Table of Contents June 30, 2017 Exhibit INTRODUCTORY SECTION Page Letter of Transmittal... 1 List of Principal Officials... 5 Organizational Chart... 6 FINANCIAL SECTION Independent Auditor s Report... 7 Management s Discussion and Analysis... 10 Basic Financial Statements: Government-wide Financial Statements: A Statement of Net Position... 17 B Statement of Activities... 18 Fund Financial Statements: C Balance Sheet Governmental Funds... 20 D Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds... 22 E Statement of Revenues, Expenditures and Changes in Fund Balances Budget and Actual General Fund and Annually Budgeted Major Special Revenue Funds... 25 F Statement of Net Position Proprietary Fund... 29 G Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Fund... 30 H Statement of Cash Flows Proprietary Fund... 31 Notes to the Financial Statements... 33 Required Supplementary Information: Schedule of the Board s Proportionate Share of the Net Pension Liability... 60 Schedule of Board Contributions... 61
Table of Contents (Continued) June 30, 2017 FINANCIAL SECTION (Continued) Schedule Page Individual Fund Schedules: 1 Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual General Fund... 62 2 Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual State Public School Fund... 64 3 Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual Federal Grants Fund... 65 4 Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual Other Restricted Fund... 66 5 Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual Capital Outlay Fund... 67 6 Schedule of Revenues and Expenditures Budget and Actual (Non-GAAP) School Food Service Fund... 68 Table STATISTICAL SECTION 1 General Government Expenditures by Function... 69 2 General Government Revenues by Source... 70 3 Comparative Average Daily Membership... 71 4 Average Daily Membership... 72 5 Property Tax Levies and Collections for Davidson County... 73 6 Assessed Value of Taxable Property For Davidson County... 74 7 Property Tax Rates Direct and Overlapping Governments For Davidson County... 75 8 Assessed Property Values Direct and Overlapping Governments For Davidson County... 77 9 Ratio of Net General Bonded Debt To Assessed Value and Bonded Debt Per Capita For Davidson County... 79 10 Legal Debt Margin Information For Davidson County... 80 11 Computation of Direct and Overlapping Governmental Activities Debt For Davidson County... 81 12 Demographic and Economic Statistics For Davidson County... 82 13 Principal Taxpayers For Davidson County... 83 14 Principal Employers For Davidson County... 84
Table of Contents (Continued) June 30, 2017 COMPLIANCE SECTION Page 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... 85 Independent Auditor s Report On Compliance With Requirements Applicable To Each Major Federal Program And Internal Control Over Compliance in Accordance With OMB Uniform Guidance And The State Single Audit Implementation Act... 87 Independent Auditor s Report On Compliance With Requirements Applicable To Each Major State Program And Internal Control Over Compliance in Accordance With OMB Uniform Guidance And The State Single Audit Implementation Act... 90 Schedule of Findings and Questioned Costs... 93 Corrective Action Plan... 98 Summary Schedule of Prior Year Audit Findings...100 Schedule of Expenditures of Federal and State Awards...101 Notes to the Schedule of Expenditures of Federal and State Awards...104
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INTRODUCTORY SECTION Unaudited
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DAVIDSON COUNTY BOARD OF EDUCATION LIST OF PRINCIPAL OFFICIALS December 20, 2017 BOARD OF EDUCATION MEMBERS Alan W. Beck, Chairman Kristie P. Bonnet, Vice-Chairman Phillip W. Craver Neal N. Motsinger Brian M. Feezor SUPERINTENDENT OF SCHOOLS Dr. Emily W. Lipe FINANCE OFFICER Tyler N. Beck
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Board of Education Keri Johnston Executive Asst to the Superintendent/BOE Clerk Dr. Emily Lipe Interim Superintendent Kathy Thomas Internal Auditor Dr. Emily Lipe Asst Superintendent of Curriculum and Instruction Julie Hamilton Assistant Superintendent of Human Resources Travis Smith Executive Director of Operations Donna Stafford Chief Public Information Officer Tyler Beck Chief Finance Officer Tabitha Broadway Director of Secondary Instruction Audrey Wagner Director of Human Resources Wynn Conrad Director of Maintenance & Facilities Michelle Bailey Public Relations Specialist Clay Harris Assistant Finance Officer Deana Coley Director of Elementary Instruction Kelli Dalton Assistant Director of Human Resources /Teacher Recruitment & Support Gary Buie Director of Transportation Meredith Pitt Public Relations Coordinator Donna Sink Payroll Supervisor Lee Ann Tuttle-Thomas Director of Career & Technical Education (CTE) Barbara Brock Assistant Director of HR/Licensure Kristen Bealler Director of Child Nutrition Monica Blankenship Financial and Budget Analyst Kathryn Green Director of Exceptional Children Keith Koonts Director of Technology Kristi Hill Purchasing Agent Candy Walters Chad Oakes Director of Testing/Accountability Charles Elmore Davidson County Schools Coordinator of Athletics Senior Accounts Payable Specialist Richard Hicks Tamera Holcomb Coordinator of Student Services Sherry Yarbrough Health, Safety & Wellness Coordinator Financial Computer Analyst Updated: 12/4/2017 KVJ
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FINANCIAL SECTION
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Independent Auditor s Report Davidson County Board of Education, North Carolina Lexington, North Carolina Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Davidson County Board of Education, North Carolina, as of and for the year then ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the Davidson County Board of Education 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 of 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. 7 4515 Falls of Neuse Road Suite 450 Raleigh, NC 27609 Phone 919-832-6848 Fax 919-832-7288 212 West Center Street P.O. Box 1991 Lexington, NC 27292 Phone 336-248-8281 Fax 336-248-2335 1023 West Morehead Street Suite 100 Charlotte, NC 28208-5324 Phone 704-372-0960 Fax 704-72-1458
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, business-type activities, each major fund, and the aggregate remaining fund information of the Davidson County Board of Education, as of June 30, 2017, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund, State Public School Fund, Federal Grants Fund, and Other Restricted Fund 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 Management s Discussion and Analysis on pages 10 through 16 and the Schedule of the Board s Proportionate Share of the Net Pension Liability and the Schedule of Board Contributions on pages 60 and 61, respectively be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provided us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Davidson County Board of Education s basic financial statements. The individual fund budgetary schedules, introductory section, statistical section, as well as the accompanying Schedule of Expenditures of Federal and State Awards 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 the State Single Audit Implementation Act, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The individual fund budgetary schedules and the accompanying 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 basic financial statements. 8
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 individual fund budgetary schedules and the accompanying Schedule of Expenditures of Federal and State Awards are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The introductory and statistical sections have not been subjected to 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our reports dated December 20, 2017 on our consideration of Davidson County Board of Education s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of those reports are 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. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards in considering the Davidson County Board of Education s internal control over financial reporting and compliance. Lexington, North Carolina December 20, 2017 9
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Management s Discussion and Analysis June 30, 2017 This section of the Davidson County Board of Education s (the Board) financial report represents our discussion and analysis of the financial performance of the Board for the year ended June 30, 2017. This information should be read in conjunction with the audited financial statements included in this report. Financial Highlights The Board experienced a decrease in enrollment of 177 students from the previous year. Construction for the high school in the Oak Grove area neared completion as of June 30, 2017. A project completion date is expected as of third quarter 2017. Overview of the Financial Statements The audited financial statements of the Davidson County Board of Education consist of four components. They are as follows: Independent Auditor s Report Management s Discussion and Analysis (required supplementary information) Basic Financial Statements Required supplemental section that presents budgetary statements for governmental and enterprise funds The Basic Financial Statements include two types of statements that present different views of the Board s finances. The first is the Government-wide Financial Statements. The government-wide statements are presented on the full accrual basis of accounting and include the Statement of Net Position and the Statement of Activities. The Statement of Net Position includes all of the Board s assets, deferred outflows of resources, liabilities, and deferred inflows of resources. Assets and liabilities are classified in order of relative liquidity for assets and due date for liabilities. This statement provides a summary of the Board s investment in assets, deferred outflows of resources, deferred inflows of resources, and obligations to creditors. Liquidity and financial flexibility can be evaluated using the information contained in this statement. The Statement of Activities summarizes the Board s revenues and expenses for the current year. A net (expense) revenue format is used to indicate to what extent each function is self-sufficient. The second set of statements included in the basic financial statements is the Fund Financial Statements, which are presented for the Board s governmental funds and proprietary fund. These statements present the governmental funds on the modified accrual basis of accounting, measuring the near term inflows and outflows of the financial resources and what is available at year-end to spend in the next fiscal year. The proprietary fund is presented on the full accrual basis of accounting. The fund financial statements focus on the Board s most significant funds. Because a different basis of accounting is used in the government-wide statements, reconciliation from the governmental fund financial statements to the government-wide statements is required. The government-wide statements provide information about the Board as an economic unit while the fund financial statements provide information on the financial resources of each of the Board s major funds. Government-wide Financial Statements The government-wide statements report information about the unit as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Position includes all of the Board s assets, deferred outflows of resources, liabilities, and deferred inflows of resources. All of the current year s revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. 10
Management s Discussion and Analysis June 30, 2017 Government-wide Financial Statements (Continued) The two government-wide statements report the Board s net position and how it has changed. Net position the difference between the Board s assets and deferred outflows of resources and the total of liabilities and deferred inflows of resources is one way to measure the unit s financial health or position. Over time, increases or decreases in the Board s net position are an indicator of whether its financial position is improving or deteriorating. To assess the Board s overall health, one should consider additional non-financial factors such as changes in the County s property tax base and the condition of its school buildings and other physical assets. The Board s activities are divided into two categories in the government-wide statements: Governmental activities: Most of the Board s basic services are included here, such as regular and special education, transportation, and administration. County funding and State and federal aid finance most of these activities. Business-type activities: The Board charges fees to help cover the cost of certain services it provides. School food service is included here. The government-wide statements are Exhibits A and B of this report. Fund Financial Statements The fund financial statements provide detailed information about the Board s funds, focusing on its most significant or major funds. Funds are accounting devices the Board uses to keep track of specific sources of funding and spending on particular programs. Some funds are required by State law, such as the State Public School Fund. The Board established other funds, such as the Federal Grants Fund, to control and manage money for a particular purpose or to show that it is properly using certain revenues. Davidson County Board of Education has two types of funds: Governmental funds: Most of the Board s basic services are included in the governmental funds, which generally focus on two things how cash and other assets can readily be converted to cash flow in and out, and the balances left at year-end that are available for spending. As a result of this focus, the governmental fund statements provide a detailed short-term view that helps the reader determine whether there are more or fewer financial resources that can be spent in the coming year to finance the Board s programs. Because this information does not encompass the additional long-term focus of the government-wide statements, a reconciliation following the governmental funds statements, explains the relationship (or differences) between the government-wide and the fund financial statements. The Board has several governmental funds: the General Fund, the State Public School Fund, the Federal Grants Fund, the Other Restricted Fund, the Individual Schools Fund, and the Capital Outlay Fund. 11
Management s Discussion and Analysis June 30, 2017 Fund Financial Statements (Continued) The governmental fund statements are Exhibits C, D, and E of this report. Proprietary funds: Services for which the Board charges a fee are generally reported in the proprietary fund. The proprietary fund statements are reported on the same full accrual basis of accounting as the government-wide statements. Davidson County Board of Education has one proprietary fund an enterprise fund the School Food Service Fund. The proprietary fund statements are shown as Exhibits F, G, and H of this report. Financial Analysis of the Board as a Whole Net position is an indicator of the fiscal health of the Board. Assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $176,020,938 as of June 30, 2017. The largest component of net position is net investment in capital assets of $197,344,529. The following is a summary of the Statement of Net Position: Condensed Statement of Net Position June 30, 2017 and 2016 Governmental Activities Business-type Activities Total Primary Government 2017 2016 2017 2016 2017 2016 Current assets $ 20,346,013 $ 26,187,992 $ 1,462,120 $ 1,375,255 $ 21,808,133 $ 27,563,247 Capital assets 197,945,432 173,773,151 814,721 917,320 198,760,153 174,690,471 Total assets 218,291,445 199,961,143 2,276,841 2,292,575 220,568,286 202,253,718 Deferred outflows of resources 38,924,216 7,940,240 938,062 208,567 39,862,278 8,148,807 Current liabilities 8,674,038 18,470,336 98,979 211,673 8,773,017 18,682,009 Long-term liabilities 70,830,600 27,568,346 1,544,980 621,090 72,375,580 28,189,436 Total liabilities 79,504,638 46,038,682 1,643,959 832,763 81,148,597 46,871,445 Deferred inflows of resources 3,184,289 5,692,259 76,740 149,519 3,261,029 5,841,778 Net investment in capital assets 196,529,808 172,049,444 814,721 917,320 197,344,529 172,966,764 Restricted net position 3,799,439 3,306,187 - - 3,799,439 3,306,187 Unrestricted net position (25,802,513) (19,185,189) 679,483 601,540 (25,123,030) (18,583,649) Total net position $ 174,526,734 $ 156,170,442 $ 1,494,204 $ 1,518,860 $ 176,020,938 $ 157,689,302 Note that governmental activities net position increased during the year, indicating an improvement in the financial condition of the Board. The increase in net position (11.63%) portrays improvement but it is worth noting a couple of factors that impacted net position. The largest portion of this increase was due to the increase in net investments in capital assets, of about $24.4 million. This was due to the new high school nearing completion. Also note that the Board carries capital assets for which Davidson County carries the offsetting debt. 12
