SCHOOL DISTRICT OF BELOIT Beloit, Wisconsin AUDITED FINANCIAL STATEMENTS. Year Ended June 30, Independent Auditors' Report 1 2

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1 AUDITED FINANCIAL STATEMENTS Year Ended T A B L E O F C O N T E N T S Page Independent Auditors' Report 1 2 Managements Discussion and Analysis 3-14 Basic Financial Statements Statement of Net Assets Statement of Activities 17 Balance Sheet Governmental Funds 18 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 19 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds 20 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 21 Statement of Fiduciary Net Assets 22 Notes to Financial Statements Required Supplementary Information Budgetary Comparison Schedule General Fund 38 Schedule of Funding Progress and Employer Contribution 39

2 AUDITED FINANCIAL STATEMENTS Year Ended T A B L E O F C O N T E N T S (C O N T I N U E D) Other Supplementary Information Combining Balance Sheet Nonmajor Governmental Funds 41 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds 42 Agency Funds Schedule of Changes in Assets and Liabilities 43 Schedule of Expenditures of State Awards 44 Schedule of Expenditures of Federal Awards 45 Notes to Schedules of Expenditures of Federal and State Awards 46 Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditors Report on Compliance With Requirements That Could Have A Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance With OMB Circular A-133 and State Single Audit Guidelines Summary Schedule of Prior Findings and Questioned Costs Schedule of Findings and Questioned Costs 53-56

3 Steven C. Barney Steven R. Volz Daniel R. Brophey Thomas G. Wieland Michael W. Van Wagenen David A. Grotkin Joel A. Joyce Brian J. Mechenich Carrie A. Gindt Patrick G. Hoffert INDEPENDENT AUDITORS' REPORT To the School Board School District of Beloit We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the School District of Beloit ("District") as of and for the year ended June 30, 2011, which collectively comprise the District s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the School District of Beloit as of, and the respective changes in financial position, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated on November 18, 2011 our consideration of the School District of Beloit s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results of our audit. Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information and schedule of funding progress and employer contribution as listed in the table of contents 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. Reilly, Penner & Benton LLP N. Mayfair Road Suite #302 Milwaukee, WI

4 Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the School District of Beloit s financial statements as a whole. The combining nonmajor fund financial statements listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements of the School District of Beloit. The accompanying schedule expenditures of federal and state awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the financial statements. The combining nonmajor fund financial statement and the schedule of expenditures of federal and state awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. As discussed in Note 1 to the financial statements, the District adopted the provisions of GASB 54, Fund Balance Reporting and Governmental Fund Type Definitions. November 18, 2011 Milwaukee, Wisconsin 2

5 Management Discussion & Analysis To the Board of Education School District of Beloit The discussion and analysis of the School District of Beloit s financial performance provides an overall review of financial activities for the fiscal year. The analysis focuses on school district financial performance as a whole. It should be read in conjunction with the District s financial statements, which immediately follow this section. FINANCIAL HIGHLIGHTS The assets of the District exceeded liabilities at the close of fiscal 2011 by $24,188,958 (net assets). For the year, net assets decreased by $5,861,831. Net assets of governmental funds decreased by $2,011,389 during fiscal Total governmental funds revenue was $91,857,132; including $13,392,059 of property taxes, $58,199,078 of federal and state formula aid, and $2,599,388 of charges for services. Total governmental fund expenditures were $97,718,963 including $60,308,209 for direct instruction. The following events took place during fiscal 2011: The District used $1,155,000 in Microsoft settlement funds. The Beloit Memorial High School Kitchen and lounge remodeling project was planned and started. The District reconfigured its schools by eliminating two elementary schools and changing grade configurations. The District was proactive in working with its union representation to seize the opportunity to work together and achieved expenditure reductions. The Technology Department created a plan for a District copy center. 3

