, or unassigned amounts are considered to have been spent when an expenditure is incurred for purposes for which amounts in any of those unrestricted fund balance classifications could be used. This list is not all inclusive, but rather is a minimum set of areas that should be addressed in the policy Cash Reconciliations We noted during the audit that cash reconciliations were being done, but were not complete. It was noted that differences between the bank statements and the accounting system were carried during the year rather than being resolved. We recommend that the first time the reconciliation process produces an unknown balance, the preparer investigate and resolve the issue to ensure the bank statements are properly reconciled. By failing to do so, the District is running the risk of incorrect reporting which could lead to basing decisions on inaccurate information. 4

66 Service Organizations During the year, the District engaged the services of various entities to provide outsourced processing services. These entities include the District s general ledger software company. As such, the District s transactions from the way in which such transactions are initiated, recorded in the accounting records, processed and reported in the financial statements will be affected not by its own internal controls but by those controls that the various entities uses to process transactions for its users. Therefore, as part of its monitoring efforts to ensure that internal controls over financial reporting are effective, management should understand that such controls are suitably designed and effective. Generally, the most efficient way to do that is to obtain a report on controls used to process transactions at the service organizations from its auditor. Such a report, which is commonly referred to as a service organization report, typically includes a description of the service organization s relevant processes and related controls (description of controls) and a service auditor s opinion on the controls identified therein. There are two types of reports that service auditors provide on service organizations internal controls for the benefit of users: 1. A report on the controls placed in operation (a Type 1 report), which describes the internal controls and provides opinions on the fair presentation of the description of controls and the suitability of design of such controls 2. A report on the controls placed in operation and tests of operating effectiveness (a Type 2 report), which provides the same information as a Type 1 report, plus an opinion on whether the controls operated effectively. Most service organizations engage a service auditor to report on their controls and make the resulting report available to their customers and their customers auditors. In many cases, the service organization is contractually obligated to provide such a report as part of the service contract. To facilitate the audit of the District s financial statements, we recommend that the District request a Type 2 service organization report from the service organization next year Approval of Cafeteria Invoices During our testing of cafeteria expenses, we noted instances where no member of District management had initialed and approved the invoice to be paid. We recommend that, even on routine items, the District designate at least one person to review all cafeteria invoices, initial, and approve for payment POS Reports During our fieldwork, we noted that the District does not generate a report that would show manual adjustments made to the POS system. We recommend the District generate a report that would identify manual adjustments and review the report. The advantage of a report showing manual adjustments is the District can identify any activity that appears to be questionable or inappropriate and follow up with the appropriate employees. In addition to generating and reviewing the aforementioned reports, we also recommend that the District sign off on the report indicating that management has performed the proper review procedures. 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. We consider the following deficiencies in Western Beaver County School District s internal control to be significant deficiencies: 5

67 Inventory During our examination of District inventory, we noted that perpetual inventory systems are not being used and properly reconciled on a regular basis for District inventory. It is recommended that a perpetual inventory system be established to control selected inventory items that are readily convertible to personal use and items with high unit costs. Periodic physical counts should be made of these items in order to detect pilferage or usage not charged to jobs, and the physical count should be reconciled to the perpetual records. Pre-numbered receiving reports and appropriate signatures should be used in the receiving department. Materials should also be released from the inventory supply rooms using properly prenumbered requisitions and appropriate signatures. To ensure greater control over materials and to provide more accurate information for management planning of inventory purchases, the receiving reports and pre-numbered requisitions should then be reconciled to inventory counts on a monthly basis. The sequence of pre-numbered materials tickets and receiving reports should be accounted for by the materials receiving department, with appropriate investigation of missing numbers Job/Procedural Manual We noted that the District does not have a detailed job/procedural manual prepared for employees who perform business office operations. As noted in previous years, we recommend that the District should consider assembling a detail job/procedural manual for those included in the business office operations. A manual assists in standardizing routine procedures such as invoice processing and responsibilities, bank reconciliations, year-end adjustments, and facilitates office operations on days employees are absent General Computer Controls and Record Retention Policy We noted that the District does not have a records retention policy detailing the retention of the District s accounting records. While we noted that the District is backing up records on a nightly basis, the District needs to write and adopt a formal record retention policy and schedule. This should specify such items as how often backups are to be performed, how long they are to be retained, and where the backup media is to be stored Student Activity Fund Internal Controls There are instances where the internal control structure over the managing of the Student Activity Funds could be strengthened. Below are examples of where we noted weaknesses in the internal control structure over Student Activity Funds: Currently, the District does not have a policy of how to handle the account balance in the Senior Class fund upon their graduation. We recommend the District draft a policy that is in accordance with the guidelines set forth in PASBO s Student Activity Funds Guide: An Administrator s Guide to the Development of Effective Student Activity Fund Policies and Procedures. There is limited staff with regards to the custodian of the Student Activity Fund. Ideally, a second person would assist the current custodian in an effort to segregate some of the duties. Currently, the custodian generates checks, signs the checks, counts and deposits the cash receipts, and enters all information into the accounting system. Few of these functions are reviewed by a second party. The processing of cash receipts is open to significant risk. There were instances where students take the cash to a building secretary, who then hands the money to the custodian. Each time the cash receipts change hands, there is potential for fraudulent activity. We recommend that the District either require the cash to be counted by two people and properly documented and signed 6

