BALDWIN COMMUNITY SCHOOLS FINANCIAL STATEMENTS

Transcription

1 BALDWIN COMMUNITY SCHOOLS FINANCIAL STATEMENTS June 30, 2016

2 BALDWIN COMMUNITY SCHOOLS FINANCIAL STATEMENTS June 30, 2016 CONTENTS Page MANAGEMENT DISCUSSION AND ANALYSIS...I-XI INDEPENDENT AUDITOR S REPORT BASIC FINANCIAL STATEMENTS District-wide Financial Statements: Statement of Net Position... 4 Statement of Activities... 5 Fund Financial Statements: Governmental Funds - Balance Sheet... 6 Reconciliation of the Governmental Funds Balance Sheet with the Statement of Net Position... 7 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances... 8 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities... 9 Fiduciary Funds: Statements of Fiduciary Net Position Statement of Changes in Fiduciary Net Position Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION: Schedule of the District s Proportionate Share of the Net Pension Liability Schedule of the District s Contributions Notes to Required Supplementary Information General Fund - Budgetary Comparison Schedule... 30

3 CONTENTS OTHER SUPPLEMENTARY INFORMATION Page Nonmajor Governmental Funds - Combining Balance Sheet Nonmajor Governmental Funds - Combining Statement of Revenues, Expenditures, and Changes in Fund Balances General Fund: Schedule of Revenues - Budget and Actual Schedule of Expenditures - Budget and Actual Agency Fund: Statement of Changes in Assets and Liabilities Schedule of Interest and Principal Payments General Obligation Refunding Bond Energy Conservation Loan Federal Programs: Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs

4 Baldwin Community Schools Management s Discussion and Analysis For the year ended June 30, 2016 The discussion and analysis of the Baldwin Community School District s financial performance provides an overview of the District s financial activities for the fiscal year ended June 30, Please read this analysis in conjunction with the District s financial statements, which immediately follow this section. DESCRIPTION OF REPORTING ENTITY AND SERVICES PROVIDED Baldwin Community Schools is the only public school district in Lake County, Michigan and serves students in grades kindergarten through 12 th grade. Baldwin staff members teach non-core subjects such as fine arts, foreign language, and technology. In addition, Baldwin Community Schools students have access to the ASM Tech program and a CTE program through West Shore Community College. Students attending the District are also provided with individualized attention due to small class sizes. The educators in the District are committed to ensuring that every student is adequately prepared for a meaningful post-secondary experience. The Baldwin Promise is a scholarship program that provides Baldwin Community Schools graduates with up to $5,000 per year for tuition and fees at any eligible Michigan College or University. OVERVIEW OF THE FINANCIAL STATEMENTS This report consists of three sections: Management s Discussion and Analysis, the basic financial statements, and required supplementary information. The basic financial statements include several kinds of statements that present alternative financial views of the District: - The first two statements are district-wide financial statements that provide comprehensive short-term and long-term financial information about the District as a whole. - The remaining statements are fund financial statements that focus on individual parts of the District, reporting the District s operations in more detail than the district-wide statements. - The governmental funds statements tell how basic services like regular and special education were in the short-term as well as what resources remain for future spending. - Fiduciary Funds statements provide information about assets held by the District in a trustee or agent capacity. The notes to the financial statements explain information contained in the statements and provide greater detail and supporting documentation. The statements are followed by a section of required supplementary information that further explains and supports the financial statements with a comparison of the District s budget for the year. I