Management s Discussion and Analysis June 30, 2017 Financial Analysis of the Board as a Whole (Continued) The following table shows the revenues and expenses for the Board for the current fiscal year. Governmental Activities Business-type Activities Total Primary Government 2017 2016 2017 2016 2017 2016 Revenues: Program revenues: Charges for services $ 5,291,058 $ 5,686,711 $ 2,365,947 $ 2,529,111 $ 7,657,005 $ 8,215,822 Operating grants and contributions 116,426,712 115,148,911 5,476,231 5,564,079 121,902,943 120,712,990 Capital grants and contributions 1,095,833 977,918 - - 1,095,833 977,918 General revenues: Other revenues 59,535,622 46,056,547 7,185 13,629 59,542,807 46,070,176 Total revenues 182,349,225 167,870,087 7,849,363 8,106,819 190,198,588 175,976,906 Expenses: Governmental activities: Instructional services 127,727,274 117,669,154 - - 127,727,274 117,669,154 System-wide support services 28,386,605 27,869,160 - - 28,386,605 27,869,160 Ancillary services 23,877 3,022 - - 23,877 3,022 Non-programmed charges 1,517,539 966,286 - - 1,517,539 966,286 Depreciation 6,250,141 6,276,718 - - 6,250,141 6,276,718 Business-type activities: Food service - - 7,961,516 9,145,453 7,961,516 9,145,453 Total expenses 163,905,436 152,784,340 7,961,516 9,145,453 171,866,952 161,929,793 Transfers in (out) (87,497) (112,037) 87,497 112,037 - - Increase in net position 18,356,292 14,973,710 (24,656) (926,597) 18,331,636 14,047,113 Net position, beginning 156,170,442 141,196,732 1,518,860 2,445,457 157,689,302 143,642,189 Net position, ending $ 174,526,734 $ 156,170,442 $ 1,494,204 $ 1,518,860 $ 176,020,938 $ 157,689,302 13
Management s Discussion and Analysis June 30, 2017 Financial Analysis of the Board as a Whole (Continued) Total governmental activities generated revenues of $182 million, while expenses in this category totaled $164 million for the year ended June 30, 2017. Comparatively, revenues were $168 million and expenses totaled $153 million for the year ended June 30, 2016. After transfers to the business-type activities, the increase in net position amounted to approximately $18,356,292 at June 30, 2017, compared to an increase in net position of $14,973,710 in 2016. Instructional services expenses comprised 77.93% of total governmental-type expenses while system-wide support services made up 17.32% of those expenses for 2017. County funding comprised 29.95% of total governmental revenue for 2017. In 2016, County funding was 25.05%. Much of the remaining 70.05% of total governmental revenue for 2017 consisted of restricted State and federal money. This revenue represented 74.95% of total revenue in 2016. Business-type activities generated revenue of $7.85 million and expenses of $7.96 million. Net position decreased in the business-type activities by $24,656, after transfers from the governmental activities of $87,497. Financial Analysis of the Board s Funds Governmental Funds: The focus of Davidson County Board of Education s governmental funds is to provide information on near-term inflows, outflows, and balances of usable resources. Such information is useful in assessing the Board s financing requirements. The Board s governmental funds reported a combined fund balance of $11,671,975, a $4,349,298 decrease over last year. Expenditures and other uses exceeded revenues in the amount of $5,280,570 in the General Fund. Revenues and other sources exceeded expenditures in the amount of 452,310 in the Other Restricted Fund, 222,192 in the Individual Schools Fund, and 256,770 in the Capital Outlay Fund. State funding increased $3,520,778 when compared to 2016. County funding increased approximately $12.5 million. Federal funding decreased $664,310. Expenditures increased by $16.1 million, which included $32.1 million in capital outlay. Proprietary Fund: The School Food Service Fund net position decreased by $24,656. Revenue decreased by $257,456, while expenses decreased $1,183,937, when compared with the previous year. 14
Management s Discussion and Analysis June 30, 2017 Financial Analysis of the Board s Funds (Continued) Expenditure analysis: Instructional programs represented 81.75% of governmental expenditures, excluding capital outlay. Total governmental expenditures are categorized below: Categories of Expenditures for Governmental Funds (excluding capital outlay) 17.51% 0.73% 0.01% 81.75% Instructional Services Ancilliary Services System-wide Support Services Non-programmed Charges Expenditures are presented on modified accrual basis of accounting General Fund Budgetary Highlights Over the course of the year, the Board revised the budget several times to account for changes in revenue expectations but was able to keep spending below the amended budgeted amounts. Even with the reductions in revenue, the Board was able to reduce spending and end the year with minimal deficits. 15
Capital Assets Management s Discussion and Analysis June 30, 2017 Capital assets increased by $24.1 million (13.78%) from the previous year. This was largely due to the new high school construction. The following is a summary of the capital assets, net of depreciation at year-end. Summary of Capital Assets June 30, 2017 and 2016 Governmental Activities Business-type Activities Total Primary Government 2017 2016 2017 2016 2017 2016 Land $ 2,312,055 $ 2,312,055 $ - $ - $ 2,312,055 $ 2,312,055 Construction in progress 58,346,460 29,696,263 - - 58,346,460 29,696,263 Buildings 124,148,162 127,722,748 - - 124,148,162 127,722,748 Land improvements 5,149,732 5,608,926 - - 5,149,732 5,608,926 Furniture and equipment 2,188,703 2,395,357 814,721 917,320 3,003,424 3,312,677 Vehicles 5,800,320 6,037,802 - - 5,800,320 6,037,802 Total $ 197,945,432 $ 173,773,151 $ 814,721 $ 917,320 $ 198,760,153 $ 174,690,471 Economic Factors The Davidson County Schools student population decreased this year. Davidson County has been experiencing conditions similar to those of other North Carolina counties that have relied on one or two major industries. Because new industries are expanding within the area, the unemployment rate in Davidson County and throughout the State is decreasing. Compared to last year, Davidson County s unemployment rate decreased by 0.80% (4.90% to 4.10%). The State s unemployment rate decreased 0.70% (4.90% to 4.20%). Additional industries are needed in our community to expand the tax base in order to provide funding for construction and to provide adequate funding for the instructional programs. Requests for Information This report is intended to provide a summary of the financial condition of Davidson County Board of Education. Questions or requests for additional information should be addressed to: Tyler Beck, Chief Finance Officer Davidson County Board of Education 250 County School Road Lexington, NC 27292 16
BASIC FINANCIAL STATEMENTS
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Statement of Net Position June 30, 2017 Exhibit A Governmental Activities Primary Government Business-type Activities Total ASSETS Cash and cash equivalents $ 12,647,893 $ 1,098,349 $ 13,746,242 Accounts receivable 76,576 6,322 82,898 Due from other governments 7,585,052 168,701 7,753,753 Internal balances 36,492 (36,492) - Inventories - 225,240 225,240 20,346,013 1,462,120 21,808,133 Capital assets: Land 2,312,055-2,312,055 Construction in progress 58,346,460-58,346,460 Other capital assets, net of depreciation 137,286,917 814,721 138,101,638 Total capital assets 197,945,432 814,721 198,760,153 Total assets 218,291,445 2,276,841 220,568,286 DEFERRED OUTFLOWS OF RESOURCES 38,924,216 938,062 39,862,278 LIABILITIES Accounts payable 2,911,737 4,764 2,916,501 Due to other governments - - - Accrued salaries and wages payable 5,684,847 304 5,685,151 Unearned revenue 77,454 93,911 171,365 Long-term liabilities: Net pension liability 59,529,479 1,434,643 60,964,122 Due within one year 9,822,283 110,337 9,932,620 Due in more than one year 1,478,838-1,478,838 Total liabilities 79,504,638 1,643,959 81,148,597 DEFERRED INFLOWS OF RESOURCES 3,184,289 76,740 3,261,029 NET POSITION Net investment in capital assets 196,529,808 814,721 197,344,529 Restricted for: Stabilization by State statute 3,080,013-3,080,013 Capital outlay (996,760) - (996,760) Individual schools 1,716,186-1,716,186 Unrestricted (25,802,513) 679,483 (25,123,030) Total net position $ 174,526,734 $ 1,494,204 $ 176,020,938 The accompanying notes to the financial statements are an integral part of these statements. 17
Statement of Activities For the Year Ended June 30, 2017 Exhibit B Net (Expenses) Revenue Program Revenues and Changes in Net Position Primary Government Functions/Programs Expenses Charges for Services Operating Grants and Contributions Capital Grants and Contributions Governmental Activities Business-type Activities Total Primary government: Governmental activities: Instructional services: Regular instructional $ 76,440,695 $ 344,149 $ 65,375,781 $ 351 $ (10,720,414) $ - $ (10,720,414) Special populations 17,368,837-16,251,190 - (1,117,647) - (1,117,647) Alternative programs 8,369,044-7,696,590 - (672,454) - (672,454) School leadership 9,170,257-6,135,554 132 (3,034,571) - (3,034,571) Co-curricular 1,071,976-38,775 - (1,033,201) - (1,033,201) School-based support 15,306,465 4,473,302 8,685,037 - (2,148,126) - (2,148,126) System-wide support services: Support and development 595,064-137,003 - (458,061) - (458,061) Special population support and development 430,720-406,303 - (24,417) - (24,417) Alternative programs and services support and development 188,246-186,514 - (1,732) - (1,732) Technology support 3,057,006-606,433 - (2,450,573) - (2,450,573) Operational support 19,559,538 473,607 8,586,663 1,095,095 (9,404,173) - (9,404,173) Financial and human resource 2,392,938-770,798 - (1,622,140) - (1,622,140) Accountability 487,318-309,853 (177,465) - (177,465) System-wide pupil support 97,494-3,365 - (94,129) - (94,129) Policy, leadership and public relations 1,578,281-775,602 255 (802,424) - (802,424) Ancillary services 23,877 - - - (23,877) - (23,877) Non-programmed charges 1,517,539-461,251 - (1,056,288) - (1,056,288) Unallocated depreciation expense* 6,250,141 - - - (6,250,141) - (6,250,141) Total governmental activities 163,905,436 5,291,058 116,426,712 1,095,833 (41,091,833) - (41,091,833) Business-type activities: School food service 7,961,516 2,365,947 5,476,231 - - (119,338) (119,338) Total business-type activities 7,961,516 2,365,947 5,476,231 - - (119,338) (119,338) Total primary government $ 171,866,952 $ 7,657,005 $ 121,902,943 $ 1,095,833 (41,091,833) (119,338) (41,211,171) * - This amount excludes the depreciation that is included in the direct expenses of various programs. The accompanying notes to the financial statements are an integral part of these statements. 18
Statement of Activities For the Year Ended June 30, 2017 Exhibit B (Continued) Governmental Activities Net (Expenses) Revenue and Changes in Net Position Primary Government Business-type Activities Total General revenues: Unrestricted County appropriations - operating $ 23,307,639 $ - $ 23,307,639 Unrestricted County appropriations - capital 31,304,106-31,304,106 Unrestricted State grants 4,034,554-4,034,554 Unrestricted federal grants - - - Investment earnings, unrestricted 70,998 1,903 72,901 Miscellaneous, unrestricted 818,325 5,282 823,607 Transfers (87,497) 87,497 - Total general revenues and transfers 59,448,125 94,682 59,542,807 Change in net position 18,356,292 (24,656) 18,331,636 Beginning net position 156,170,442 1,518,860 157,689,302 Ending net position $ 174,526,734 $ 1,494,204 $ 176,020,938 The accompanying notes to the financial statements are an integral part of these statements. 19
Balance Sheet Governmental Funds June 30, 2017 Exhibit C State Public School Federal Grants Fund Major Funds Other Restricted Fund Individual Schools Capital Outlay Fund Total Governmental Funds General ASSETS Cash and cash equivalents $ 9,198,630 $ - 298 $ 357,814 $ 1,760,284 $ 1,333,613 $ 12,650,639 Accounts receivable 46,573 - - 86 27,898 2,019 76,576 Due from other governments 180,636 4,303,657 358,548 55,074-2,687,137 7,585,052 Due from other funds 36,492 2,706-71,996 - - 111,194 Total assets 9,462,331 4,306,363 358,846 484,970 1,788,182 4,022,769 20,423,461 LIABILITIES AND FUND BALANCES Liabilities: Cash Overdrafts - 2,746 - - - - 2,746 Accounts payable 760,203 - - 161-2,151,373 2,911,737 Due to other funds 2,706 - - - 71,996-74,702 Accrued salaries and wages payable 1,074,140 4,238,751 346,258 25,698 - - 5,684,847 Unearned revenue - 64,866 12,588 - - 77,454 Total liabilities 1,837,049 4,306,363 358,846 25,859 71,996 2,151,373 8,751,486 Fund balances: Restricted: Stabilization by State statute 263,701 - - 127,156-2,689,156 3,080,013 Individual schools - - - - 1,716,186-1,716,186 Capital outlay - - - - - (996,760) (996,760) Assigned: Subsequent years expenditures 3,500,000 - - - - 179,000 3,679,000 Unassigned 3,861,581 - - 331,955 - - 4,193,536 Total fund balances 7,625,282 - - 459,111 1,716,186 1,871,396 11,671,975 Total liabilities and fund balances $ 9,462,331 $ 4,306,363 $ 358,846 $ 484,970 $ 1,788,182 $ 4,022,769 $ 20,423,461 The accompanying notes to the financial statements are an integral part of these statements. 20
Balance Sheet Governmental Funds June 30, 2017 Exhibit C (Continued) Total governmental fund balances $ 11,671,975 Amounts reported for governmental activities in the statement of net position (Exhibit A) are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. Less: accumulated depreciation Net capital assets $ 306,284,325 (108,338,893) 197,945,432 Deferred outflows of resources related to pension. 38,924,216 Long-term liabilities 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 consisted of: Installment purchase obligations Compensated absences Net pension liability Total long-term liabilities (1,415,624) (9,885,497) (59,529,479) (70,830,600) Deferred inflows of resources related to pension. (3,184,289) Total net position - governmental activities $ 174,526,734 The accompanying notes to the financial statements are an integral part of these statements. 21
Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2017 Exhibit D Major Funds General State Public School Federal Grants Fund Other Restricted Fund Individual Schools Capital Outlay Fund Total Governmental Funds REVENUES: U.S. Government $ - $ - $ 8,879,352 $ 110,113 $ - $ - $ 8,989,465 State of North Carolina - 109,378,413-832,330-992,947 111,203,690 Davidson County 22,727,000 - - 580,639-31,557,111 54,864,750 Other revenues 2,096,235 3,023-831,065 4,473,302 77,684 7,481,309 Total revenues 24,823,235 109,381,436 8,879,352 2,354,147 4,473,302 32,627,742 182,539,214 EXPENDITURES: Instructional services: Regular instructional 9,161,419 65,138,126 444,465 756,644 - - 75,500,654 Special populations 745,557 12,703,815 3,473,970 206,920 - - 17,130,262 Alternative programs 100,649 3,607,357 3,764,707 792,246 - - 8,264,959 School leadership 1,587,329 7,167,023-290,702 - - 9,045,054 Co-curricular 1,102,672 - - 248 - - 1,102,920 School-based support 1,226,733 9,430,378 242,140 40,091 4,256,110-15,195,452 Total instructional services 13,924,359 98,046,699 7,925,282 2,086,851 4,256,110-126,239,301 System-wide support services: Support and development 465,967 117,080 1,790 4,527 - - 589,364 Special population support and development 17,152 285,455 121,611 - - - 424,218 Alternative programs and services support and development - - 186,514 - - - 186,514 Technology support 2,556,906 519,302 - - - - 3,076,208 Operational support 9,925,995 8,119,093 100,842 110,459 - - 18,256,389 Financial and human resource 1,032,114 1,143,129 193,914 - - - 2,369,157 Accountability 153,975 326,661 - - - - 480,636 System-wide pupil support 96,013 - - - - - 96,013 Policy, leadership and public relations 813,671 750,669 - - - - 1,564,340 Total system-wide support services 15,061,793 11,261,389 604,671 114,986 - - 27,042,839 The accompanying notes to the financial statements are an integral part of these statements. 22
Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2017 Exhibit D (Continued) General State Public School Federal Grants Fund Major Funds Other Restricted Fund Individual Schools Capital Outlay Fund Total Governmental Funds Ancillary services $ 7,473 $ 15,070 $ - $ - $ - $ - $ 22,543 Non-programmed charges 775,961-349,399 - - - 1,125,360 Capital outlay: Furniture and equipment - - - - - 654,620 654,620 Buses and motor vehicles - - - - - 1,091,284 1,091,284 Improvements and renovations - - - - - 30,316,985 30,316,985 Total capital outlay - - - - - 32,062,889 32,062,889 Debt service: Principal - - - - - 992,947 992,947 Total expenditures 29,769,586 109,323,158 8,879,352 2,201,837 4,256,110 33,055,836 187,485,879 Revenues over (under) expenditures (4,946,351) 58,278-152,310 217,192 (428,094) (4,946,665) OTHER FINANCING SOURCES (USES): Installment purchase obligations issued - - - - - 684,864 684,864 Transfers from (to) other funds (334,219) (58,278) - 300,000 5,000 - (87,497) Total other financing sources (uses) (334,219) (58,278) - 300,000 5,000 684,864 597,367 Net change in fund balance (5,280,570) - - 452,310 222,192 256,770 (4,349,298) FUND BALANCES: Beginning of year 12,905,852 - - 6,801 1,493,994 1,614,626 16,021,273 End of year $ 7,625,282 $ - $ - $ 459,111 $ 1,716,186 $ 1,871,396 $ 11,671,975 The accompanying notes to the financial statements are an integral part of these statements. 23
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Exhibit D (Continued) Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2017 Amounts reported for governmental activities in the statement of activities (Exhibit B) are different because: Net change in fund balances - total governmental funds $ (4,349,298) Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of these assets is allocated over their estimated useful lives and reported as depreciation expense. Expenditures recorded in the fund statements but capitalized as assets on the statement of activities 32,057,122 Depreciation expense that is recorded on the statement of activities but not in the fund statements (7,694,852) New debt issued during the year is recorded as a source of funds on the fund statements; it has no effect on the statement of activities - it affects only the government-wide statement of net position. (684,864) Principal payments on debt owed are recorded as a use of funds on the fund statements but affect only the statement of net position in the government-wide statements. 992,947 Expenses reported in the statement of activities do not require the use of financial resources and, therefore, are not reported as expenditures in governmental funds. Pension expense Compensated absences Loss on disposal of assets Total changes in net position of governmental activities (2,392,331) 617,557 (189,989) $ 18,356,292 The accompanying notes to the financial statements are an integral part of these statements. 24
Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual General Fund and Annually Budgeted Major Special Revenue Funds For the Year Ended June 30, 2017 General Fund Budget Actual Variance with Final Budget Positive Original Final Amounts (Negative) REVENUES: U.S. Government $ - $ - $ - $ - State of North Carolina - - - - Davidson County 24,831,520 22,727,000 22,727,000 - Other revenues 349,851 2,470,563 2,096,235 (374,328) Total revenues 25,181,371 25,197,563 24,823,235 (374,328) EXPENDITURES: Instructional services: Regular instructional 8,529,959 11,023,928 9,161,419 1,862,509 Special populations 903,904 870,587 745,557 125,030 Alternative programs 41,012 104,095 100,649 3,446 School leadership 1,197,400 1,681,473 1,587,329 94,144 Co-curricular 1,102,253 1,799,233 1,102,672 696,561 School-based support 2,154,533 1,774,990 1,226,733 548,257 System-wide support services: Support and development 629,689 505,212 465,967 39,245 Special population support and development 5,721 17,761 17,152 609 Alternative programs and services support and development - - - - Technology support 5,285,743 3,350,458 2,556,906 793,552 Operational support 11,374,335 11,391,684 9,925,995 1,465,689 Financial and human resource 1,102,608 1,150,829 1,032,114 118,715 Accountability 2,467,803 948,402 153,975 794,427 System-wide pupil support 94,642 96,457 96,013 444 Policy, leadership and public relations 836,498 905,813 813,671 92,142 Ancillary services 7,989 39,578 7,473 32,105 Non-programmed charges 866,505 909,005 775,961 133,044 Total expenditures 36,600,594 36,569,505 29,769,586 6,799,919 Revenues over (under) expenditures (11,419,223) (11,371,942) (4,946,351) 6,425,591 OTHER FINANCING SOURCES (USES): Transfers from (to) other funds - (347,281) (334,219) 13,062 Revenues and other sources over (under) expenditures and other financing sources (11,419,223) (11,719,223) (5,280,570) 6,438,653 ` Appropriated fund balance 11,419,223 11,719,223 - (11,719,223) Net change in fund balance $ - $ - (5,280,570) $ (5,280,570) FUND BALANCES: Beginning of year 12,905,852 End of year $ 7,625,282 The accompanying notes to the financial statements are an intergral part of these statements. 25
Exhibit E State Public School Fund Budget Actual Variance with Final Budget Positive Original Final Amounts (Negative) $ - $ - $ - $ - 104,879,881 112,290,363 109,378,413 (2,911,950) - - - - - 3,023 3,023-104,879,881 112,293,386 109,381,436 (2,911,950) 62,523,872 68,332,571 65,138,126 3,194,445 12,582,294 11,090,112 12,703,815 (1,613,703) 4,444,401 4,381,843 3,607,357 774,486 6,658,041 7,172,761 7,167,023 5,738 - - - - 8,205,677 9,844,724 9,430,378 414,346 168,736 120,447 117,080 3,367 266,732 286,048 285,455 593 - - - - 102,215 519,302 519,302-7,660,210 8,204,337 8,119,093 85,244 1,272,327 1,149,714 1,143,129 6,585 297,836 324,671 326,661 (1,990) - - - - 625,029 750,669 750,669-72,511 55,203 15,070 40,133 - - - - 104,879,881 112,232,402 109,323,158 2,909,244-60,984 58,278 (2,706) (58,278) (58,278) - 60,984 - (60,984) - - - - $ - $ 60,984 - $ (60,984) - $ - The accompanying notes to the financial statements are an intergral part of these statements. 26
Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual General Fund and Annually Budgeted Major Special Revenue Funds (Continued) For the Year Ended June 30, 2017 Federal Grants Fund Budget Actual Variance with Final Budget Positive Original Final Amounts (Negative) REVENUES: U.S. Government $ 8,840,506 $ 10,005,721 $ 8,879,352 $ (1,126,369) State of North Carolina - - - - Davidson County - - - - Other revenues - - - - Total revenues 8,840,506 10,005,721 8,879,352 (1,126,369) EXPENDITURES: Instructional services: Regular instructional 430,621 495,365 444,465 50,900 Special populations 3,586,507 4,003,137 3,473,970 529,167 Alternative programs 3,713,617 4,095,056 3,764,707 330,349 School leadership - - - - Co-curricular services - - - - School-based support 247,449 270,534 242,140 28,394 System-wide support services: Support and development 5,510 2,750 1,790 960 Special population support and development 129,544 127,956 121,611 6,345 Alternative programs and services support and development 208,091 287,564 186,514 101,050 Technology support 1,000 1,000-1,000 Operational support 70,000 100,895 100,842 53 Financial and human resource 202,548 238,585 193,914 44,671 Accountability - - - - System-wide pupil support - - - - Policy, leadership and public relations - - - - Ancillary services - - - - Non-programmed charges 245,619 382,879 349,399 33,480 Total expenditures 8,840,506 10,005,721 8,879,352 1,126,369 Revenues over (under) expenditures - - - - OTHER FINANCING SOURCES (USES): Transfers from (to) other funds - - - - Revenues and other sources over (under) expenditures and other financing sources - - - - Appropriated fund balance - - - - Net change in fund balance $ - $ - - $ - FUND BALANCES: Beginning of year - End of year $ - The accompanying notes to the financial statements are an integral part of these statements. 27
Exhibit E (Continued) Other Restricted Fund Budget Actual Variance with Final Budget Positive Original Final Amounts (Negative) $ 120,498 $ 137,054 $ 110,113 $ (26,941) 69,200 821,620 832,330 10,710-592,639 580,639 (12,000) 2,245,821 1,211,937 831,065 (380,872) 2,435,519 2,763,250 2,354,147 (409,103) 926,298 948,750 756,644 192,106 248,792 507,012 206,920 300,092 800,583 807,071 792,246 14,825 322,394 340,566 290,702 49,864 2,576 2,576 248 2,328 45,770 40,373 40,091 282 4,468 4,486 4,527 (41) - - - - - - - - - - - - 84,520 112,416 110,459 1,957 - - - - - - - - - - - - - - - - 118 - - - - - - 2,435,519 2,763,250 2,201,837 561,413 - - 152,310 152,310 - - 300,000 300,000 - - 452,310 452,310 - - - - $ - $ - 452,310 $ 452,310 6,801 $ 459,111 The accompanying notes to the financial statements are an integral part of these statements. 28
Statement of Net Position Proprietary Fund June 30, 2017 Exhibit F Major Fund School Food Service Fund ASSETS Current assets: Cash and cash equivalents $ 1,098,349 Accounts receivable 6,322 Due from other governments 168,701 Prepaid expenses - Inventories 225,240 Total current assets 1,498,612 Noncurrent assets: Capital assets, net of depreciation 814,721 Total assets 2,313,333 DEFERRED OUTFLOWS OF RESOURCES 938,062 LIABILITIES Current liabilities: Accounts payable 4,764 Due to other funds 36,492 Accrued salaries and wages 304 Unearned revenue 93,911 Compensated absences, current 110,337 Total current liabilities 245,808 Noncurrent liabilities: Net pension liability 1,434,643 Total liabilities 1,680,451 DEFERRED INFLOW OF RESOURCES 76,740 NET POSITION Net investment in capital assets 814,721 Unrestricted 679,483 Total net position $ 1,494,204 The accompanying notes to the financial statements are an integral part of these statements. 29
Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Fund For the Year Ended June 30, 2017 Exhibit G Major Fund School Food Service Fund OPERATING REVENUES: Food sales $ 2,365,947 Miscellaneous local operating revenue 5,282 Total operating revenues 2,371,229 OPERATING EXPENSES: Food cost: Purchase of food 2,958,358 Donated commodities 345,035 Salaries and benefits 4,017,920 Professional and technical services 20,636 Property services 8,846 Depreciation 155,488 Transportation services 16,854 Communications 3,187 Dues and fees 1,253 Indirect costs 89,928 Supplies and materials 49,688 Repairs and maintenance 36,889 Utilities 26,976 Food processing supplies 230,458 Total operating expenses 7,961,516 Operating loss (5,590,287) NONOPERATING REVENUES: Federal reimbursements 4,862,685 Federal commodities 598,949 State reimbursements 14,597 Interest earned 1,903 Total nonoperating revenues 5,478,134 Loss before transfers (112,153) Transfers from other funds 87,497 Change in net position (24,656) NET POSITION: Beginning of year 1,518,860 End of year $ 1,494,204 The accompanying notes to the financial statements are an integral part of these statements. 30
Statement of Cash Flows Proprietary Fund For the Year Ended June 30, 2017 Exhibit H Major Fund School Food Service CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 2,378,246 Cash paid for goods and services (3,438,298) Cash paid to employees for services (3,947,741) Net cash used by operating activities (5,007,793) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Federal reimbursements 5,176,378 State reimbursements 14,597 Transfers from other funds (56,520) Net cash provided by noncapital financing activities 5,134,455 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITES: Acquisition of capital assets (52,889) CASH FLOWS FROM INVESTING ACTIVITIES: Interest on investments 1,903 Net decrease in cash and cash equivalents 75,676 CASH AND CASH EQUIVALENTS: Beginning of year 1,022,673 End of year $ 1,098,349 The accompanying notes to the financial statements are an integral part of these statements. 31
Exhibit H (Continued) Statement of Cash Flows Proprietary Fund For the Year Ended June 30, 2017 Major Fund School Food Service Reconciliation of operating loss to net cash used by operating activities: Operating loss $ (5,590,287) Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation 155,488 Donated commodities consummed 345,035 Salaries paid by special revenue fund 60,984 Changes in assets, deferred outflows of resources, liabilites, and deferred inflows of resources: Decrease in accounts receivable 4,157 Increase inventories (2,087) Decrease in prepaid expenses 9,995 Increase in deferred outflows of resources for pension plan contirubtions in current fiscal year (729,495) Decrease in accounts payable (3,133) Increase in accrued salaries and wages 304 Increase in uneared revenue 2,860 Increase in net pension liability 813,553 Increase in deferred inflow of resources (72,779) Decrease in compensated absences (2,388) Total adjustments 582,494 Net cash used by operating activities $ (5,007,793) Noncash investing, capital, and financing activities: The School Food Service Fund received donated commodities with a value of $598,949 during the fiscal year. The receipt of the commodities is recognized as a nonoperating revenue on Exhibit G. The State Public School Fund paid salaries and benefits of $60,984 to administration personnel of the School Food Service Fund during the fiscal year. This payment is included in the transfers from other funds on Exhibit G. The accompanying notes to the financial statements are an integral part of these statements. 32
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NOTES TO THE FINANCIAL STATEMENTS
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Notes to the Financial Statements For the Year Ended June 30, 2017 I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of Davidson County Board of Education conform to generally accepted accounting principles as applicable to governments. The following is a summary of the more significant accounting policies: A) Reporting Entity The Davidson County Board of Education, North Carolina (the Board) is a Local Education Agency empowered by State law [Chapter 115C of the North Carolina General Statues] with the responsibility to oversee and control all activities related to public school education in Davidson County, North Carolina. The Board receives State, local and federal government funding and must adhere to the legal requirements of each funding entity. The Board does not have any component units. Basic funding for public education is provided by State appropriations through the State Public School Fund in each Local Education Agency (LEA). Additional funding is provided by special State and federal grants, appropriations from the County, within which the LEA is located and by miscellaneous revenues. The Board provides public school education to the children of Davidson County living within the boundaries of the Davidson County School System. B) Basis of Presentation Government-wide Financial Statements: The statement of net position and the statement of activities display information about the Board. These statements include the financial activities of the overall government. Eliminations have been made to minimize the effect of internal activities upon revenues and expenses. These statements distinguish between the governmental and business-type activities of the Board. Governmental activities generally are financed through intergovernmental revenues, and other nonexchange transactions. Business-type activities are financed in whole or in part by fees charged to external parties. The statement of activities presents a comparison between direct expenses and program revenues for the different business-type activities of the Board and for each function of the Board s governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expense allocations that have been made in the funds have been reversed for the statement of activities. Program revenues include (a) fees and 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 that are not classified as program revenues are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the Board s funds. Separate statements for each fund category governmental and proprietary are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or ancillary activities. 33