6 OVERVIEW OF THE FINANCIAL STATEMENTS SCHOOL DISTRICT OF BELOIT Management Discussion & Analysis (Continued) The basic financial statements are comprised of 1) district-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. In addition, other information supplementary to the basic financial statements is provided. The basic financial statements consist of two kinds of statements that present different views of the District s financial activities. The Statement of Net Assets and Statement of Activities provide information on a district-wide basis. The statements present an aggregate view of the District s finances. District-wide statements contain useful long-term information as well as information for the just-completed fiscal year. The remaining statements are fund financial statements that focus on individual parts of the District. Fund statements generally report operations in more detail than the District-wide statements. The notes to the financial statements provide further explanation of some of the information in the statements and provide additional disclosures so statement users have a complete picture of the District s financial activities and position. Required supplementary information further explains and supports the financial statements by including a comparison of the District s budget data for the year. The major features of the District s financial statements, including the activities reported and the type of information contained, is shown in the following table. 4

7 Management Discussion & Analysis (Continued) Major Features of the District-wide and Fund Financial Statements Fund Financial Statements District-wide Statements Governmental Fiduciary Scope Entire district (except fiduciary funds) The activities of the District that are not proprietary or fiduciary, such as instruction, support services, debt service, capital projects, food service and community services Assets held by the District on behalf of someone else. Student and other organizations that have funds on deposit with the District are reported here Required financial statements Statement of Net Assets Statement of Activities Balance Sheet. Statement of Revenues, Expenditures and Changes in Fund Balance Statement of Fiduciary Net Assets Statement of Changes in Fiduciary Net Assets Basis of accounting and measurement focus Accrual accounting Economic resources focus Modified accrual accounting Current financial resources focus Accrual accounting Economic resources focus Type of asset and liability information All assets and liabilities; both financial and capital, short-term and longterm Generally assets expected to be used up and liabilities that come due during the year or soon thereafter. No capital assets or long-term liabilities included. All assets and liabilities, both financial and capital; short-term and longterm. These funds do not currently contain any capital assets, although they can Type of inflow and outflow information All revenues and expenses during the year, regardless of when cash is received or paid Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and the related liability are due and payable. All additions or deductions during the year, regardless of when cash is received and paid 5

8 Management Discussion & Analysis (Continued) DISTRICT- WIDE STATEMENTS The district-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The Statement of Activities reports all revenues and expenses used to support the District. The Statement of Net Assets reports all assets and liabilities available to support District activities. The two district-wide statements report the District s net assets and how they have changed. Net assets, the difference between the District s assets and liabilities, are one way to measure the District s overall financial position. Increases or decreases in the District s net assets are one indicator of whether its financial position is improving or deteriorating, respectively. To assess the overall financial condition of the District, additional non-financial factors, such as changes in the District s property tax base and the condition of school buildings and other facilities should be considered. In the district-wide financial statements, the District s activities are divided into one category: Governmental activities - Most of the District s basic services are included here, such as regular and special education, transportation, support services, debt service, capital projects, and administration. Property taxes and state formula aid finance most of these activities. FUND FINANCIAL STATEMENTS The fund financial statements provide more detailed information about the District s funds, focusing on its most significant or major funds not the District as a whole. Funds are accounting devices the District uses to keep track of sources of funding and spending on particular programs and to demonstrate compliance with various regulatory requirements. Some funds are required by state law and by bond covenants. The District establishes other funds to control and manage money for particular purposes (like repaying its long-term debt) or to show that it is properly using certain revenues (like capital project funds). The District has two kinds of funds: Governmental funds Most of the District s basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for funding future basic services. Governmental funds statements provide a detailed short-term view that helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District s programs. Governmental funds information does not report on long-term commitments as is reported on the district-wide statements. Fiduciary funds The District serves as a trustee, or fiduciary, for student organizations. The assets of these organizations belong to the organization and not the District. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and only by those to whom the assets belong. These activities are excluded from the district-wide financial statements because the District cannot use these assets to finance its operations. 6

9 Management Discussion & Analysis (Continued) FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE Table 1, below, provides a summary of the District s net assets for the year ended. Table 1 Condensed Statement of Net Assets (In thousands of dollars ) Governmental Activities Changes Current and other assets $ 32,973 $ 30,183 $ (2,790) Capital assets 32,857 31,604 (1,253) TOTAL ASSETS 65,830 61,787 (4,043) Long-term debt 23,128 25,711 2,583 Other liabilities 12,651 11,887 (764) TOTAL LIABILITIES 35,779 37,598 1,819 Net assets: Invested in capital assets, net of related debt 23,974 18,614 (5,360) Restricted 4,544 3,497 (1,047) Unrestricted 1,533 2, TOTAL NET ASSETS $ 30,051 $ 24,189 $ (5,862) Note: totals may not add due to rounding. 7