5 Baldwin Community Schools DISTRICT-WIDE FINANCIAL STATEMENTS The district-wide financial statements provide comprehensive information about the entire District using the full accrual basis of accounting, which is similar to the method used by privatesector companies. The Statement of Net Position includes all of the District s assets, deferred outflows, and liabilities and the difference between them, which is the net position. The Statement of Activities accounts for all of the current year s revenues and expenses regardless of when cash is received or paid. The Statement of Net Position and Statement of Activities report the governmental activities for the District. This includes all of the District s programs, including instruction and supporting services. Property tax revenue and federal grants finance most of these activities. The two district-wide statements report the District s net position and how it has changed. An examination of net position serves as a way to measure the District s financial health. Over time, increases or decreases in the District s net position are an indicator of whether its financial position is improving or declining. The difference between revenues and expenses measures the District s operating results and provides insight into how the District is utilizing its resources annually. It is important to note that the District s mission is not profit maximization, but rather resource utilization. The District is focused on spending every dollar efficiently and in a manner that will provide students with the greatest educational experience. FUND FINANCIAL STATEMENTS The fund level financial statements are reported on a modified accrual basis and provide greater detail about the District s funds. Each major fund is presented in a separate column. Non-major funds are aggregated and displayed in a single column. Only those assets that are measurable and currently available are reported. Liabilities are recognized to the extent that they are normally expected to be paid with current financial resources. The District has two types of funds: Governmental Funds: All of the District s basic services are included in governmental funds. Governmental fund reporting generally focuses on how dollars flow in and out of funds and the balances left at the end of the year. The governmental fund statements provide a detailed short-term view of the operations of the District and the services it provides. Governmental fund information helps users of the financial statements determine whether there are more or fewer financial resources that can be spent in the near future to finance the District s programs. The differences between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds are presented in a reconciliation further into the report. The District s only major governmental fund is the General Fund. II

6 Baldwin Community Schools Fiduciary Funds: The District is the trustee, or fiduciary, for assets that belong to others. 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. The activity from these funds is not included in the district-wide financial statements because the District cannot use these assets to finance its operations. The District serves in this capacity for the Baldwin Promise Zone Authority and for student activities accounts. III

7 Baldwin Community Schools Summary of Net Position The Statement of Net Position examines the District as a whole. The following provides a summary of the District s net position for the fiscal years ended June 30, 2016 and Percentage June 30, 2016 June 30, 2015 Change Assets: Current assets $ 5,618,848 $ 7,144, % Capital assets 16,366,300 16,140, % Less: Accumulated depreciation 7,876,268 7,558, % Capital assets, net book value: $ 8,490,032 $ 8,581, % Total Assets: $ 14,108,880 $ 15,726, % Deferred Outflow of Resources - Pension $ 1,338,115 $ 933, % Total Assets and Deferred Outflow of Resources $ 15,446,995 $ 16,659, % Liabilities: Current liabilities $ 3,806,693 $ 5,289, % Long-term liabilities 14,329,776 13,290, % Total Liabilities: $ 18,136,469 $ 18,579, % Deferred Inflow of Resources - Pension $ 35,122 $ 986, % Net Position: Net investment in capital assets $ 4,184,515 $ 3,632, % Restricted for debt service 98, , % Restricted for food service 159,865 75, % Restricted for capital additions 26,782 26, % Unrestricted (7,194,700) (6,745,433) 6.7% Total Net Position $ (2,724,596) $ (2,905,611) 6.2% Total Liabilities, Deferred Inflow of Resources and Net position: $ 15,446,995 $ 16,659, % The above analysis focuses on net position. The District implemented GASB 68 during the year ended June, 30, GASB Statement No. 68 requires governments that participate in costsharing defined benefit pension plans to report their proportionate share of the plan s net pension liability in their Statement of Net Position. The implantation of GASB 68 continues to significantly reduce the net position of the District. IV

8 Baldwin Community Schools Analysis of Financial Position As of June 30, 2016, the Baldwin Community School District s net assets were a deficit of $2,724,596. In comparison to the prior year, the District s net assets increased by $181,015. General Fund Operations: The District s expenditures from General Fund operations exceeded revenues by $115,989 for the fiscal year ended June 30, See the section entitled Summary of Statement of Assets, below, for further discussion of General Fund operations. Debt, Principal Payments: The District made principal payments on bonded, long-term debt obligations that reduced the amount of the District s long-term liabilities as follows: Principal New Debt New Debt Principal Balance Proceeds (Principal Payments) Balance June 30, 2015 June 30, 2016 June 30, 2016 June 30, Refunding Bonds $ 4,550, $ - $ (530,000.00) $ 4,020, Energy Conservation Note 274,618 - (91,539) 183,079 Total Long-Term Obligations: $ 4,824,618 $ - $ (621,539) $ 4,203,079 Net Investment in Capital Assets: As of June 30, 2016 the District s net investment in capital assets was $8,490,032, which is a decrease of $91,727 from the prior year. This can be summarized as follows: Balance 2015 Additions Deletions June 30, 2016 Capital Assets $ 16,140,571 $ 597,128 $ (371,399) $ 16,366,300 Less: accumulated depreciation (7,558,812) (351,956) 34,500 (7,876,268) Net Investment in Capital Outlay: $ 8,581,759 $ 245,172 $ (336,899) $ 8,490,032 V