Notes to the Financial Statements For the Year Ended June 30, 2017 I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) B) Basis of Presentation (Continued) The Board reports the following major governmental funds: General Fund. The General Fund is the general operating fund of the Board. The General Fund accounts for all financial resources except those that are required to be accounted for in another fund. This fund is the Local Current Expense Fund, which is mandated by State law [G.S. 115C-426]. State Public School Fund. The State Public School Fund includes appropriations from the Department of Public Instruction for the current operating expenditures of the public school system. Federal Grants Fund. The Federal Grants Fund includes appropriations form various federal funding sources for the current operating expenditures of the various grants awarded to the Board. Other Restricted Fund. The Other Restricted Fund includes specific revenues that are legally restricted for certain purposes and not intended for the general K-12 population. Individual Schools Fund. The Individual Schools Fund includes revenues and expenditures of the activity funds of the individual schools. The primary revenue sources include funds held on the behalf of various clubs and organizations, receipts from athletic events, and proceeds from various fundraising activities. The primary expenditures are for athletic teams, club programs, activity buses, and instructional needs. Capital Outlay Fund. The Capital Outlay Fund accounts for financial resources to be used for the acquisition and construction of major capital facilities (other than those financed by proprietary funds and trust funds). It is mandated by State law [G.S.115C-426]. Capital projects are funded by Davidson County appropriations, restricted sales tax revenue, proceeds of Davidson County bonds issued for public school construction, lottery proceeds, as well as certain State assistance. The Board reports the following major enterprise fund: School Food Service Fund. The School Food Service Fund is used to account for the food service program within the school system. C) Measurement Focus and Basis of Accounting Government-wide and Proprietary Fund Financial Statements. The government-wide and proprietary 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 flows take place. Non-exchange transactions, in which the Board gives (or receives) value without directly receiving (or giving) equal value in exchange, include grants and donations. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. 34
Notes to the Financial Statements For the Year Ended June 30, 2017 I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) C) Measurement Focus and Basis of Accounting (Continued) Governmental Fund Financial Statements. Governmental funds 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 Board considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year-end. These could include Federal, State, and County grants, and some charges for services. Expenditures are recorded when the related fund liability is incurred, except for 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. Acquisitions under capital leases are reported as other financing sources. Under the terms of grant agreements, the Board funds certain programs by a combination of specific costreimbursement grants and general revenues. Thus when program expenses are incurred, there are both restricted and unrestricted net position available to finance the program. It is the Board s policy to first apply cost-reimbursement grant resources to such programs and then general revenues. D) Budgetary Data The Board s budgets are adopted as required by the North Carolina General Statutes. Annual budgets are adopted for all funds, except for the Individual Schools Fund, as required by North Carolina General Statutes. No budget is required by State law for individual school funds. All appropriations lapse at the fiscal year end. All budgets are prepared using the modified accrual basis of accounting. Expenditures may not legally exceed appropriations at the functional level for all annually budgeted funds. The Board has authorized the Superintendent to move monies from one function to another within a fund. Amendments are required for any revisions that alter total expenditures of any fund. All amendments must be approved by the governing board. During the year, several amendments to the original budget were necessary. The budget ordinance must be adopted by July 1 of the fiscal year or the governing board must adopt an interim budget that covers that time until the annual ordinance can be adopted. E) Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Fund Equity 1) Deposits and Investments All deposits of the Board are made in board-designated official depositories and are secured as required by State law [G.S. 115C-444]. The Board may designate, as an official depository, any bank or savings association whose principal office is located in North Carolina. Also, the Board may establish time deposit accounts such as NOW and SuperNOW accounts, money market accounts, and certificates of deposit. The Board also has money credited in its name with the State Treasurer and may issue State warrants against these funds. State law [G.S. 115C-443] authorizes the Board to invest in obligations of the United States or obligations fully guaranteed both as to principal and interest by the United States; obligations of the State of North Carolina; bonds and notes of any North Carolina local government or public authority; obligations of certain non-guaranteed federal agencies; certain high quality issues of commercial paper and bankers' acceptances; the North Carolina Capital Management Trust (NCCMT), an SEC-registered (2a-7) money market mutual fund; and the North Carolina State Treasurer s Short Term Investment Fund (STIF). 35
Notes to the Financial Statements For the Year Ended June 30, 2017 I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E) Assets, Deferred Outflows, Liabilities, Deferred Inflows of Resources, and Fund Equity (Continued) 1) Deposits and Investments (Continued) The STIF is managed by the staff of the Department of State Treasurer and operated in accordance with state laws and regulations. It is not registered with the SEC. It consists of an internal portion and an external portion in which the Board participates. Investments are restricted to those enumerated in G.S. 147-69.1. The Board s investments are reported at amortized cost or at fair value determined by either quoted market prices or a matrix pricing model. Bank deposits and the NCCMT are measured at amortized cost, which is the NCCMT s share price. Ownership interest of the STIF is determined on a fair market valuation basis as of fiscal year end in accordance with the STIF operating procedures. Valuation of the underlying assets is performed by the custodian. Under the authority of G.S. 147-69.3, no unrealized gains or losses of the STIF are distributed to external participants of the fund. 2) Cash and Cash Equivalents The Board pools money from several funds to facilitate disbursement and investment and to maximize investment income. All cash and investments with maturities of three months or less are considered cash and cash equivalents. 3) Inventories The inventories of the Board are valued at cost and the Board uses the first-in, first-out (FIFO) flow assumption in determining cost. Proprietary funds inventories consist of food and supplies and are recorded as expenses when consumed. 4) Capital Assets Donated assets received prior to June 15, 2015 are recorded at their estimated fair value at the date of donation or forfeiture. Donated capital assets received after June 15, 2015 are recorded at acquisition value. All other capital assets are recorded at original cost. Improvements are capitalized and depreciated over the remaining useful lives of the related capital assets. Certain items acquired before July 1, 1950 are recorded at an estimated original historical cost. The total of these estimates is not considered large enough that any errors would be material when capital assets are considered as a whole. It is the policy of the Board to capitalize all capital assets costing $5,000 or more with an estimated useful life of two or more years. In addition, other items that are purchased and used in large quantities such as student desks are capitalized. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Davidson County holds title to certain properties, which are reflected as capital assets in the financial statements of the Board. The properties have been deeded to the County to permit installment purchase financing of acquisition and construction costs and to permit the County to receive refunds of sales tax paid for construction costs. Agreements between the County and the Board give the school system full use of the facilities and full responsibility for maintenance of the facilities. Agreements further provide that the County will convey title of the property back to the Board, once all restrictions of the financing agreements and all sales tax reimbursement requirements have been met. 36
Notes to the Financial Statements For the Year Ended June 30, 2017 I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E) Assets, Deferred Outflows, Liabilities, Deferred Inflows of Resources, and Fund Equity (Continued) 4) Capital Assets (Continued) Capital assets are depreciated using the straight-line method over the following estimated useful lives: Buildings and improvements Equipment and furniture Vehicles Computer equipment 20-50 years 10-20 years 6-8 years 3-5 years Land and construction in progress are not depreciated. Depreciation for buildings and equipment that serve multiple purposes cannot be allocated ratably and is, therefore, reported as unallocated depreciation on the Statement of Activities. 5) Deferred Outflows and Deferred Inflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period and so will not be recognized as an expense or expenditure until then. The Board has two items that meets this criterion pension related deferrals and contributions made to the pension plan in the current fiscal year. The statement of financial position also reports a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until then. The Board has one item that meets this criterion - pension related deferrals. 6) Long-term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities. 7) Compensated Absences The Board follows the State s policy for vacation and sick leave. Employees may accumulate up to thirty (30) days earned vacation leave with such leave being fully vested when earned. The Board s liability for accumulated earned vacation and salary-related payments as of June 30, 2017 is recorded in the government-wide and proprietary fund financial statements on a FIFO basis. An estimate has been made based on prior years records, of the current portion of compensated absences. The sick leave policy of the Board provides for an unlimited accumulation of earned sick leave. Sick leave does not vest, but any unused sick leave accumulated at the time of retirement may be used in the determination of length of service for retirement benefit purposes. Since the Board has no obligation for accumulated sick leave until it is actually taken, no accrual for sick leave has been made. 37
Notes to the Financial Statements For the Year Ended June 30, 2017 I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E) Assets, Deferred Outflows, Liabilities, Deferred Inflows of Resources, and Fund Equity (Continued) 8) Net Position/Fund Balances Net Position Net position in the government-wide and proprietary fund financial statements is classified as net investment in capital assets, restricted, and unrestricted. Restricted net position represents constraints on resources that are either externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments, or imposed by law through State statute. Fund Balance In the governmental fund financial statements, reservations or restrictions of fund balance represent amounts that are not appropriable, are legally segregated for a specific purpose, or are restricted by the grant agreement. Designations of fund balance represent tentative management plans that are subject to change. In the governmental fund financial statements, fund balance is composed of five classifications designated to disclose the hierarchy of constraints placed on how fund balance can be spent. The governmental fund types classify fund balances as follows: Nonspendable Fund Balance. This classification includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. The Board did not have any nonspendable fund balance at June 30, 2017. Restricted Fund Balance. This classification includes amounts that are restricted to specific purposes externally imposed by creditors or imposed by law. Restricted for Stabilization by State Statue Portion of fund balance that is restricted by State Statute [G.S. 115C-425(a)]. Restricted for Capital Outlay Portion of fund balance that can only be used for School Capital Outlay [G.S. 159-18 through 22]. Restricted for Individual Schools Revenue restricted for expenditures for the various clubs and organizations, athletic events, and various fund raising activities for which they were collected. Restricted for Other Revenues restricted for expenditures for certain grants imposed by the grantors. Committed Fund Balance. Portion of fund balance that can only be used for a specific purpose imposed by a formal action (resolution) with majority vote by quorum of the Board s governing body (highest level of decision-making authority). Any changes or removal of specific purpose requires majority action by the governing body that approved the original action. The Board did not have any committed fund balance at June 30, 2017. 38
Notes to the Financial Statements For the Year Ended June 30, 2017 I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E) Assets, Deferred Outflows, Liabilities, Deferred Inflows of Resources, and Fund Equity (Continued) 8) Net Position/Fund Balances (Continued) Assigned Fund Balance. Portion of fund balance that the Board intends to use for specific purposes. Subsequent year s expenditures Portion of fund balance that is appropriated in the next year s budget that is not already classified in restricted or committed. The governing body approves the appropriation; however the budget ordinance authorizes management to modify the appropriations by resource or appropriation with funds up to $100,000. Special revenue Portion of fund balance that represents the residual amount of revenues from certain grants, reimbursements, indirect costs and other financial resources in excess of related expenditures that the Board of Education has assigned to be expended for educational services. Unassigned Fund Balance. Portion of fund balance that has not been restricted, committed, or assigned to specific purposes or other funds. The Board has a revenue spending policy that provides guidance for programs with multiple revenue sources. The Finance Officer will use resources in the following hierarchy: bond proceeds, federal funds, State funds, local non-board of Education funds, Board of Education funds. For purposes of fund balance classification expenditures are to be spent from restricted fund balance first, followed in-order by committed fund balance, assigned fund balance and lastly unassigned fund balance. The Finance Officer has the authority to deviate from this policy if it is in the best interest of the Board. 39