68 each time it changes hands, or the cash must go directly from the student to the Student Activity Fund custodian. However, even if the cash goes directly to the custodian, we also recommend that the cash be counted by two people and documented as such including initials and date IDEA Account Coding We noted that the IDEA expenditures were not accounted for separately in the chart of accounts. In order to comply with the Pennsylvania Department of Education s chart of accounts, the District should code all federal expenditures to the proper funding source. We recommend the District establish procedures whereby federal expenditures are coded properly and according to the Manual of Accounting and Financial Reporting for PA Public Schools Review of Bank Statements and Reconciliations At present, the Business Manager performs the bank reconciliations. We recommend that a second party open the bank statements and review them for any unusual checks or other transactions before giving them to the Business Manager to perform the reconciliation. The second party s review of the bank statement will ensure that unusual items are investigated on a timely basis. The Business Manager regularly reconciles bank statements. However, the bank reconciliations are not reviewed by a second party. We recommend a second person review and sign off on the bank reconciliations. When reviewing reconciliations, the reviewer should look for the following matters: Transfers. The reviewer should make sure that all matching interbank or interfund transfers have the same date. This procedure could detect questionable items concealed as interfund transfers. For example, a deposit in transit from one account to another may be repeatedly listed as a reconciling item but never actually deposited. Reconciling Items. The reviewer should trace all reconciling items to supporting documents. He/she should also pay special attention to old reconciling items. He/she should also consider the possibility that other reconciling items, individually immaterial, may result from a significant amount sliced up for concealment. Paid Items. The reviewer should examine all check fronts and backs, if possible. He/she should look for payee names that are similar to but not the same as typical vendors, discrepancies between the payees on the check register and the check, erasures or white outs of payees or amounts, endorsements by employees when the payee is not the employee, variations in endorsements by the same payee, multiple endorsements on checks payable to businesses, and endorsements by check-cashing agencies on checks drawn to businesses Accounts Payable Function We noted during our audit that instead of using the accounts payable function, the District will back-date checks in order to post the expense in the prior fiscal year. We recommend that instead of back-dating checks, the District establish and use the accounts payable function in the accounting system. 7

69 This communication is intended solely for the information and use of management, the Board of Directors, and others within Western Beaver County School District, and is not intended to be, and should not be, used by anyone other than these specified parties. Beaver, PA February 29,

70 Beaver Pittsburgh Peters Township To the Board of Directors Western Beaver County School District 343 Ridgemont Drive Midland, Pennsylvania During our audit of Western Beaver County School District for the year ended June 30, 2015, there were control matters that did not rise to the level of a material weakness or significant deficiency. Under the Statements of Auditing Standards Risk Assessment standards, we, as your auditors, are required to communicate these other control matters to management. They are as follows: 1. We noted that the District does not reconcile real estate tax revenue with the original real estate duplicate and the real estate tax collector DCED reports. We recommend the District perform this reconciliation to ensure the tax collectors are accurately recording the revenue along with disbursing the correct amounts to the District. 2. We noted that the District made changes to the way athletic items are processed. However, there are no formal procedures or policies in place that document the changes. We recommend the District develop a procedure manual that documents the manner in which the District processes athletic receipts and disbursements. Please note that these comments are not part of the audit report. If you have any questions, please feel free to contact Chad Agnew at cagnew@cottrillarbutina.com or Joel Martin at jmartin@cottrillarbutina.com. Beaver, PA February 29, Third Street Beaver, Pennsylvania Phone: (724) Fax: (724)