9 Baldwin Community Schools Fiscal Year 2016 Revenues June 30, 2016 June 30, 2015 Revenues: General Revenues: Property taxes $ 6,479,323 6,479,149 Percentage Change $ 0.0% Unrestricted state aid 30, , % Federal sources, unrestricted 162, , % Other 181, , % Program Revenues: Charges for services 36,961 62, % Grants and categoricals 13,102,876 11,185, % Total Revenues $ 19,994,463 $ 18,248, % Revenue Unrestricted state aid, $30,998 Property taxes, $6,479,323 Federal sources, unrestricted, $162,896 Grants and categoricals, $13,102,876 Other, $212,407 Charges for services, $36,961 VI

10 Baldwin Community Schools Fiscal Year 2016 Expenses Expenses: Percentage June 30, 2016 June 30, 2015 Change Instruction and instructional support $ 4,933,259 $ 4,900, % Support services 13,694,206 11,729, % Athletics 177, , % Food service 543, , % Interest on long-term debt 99, , % Depreciation 351, , % Other 13,127 83, % Total Expenses $ 19,813,448 $ 18,077, % Increase (Decrease) in Net Position $ 181,015 $ 171, % Beginning Net Position (2,905,611) 5,572,705 Prior period adjustment - (8,649,767) Ending Net Position $ (2,724,596) $ (2,905,611) 6.2% Expenses Athletics, $177,311 Food service, $543,914 Support services, $13,694,206 Interest on longterm debt, $99,675 Instruction and instructional support, $4,933,259 Depreciation, $351,956 Other, $13,127 VII

11 Baldwin Community Schools 1. State of Michigan Unrestricted Aid (Net State Foundation Grant) The State of Michigan aid, unrestricted, is determined with the following variables: a. State of Michigan State Aid Act per student foundation allowance b. Student Enrollment - Blended at 90 percent of current year s fall count and 10 percent of prior year s winter count c. The District s non-homestead levy Per Student, Foundation Allowance: Annually, the State of Michigan establishes the per student foundation allowance. The Baldwin Community Schools foundation allowance was $7,391 per student for the school year, which represents a per pupil increase of $216. Student Enrollment: The District s student enrollment for the fall count of was 550 students. The District s enrollment increased from the prior school year s student count. The following summarizes fall student enrollments in the past five years: FTE Change from Student FTE Prior Year (123) Subsequent to year end June 30, 2016, preliminary student enrollments for indicate that enrollments should remain flat. 2. Property Taxes Levied for General Operations (General Fund Non-Homestead Taxes) The District levied 18.0 mills of property taxes for operations (General Fund) on Non- Homestead Properties. Under Michigan Law, the taxable levy is based on the taxable valuation of properties. Annually, the taxable valuation increase in property values is capped at the rate of the prior year s CPI increase or 5 percent, whichever is less. At the time of sale, a property s taxable valuation is readjusted to the State Equalized Value, which is, theoretically, 50 percent of the market value. VIII

12 Baldwin Community Schools The District s non-homestead property revenue for the fiscal year was $5,846,233. The non-homestead tax levy increased by 2.93 percent over the prior year. Non- % Increase Non- Homestead from Homestead Levy Tax Levy Tax Levy Prior Year Property Value ,846, % 324,790, ,679, % 313,102, ,607, % 309,547, ,171, % 339,453, ,024, % 329,986, Debt Fund Property and Industrial Facility in Lieu of Taxes The District s debt fund levy, which is used to pay the principal and interest on bond obligations, is based on the taxable valuation of all properties: homestead and non-homestead. For , the District s debt millage levy was 1.50 mills that generated revenue of $633, Food Sales to Students & Adults (School Lunch Program) Baldwin Community Schools has been participating in the Community Eligibility Provision through the State of Michigan since September of The program provides students with a healthy lunch free of charge. The total expenditures from Food Service operations exceeded total revenues for the year by $15,494 in the Food Services Fund. IX