Notes to the Financial Statements For the Year Ended June 30, 2017 I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E) Assets, Deferred Outflows, Liabilities, Deferred Inflows of Resources, and Fund Equity (Continued) 9) Reconciliation of Government-wide and Fund Financial Statements 1. Explanation of certain differences between the Governmental Fund Balance Sheet and the Government-wide Statement of Net Position. The governmental fund balance sheet includes a reconciliation between total fund balance of the governmental funds and net position of the governmental activities as reported in the governmentwide statement of net position. The net adjustment of $162,854,759 consists of several elements as follows: Capital assets used in the governmental activities are not financial resources and are therefore not reported in the funds (total capital assets on government-wide statement in governmental activities column) 306,284,325 Less accumulated depreciation (108,338,893) Net capital assets 197,945,432 Pension related deferred outflows of resources Change is assumptions 8,779,151 Changes in proportion and differences between Board contributions and proportional share of contributions 31,570 Contributions made to the pension plan in current fiscal year 8,883,373 Difference between projected and actual earning on plan investments 21,230,122 Leases and installment financing (1,415,624) Compensated absences (9,885,497) Net pension liability (59,529,479) Deferred inflows and resources related to pensions Changes in proportion and differences between Board contributions and proportional share of contributions (370,843) Difference between expected and actual experience (2,813,446) 162,854,759 40
Notes to the Financial Statements For the Year Ended June 30, 2017 I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E) Assets, Deferred Outflows, Liabilities, Deferred Inflows of Resources, and Fund Equity (Continued) 9) Reconciliation of Government-wide and Fund Financial Statements (Continued) 2. Explanation of certain differences between the Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balance and the Government-wide Statement of Activities. The Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balances includes a reconciliation between net changes in fund balances total governmental funds and changes in net position of governmental activities as reported in the Government-wide Statement of Activities. There are several elements of that total adjustment of $22,705,590 as follows: Capital outlay expenditures recorded in the fund statements but capitalized as assets in the Statement of Activities $ 32,057,122 Depreciation expense, the allocation of those assets over their useful lives, that is recorded on the statement of activities but not in the fund statements. (7,694,852) New debt issued during the year is recorded as a source of funds on the fund statements; it has no effect on the Statement of Activities - it affects only the Government-wide Statement of Net Position (684,864) Principal payments on debt owed are recorded as a use of funds on the fund statements but affect only the Government-wide Statement of Net Position 992,947 Expenses reported in the statement of activities that do not require the use of current resources to pay are not recorded as expenditures in the fund statements. Pension expense (2,392,331) Compensated absences are accrued in the government-wide statements but not in the fund statements because they do not use current resources 617,558 Loss on disposal of asset (189,990) Total adjustment $ 22,705,590 10) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 41
Notes to the Financial Statements For the Year Ended June 30, 2017 I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E) Assets, Deferred Outflows, Liabilities, Deferred Inflows of Resources, and Fund Equity (Continued) 11) Defined Benefit Pension Plan For purposes of measuring the net pension asset, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Teachers and State Employees Retirement System (TSERS) and additions to/deductions from TSERS fiduciary net position have been determined on the same basis as they are reported by TSERS. For this purpose, plan member contributions are recognized in the period in which the contributions are due. The Board s employer contributions are recognized when due and the Board has a legal requirement to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of TSERS. Investments are reported at fair value. II) STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY Significant Violations of Finance-Related Legal and Contractual Provisions None Contractual Violations None Excess of Expenditures over Appropriations During the fiscal year ended June 30, 2017, the Board reported expenditures within the State Public School Fund that violated State law [G.S. 115C-441] because they exceeded the amounts appropriated in the budget ordinance by $1,613,703 and $1,990 in the special populations and accountability functional levels respectively. Management will monitor budgets monthly and make necessary amendments. Deficits in Fund Balance or Net Position of Individual Funds None III) DETAIL NOTES ON ALL FUNDS A) Assets 1) Deposits All of the Board's deposits are either insured or collateralized by using one of two methods. Under the dedicated method, all deposits exceeding the federal depository insurance coverage level are collateralized with securities held by the Board's agent in the Board s name. Under the pooling method, which is a collateral pool, all uninsured deposits are collateralized with securities held by the State Treasurer's agent in the name of the State Treasurer. Since the State Treasurer is acting in a fiduciary capacity for the Board, these deposits are considered to be held by the agent in the Board s name. The amount of the pledged collateral is based on an approved averaging method for non-interest bearing deposits and the actual current balance for interest-bearing deposits. Depositories using the pooling method report to the State Treasurer the adequacy of their pooled collateral covering uninsured deposits. The State Treasurer does not confirm this information with the Board or with the escrow agent. Because of the inability to measure the exact amount of collateral pledged for the Board under the pooling method, the potential exists for undercollateralization, and this risk may increase in periods of high cash flows. However, the State Treasurer of North Carolina enforces strict standards of financial stability for each depository that collateralizes public deposits under the pooling method. The Board has no policy regarding custodial credit risk for deposits. 42
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) A) Assets (Continued) 1) Deposits (Continued) At June 30, 2017, the Board had deposits with banks and savings and loans with a carrying amount of $7,656,939 and with the State Treasurer of ($2,448). The bank balances with the financial institutions and the State Treasurer were $7,787,061 and $139,636 respectively. Of these balances, $2,152,889 was covered by federal depository insurance and $5,773,808 was covered by collateral held by authorized escrow agents in the name of the State Treasurer and covered by collateral held under the pooling method. 2) Investments At June 30, 2017, the Board had $6,091,751 invested with the State Treasurer in the Short Term Investment Fund (STIF). Interest Rate Risk. The Board does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The STIF had a weighted average maturity of 1.6 years at June 30, 2017. Credit Risk. The STIF is unrated and is authorized under North Carolina General Statute 147-69.1. The State Treasurer's STIF is invested in highly liquid fixed income securities consisting primarily of short to intermediate treasuries and agencies, and money market instruments. The Board has no policy on credit risk. Concentration of Credit Risk. The Board places no limit on the amount the Board may invest in any one issuer. More than five percent of the Board s investments are in the State Treasurer s Short Term Investment Fund. This investment is 100% of the Board s total investments. 3) Accounts Receivable Receivables at the government-wide level at June 30, 2017, were as follows: Due from other funds (Internal balances) Due from other governments Other Total Governmental activities: General Fund $ 33,786) $ 180,636 $ 46,573 $ 260,995) State Public School Fund 2,706 4,303,657-4,306,363) Federal Grants Fund -------_- - - 358,548-358,548) Other Restricted Fund 71,997 55,074 86 127,157) Individual Schools Fund (71,997) - 27,898 (44,099)) Capital Outlay Fund - 2,687,137 2,019 2,689,156 Total $ 36,492) $ 7,585,052 $ 76,576 $ 7,698,120) Business-type activities: School Food Service Fund $ (36,492) $ 168,701 $ 6,322 $ 138,531) 43
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) A) Assets (Continued) 3) Accounts Receivable (Continued) Due from other governments consists of the following: Governmental activities: General Fund $ 144,838 Sales tax refund General Fund 35,798 Fines and forfeitures State Public School Fund 4,238,790 Operating funds from State (salary installment) State Public School Fund 64,867 Sales tax refund Federal Grants Fund 358,548 Federal grant funds (salary installment) Other Restricted Fund 49,014 Grant reimbursements Other Restricted Fund 6,060 Sales tax refund Capital Outlay Fund 339,533 Sales tax refund Capital Outlay Fund 2,347,604 Capital reimbursements Total $ 7,585,052 Business-type activities: School Food Services Fund $ 168,701 Federal reimbursements 44
Notes to the Financial Statements For the Year Ended June 30, 2017 II) DETAIL NOTES ON ALL FUNDS (Continued) A) Assets (Continued) 4) Capital Assets Capital asset activity for the year ended June 30, 2017 was as follows: Beginning Balances Increases Decreases Transfers Governmental activities: Capital assets not being depreciated: Land $ 2,312,055 Construction in progress 29,696,263 Ending Balances $ - $ - $ - $ 2,312,055 30,235,198 - (1,585,001) 58,346,460 32,008,318 30,235,198 - (1,585,001) 60,658,515 Capital assets being depreciated: Buildings and improvements 203,864,873 257,810 192,149 1,585,001 205,515,535 Land improvements 10,989,782 - - - 10,989,782 Furniture and equipment 6,637,263 357,994 62,939-6,932,318 Vehicles 21,541,587 1,206,120 559,532-22,188,175 Total capital assets being depreciated 243,033,505 1,821,924 814,620 1,585,001 245,625,810 Less accumulated depreciation for: Buildings and improvements 76,142,125 5,235,048 9,800-81,367,373 Land improvements 5,380,856 459,194 - - 5,840,050 Furniture and equipment 4,241,906 555,899 54,190-4,743,615 Vehicles 15,503,785 1,444,711 560,641-16,387,855 Total accumulated depreciation 101,268,672 $ 7,694,852 $ 624,631 $ - 108,338,893 Total capital assets being depreciated, net 147,764,833 137,286,917 Governmental activity capital assets, net $173,773,151 $ 197,945,432 Depreciation was charged to governmental functions as follows: Operational support services $ 1,444,711 Unallocated depreciation 6,250,141 $ 7,694,852 45
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) A) Assets (Continued) 4) Capital Assets (Continued) Beginning Balances Increases Decreases Ending Balances Business activities: School Food Service Fund: Capital assets being depreciated: Furniture and office equipment $ 3,530,372 $ 52,889 $ 103,452 $ 3,479,809 Less accumulated depreciation for: Furniture and office equipment 2,613,052 155,488 103,452 2,665,088 School Food Service capital assets, net $ 917,320 $ 814,721 Net investment in capital assets is calculated as follows: Governmental Activities Business-type Activities Total Capital assets $ 306,284,325) $ 3,479,809)) $ 309,764,134 Less: Accumulated depreciation (108,338,893) (2,665,088)) (111,003,981) Installment purchase obligations (1,415,624) -) (1,415,624) Total $ 196,529,808) $ 814,721) $ 197,344,529 5) Construction Commitments The Board had several active construction projects at June 30, 2017. At year end, the commitments with contracts for school construction were as follows: Project Spent-to-Date Remaining Commitment Modular classrooms $ 1,225,084 $ 310 North/Ledford Area 8,545,846 107,633 Track Repair/Replacement HS 24,524 575,476 HVAC replacement - 500,000 Oak Grove area high school 44,441,134 6,814,079 Backflow preventers 310,186 205,211 Stoner Thomas renovations 1,427,288 72,712 Various other capital commitments 2,372,398 1,676,976 Total $ 58,346,460 $ 9,952,397 46
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) A) Assets (Continued) 6) Financing Commitments Recent legislation permits the State Board of Education to finance the purchase of replacement school buses through installment purchases. Davidson County Board of Education has entered into an agreement to purchase buses in this manner. The term of the financing cannot exceed three years and the Board must purchase the buses from vendors approved by the Department of Public Instruction. The Department of Public Instruction will make the payments to the lender on behalf of the Davidson County Board of Education out of funds allocated to the Davidson County Board of Education. Because future resources will be used to fund the payments under the installment agreement, no encumbrance of fund balance at June 30, 2017, has been recorded. The payments due in the fiscal year ended June 30, 2017 are as follows: Total purchase price, 8 buses $ 684,864 Total payments due in fiscal year 2017-2018 $ 171,214 Remaining payments in subsequent years $ 342,432 B) Liabilities 1) Pension Plan and Other Postemployment Obligations a) Teachers and State Employees Retirement System Plan Description. The Board is a participating employer in the statewide Teachers and State Employees Retirement System (TSERS), a cost-sharing multiple-employer defined benefit pension plan administered by the State of North Carolina. TSERS membership is comprised of employees of the State (state agencies and institutions), universities, community colleges, and certain proprietary component units along with the employees of Local Education Agencies and charter schools. Article 1 of G.S. Chapter 135 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. Management of the plan is vested in the TSERS Board of Trustees, which consists of 13 members nine appointed by the Governor, one appointed by the State Senate, one appointed by the State House of Representatives, and the State Treasurer and State Superintendent, who serve as ex-officio members. The Teachers and State Employees Retirement System is included in the Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. The State s CAFR includes financial statements and required supplementary information for TSERS. That report may be obtained by writing to the Office of the State Controller, 1410 Mail Service Center, Raleigh, North Carolina 27699-1410, by calling (919) 981-5454, or at www.osc.nc.gov. Benefits Provided. TSERS provides retirement and survivor benefits. Retirement benefits are determined as 1.82% of the member s average final compensation times the member s years of creditable service. A member s average final compensation is calculated as the average of a member s four highest consecutive years of compensation. General employee plan members are eligible to retire with full retirement benefits at age 65 with five years of creditable service (or 10 years of creditable service for members joining 47