10 Management Discussion & Analysis (Continued) FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (Continued) Table 2 provides summarized operating results and their impact on net assets. The governmental and activities contributed to the District s increased financial position. Table 2 Changes in Net Assets from Operating Results (in thousands of dollars) Total % Change Revenues Program Revenues Charges for services $ 1,929 $ 2, % Operating grants & contributions 17,855 16, % General Revenues Property taxes 12,685 13, % State formula aid 57,643 58, % Other 245 1, % TOTAL REVENUES 90,357 91, % Expenses Instruction 57,926 60, % Pupil & Instructional Services 11,003 10, % Administration & Finance 6,797 7, % Maintenance & Operations 6,460 6, % Transportation 1,371 1, % Interest on Debt % Other 8,111 10, % TOTAL EXPENSES 92,147 97, % INCREASE (DECREASE) IN NET ASSETS $ (1,790) $ (5,862) % Note: totals may not add due to rounding. Governmental Activities The District relies primarily on property taxes (14.6% of total governmental revenues), and state formula aid (63.4%) to fund governmental activities. 8

11 Management Discussion & Analysis (Continued) FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (Continued) Table 3 presents the cost of the seven major district activities. The table reports each activity s net cost (total cost less fees generated by the activities and intergovernmental aid provided for specific programs). The net cost reflects the financial burden that was placed on the District s taxpayers by each of these functions Total Cost Net Cost Total Cost Net Cost Total Cost Net Cost of Services of Services of Services of Services Changes Changes Expenses Instruction $ 57,926 $ (41,491) $ 60,308 $ (44,801) $ 2,382 $ (3,310) Pupil & Inst Services 11,003 (10,760) 10,697 (10,445) (306) 315 Admin & Finance 6,797 (6,797) 7,204 (7,204) 407 (407) Maint & Operations 6,460 (6,453) 6,964 (6,956) 504 (503) Transportation 1,371 (1,363) 1,492 (1,483) 121 (120) Debt Serv Payments 479 (479) 531 (531) 52 (52) Other 8,111 (5,021) 10,523 (7,460) 2,412 (2,439) TOTAL EXPENSES $ 92,147 $ (72,364) $ 97,719 $ (78,880) $ 5,572 $ (6,516) Note: totals may not add due to rounding. Table 3 Net Cost of Governmental Activities (in thousands of dollars) The cost of all governmental activities this year was $97,718,763. Individuals who directly participated or benefited from a program offering paid for $2,599,388 of costs. Federal and state governments subsidized certain programs with grants and contributions of $16,239,645. The net cost of governmental activities ($78,879,730) was financed by general revenues of the District ($13,392,059 property taxes, $58,199,078 state formula aid, and $1,426,962 other). 9

12 Management Discussion & Analysis (Continued) FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (Continued) The composition of governmental revenues by source is illustrated below in Chart 1. Chart 1 Governmental Revenue by Source Property Taxes 14.6% Other Local Revenues 1.4% Interdistrict 0.8% Intermediate 0.0% Other Revenues 1.5% Federal Revenues 11.9% State Revenues 69.8% 10

13 Management Discussion & Analysis (Continued) The composition of governmental expenditures by type is illustrated below in Chart 2. Chart 2 Government Expenditures by Type Principal & Interest on Long-Term Debt 1% Transportation 2% Central Services 2% Food Service 3% Other 3% Maintenance & Operations 7% Administration & Finance 7% Instruction 63% Pupil & Instructional Services 12% FINANCIAL ASPECTS OF THE DISTRICT S FUNDS The District completed the year with a total governmental fund balance of $18,188,379 up from last year s ending fund balance of $20,199,768. The general fund had a decrease in fund balance of $1,058,139. The debt service fund had a decrease in fund balance of $509,989. The food service program had a decrease in fund balance of $487,