13 Baldwin Community Schools Original vs. Final Budget: The Uniform Budget Act of the State of Michigan requires that the local Board of Education approve the original budget for the upcoming fiscal year prior to July 1, the start of the fiscal year. The June 2016 budget amendment was the final budget for the fiscal year. Change from Original to Final Budget: Total Revenues Original Budget $ 16,800, % Total Revenues Final Budget 18,888, % Increase in Budgeted Revenues $ 2,088, % % The District s final, actual General Fund revenues differed from the final budget by $54,257, a variance of.003 percent. The final revenue budget reflects the following changes from the original budget: For the 2016 fiscal year, the State of Michigan increased its allocation to Teen Health Centers by $2,000,000. Baldwin Community Schools serves as the passthrough agent for these funds. Information regarding the increased allocation was not available at the time the original budget was adopted by the Board of Education. X

14 Baldwin Community Schools General Fund Expenditures: The District s budget for expenditures changed as follows during the year: Change from Original to Final Budget: Total Expenditures Original Budget $ 17,036, % Total Expenditures Final Budget 18,895, % Increase in Budgeted Expenditures $ 1,859, % % The District s final, actual General Fund expenditures differed from final budget by $149,763, a variance of.008 percent. For the 2016 fiscal year, the State of Michigan increased its allocation to Teen Health Centers by $2,000,000. Baldwin Community Schools serves as the passthrough agent for these funds. Information regarding the increased allocation was not available at the time the original budget was adopted by the Board of Education. Contacting the District s Financial Management This financial report is designed to provide our citizens and taxpayers with a general overview of the District s finances. If you have questions about this report or need additional information, contact the Central Business Office, Baldwin Community Schools. XI

15 October 7, 2016 INDEPENDENT AUDITOR S REPORT To the Board of Education Baldwin Community Schools Baldwin, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Baldwin Community Schools as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 1

16 INDEPENDENT AUDITOR S REPORT - Continued Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Baldwin Community Schools, as of June 30, 2016, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, pension defined benefit information, and budgetary comparison information on pages I through XI and 30 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Baldwin Community Schools basic financial statements. The combining and individual nonmajor fund financial statements and supporting schedules are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The schedule of expenditures of federal awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. The combining and individual nonmajor fund financial statements and supporting schedules have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. 2

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18 BALDWIN COMMUNITY SCHOOLS Statement of Net Position June 30, 2016 Governmental Governmental Activities Activities Assets Liabilities Current Assets Current Liabilities Cash and cash equivalents $ 3,890,633 Accounts payable $ 103,267 Accounts receivable 53,192 Accrued salaries and withholding 422,233 Due from other governments 1,630,218 Accrued interest 16,985 Inventory 9,805 Accrued expenditures 630 Prepaid expenses 35,000 Due to other governments 2,575,980 Bonds payable, due within one year - NOTE 4 553,316 Notes payable, due within one year - NOTE 4 91,539 Leases payable, due within one year - NOTE 4 9,192 Total Current Assets $ 5,618,848 Compensated absences and severance pay, due within one year - NOTE 4 33,551 Total Current Liabilities $ 3,806,693 Noncurrent Assets Noncurrent Liabilities Capital assets - NOTE 3: Bonds payable - NOTE 4 $ 3,557,678 Nondepreciable $ 167,500 Notes payable - NOTE 4 91,540 Depreciable, net of accumulated depreciation 8,322,532 Lease payable - NOTE 4 2,252 Compensated absences and severance pay - NOTE 4 74,679 Net pension liability - NOTE 7 10,603,627 Total Noncurrent Assets $ 8,490,032 Total Noncurrent Liabilities $ 14,329,776 Total Liabilities $ 18,136,469 Total Assets $ 14,108,880 Deferred Inflow of Resources - Pension - NOTE 7 $ 35,122 Deferred Outflow of Resources - Pension - NOTE 7 $ 1,338,115 Net Position Net investment in capital assets $ 4,184,515 Restricted for debt service 98,942 Restricted for food service 159,865 Restricted for capital additions 26,782 Unrestricted (7,194,700) Total Net Position $ (2,724,596) TOTAL ASSETS AND DEFERRED OUTFLOW OF TOTAL LIABILITIES, DEFERRED INFLOW OF RESOURCES $ 15,446,995 RESOURCES, AND NET POSITION $ 15,446,995 The accompanying notes are an integral part of these financial statements. 4

