Keystone Central School District

Transcription

1 Financial Statements and Supplementary Information

2 Table of Contents Page Independent Auditors' Report Management's Discussion and Analysis 1 3 Basic Financial Statements Government-Wide Financial Statements Statement of Net Assets Statement of Activities Fund Financial Statements: Balance Sheet - Governmental Funds Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds Reconciliation of the Statement of Revenues,. Expenditures and Change in Fund Balances of Governmental Funds to the Statement of Activities Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund Balance Sheet - Proprietary Fund Statement of Revenues, Expenses and Change in Fund Net Assets - Proprietary Fund Statement of Cash Flows - Proprietary Fund Statement of Fiduciary Net Assets - Fiduciary Funds Notes to Financial Statements

3 Table of Contents Required Supplementary Information Schedule of Funding Progress - Other Postemployment Benefits 44 Supplementary Information Schedule of Expenditures of Federal Awards 45 Independent Auditors' Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed inaccordance With Government Auditing Standards. 47 Independent Auditors' report on Compliance With Requirements That Could. Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance With OMB Circular A Schedule of Findings and Questioned Costs 51 Schedule of Prior Audit Findings 54

4 'P'ParenteBeard Independent Auditors' Report Board of Directors Keystone Central School District We have audited the accompanying financial statements of the governmental activities, the business-type activity, each major fund and the aggregate remaining fund information of Keystone Central School District (the "District") as of and for the year ended, which collectively comprise the District's basic financial statements',as listed in the table of contents. These financial statements are the responsibility of the District's management. Our responsibility is to express 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activity, each major fund and the aggregate remaining fund information of Keystone Central School District as of, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. As disclosed in Notes 1 and 19 to the financial statements, the District adopted the provisions of Governmental Accounting Standards Board ("GASB") Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions in The District restated the beginning fund balances of its Capital Reserve and Capital Projects Funds. In accordance with Government Auditing Standards, we have also issued our report dated December 27, 2011 on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. 1

5 The Management's Discussion and Analysis on pages 3 through 11 and Schedule of Funding Progress - Other Postemployment Benefits on page 44 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of. the required supplementary information. However, we did not audit this information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District's basic financial statements. The accompanying schedule of expenditures of federal awards on pages 45 and 46 is presented for purposes of additional analysis as required by OMB Circul.ar A-133, Audits of States, Local Governments and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.. Williamsport, Pennsylvania December 27,2011 2

6 Management's Discussion and Analysis (Unaudited) This Management's Discussion and Analysis (MD&A) is intended to provide a narrative overview and analysis of the financial activities of the Keystone Central School District (the "District") for the year ended. The District's financial performance is discussed and analyzed within the context of the financial statements and the disclosures that follow. This discussion focuses on the District's financial performance as a whole; readers should also review the basic financial statements and the notes thereto to enhance their understanding of the District's financial performance. Financial Highlights Total net assets of the District increased $5,012,452 in Net assets of governmental activities increased $4,954,084, a 21.2% increase over Net assets of the business-type activity increased $58,368, a 13.9% increase over The District had $61,415,045 in expenses related to governmental activities in 2011; only $23,029,211 of these expenses were offset by program specific charges for services, grants or contributions. General revenues (primarily taxes and state subsidies) of $43,339,918 were adequate to provide for these programs. In the District's business-type activity, net assets increased by $58,368 as a result of the net income of the food service operation. As of, $12,525,296 of unrestricted net assets within its governmental activities was available to meet the District's ongoing obligations to employees and creditors. This amount indicates that the District has a solid financial condition. As of, $3,040,000 of General Fund unreserved fund balance has been committed for the purpose of mitigating and financially planning for imminent increases in the Pennsylvania School Employees Retirement System in the future and, $4,048,988 of General Fund fund balance has been committed for Capital Projects throughout the district, including the upgrade of the District wide telephone system. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the District's basic financial statements. The District's basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. Government-Wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the District's finances, in a manner similar to a private-sector business. These statements are prepared using the accrual basis of accounting. The focus of these statements is long-term. The statement of net assets presents information on all of the District's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the District is improving or deteriorating. 3

7 Management's Discussion and Analysis (Unaudited) The statement of activities presents information showing how the District's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused compensated absences). Both of the governmental-wide financial statements distinguish functions of the District that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a portion of their costs through user fees and charges (business-type activities). The governmental activities include all of the District's instructional programs and support services except for its food service operation, which is considered a business-type activity. The government-wide financial statements can be found on pages 12 through 13 of this report. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The focus of fund financial statements is short-term. Fund financial statements are prepared using the modified accrual basis of accounting. The District uses several different types of funds but the two most significant types are the governmental and proprietary fund types. Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the District's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the District's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The District maintains several individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the District's major fund, which is the General Fund. The District's other funds, Capital Projects, Tax Office, and Debt Service, are reported under the caption "Other". 4