14 Management Discussion & Analysis (Continued) GENERAL FUND BUDGETARY HIGHLIGHTS Consistent with current state statutes and regulations an original budget is adopted in October following determination of official enrollment and certification of states aids. Generally, the original budget is not significantly modified. The District modified its original budget in to reflect: Modifications in several state and federal grants. Board approved uses of fund balance. The District s original budget for the General Fund anticipated that revenues would be greater than expenditures by $393,019. The actual expenditures at had exceeded revenues by $1,058,139. The primary reason for this change was that the Board approved a property tax reduction of $1,636,590. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At the end of fiscal year 2011, the District had invested $61,598,652 in capital assets, including buildings, sites and equipment (see Table 4). Total accumulated depreciation on these assets was $29,994,168. Asset acquisitions for governmental activities totaled $1,514,725. The District recognized depreciation expense of $2,760,511 (Detailed information about capital assets can be found in Note 3 to the financial statements.) Capital Assets (net of depreciation, in thousands of dollars) Governmental Total % Activities Change Land $ 4,447 $ 4, % Buildings 49,277 49, % Furniture and equipment 6,438 7, % Accumulated deprectiation (27,305) (29,994) 9.8% TOTAL $ 32,857 $ 31, % Note: totals may not add due to rounding. 12

15 CAPITAL ASSET AND DEBT ADMINISTRATION Long-term Debt SCHOOL DISTRICT OF BELOIT Management Discussion & Analysis (Continued) At year-end the District had $12,990,092 in notes payable and other long-term debt outstanding a decrease of $2,163,696 from fiscal Detailed information about the District s long-term liabilities is presented in Note 4 to the financial statements. Table 5 Outstanding Long-term Obligations Total Total % School District Change General Obligation Debt $ 12,305,000 $ 10,370, % Qualified Zone Academy Bond 2,848,788 2,620, % Compensated absences 113, , % TOTAL $ 15,267,055 $ 13,109, % Debt of the District is secured by an irrepealable tax levy adopted by the School Board at the time of issuance. Wisconsin state statutes require that the first property tax receipts be segregated for annual debt service payments. FACTORS BEARING ON THE DISTRICT S FUTURE Currently known circumstances that will impact the District s financial status in the future are: The District has significant deferred maintenance needs to be addressed. The current economic and employment forecasts make projecting future student enrollment counts difficult. Estimated preliminary budget shortfalls are projected into the foreseeable future. The District has implemented several programs to defer the costs of rising health insurance related costs. The District redesigned its health insurance plan to a high deductible plan with health reimbursement accounts (HRA s) and health savings accounts (HSA s). The number of students utilizing the open enrollment option to attend other Districts has shown continued increase. For each transfer to other school districts, Beloit must transfer tuition thus decreasing resources available to Beloit. 13

16 Management Discussion & Analysis (Continued) CONTACTING THE DISTRICT S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the District s finances and to demonstrate the District s accountability for the money it receives. If you have questions about this report or need additional financial information, contact Janelle Marotz, CPA, Executive Director of Business Services, School District of Beloit, (608) , 1633 Keeler Ave, Beloit, WI

17 Statement of Net Assets Assets: Current assets Governmental Activities Cash and investments $ 21,021,713 Taxes receivable 3,229,059 Accounts receivable 1,526,797 Due from other governments 3,562,735 Inventory 28,712 Prepaid expense 622,607 Current portion of unamortized deferred loan costs 36,145 Total current assets 30,027,768 Noncurrent assets Capital assets 61,598,652 Less: accumulated depreciation (29,994,168) Net capital assets 31,604,484 Unamortized deferred loan cost 154,921 Total noncurrent assets 31,759,405 Total assets $ 61,787,173 The accompanying notes to financial statements are an integral part of these statements. 15