19 BALDWIN COMMUNITY SCHOOLS Statement of Activities For the Year Ended June 30, 2016 Functions/Programs Governmental Activities Instruction and instructional support 4,933,259 Governmental Activities Program Revenues Net (Expense) Operating Capital Revenue and Charges for Grants and Grants and Changes in Net Expenses Services Contributions Contributions Position $ $ - $ 1,499,260 $ - $ (3,433,999) Support services 13,694,206-10,707,300 - (2,986,906) Athletics 177,311 7, (169,471) Food services 543,914 29, ,100 - (17,693) Community services 21, (21,692) Facilities improvements (8,565) , ,781 Interest on long-term debt 99, (99,675) Depreciation (unallocated) 351, (351,956) Total Governmental Activities $ 19,813,448 $ 36,961 $ 12,703,660 $ 399,216 $ (6,673,611) General Revenues: Taxes Property taxes, levied for general operations $ 5,846,233 Property taxes, levied for debt service 633,090 Payments in lieu of taxes 32,388 State of Michigan aid, unrestricted 30,998 Federal sources, unrestricted 162,896 Gain on sale of capital assets 700 Interest and investment earnings 19,332 Other 128,989 Total General Revenues $ 6,854,626 Change In Net Position $ 181,015 Net Position, Beginning of Year (2,905,611) NET POSITION, END OF YEAR $ (2,724,596) The accompanying notes are an integral part of these financial statements. 5

20 BALDWIN COMMUNITY SCHOOLS GOVERNMENTAL FUNDS Balance Sheet June 30, 2016 Other Nonmajor Total General Governmental Governmental Fund Funds Funds Assets Cash $ 3,747,936 $ 142,697 $ 3,890,633 Accounts receivable 53,192-53,192 Due from other funds 14,320 60,704 75,024 Due from other governments 1,547,348 82,870 1,630,218 Inventory 2,290 7,515 9,805 Prepaid expenses - 35,000 35,000 TOTAL ASSETS $ 5,365,086 $ 328,786 $ 5,693,872 Liabilities and Fund Balances Liabilities: Accounts payable $ 75,582 $ 27,685 $ 103,267 Accrued salaries and withholding 422, ,233 Accrued expense Due to other funds 60,704 14,320 75,024 Due to other governments 2,575, ,575,980 Total Liabilities $ 3,133,937 $ 43,197 $ 3,177,134 Fund Balances: Nonspendable: Inventory $ 2,290 $ 7,515 $ 9,805 Prepaid expense - 35,000 35,000 Restricted for: NOTE 10 Food service - 117, ,350 Debt service - 98,942 98,942 Capital projects - 26,782 26,782 Committed - NOTE 10 50,000-50,000 Assigned - NOTE , ,898 Unassigned: General fund 1,690,961-1,690,961 Total Fund Balances $ 2,231,149 $ 285,589 $ 2,516,738 TOTAL LIABILITIES AND FUND BALANCES $ 5,365,086 $ 328,786 $ 5,693,872 The accompanying notes are an integral part of these financial statements. 6

21 BALDWIN COMMUNITY SCHOOLS Reconciliation of the Governmental Funds Balance Sheet with the Statement of Net Position June 30, 2016 Total Governmental Fund Balances $ 2,516,738 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and are not reported in the funds. Cost of capital assets is $ 16,366,300 Accumulated depreciation is (7,876,268) 8,490,032 Long-term liabilities are not due and payable in the current period and are not reported in the funds. Bonds payable, including unamortized premium (4,110,994) Notes payable (183,079) Leases payable (11,444) Compensated absences (108,230) Net pension liability (10,603,627) Pension deferred inflow and outflow of resources are not financial resources, and are not reported in the funds. Deferred outflow of resources 1,338,115 Deferred inflow of resources (35,122) Accrued interest on long-term liabilities is not included as a liability in governmental funds. (16,985) Net Position of Governmental Activities $ (2,724,596) The accompanying notes are an integral part of the financial statements. 7