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) B) Liabilities (Continued) 1) Pension Plan and Other Postemployment Obligations (Continued) a) Teachers and State Employees Retirement System (Continued) TSERS on or after August 1, 2011), at age 60 with 25 years of creditable service, or at any age with 30 years of creditable service. General employee plan members are eligible to retire with partial retirement benefits at age 50 with 20 years of creditable service or at age 60 with five years of creditable service (or 10 years of creditable service for members joining TSERS on or after August 1, 2011). Survivor benefits are available to eligible beneficiaries of members who die while in active service or within 180 days of their last day of service and who have either completed 20 years of creditable service regardless of age or have completed five years of service and have reached age 60 (10 years for members joining on or after August 1, 2011). Eligible beneficiaries may elect to receive a monthly Survivor s Alternate Benefit for life or a return of the member s contributions. The plan does not provide for automatic post-retirement benefit increases. Increases are contingent upon actuarial gains of the plan. TSERS plan members who are Law Enforcement Officer s (LEO) are eligible to retire with full retirement benefits at age 55 with five years of creditable service as an officer (or 10 years of creditable service for members joining TSERS on or after August 1, 2011), or at any age with 30 years of creditable service. LEO plan members are eligible to retire with partial retirement benefits at age 50 with 15 years of creditable service as an officer. Survivor benefits are available to eligible beneficiaries of LEO members who die while in active service or within 180 days of their last day of service and who also have either completed 20 years of creditable service regardless of age, or have completed 15 years of service as a LEO and have reached age 50, or have completed five years of creditable service as a LEO and have reached age 55, or have completed 15 years of creditable service as a LEO if killed in the line of duty. Eligible beneficiaries may elect to receive a monthly Survivor s Alternate Benefit for life or a return of the member s contributions. Contributions. Contribution provisions are established by General Statute 135-8 and may be amended only by the North Carolina General Assembly. Board employees are required to contribute 6% of their compensation. Employer contributions are actuarially determined and set annually by the TSERS Board of Trustees. The Board s contractually required contribution rate for the year ended June 30, 2017, was 9.98% of covered payroll, actuarially determined as an amount that, when combined with employee contributions, is expected to finance the costs of benefits earned by employees during the year. Contributions to the pension plan from the Board were $9,151,543 and $8,104,088 for the years ended June 30, 2017 and 2016, respectively. Refunds of Contributions Board employees who have terminated service as a contributing member of TSERS, may file an application for a refund of their contributions. By state law, refunds to members with at least five years of service include 4% interest. State law requires a 60 day waiting period after service termination before the refund may be paid. The acceptance of a refund payment cancels the individual s right to employer contributions or any other benefit provided by TSERS. 48
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) B) Liabilities (Continued) 1) Pension Plan and Other Postemployment Obligations (Continued) a) Teachers and State Employees Retirement System (Continued) Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2017, the Board reported a liability of $60,694,122, for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2016. The total pension liability used to calculate the net pension asset was determined by an actuarial valuation as of December 31, 2015. The total pension liability was then rolled forward to the measurement date of June 30, 2016 utilizing update procedures incorporating the actuarial assumptions. The Board s proportion of the net pension liability was based on a projection of the Board s long-term share of future payroll covered by the pension plan, relative to the projected future payroll covered by the pension plan of all participating TSERS employers, actuarially determined. At June 30, 2016 and at June 30, 2015, the Board s proportion was.658% and.654%, respectively. For the year ended June 30, 2017, the Board recognized pension expense of $9,151,543. At June 30, 2017, the Board reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: 49 Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience $ - $ 2,881,249 Net difference between projected and actual earnings on pension plan investments 21,741,761 - Changes in proportion and differences between Board contributions and proportional share of contributions 32,332 379,780 Change in assumptions 8,990,725 - Board contributions subsequent to the measurement date 9,097,460 - Total $ 39,862,278 $ 3,261,029 $9,097,460 was reported as deferred outflows of resources related to pensions resulting from Board contributions subsequent to the measurement date will be recognized as a decrease of the net pension liability in the year ending June 30, 2017. Other amounts reported as deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended June 30: 2018 $ 4,458,257 2019 4,592,843 2020 11,819,035 2021 6,633,654 2022 - Total $ 27,503,789
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) B) Liabilities (Continued) 1) Pension Plan and Other Postemployment Obligations (Continued) a) Teachers and State Employees Retirement System (Continued) Actuarial Assumptions. The total pension liability in the December 31, 2015 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 3.0% Salary increases 3.5% to 8.10%, including inflation and productivity factor Investment rate of return 7.25%, net of pension plan investment expense, including inflation The plan currently uses mortality tables that vary by age, gender, employee group (i.e. general, law enforcement officer) and health status (i.e. disabled and healthy). The current mortality rates are based on published tables and based on studies that cover significant portions of the U.S. population. The healthy mortality rates also contain a provision to reflect future mortality improvements. The actuarial assumptions used in the December 31, 2015 valuation were based on the results of an actuarial experience study for the period January 1, 2010 through December 31, 2014. Future ad hoc cost-of-living adjustment (COLA) amounts are not considered to be substantively automatic and are therefore not included in the measurement. The projected long-term investment returns and inflation assumptions are developed through review of current and historical capital markets data, sell-side investment research, consultant whitepapers, and historical performance of investment strategies. Fixed income return projections reflect current yields across the U.S. Treasury yield curve and market expectations of forward yields projected and interpolated for multiple tenors and over multiple year horizons. Global public equity return projections are established through analysis of the equity risk premium and the fixed income return projections. Other asset categories and strategies return projections reflect the foregoing and historical data analysis. These projections are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. 50
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) B) Liabilities (Continued) 1) Pension Plan and Other Postemployment Obligations (Continued) a) Teachers and State Employees Retirement System (Continued) The target allocation and best estimates of arithmetic real rates of return for each major asset class as of June 30, 2016 are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return Fixed income 29.0% 1.4% Global equity 42.0% 5.3% Real estate 8.0% 4.3% Alternatives 8.0% 8.9% Credit 7.0% 6.0% Inflation protection 6.0% 4.0% Total 100% The information above is based on 30 year expectations developed with the consulting actuary for the 2016 asset liability and investment policy study for the North Carolina Retirement Systems, including TSERS. The long-term nominal rates of return underlying the real rates of return are arithmetic annualized figures. The real rates of return are calculated from nominal rates by multiplicatively subtracting a long-term inflation assumption of 3.05%. All rates of return and inflation are annualized. Discount rate. The discount rate used to measure the total pension liability was 7.25%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current contribution rate and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on these assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of the current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the Board s proportionate share of the net pension asset to changes in the discount rate. The following presents the Board s proportionate share of the net pension liability calculated using the discount rate of 7.25 percent, as well as what the Board s proportionate share of the net pension asset or net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.25 percent) or 1-percentage-point higher (8.25 percent) than the current rate: 1% Decrease (6.25%) Discount Rate (7.25%) 1% Increase (8.25%) Board s proportionate share of the net pension liability $ 114,661,733 $ 60,964,122 $ 15,811,792 51
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) B) Liabilities (Continued) 1) Pension Plan and Other Postemployment Obligations (Continued) a) Teachers and State Employees Retirement System (Continued) Pension plan fiduciary net position. Detailed information about the pension plan s fiduciary net position is available in the separately issued Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. b) Other Postemployment Benefits 1) Healthcare Benefits Plan Description. The postemployment healthcare benefits are provided through a cost-sharing multipleemployer defined benefit plan administered by the Executive Administrator and the Board of Trustees of the Comprehensive Major Medical Plan (the Plan). The Executive Administrator and the Board of Trustees of the Plan establishes premium rates except as may be established by the General Assembly in an appropriation act. The Plan s benefit and contribution provisions are established by Chapter 135-7, Article 1, and Chapter 135, Article 3 of the General Statutes and may be amended only by the North Carolina General Assembly. By General Statute, the Plan accumulates contributions from employers and any earnings on those contributions in the Retiree Health Benefit Fund. These assets shall be used to provide health benefits to retired and disabled employees and their applicable beneficiaries. These contributions are irrevocable. Also, by law, these assets are not subject to the claims of creditors of the employers making contributions to the Plan. The State of North Carolina issues a publicly available financial report that includes financial statements and required supplementary information for the State s Comprehensive Major Medical Plan (also referred to as the State Health Plan). An electronic version of this report is available by accessing the North Carolina Office of the State Controller s Internet home page http://www.ncosc.net/ and clicking on Financial Reports, or by calling the State Controller s Financial Reporting Section at (919) 981-5454. Funding Policy. The Comprehensive Major Medical Plan is administered by the Executive Administrator and Board of Trustees of the Plan, which establishes premium rates except as, may be established by the General Assembly in an appropriation act. The healthcare benefits for retired and disabled employees are the same as for active employees, except that the coverage becomes secondary when former employees become eligible for Medicare. For employees first hired on and after October 1, 2006, future coverage as retired employees is subject to the requirement that the future retiree have 20 or more years of retirement service credit in order to receive coverage on a noncontributory basis. Employees first hired on or after October 1, 2006 with 10 but less than 20 years of retirement service credit are eligible for coverage on a partially contributory basis. For such future retirees, the State will pay 50% of the State Health Plan s total noncontributory premium. For employees hired before October 1, 2006, healthcare benefits are provided to retirees (at no charge to the retirees) who have at least five years of contributing retirement membership prior to disability or retirement. In addition, persons who became surviving spouses of retirees prior to October 1, 1986, receive the same coverage as retirees at the State s expense. 52
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) B) Liabilities (Continued) 1) Pension Plan and Other Postemployment Obligations (Continued) b) Other Postemployment Benefits (Continued) 1) Healthcare Benefits (Continued) Contributions are determined as a percentage of covered monthly payroll. Annually, the monthly contribution rates to the Plan, which are intended to finance benefits and administrative expenses on a payas-you-go basis, are determined by the General Assembly in the Appropriations Bill. For the fiscal years ended June 30, 2017, 2016, and 2015, the Board paid all annual required contributions to the Plan for postemployment healthcare benefits of $5,327,702 $4,970,386, and $4,867,883, respectively. These contributions represented 5.81%, 5.60%, and 5.49%, of covered payroll, respectively. 2) Disability Benefits Plan Description. Short-term and long-term disability benefits are provided through the Disability Income Plan of North Carolina (DIPNC), a cost-sharing, multiple-employer defined benefit plan. The DIPNC is administered by the Board of Trustees of the Teachers and State Employees Retirement System. Longterm disability benefits are payable as another postemployment benefit from DIPNC after the conclusion of the short-term disability period or after salary continuation payments cease, whichever is later, for as long as an employee is disabled. Benefit and contribution provisions are established by Chapter 135, Article 6, of the General Statutes and may be amended only by the North Carolina General Assembly. The Plan accumulates contributions from employers and any earnings on those contributions in the Disability Income Plan Trust Fund. The Plan does not provide for automatic post-retirement benefit increases. The State of North Carolina issues a publicly available financial report that includes financial statements and required supplementary information for the DIPNC. An electronic version of this report is available by accessing the North Carolina Office of the State Controller s Internet home page http://www.ncosc.net/ and clicking on Financial Reports, or by calling the State Controller s Financial Reporting Section at (919) 981-5454. Funding Policy. An employee is eligible to receive long-term disability benefits provided the following requirements are met: (1) the employee has five or more years of contributing membership service in the Teachers and State Employees Retirement System of North Carolina, earned within 96 months prior to the end of the short-term disability period or cessation of salary continuation payments, whichever is later; (2) the employee must make application to receive long-term benefits within 180 days after the conclusion of the short-term disability period or after salary continuation payments cease or after monthly payments for workers compensation cease (excluding monthly payments for permanent partial benefits), whichever is later; (3) the employee must be certified by the Medical Board to be mentally or physically disabled for the further performance of his/her usual occupation; (4) the disability must have been continuous, likely to be permanent, and incurred at the time of active employment; (5) the employee must not be eligible to receive an unreduced retirement benefit from the Retirement System; and (6) the employee must terminate employment as a permanent, full-time employee. An employee is eligible to receive an unreduced retirement benefit from the Retirement System after (1) reaching the age of 65 and completing five years of creditable service, or (2) reaching the age of 60 and completing 25 years of creditable service, or (3) completing 30 years of creditable service, at any age. 53