18 Statement of Net Assets Liabilities and Net Assets Liabilities Current liabilities Governmental Activities Accounts payable $ 821,343 Withholdings and related district fringes payable 3,983,016 Accrued interest 83,321 Accrued salaries and related items 2,629,389 Due to employee trust fund 351,872 Deposits payable 993,894 Deferred revenues 885,928 Medical claims payable 2,137,802 Current portion of long-term debt 2,238,695 Current portion of unamortized premium on refunding 25,861 Total current liabilities 14,151,121 Noncurrent liabilities Long-term obligations 10,870,799 Other post-employment benefits payable 12,569,831 Unamortized premium on refunding 6,464 Total noncurrent liabilities 23,447,094 Total liabilities 37,598,215 Net Assets Invested in capital assets, net of related debt 18,614,392 Restricted for: Debt service 1,893,196 Contractual obligations 128,836 Food service 1,319,406 Other activities 284,017 Unrestricted 1,949,111 Total net assets 24,188,958 Total liabilities and net assets $ 61,787,173 The accompanying notes to financial statements are an integral part of these statements. 16

19 Statement of Activities Year Ended Governmental activities: Instruction: Program Revenues Operating Net (Expenses) Revenues and Charges for Grants and Changes in Expenses Services Contributions Net Assets Regular instruction $ 42,352,515 $ 1,435,760 $ 7,265,931 $ (33,650,824) Special education instruction 12,844, ,036 5,955,160 (6,210,717) Vocational instruction 2,064,480 13,251 70,888 (1,980,341) Other instruction 3,046,301 86, (2,959,349) Total instruction 60,308,209 2,214,999 13,291,979 (44,801,231) Support services: Pupil services 5,724, (5,724,896) Instructional staff services 4,972, ,354 (4,719,693) Administration services 7,204, (7,204,521) Operation and maintenance of plant 6,963,940 7, (6,956,419) Pupil transportation 1,491, ,857 (1,482,921) Central services 2,856, (2,856,212) Other support services 1,686, (1,686,710) Food service 3,218, ,868 2,686,455 (155,612) Interest on long-term debt 531, (531,204) Unallocated depreciation** 2,760, (2,760,511) Total support services 37,410, ,389 2,947,666 (34,078,699) Total school district $ 97,718,963 $ 2,599,388 $ 16,239,645 (78,879,930) General revenues: Taxes: Property taxes, levied for general purposes 11,675,000 Property taxes, levied for debt service 1,700,000 Other taxes 17,059 Federal and state aid not restricted to specific purposes General 57,113,499 Other 1,085,579 Interest and investment earnings 51,722 (Loss) on disposal of assets (6,984) Miscellaneous 1,382,224 Changes in net assets (5,861,831) Net assets - beginning of year 30,050,789 Net assets - end of year $ 24,188,958 **This amount excludes the depreciation that is included in the direct expenses of the various programs. The accompanying notes to financial statements are an integral part of these statements. 17

20 Balance Sheet Governmental Funds Total Non-major Governmental General Funds Funds ASSETS Cash and investments $ 17,847,083 $ 3,174,630 $ 21,021,713 Taxes receivable 3,229, ,229,059 Accounts receivable 1,517,895 8,902 1,526,797 Due from other funds 26,170 1,201 27,371 Due from other governments 3,164, ,097 3,562,735 Inventory 28, ,712 Prepaid expense 528,431 94, ,607 Total assets $ 26,341,988 $ 3,677,006 $ 30,018,994 Liabilities and Fund Balances: Liabilities: Accounts payable $ 769,996 $ 51,347 $ 821,343 Withholdings and related district fringes payable 3,983, ,983,016 Accrued payroll 2,622,927 6,462 2,629,389 Due to other funds 353,073 26, ,243 Deposits payable 991,662 2, ,894 Deferred revenues 885, ,928 Medical claims payable 2,137, ,137,802 Total liabilities 11,744,404 86,211 11,830,615 Fund Balances Nonspendable 557,143 94, ,319 Restricted 128,836 3,496,619 3,625,455 Assigned 3,416, ,416,938 Unassigned 10,494, ,494,667 Total fund balances 14,597,584 3,590,795 18,188,379 Total liabilities and fund balances $ 26,341,988 $ 3,677,006 $ 30,018,994 The accompanying notes to financial statements are an integral part to these statements. 18