22 BALDWIN COMMUNITY SCHOOLS GOVERNMENTAL FUNDS Statement of Revenues, Expenditures, and Changes in Fund Balances For the Year Ended June 30, 2016 Other Nonmajor Total General Governmental Governmental Fund Funds Funds Revenues: Local sources $ 5,946,237 $ 662,349 $ 6,608,586 State sources 11,921,463 19,552 11,941,015 Federal sources 868, ,548 1,345,755 Interdistrict sources 98,407-98,407 Total Revenues $ 18,834,314 $ 1,159,449 $ 19,993,763 Expenditures: Instruction $ 4,710,365 $ - $ 4,710,365 Supporting services 3,084, ,788 3,626,613 Community services 21,692-21,692 Payments to other governmental units 10,707,300-10,707,300 Facility improvements 221, ,664 Total Expenditures $ 18,745,846 $ 541,788 $ 19,287,634 Revenues in Excess of Expenditures $ 88,468 $ 617,661 $ 706,129 Other Financing Sources (Uses): Transfers in $ - $ 100,000 $ 100,000 Transfers out (100,000) - (100,000) Debt retirement: Principal repayment (91,539) (530,000) (621,539) Interest and debt service charges (12,918) (109,700) (122,618) Total Other Financing Sources (Uses) $ (204,457) $ (539,700) $ (744,157) Net Change in Fund Balances $ (115,989) $ 77,961 $ (38,028) Fund Balances - July 1, ,347, ,628 2,554,766 FUND BALANCES - JUNE 30, 2016 $ 2,231,149 $ 285,589 $ 2,516,738 The accompanying notes are an integral part of these financial statements. 8

23 BALDWIN COMMUNITY SCHOOLS Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year Ended June 30, 2016 Net Change in Fund Balances - Total Governmental Funds $ (38,028) Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures; in the statement of activities, these costs are allocated over their estimated useful lives as depreciation. Capital outlay $ 260,229 Depreciation expense (351,956) (91,727) Interest is recorded in the statement of activities when incurred; it is not reported in governmental funds until paid. 9,627 Changes in compensated absences are reported as expenditures when financial resources are used in the governmental funds. (15,053) Repayment of bond principal is an expenditure in the governmental funds, but not in the statement of activities (where it reduces long-term debt). 530,000 Bond premium is amortized and recorded in the statement of activities when incurred; it is reported in governmental funds when received. 13,316 Changes in notes payable are recorded in the statement of activities when incurred; they are not reported in governmental funds until paid. 91,539 Changes in leases payable are recorded in the statement of activities when incurred; they are not reported in governmental funds until paid. 9,192 Change in net pension liability and deferred inflow and outflow of resources (327,851) related to the pension plan. Changes in Net Position of Governmental Activities $ 181,015 The accompanying notes are an integral part of these financial statements. 9

24 BALDWIN COMMUNITY SCHOOLS FIDUCIARY FUNDS Statements of Fiduciary Net Position June 30, 2016 Assets Current Assets: Cash 163,019 Baldwin Promise Agency Total Zone Authority Fund Fiduciary Funds $ $ 30,845 $ 193,864 Pledges receivable 1,867-1,867 Taxes receivable 51,976-51,976 TOTAL ASSETS $ 216,862 $ 30,845 $ 247,707 Liabilities Current Liabilities: Accounts payable $ 472 $ - $ 472 Due to other governmental units 29,791-29,791 Due to student groups 17,500 30,845 48,345 TOTAL LIABILITIES $ 47,763 $ 30,845 $ 78,608 Net Position Unrestricted $ 169,099 $ - $ 169,099 TOTAL NET POSITION $ 169,099 $ - $ 169,099 The accompanying notes are an integral part of these financial statements. 10

25 BALDWIN COMMUNITY SCHOOLS BALDWIN PROMISE ZONE AUTHORITY Statement of Changes in Fiduciary Net Position For the Year Ended June 30, 2016 Operating Revenues: Property taxes $ 74,422 Federal grants 10,000 Local grants and contributions 61,854 Other 1,625 Total Operating Revenues $ 147,901 Operating Expenses: College expenses $ 55,939 School readiness 35,256 College tours 15,599 Professional fees 3,950 Administrative expenses 35,475 Miscellaneous 236 Total Operating Expenses $ 146,455 Change in Net Position $ 1,446 Net Position - Beginning of the Year 167,653 NET POSITION - END OF THE YEAR $ 169,099 The accompanying notes are an integral part of these financial statements. 11