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) B) Liabilities (Continued) 1) Pension Plan and Other Postemployment Obligations (Continued) b) Other Postemployment Benefits (Continued) 2) Disability Benefits (Continued) The monthly long-term disability benefit is equal to 65% of one-twelfth of an employee s annual base rate of compensation last payable to the participant or beneficiary prior to the beginning of the short-term disability period, plus the like percentage of one twelfth of the annual longevity payment to which the participant or beneficiary would be eligible. The monthly benefits are subject to a maximum of $3,900 per month reduced by any primary Social Security disability benefits and by monthly payments for workers compensation to which the participant or beneficiary may be entitled. The monthly benefit shall be further reduced by the amount of any monthly payments from the Department of Veterans Affairs, any other federal agency or any payments made under the provisions of G.S.127A-108, to which the participant or beneficiary may be entitled on account of the same disability. Provided in any event, the benefits payable shall be no less than $10 a month. When an employee qualifies for an unreduced service retirement allowance from the Retirement System, the benefits payable from DIPNC will cease, and the employee will commence retirement under the TSERS. For members who obtain five years of membership service on or after August 1, 2007, the monthly long-term disability benefit is reduced by the primary Social Security retirement benefit to which you might be entitled should you become age 62 during the first 36 months. After 36 months of long-term disability, there will be no further payments from the DIPNC unless the member is approved for and are in receipt of primary Social Security disability benefits. It is payable so long as the member remains disabled and is in receipt of a primary Social Security disability benefit until eligible for an unreduced service retirement benefit. When an employee qualifies for an unreduced service retirement allowance from the Retirement System, the benefits payable from DIPNC will cease, and the employee will commence retirement under the TSERS. The Board s contributions are established in the Appropriations Bill by the General Assembly. Benefit and contribution provisions are established by Chapter 135, Article 6, of the General Statutes and may be amended only by the North Carolina General Assembly. The contributions cannot be separated between the amounts that relate to other postemployment benefits and employment benefits for active employees. Those individuals who are receiving extended short-term disability benefit payments cannot be separated from the number of members currently eligible to receive disability benefits as another postemployment benefit. For the fiscal years ended June 30, 2016, 2015 and 2014, the Board paid all annual required contributions to the DIPNC for disability benefits of $348,456, $363,903, and $363,540, respectively. These contributions represented 0.38%, 0.41%, and 0.41%, of covered payroll, respectively. 3) Life Insurance Term life insurance in the amount of $5,000 is provided by the Board for all employees. This coverage combined with coverage provided by the Teacher s and State Employees Retirement System (Death Benefit Plan) in excess of $50,000 is considered taxable to the employee as a fringe benefit. 54
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) B) Liabilities (Continued) 2) Accounts Payable Accounts payable as of June 30, 2017, are as follows: Vendors Salaries and Wages Total Governmental activities: General Fund $ 760,203 $ 1,074,140 $ 1,834,343 State Public School Fund - 4,238,751 4,238,751 Federal Grants Fund - 346,258 346,258 Other Restricted Fund 161 25,698 25,859 Capital Outlay Fund 2,151,373-2,151,373 Total governmental activities $ 2,911,737 $ 5,684,847 $ 8,596,584 Business-type activities: School Food Service Fund $ 4,764 $ 304 $ 5,068 3) Deferred Outflows and Inflows of Resources The balance in deferred outflows and inflows of resources at year-end is composed of the following elements: Deferred Outflows of Resources Deferred Inflows of Resources Governmental activities: Pension plan: Differences between expected and actual experience $ - $ 2,813,446 Net difference between projected and actual earnings on pension plan investments 21,230,122 - Changes in proportion and differences between Board contributions and proportional share of contributions 31,571 370,843 Change in assumptions 8,779,150 - Board contributions subsequent to the measurement date 8,883,373 - Total governmental activities $ 38,924,216 $ 3,184,289 55
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) B) Liabilities (Continued) 3) Deferred Outflows and Inflows of Resources (Continued) Deferred Outflows of Resources Deferred Inflows of Resources Business-type activities: Pension plan: Differences between expected and actual experience $ - $ 67,803 Net difference between projected and actual earnings on pension plan investments 511,639 - Changes in proportion and differences between Board contributions and proportional share of contributions 761 8,937 Change in assumptions 211,575 Board contributions subsequent to the measurement date 214,087 - Total business-type activities 938,062 76,740 4) Risk Management Total $ 39,862,278 $ 3,261,029 The Board is exposed to various risks of losses related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Board maintains, through the Surry Insurance Group, general liability protection of $2 million with a $1 million per occurrence limit and errors and omissions coverage of $2 million limit with a $1 million limit per wrongful act. The State of North Carolina provides workers' compensation for employees paid from State funds. The Board also participates in the Public School Insurance Fund, a voluntary, self-funded risk control and risk financing fund administered by the North Carolina Department of Public Instruction. The Fund provides all risk, replacement cost property coverage to protect the building and contents of Board assets. The Board also participates in the Teachers and State Employees Comprehensive Major Medical Plan a self-funded risk financing pool of the State administered by Blue Cross and Blue Shield of North Carolina. Through the Plan, permanent full-time employees of the Board are eligible to receive health care benefits. The Board pays the full cost of coverage for employees enrolled in the Comprehensive Major Medical Plan. 56
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) B) Liabilities (Continued) 4) Risk Management (Continued) In accordance with G.S. 115C-442, the Board s employees who have custody of the Board s monies at any given time of the Board s funds are performance bonded through a commercial surety bond. The Finance Officer is bonded for $100,000. The remaining employees that have access to funds are bonded under a blanket bond for $100,000. The Board carries commercial coverage for all other risks of loss. There have been no significant reductions in insurance coverage in the prior year, and claims have not exceeded coverage in any of the past three fiscal years. 5) Contingent Liabilities At June 30, 2017, the Board was a defendant to various lawsuits and claims. In the opinion of the Board s management and the Board s attorney, the ultimate effect of these lawsuits and claims will not have a material adverse effect on the Board s financial position. 6) Long-Term Obligations a) Installment Purchases Installment Purchases School Buses The Board is authorized to finance the purchase of school buses under G.S 115C-528(a). Session law 2003-284, section 7.25 authorized the State Board of Education to allot monies for the payments on financing contracts entered into pursuant to G.S. 115C-528. During the year ended June 30, 2017 the State accepted bids to purchase two Thomas Built Buses and six Blue Bird Buses through a special third party financing arrangements at payments less than the purchase price. During the fiscal year ended June 30, 2017, the Board took delivery of 8 school buses. The contract requires only principal payments annually, through November 15, 2019. The future minimum payments of the installment purchases as of June 30, 2017, are as follows: Year Ending June 30, Principal 2018 $ 171,214 2019 171,216 2020 171,216 $ 513,646 57
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) B) Liabilities (Continued) 6) Long-Term Obligations (Continued) b) Long-Term Obligation Activity The following is a summary of changes in the Board s long-term obligations for the fiscal year ended June 30, 2017: Balance Balance Current Governmental activities: June 30, 2015 Increases Decreases June 30, 2016 Portion Installment purchases $ 1,723,707 $ 684,864 $ 992,947 $ 1,415,624 $ 745,192 Net pension liability 23,645,202 35,884,277-59,529,479 - Compensated absences 10,503,054 8,459,533 9,077,090 9,885,497 9,077,091 Total $ 35,871,963 $ 45,028,674 $ 10,070,037 $ 70,830,600 $ 9,822,283 Business-type activities: Net pension liability $ 621,090 $ 813,553 $ - $ 1,434,643 $ - Compensated absences 112,725 207,311 209,699 110,337 110,337 Total $ 733,815 $ 1,020,864 $ 209,699 $ 1,554,980 $ 110,337 Compensated absences for governmental activities are typically liquidated by the general and other governmental funds. C) Interfund Transfers Transfers to/from other funds at June 30, 2017, consist of the following: From the State Public School Fund to the School Food Service Fund for administrative costs $ 60,984 From the General Fund to the School Food Service Fund for operating costs $ 26,513 From the General Fund to the Individual Schools Fund for operating costs $ 5,000 From the General Fund to the Other Restricted Fund for operating costs $ 300,000 From the General fund to the State Public School Fund For operating costs $ 2,706 58
Notes to the Financial Statements For the Year Ended June 30, 2017 III) DETAIL NOTES ON ALL FUNDS (Continued) D) Fund Balance The Board of Education has a revenue spending policy that provides policy for programs with multiple revenue sources. The Finance Officer will use resources in the following hierarchy: bond proceeds, federal funds, State funds, local non-board of Education funds, Board of Education funds. For purposes of fund balance classification, expenditures are to be spent from restricted fund balance first, followed in-order by committed fund balance, assigned fund balance and lastly unassigned fund balance. The Finance Officer has the authority to deviate from this policy if it is in the best interest of the Board. The following schedule provides management and citizens with information on the portion of the General Fund balance that is available for appropriation. Total fund balance General Fund $ 7,625,282 Less: Stabilization by State statute 263,701 Appropriated fund balance in 2018 budget 3,500,000 Remaining fund balance $ 3,861,581 IV) SUMMARY DISCLOSURE OF SIGNIFICANT CONTINGENCIES Federal and State Assisted Programs The Board has received proceeds from several federal and State grants. Periodic audits of these grants are required and certain costs may be questioned as not being appropriate expenditures under the grant agreements. Such audits could result in the refund of grant monies to the grantor agencies. Management believes that any required refunds will be immaterial. No provision has been made in the accompanying financial statements for the refund of grant monies. V) SUBSEQUENT EVENTS Management has evaluated subsequent events through December 20, 2017, the date which the financial statements were available to be issued. No events have taken place that would require disclosure in the financial statements. VI) SUMMARY DISCLOSURE OF SIGNIFICANT CONTINGENCIES Federal and State Assisted Programs The Board has received proceeds from several federal and State grants. Periodic audits of these grants are required and certain costs may be questioned as not being appropriate expenditures under the grant agreements. Such audits could result in the refund of grant moneys to the grantor agencies. Management believes that any required refunds will be immaterial. No provision has been made in the accompanying financial statements for the refund of grant moneys. 59
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REQUIRED SUPPLEMENTARY INFORMATION Schedule of the Board's Proportionate Share of the Net Pension Liability Teachers' and State Employees' Retirement System Schedule of Board Contributions Teachers' and State Employees' Retirement System
Schedule of the Board's Proportionate Share of the Net Pension Liability Teachers' and State Employees' Retirement System Last Four Fiscal Years* 2017 2016 2015 2014 Board's proportion of the net pension liability (asset) 0.663% 0.658% 0.654% 0.662% Board's proportionate share of the net pension liability (asset) $ 60,964,122 $ 24,266,292 $ 7,665,523 $ 40,208,359 Board's covered-employee payroll $ 92,393,975 $ 95,627,050 $ 93,448,973 $ 89,211,826 Board's proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll 65.98% 25.38% 8.20% 45.07% Plan fiduciary net position as a percentage of the total pension liability* 87.32% 94.64% 98.24% 90.60% * The amounts presented for each fiscal year were determined as of the prior fiscal year ending June 30. The accompanying notes to the financial statements are an integral part of these statements. 60
Schedule of Board Contributions Teachers' and State Employees' Retirement System Last Four Fiscal Years* 2017 2016 2015 2014 Contractually required contribution $ 9,097,460 $ 8,121,256 $ 8,113,139 $ 7,359,425 Contributions in relation to the contractually required contribution 9,097,460 8,121,256 8,113,139 7,359,425 Contribution deficiency (excess) $ - $ - $ - $ - Board's covered-employee payroll $ 92,393,975 $ 95,627,050 $ 93,448,973 $ 89,211,826 Contributions as a percentage of covered-employee payroll 9.85% 8.49% 8.68% 8.25% * The amounts presented for each fiscal year were determined as of the prior fiscal year ending June 30. The accompanying notes to the financial statements are an integral part of these statements. 61
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SUPPLEMENTARY INFORMATION INDIVIDUAL FUND SCHEUDULES
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GENERAL FUND The General Fund accounts for all financial resources except those that are required to be accounted for in a another fund. The General Fund is a major fund.
Schedule 1 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual General Fund For the Year Ended June 30, 2017 Variance Final Positive Budget Actual (Negative) REVENUES: Davidson County appropriations $ 22,727,000 $ 22,727,000 $ - Other revenues: Fines and forfeitures 349,851 460,912 111,061 Rental of school property 29,740 14,632 (15,108) Indirect cost allocated 713,093 458,975 (254,118) Interest 46,873 69,889 23,016 E-Rate reimbursement 300,000 110,970 (189,030) Sales taxes 44,474 46,436 1,962 Miscellaneous revenue 986,532 934,421 (52,111) Total other revenues 2,470,563 2,096,235 (374,328) Total revenues 25,197,563 24,823,235 (374,328) EXPENDITURES: Instructional services: Regular instructional 11,023,928 9,161,419 1,862,509 Special populations 870,587 745,557 125,030 Alternative programs 104,095 100,649 3,446 School leadership 1,681,473 1,587,329 94,144 Co-curricular 1,799,233 1,102,672 696,561 School-based support 1,774,990 1,226,733 548,257 Total instructional services 17,254,306 13,924,359 3,329,947 System-wide support services: Support and development 505,212 465,967 39,245 Special population support and development 17,761 17,152 609 Technology support 3,350,458 2,556,906 793,552 Operational support 11,391,684 9,925,995 1,465,689 Financial and human resource 1,150,829 1,032,114 118,715 Accountability services 948,402 153,975 794,427 System-wide pupil support 96,457 96,013 444 Policy, leadership and public relations 905,813 813,671 92,142 Total system-wide support services 18,366,616 15,061,793 3,304,823 Ancillary services: Nutrition services 39,578 7,473 32,105 62
Schedule 1 (Continued) Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual General Fund For the Year Ended June 30, 2016 Variance Final Positive Budget Actual (Negative) Non-programmed charges: Payments to charter schools $ 759,005 $ 775,961 $ (16,956) Contingency 150,000-150,000 Total non-programmed charges 909,005 775,961 133,044 Total expenditures 36,569,505 29,769,586 6,799,919 Revenues under expenditures before other financing sources (11,371,942) (4,946,351) 6,425,591 OTHER FINANCING SOURCES (USES): Transfers from other funds - Transfers to other funds (347,281) (334,219) 13,062 Appropriated fund balance 11,719,223 (11,719,223) 11,371,942 (334,219) (11,706,161) Net change in fund balance $ - (5,280,570) $ (5,280,570) FUND BALANCE: Beginning of year 12,905,852 End of year $ 7,625,282 63
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SPECIAL REVENUE FUNDS Special Revenue Funds are used to account for specific revenues that are legally restricted to expenditures for particular purposes. Budgeted Individual Fund Descriptions: The State Public School Fund is required by State Statue and accounts for funds according to the provisions of G.S. 115C-438. The State Public School Fund is a major fund. The Federal Grants Fund accounts for funds received from various federal grant programs and must also be accounted for according to the provisions of G.S. 115C-438. The Federal Grants Fund is a major fund. The Other Restricted Fund included specific revenues that are legally restricted for certain purposes and not intended for the general K-12 population. The Other Restricted Expense Fund is a major fund.