21 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets Total fund balances - governmental funds $ 18,188,379 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds: Cost of the assets $ 61,598,652 Accumulated depreciation (29,994,168) 31,604,484 The District made less than the required annual contribution to the fund: their postemployment benefit liability resulted in a liability. The post-employment benefit liability is not currently payable and this not reported in the governmental funds: (12,569,831) 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: Bonds payable 12,990,092 Unamortized premium on issuance 32,325 Unamortized deferred loan costs (191,066) Compensated absences 119,402 (12,950,753) Accrued interest payable on the bonds is not due and payable in the current period and therefore is not reported as a liability in the funds (83,321) Total net assets - governmental activities $ 24,188,958 The accompanying notes to financial statements are an integral part of these statements. 19

22 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended Revenues: Non-major Total Governmental General Funds Funds Local $ 12,123,632 $ 2,579,967 $ 14,703,599 Interdistrict payments within Wisconsin 724,581 13, ,832 Intermediate sources 1, ,017 State 64,066,942 78,136 64,145,078 Federal 8,187,542 2,706,825 10,894,367 Other 1,352,713 3,650 1,356,363 Total revenues 86,456,427 5,381,829 91,838,256 Expenditures: Instruction: Current 54,898, ,867 55,313,118 Interdistrict 2,164, ,164,390 Capital outlay 372, ,929 Support Services: Current 28,846,569 3,330,024 32,176,593 Capital outlay 781, ,631 1,141,795 Debt service 1,201 2,677,383 2,678,584 Total expenditures 87,064,504 6,782,905 93,847,409 Deficiency of revenues over expenditures (608,077) (1,401,076) (2,009,153) Other Financing Sources (uses): Operating transfers in 5, , ,000 Operating transfers out (455,531) (5,469) (461,000) Other financing uses - payment to refunded bond --- (2,236) (2,236) Total other financing sources (uses) (450,062) 447,826 (2,236) Net change in fund balances (1,058,139) (953,250) (2,011,389) Fund Balances - Beginning of year 15,655,723 4,544,045 20,199,768 Fund Balances - End of year $ 14,597,584 $ 3,590,795 $ 18,188,379 The accompanying notes to financial statements are an integral part of these statements. 20

23 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities Year Ended Total net change in fund balances - governmental funds $ (2,011,389) 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 expenses. The amount by which depreciation expense exceeds capital outlays is as follows: Depreciation expense $ (2,760,511) Capital outlays 1,514,724 (1,245,787) In the statement of activities, losses on the disposal of assets are shown, whereas in the governmental funds only the proceeds on the disposal (if any) are shown. (6,984) Repayment of long-term debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. Bonds payable 1,935,000 Qualified zone academy bond 228,696 2,163,696 Amortization reduces the balance of the respective liability. The amortization is an expenditure in the statement of net assets, but is not shown in the governmental funds. Unamortized premium on debt issuance 25,861 Unamortized deferred loan costs (36,145) (10,284) In the statement of activities, compensated absences 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). (6,135) In the statement of activities 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). (4,767,014) Interest on long-term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the statement of activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. 22,066 Change in net assets of governmental activities $ (5,861,831) The accompanying notes to financial statements are an integral part of these statements. 21

24 Statement of Fiduciary Net Assets Employee Benefit Trusts Agency Fund Assets: Cash $ 1,226,915 $ 79,584 Due from other funds 351, Prepaid expenses Total assets $ 1,578,787 $ 79,727 Liabilities and Net Assets Accounts payable $ --- $ 7,452 Due to student groups ,275 Total liabilities ,727 Net assets: Restricted $ 1,578, Total liabilities and net assets $ 1,578,787 $ 79,727 Statement of Changes in Fiduciary Net Assets Year Ended Additions: Employee Benefit Trusts Interest $ 3,107 Contributions to employee benefit trust 2,880,938 Total additions 2,884,045 Deductions: Trust fund disbursements 2,993,156 Change in net assets (109,111) Net assets - June 30, ,687,898 Net assets - $ 1,578,787 The accompanying notes to financial statements are an integral part of these statements. 22