26 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B. Basic Financial Statements: BALDWIN COMMUNITY SCHOOLS Notes to Financial Statements June 30, 2016 The accounting policies of Baldwin Community Schools (the District ) conform to accounting principles generally accepted in the United States of America, as prescribed by the Governmental Accounting Standards Board (GASB). The following is a summary of the significant accounting policies. A. Reporting Entity: The Baldwin Community Schools Board of Education (the Board ) is the basic level of government which has oversight responsibility and control over all activities related to the public school education in the area comprised by the District. The Board receives funding from State and Federal government sources and must comply with the concomitant requirements of these funding source entities. However, the Board is not included in any other governmental reporting entity, as defined by Governmental Accounting Standards Board ( GASB ) Statement 14, GASB Statement 39, and GASB Statement 61, since Board members are elected by the public and have decision-making authority, the authority to levy taxes, the power to designate management, the ability to significantly influence operations and primary accountability for fiscal matters. In addition, under the criteria of the GASB pronouncements, student, parent, and teacher organizations are not included, except to the extent that the District holds assets in the capacity of an agent. In evaluating how to define the District s reporting entity, management has considered all potential component units. The decision to include a potential component unit in the reporting entity was made by applying the criteria set forth in generally accepted accounting principles (GAAP). The basic, but not the only, criterion for including a potential component unit within the reporting entity is the governing body s ability to exercise oversight responsibility. The most significant manifestation of this ability is financial accountability. Other manifestations of the ability to exercise oversight responsibility include, but are not limited to, the selection of the governing board and the ability to significantly influence operations and accountability of fiscal matters. Based upon the application of these criteria, the following is a brief review of the potential component unit addressed in defining the District s reporting entity. Baldwin Promise Zone Authority: This potential component unit is disclosed as a component unit in the appropriate fiduciary fund type, Private-Purpose Trust Fund, but is neither blended nor discretely presented because the District: (1) appoints nine of the eleven board members, and (2) can impose its will by removing appointed members at will and must approve the budget. Separate financial statements can be obtained by contacting the Central Business Office of Baldwin Community Schools. Government-Wide Statements - The District s financial statements include both government-wide (reporting the District as a whole) and fund financial statements (reporting the District s major funds). The government-wide financial statements categorize primary activities as either governmental or business-type. All of the District s activities are classified as governmental activities. In the government-wide Statement of Net Position, the governmental activities column is (a) presented on a consolidated basis, and (b) reported on a full accrual, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. This government-wide focus is more on the sustainability of the District as an entity and the change in the District s net position resulting from the current year s activities. 12

27 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B. Basic Financial Statements - Continued: Government-Wide Statements - Continued BALDWIN COMMUNITY SCHOOLS Notes to Financial Statements June 30, 2016 The government-wide Statement of Activities reports both the gross and net cost of each of the District s functions. The functions are also supported by general government revenues (property taxes, certain intergovernmental revenues, etc.). The Statement of Activities reduces gross expenses (including depreciation) by related program revenues, operating and capital grants. Program revenues must be directly associated with the function. Operating grants include operating-specific and discretionary (either operating or capital) grants. The net costs (by function) are normally covered by general revenue (property taxes, state sources and federal sources, interest income, etc.). In creating the government-wide financial statements, the District has eliminated interfund transactions. The District reports three categories of net position, as follows: Net Investment in Capital Assets - consists of net capital assets reduced by outstanding balances of any related debt obligations and deferred inflows of resources attributable to the acquisition, construction, or improvement of those assets and increase by balances of deferred outflows of resources to those assets. Restricted Net Position - Net position is considered restricted if their use is constrained to a particular purpose. Restrictions are imposed by external organizations such as federal or state laws or buyers of the District's bonds. Restricted net position is reduced by liabilities and deferred inflows of resources related to the restricted assets. Unrestricted Net Position - consists of all other net position that does not meet the definition of the above two components and is available for general use by the District. Fund Statements - The accounts of the District are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund balance, revenue, and expenditures. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Fund balance is comprised of five classifications as follows: Nonspendable Fund Balance - The nonspendable fund balance category represents amounts that are not in a spendable form or are required to be maintained intact. Restricted Fund Balance - The restricted fund balance category represents amounts constrained to specific purposes by their providers, through constitutional provisions, or by enabling legislation. Committed Fund Balance - The committed fund balance category represents amounts constrained to specific purposes by the Board; to be reported as committed, amounts cannot be used for any other purpose unless the Board takes action to remove or change the constraint. Assigned Fund Balance - The assigned fund balance category represents amounts the Board intends to use for a specific purpose; intent can be expressed by the Board or by an official or committee to which the Board delegates the authority. 13