Schedule 2 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual State Public School Fund For the Year Ended June 30, 2017 REVENUES: State of North Carolina: Operating allocations 110,859,959 Variance Final Positive Budget Actual (Negative) $ $ 109,127,690 $ (1,732,269) Textbooks 1,430,404 250,723 (1,179,681) Total State of North Carolina 112,290,363 109,378,413 (2,911,950) Other revenues: Sales tax refund 3,023 3,023 - Total other revenues 3,023 3,023 - Total revenues 112,293,386 109,381,436 (2,911,950) EXPENDITURES: Instructional services: Regular instructional 68,332,571 65,138,126 3,194,445 Special populations 11,090,112 12,703,815 (1,613,703) Alternative programs and services 4,381,843 3,607,357 774,486 School leadership 7,172,761 7,167,023 5,738 School-based support 9,844,724 9,430,378 414,346 Total instructional services 100,822,011 98,046,699 2,775,312 System-wide support services: Support and development 120,447 117,080 3,367 Special population support and development 286,048 285,455 593 Technology support 519,302 519,302 - Operational support 8,204,337 8,119,093 85,244 Financial and human resource 1,149,714 1,143,129 6,585 Accountability services 324,671 326,661 (1,990) Policy, leadership and public relations 750,669 750,669 - Total system-wide support services 11,355,188 11,261,389 93,799 Ancillary services: Nutrition services 55,203 15,070 40,133 Total expenditures 112,232,402 109,323,158 2,909,244 Revenues over expenditures before other financing sources/(uses) 60,984 58,278 (2,706) OTHER FINANCING SOURCES/(USES): Transfers from other funds - 2,706 2,706 Transfers to other funds (60,984) (60,984) - Total other financing sources/(uses) (60,984) (58,278) 2,706 Net change in fund balance $ - - $ - FUND BALANCE: Beginning of year - End of year $ - 64
Schedule 3 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Federal Grants Fund For the Year Ended June 30, 2017 Variance Final Positive Budget Actual (Negative) REVENUES: U.S. Government $ 10,005,721 $ 8,879,352 $ (1,126,369) Total revenues 10,005,721 8,879,352 (1,126,369) EXPENDITURES: Instructional services: Regular instructional 495,365 444,465 50,900 Special populations 4,003,137 3,473,970 529,167 Alternative programs 4,095,056 3,764,707 330,349 School-based support 270,534 242,140 28,394 Total instructional services 8,864,092 7,925,282 938,810 System-wide support services: Support and development 2,750 1,790 960 Special population support and development 127,956 121,611 6,345 Alternative programs and services support and development 287,564 186,514 101,050 Technology support services 1,000-1,000 Operational support 100,895 100,842 53 Financial and human resource 238,585 193,914 44,671 Total system-wide support 758,750 604,671 154,079 Non-programmed charges: Payments to other governmental units 382,879 349,399 33,480 Total expenditures 10,005,721 8,879,352 1,126,369 Net change in fund balance $ - - $ - FUND BALANCE: Beginning of year - End of year $ - 65
Schedule 4 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Other Restricted Fund For the Year Ended June 30, 2017 Variance Final Positive Budget Actual (Negative) REVENUES: U.S. Government: Reserve Officers' Training Corps (ROTC) $ 129,076 $ 108,316 $ (20,760) Junior Reserve Officers' Training Corps (JROTC) 7,978 1,797 (6,181) Total U. S. Government 137,054 110,113 (26,941) State of North Carolina: Smart Start 413,586 416,346 2,760 NC Pre-K 318,525 326,475 7,950 Workforce innovation grants 89,509 89,509 - Total State of North Carolina 821,620 832,330 10,710 Davidson County: Stoner Thomas appropirations 409,599 409,599 - Teen parent 113,840 113,840 - Truancy program 69,200 57,200 (12,000) Total Davidson County 592,639 580,639 (12,000) Other revenues: Tuition and fees 481,964 344,149 (137,815) Donations and contributions 1,763 1,515 (248) Miscellaneous revenue 728,210 485,401 (242,809) Total other revenues 1,211,937 831,065 (380,872) Total revenues 2,763,250 2,354,147 (409,103) EXPENDITURES: Instructional services: Regular instructional 948,750 756,644 192,106 Special populations 507,012 206,920 300,092 Alternative programs 807,071 792,246 14,825 School leadership 340,566 290,702 49,864 Co-curricular 2,576 248 2,328 School-based support 40,373 40,091 282 Total instructional services 2,646,348 2,086,851 559,497 System-wide support services: Support and development services 4,486 4,527 (41) Operational support servcies 112,416 110,459 1,957 Total system-wide support services 116,902 114,986 1,916 Total expenditures 2,763,250 2,201,837 561,413 Revenues over expenditures before other financing sources/(uses) - 152,310 152,310 OTHER FINANCING SOURCES (USES): Transfers from other funds - 300,000 300,000 Appropriated fund balance - - - - 300,000 300,000 Net change in fund balance $ - 452,310 $ 452,310 FUND BALANCE: Beginning of year 6,801 End of year $ 459,111 66
CAPITAL OUTLAY FUND The Capital Outlay Fund is used to account for acquisition and construction of major capital facilities other than those financed by the proprietary fund. The Capital Outlay Fund is a major fund.
Schedule 5 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Capital Outlay Fund For the Year Ended June 30, 2017 REVENUES: Variance Final Positive Budget Actual (Negative) State of North Carolina: State appropriations - buses $ 992,947 $ 992,947 $ - Davidson County: Appropriations - operating 41,240,718 31,304,106 (9,936,612) School reimbursment 239,409 253,005 13,596 Total Davidson County 41,480,127 31,557,111 (9,923,016) Other revenues: Surplus sale proceeds 24,436 26,576 2,140 Interest 1,837 1,108 (729) Other 50,000 50,000 Total other revenues 26,273 77,684 51,411 Total revenues 42,499,347 32,627,742 (9,871,605) EXPENDITURES: Capital outlay: Furniture and equipment 1,803,808 654,620 1,149,188 Buses and motor vehicles 425,803 1,091,284 (665,481) Improvements and renovations 39,456,674 30,316,985 9,139,689 Contingency 5,000-5,000 Total capital outlay 41,691,285 32,062,889 9,628,396 Debt service: Principal 992,947 992,947 - Total expenditures 42,684,232 33,055,836 9,628,396 Operating loss (184,885) (428,094) (243,209) OTHER FINANCING SOURCES: Installment purchase obligations 684,864 684,864 Transfer from other funds 50,000 - (50,000) Appropriated fund balance 134,885 - (134,885) 184,885 684,864 499,979 Net change in fund balance $ - 256,770 $ 256,770 FUND BALANCE: Beginning of year 1,614,626 End of year $ 1,871,396 67
ENTERPRISE FUND The Enterprise Fund is used to account for the Board's food services operations. The Enterprise Fund is a major fund.
Schedule of Revenues and Expenditures - Budget and Actual (Non-GAAP) School Food Service Fund For the Year Ended June 30, 2017 Schedule 6 Variance Final Positive Budget Actual (Negative) OPERATING REVENUES: Food sales $ 2,637,950 $ 2,365,947 $ (272,003) Miscellaneous local operating revenue 2,000 5,282 3,282 2,639,950 2,371,229 (268,721) OPERATING EXPENDITURES: Business support services: Purchase of food 3,849,500 2,960,445 889,055 Donated commodities 602,505 345,035 257,470 Salaries and benefits 4,475,400 4,969,649 (494,249) Professional and technical services 32,000 20,636 11,364 Property services 188,000 8,846 179,154 Transportation services 20,000 16,854 3,146 Communications 6,200 3,187 3,013 Dues and fees 2,000 1,253 747 Indirect costs 722,000 89,928 632,072 Supplies and materials 210,000 49,688 160,312 Repairs and maintenance 50,000 36,889 13,111 Utilities 42,000 26,976 15,024 Food processing supplies 260,000 230,458 29,542 Total business support services 10,459,605 8,759,844 1,699,761 Capital outlay 85,000 52,889 32,111 Total operating expenditures 10,544,605 8,812,733 1,731,872 Operating loss (7,904,655) (6,441,504) 1,463,151 NONOPERATING REVENUES (EXPENSES): Federal reimbursements 5,092,000 4,862,685 (229,315) Federal commodities 602,505 598,949 (3,556) State reimbursements - 14,597 14,597 Interest earned 500 1,903 1,403 Total nonoperating revenues 5,695,005 5,478,134 (216,871) Revenues under expenditures before other financing sources (2,209,650) (963,370) 1,246,280 OTHER FINANCING SOURCES: Transfers from other funds - 87,497 87,497 Appropriated fund balance 2,209,650 - (2,209,650) 2,209,650 87,497 (2,122,153) Revenues under expenditures $ - (875,873) $ (875,873) Reconciliation of modified accrual to full accrual basis: Depreciation (155,488) Contributions to the pension plan in current fiscal year 938,062 Increase in inventory 2,087 Capital outlay 52,889 Pension expense 11,279 Decrease in compensated absences payable 2,388 Change in net position (full accrual basis) $ (24,656) 68
STATISTICAL SECTION Unaudited
Table 1 Davidson County Board of Education General Government Expenditures by Function - Last Ten Fiscal Years (Unaudited) 1,000,000,000 100,000,000 10,000,000 1,000,000 100,000 10,000 1,000 100 10 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Instructional Programs 115,568,848 120,448,218 114,816,387 117,392,904 115,074,117 118,277,282 114,938,563 120,450,053 122,306,953 126,239,301 Supporting Services 22,379,819 22,398,343 21,869,129 22,684,716 23,396,415 24,530,466 24,879,136 26,657,671 26,508,878 27,042,839 Ancillary Services 22,893 76,754 75,382 3,867 83,913 101,063 128,664 17,976 7,006 22,543 Nonprogram Charges 129,055 172,650 340,777 439,622 232,660 212,290 3,217,623 320,880 966,286 1,125,360 Capital Projects 17,988,599 26,367,022 10,359,598 11,683,106 19,001,911 9,058,275 5,058,045 7,451,970 21,568,979 32,062,889 Total Expenditures by function 156,089,214 169,462,987 147,461,273 152,284,215 157,789,016 152,179,376 148,222,031 154,898,550 171,358,102 186,492,932 69
Table 2 Davidson County Board of Education General Government Revenues by Source - Last Ten Fiscal Years (Unaudited) 200,000,000 180,000,000 160,000,000 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Interest in Investments 467,881 279,418 125,394 97,912 103,778 44,331 34,259 32,494 49,122 70,998 Fines and Forfeitures 694,678 955,251 687,070 468,392 790,783 457,148 646,519 410,188 469,614 460,912 U. S. Government 7,116,078 8,388,667 15,639,231 17,423,980 15,261,987 11,530,181 9,974,259 9,093,593 9,653,775 8,989,465 Other 4,884,218 4,489,685 4,590,345 4,937,468 6,340,246 6,536,688 6,815,721 6,146,323 7,729,347 6,948,399 Davidson County 37,890,466 45,391,642 32,674,710 28,284,939 40,500,986 28,663,595 25,256,868 26,700,984 42,360,961 54,865,750 State of North Carolina 107,137,208 109,892,525 98,431,155 101,846,010 101,634,227 103,496,668 101,729,112 107,385,243 107,682,912 111,203,690 Total Revenues by Source 158,190,529 169,397,368 152,147,905 153,058,701 164,632,007 150,728,611 144,456,738 149,768,825 167,945,731 182,539,214 Interest in Investments Fines and Forfeitures U. S. Government Other Davidson County State of North Carolina Total Revenues by Source 70
Table 3 Davidson County Board of Education Comparative Average Daily Membership - Last Ten Fiscal Years (Unaudited) 10,500 10,000 9,500 9,000 8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Elementary Schools 9,675 9,605 9,466 9,991 9,365 9,067 9,090 9,016 9,265 8,306 Middle Schools 4,729 4,746 4,842 4,166 4,835 4,906 4,924 4,694 3,829 4,489 High Schools 5,757 5,559 5,714 5,747 5,571 5,576 5,601 5,625 5,827 5,890 Special Programs 309 307 300 267 196 282 280 234 245 254 71
Table 4 Davidson County Board of Education Average Daily Membership - Last Ten Fiscal Years (Unaudited) 20,500 20,250 20,000 19,750 19,500 19,250 19,000 18,750 18,500 18,250 18,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Pupils 20,470 20,217 20,322 19,976 19,967 19,830 19,890 19,569 19,166 18,939 72