25 1. Summary of Significant Accounting Policies A. Introduction SCHOOL DISTRICT OF BELOIT Notes to Financial Statements The School District of Beloit ( District ) is organized as a unified school district. The District, governed by a seven-member elected school board, is fiscally independent with taxing and borrowing powers. Services provided by the District are primary and secondary education and special education. The financial statements of the School District of Beloit have been prepared in conformity with generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements (Statements and Interpretations). Governments are also required to follow the pronouncements of the Financial Accounting Standards Board (FASB) issued through November 30, 1989 (when applicable) that do not conflict with or contradict GASB pronouncements. The more significant accounting policies established in GAAP and used by the District are discussed below. B. Component Units Accounting principles generally accepted in the United States of America require that these financial statements include the primary government and its component units. Component units are separate organizations that are included in the District s reporting entity because of the significance of their operational or financial relationships with the District. All significant activities and organizations with which the District exercises oversight responsibility have been considered for inclusion in the general purpose financial statements. The District has no component units, and it is not included in any other governmental reporting entity. C. Basis of Presentation District Wide Statements The statement of net assets and the statement of activities present financial information about the District s governmental activities. These statements include the financial activities of the overall government in its entirety, except those that are fiduciary. Eliminations have been made to minimize the double counting of internal transactions. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The statement of activities presents a comparison between direct expenses and program revenues for each function of the District s governmental activities. Direct expenses are those that are specifically associated with and are clearly identifiable to a particular function. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues have been classified to the function where the majority of the expenditures relating to it have been incurred. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements The fund statements provide information about the District s funds, including fiduciary funds. Separate statements for each fund category (governmental, and fiduciary) are presented. The emphasis of fund financial statements is on major governmental funds; each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. 23

26 Notes to Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) C. Basis of Presentation (Continued) The District reports the following major governmental fund: General Fund - The General Fund is the operating fund of the District. It is used to account for all financial resources of the District except those required to be accounted for in other funds. This fund includes activities associated with providing educational programs for students with disabilities. The District accounts for assets held as an agent for various student and parent organizations in a fiduciary agency fund. The District accounts for fiduciary activities for resources held in a trust for formally established defined benefit pension plans, defined contribution plans or employee benefit plans in an employee benefit trust. D. Measurement Focus and Basis of Accounting The district-wide and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash transaction takes place. Nonexchange transactions, in which the District gives or receives value without directly receiving or giving equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The governmental fund statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The District considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after the end of the fiscal year. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. Under the terms of grant agreements, the District may fund certain programs by a combination of specific costreimbursement grants, categorical block grants, and general revenues. Therefore, when program expenses are incurred, both restricted and unrestricted net assets may be available to finance the program. It is the District s policy to first apply cost-reimbursement grant resources to such programs, followed by general revenues. E. Deposits and Investments The District s cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from date of acquisition. Cash and investment balances for individual funds are pooled unless maintained in segregated accounts. State statutes permit the District to invest available cash balances, other than debt services funds, in time deposits of authorized depositories, U.S. Treasury obligations, U.S. agency issues, high grade commercial paper, and the local government pooled investment fund administered by the state investment board. Available balances in the Debt Service Fund may be invested in municipal obligations, obligations of the United States, and the local government pooled-investment fund. 24

27 Notes to Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) F. Receivables and Payables Property taxes are recognized as revenues in the year for which they are budgeted. Under the Wisconsin Statutes, Rock County purchases the outstanding property taxes of the District in August of each year. This statutory guarantee assures the District full collection of all property taxes within sixty days of its year end, and hence, the availability of these funds to finance expenditures of the fiscal year for which the taxes were levied. Property taxes are levied in October on the assessed value as of the prior January 1, and are due in full by January 31, or in installments with the last payment due in July. The current portion of lending/borrowing arrangements between funds is identified as due to/from other funds. The noncurrent portion of outstanding balances between funds is reported as advances to/from other funds. Advances between funds are offset by a fund balance reserve account to indicate that they are not available for appropriation and are not expendable available financial resources. All accounts receivable are shown at gross amounts with uncollectible amounts recognized under the direct writeoff method. No allowance for uncollectible accounts has been provided since it is believed that such allowance would not be material. G. Interfund Transactions Individual fund transfers and interfund receivables and payable activity for the year ending are as follows: Purpose Receivable Fund Payable Fund Amount Transfers: Debt payments Debt Service General $ 447,374 General Operations Package-Cooperative General 8,157 General Operations General Package-Cooperative 5,469 $ 461,000 Due to/from: General Operations Employee Benefit Trust General $ 351,872 General Operations General Package Cooperative 26,170 Debt payments Debt Service General 1,201 $ 379,243 H. Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement for those assets. Net assets are reported as restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors or laws or regulations of other governments. The District applies restricted resources when expense is incurred for purposes for which both restricted and unrestricted net assets are available. 25