28 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued B. Basic Financial Statements - Continued: Governmental funds are defined as follows: General Fund - The General Fund is the general operating fund of the District. It is used to account for all financial resources except those required to be accounted for in another fund. Food Service Fund - This Special Revenue Fund is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for food service. Debt Service Fund - The Debt Service Fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest. Capital Projects Fund - The Capital Projects Fund is used to account for and report financial resources that are restricted, committed or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Fiduciary funds are defined as follows: C. Basis of Accounting: ACCRUAL BALDWIN COMMUNITY SCHOOLS Notes to Financial Statements June 30, 2016 Unassigned Fund Balance - The unassigned fund balance category represents amounts that are available for any purpose; these amounts are reported only in the General Fund. The District applies restricted resources first when expenditures are incurred for purposes for which either restricted or unrestricted (committed, assigned, and unassigned) amounts are available. Similarly, within unrestricted fund balance, committed amounts are reduced first followed by assigned, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used. Agency Funds - Agency Funds are used to account for assets held by the District as an agent for student activity organizations. Agency Funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Baldwin Promise Zone Authority - This Private-Purpose Trust Fund is used to account for and report financial resources to operate, maintain, and improve the Baldwin Promise Zone. Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. Governmental activities in the government-wide financial statements are presented on the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred. The Baldwin Promise Zone Authority is presented on the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when the related liability is incurred. 14

29 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued C. Basis of Accounting - Continued: MODIFIED ACCRUAL D. Encumbrances: E. Budgets and Budgetary Accounting: BALDWIN COMMUNITY SCHOOLS Notes to Financial Statements June 30, 2016 The governmental funds financial statements are presented on the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recorded when they become measurable and available. Available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Baldwin Community Schools considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Revenues are generally considered available when they are received in cash (unless legally restricted for some future period), or when expected to be collected soon enough after year-end to pay liabilities of the current period. Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred, provided the liability normally would be liquidated with expendable available financial resources. Encumbrance accounting provides for the recording of purchase orders, contracts, and other commitments that have not been performed. The recording facilitates the reservation of the corresponding appropriation. The District follows these procedures in establishing the budgetary data reflected in the financial statements: Prior to June 30, the superintendent of the District submits to the Board a proposed operating budget for the fiscal year commencing July 1 of that year. The operating budget includes proposed expenditures and the means of financing them for the General, Special Revenue, and Debt Service Funds. Prior to July 1, the budget is legally enacted through passage of a resolution, and in accordance with Public Act 621 of the State. Formal budgetary integration is employed as a management control device during the year for all budgetary funds. The District is required under Public Act 621 of 1978 and by accounting principles generally accepted in the United States of America to adopt a budget for the General Fund and major Special Revenue Funds. Budget amounts are reported in the financial statements as originally adopted or as amended by the Board of Education. F. Cash and Cash Equivalents: For the purposes of balance sheet classification, the District considers its investments in highly liquid pooled money funds to be cash equivalents. 15

30 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued G. Inventory: H. Capital Assets: BALDWIN COMMUNITY SCHOOLS Notes to Financial Statements June 30, 2016 Inventory is valued at the lower of cost (first-in, first-out) or market. Inventory in the General Fund consists of expendable supplies held for consumption. The cost is recorded as an expenditure at the time inventory items are purchased. The inventory in the Food Services Fund includes USDA commodities. Capital assets are defined by the District as assets with an initial individual cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost. Donated fixed assets are valued at their estimated fair market value on the date received. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Improvements are capitalized and depreciated over the remaining lives of the related fixed assets. Depreciation on all assets is provided on the straight-line basis over the estimated useful lives as follows: Buildings and additions Buses and other vehicles Furniture and other equipment years 8-10 years 5-20 years I. Property Tax Revenue: Property taxes attach as an enforceable lien on property as of December 31, and are levied on the following December 1. Property taxes become available for expenditure and are thus recognized as revenue in the fiscal year they are levied. The Baldwin Promise Zone Authority is considered a tax increment financing district that captures a share of the growth of Michigan's state property tax. J. Risk Management: The District carries commercial insurance for risks of loss, including torts; theft of, damage to, and destruction of assets; errors and omissions; workers compensation and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial insurance coverage in the past fiscal year. K. Total Columns on Combined Statements: Total columns on the combined statements are captioned Memorandum Only to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position, results of operations, or changes in financial position in conformity with accounting principles generally accepted in the United States of America. Neither is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. L. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 16