28 Notes to Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) I. Capital Assets Capital assets are reported at historical cost or estimated historical cost. Maintenance and repair costs are charged to expenses as incurred and betterments are capitalized as assets. Upon disposal of land, buildings and equipment, a gain or loss is reflected in the statement of activities. Property and equipment and related depreciation expense are not reflected in the Governmental Fund Financial Statements. Capitalization thresholds (the dollar value above which asset acquisitions are added to the capital asset accounts), depreciation methods, and estimated useful lives of capital assets reported in the District-wide statements and proprietary funds are as follows: Capitalization Threshold Depreciation Method Estimated Useful Life Buildings and improvements $ 2,500 Straight-line years Equipment and furniture 2,500 Straight-line 5-30 years J. Fund Balance Reserves The Government Accounting Standards Board (GASB) has issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions (GASB 54). This statement defines the different types of fund balances that a governmental entity must use for financial reporting purposes. GASB 54 requires the fund balance amounts to be reported within one of the following fund balance categories: Nonspendable - amounts that cannot be spent either because they are not in spendable form and cannot be converted to cash or because they are legally or contractually required to be maintained intact. Restricted - amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments. Committed - amounts that can be used only for specific purposes determined by a formal action of the School Board. The School Board is the highest level of decision-making authority for the District. Commitments may be established, modified, or rescinded only through the same type of action it employed to previously commit those amounts. Assigned - amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. Under the District s adopted policy, only the School Board s Finance Committee is authorized to assign funds. The intent of the assigned funds may change with appropriate approvals as decided by the Director of Business Services. Unassigned - all other spendable amounts. Order of Fund Balance Spending Policy: The District has established the following order of spending when various funding sources exist: (1) Restricted, (2) Committed, (3) Assigned, (4) Unassigned. 26

29 Notes to Financial Statements (Continued) 1. Summary of Significant Accounting Policies (Continued) K. Accumulated Unpaid Vacation, Sick Pay, and Other Employee Benefit Amounts Unused accumulated sick days are not paid out upon retirement or termination of employment. Unused accumulated employee vacation days are paid out upon retirement or termination of employment not to exceed a maximum number of days. The District accrued the vacation which it deems probable of payout. The liability is reported on the government-wide financial statements. For governmental fund financial statements, the unpaid compensated absences are not expected to be paid using expendable available resources and, therefore, the liability is not reported. The District employees participate in the Wisconsin Retirement System. All contributions made by the District on behalf of its employees are reported as expenditures when paid. L. Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. M. Other Assets Expendable supplies or noncapital items acquired for initial use in subsequent fiscal periods are recorded as prepaid expenses. Prepaid insurance or service contracts are not recorded unless their recognition as an expenditure would result in more than one year s cost being recorded. Inventory and prepaid supplies are valued at the lower of cost (first-in, first-out method) or market. Inventory consists of expendable supplies held for consumption. Costs are recorded as expenditures at the time individual inventory items are consumed. N. Subsequent Events Management has evaluated all subsequent events for possible recognition or disclosure through the date the financial statements were available to be distributed (November 18, 2011). The District incurred costs subsequent to year end related to asbestos remediation of approximately $73,000. An entire estimate of the remediation project is currently unknown. Also, subsequent to year end, the District closed two elementary schools. Other than those noted above, there were no additional subsequent events that required recognition or disclosure. 2. Cash and Investments Cash and investments as shown on the District s statement of net assets are subject to the following risks: Amount Risks Cash and investments Petty cash $ 783 Demand deposits 7,346,575 Custodial Local Government Investment Pool 14,980,854 Interest rate and credit Total cash and investments $ 22,328,212 27