8 Management's Discussion and Analysis (Unaudited) The District adopts an annual budget for its General Fund. A budgetary comparison statement for the General Fund has been provided on page 18 of this report to demonstrate compliance with this budget. The basic governmental fund financial statements (including certain statements reconciling the balance sheet of governmental funds to the statement of net assets of the governmentwide statements, and the statement of revenues, expenditures and change in fund balance of the governmental funds to the statement of activities of the government-wide statements) can be found on pages 14 through 17 of this report. Proprietary Funds The District accounts for its food service operation in a proprietary fund, which reports the same functions presented as business-type activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The basic proprietary fund financial statements can be found on pages 19 through 21 of this report. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 23 through 43 of this report. General Fund Budgetary Highlights The District prepares a budget each year for its General Fund according to Pennsylvania law. The budget complied with all applicable state laws and financial policies approved by the School Board of Directors. The General Fund's originally approved budget for 2011 included $65,872,581 of revenues and $65,339,360 of expenditures. The final actual revenues received for 2011 were $65,884,750 or 0.02% higher than the original budget. The final expenditure budget was under-spent by approximately $3,650,000. A majority of this was due to budgeting PSERS at the Certified rate of 8.22% plus an additional 2% for planned PSERS increases in the future and the Governor revising the rate after the budget was passed to only 5.64%. This change netted the District over $1.6 million dollars to commit to future PSERS increases. In addition to PSERS the Districts' self-funded health insurance plan implemented in the year realized a savings of approximately $600,000 compared to budgeted projections provided by the actuary. Contracted services, attorney fees, and advertising were among several accounts under spent. When the Governor released his budget in March with drastic cuts to educational funding the District took immediate action to restrict spending, which saved dollars but reduced services, equipment, and supply needs. 5

9 Management's Discussion and Analysis (Unaudited) Entity-Wide Financial Analysis The District's condensed government-wide financial statements are presented comparatively as follows: Condensed Statement of Net Assets (In Thousands). Governmental Activities Business-Type Activity Total Current and other assets $ 22,333 $ 19,465 $ 571 $ 498 $ 22,904 $ 19,963 Capital assets 48,731 50, ,753 50,607 Total $ 71,064 $ 70,040 $ 593 $ 530 $ 71,657 $ 70,570 Current liabilities $ 5,648 $ 6,087 $ 38 $ 38 $ 5,686 $ 6,125 Long-term liabilities: Due within one year 3,815 3,640 3,815 3,640 Due after one year 33,261 36, ,337 36,997 Total liabilities 42,724 46, ,838 46,762 Net assets: Invested in capital assets, net of related debt 15,815 14, ,837 14,777 Unrestricted 12,525 8, ,982 9,031 Total net assets 28,340 23, ,819 23,808 Total $ 71,064 $ 70,040 $ 593 $ 530 $ 71,657 $ 70,570 :! 6

10 Management's Discussion and Analysis (Unaudited) Condensed Statement of Activities (In Thousands) Governmental Activities Business-Type Activity Total Program revenues: Charges for services $ 283 $ 258 $ 997 $ 930 $ Operating grants and contributions 22,701 21,305 Capital grants and contributions General revenues: Taxes levied for general purposes, net 19,290 18,326 Grants, subsidies and contributions not restricted 17,469 18,326 1,240 1,233 Other 6,581 6,447 Total revenues 66,372 64,785 2,237 2,163 Program expenses: Instruction 37,271 39,547 Instructional student support 4,276 4,760 Administration and financial support services 5,409 4,671 Operation and maintenance of plant services 4,731 4,447 Pupil transportation 3,399 3,345 Student activities 1,188 1,150 Community services 1, Interest on long-term debt 979 1,111 Unallocated depreciation 2,799 2,875 Food service 2,179 2,052 Total expenses 61,418 62,648 2,179 2,052 Special item, Change in accounting estimate - capital assets (2,418) 1,280 $ 1,188 22,701 21, ,290 18,326 18,709 19,559 6,581 6,447 68,609 66,948 37,271 39,547 4,276 4,760 5,409 4,671 4,731 4,447 3,399 3,345 1,188 1,150 1, ,111 2,799 2,875 2,179 2,052 63,597 64,700 (2,418) Change in net assets 4,954 (281) Net assets, beginning 23,387 23, Net assets, ending $ 28,341 $ 23,387 $ 479 $ 421 $ 5,012 (170) 23,808 23,978 28,820 $ 23,808 7

11 Management's Discussion and Analysis (Unaudited) Governmental Activities The increase of $4,954,000 in net assets of governmental activities was due to changes in expenditure requirements, i.e. PSERS, a successful year with our health insurance selffunding plan, and other budget variances identified above. Business-Type Activity The District's food service operation net assets increased by approximately $58,000 in 2011, primarily due to increases in state and federal subsidies.. Financial Analysis of the Major Funds General Fund The following represents a summary of General Fund revenue, by source, along with changes from Increase % Amount Amount (Decrease) Change Local sources $ 26,794,519 $ 25,453,473 $ 1,341, % State sources 31,515,950 31,400, , % Federal sources 7,571,281 6,486,956 1,084, % Total $ 65,881,750 $ 63,341,324 $ 2,540, % Local Sources The $1,341,046 increase in local revenue can be mostly attributed to the real estate millage increase but also includes revenues from the Athletic Fund now reported in the General Fund of $123,000, an increase in interest earnings of $70,000, and additional Earned Income Tax receipts of $96,000. State Sources Despite the numerous reductions in State subsidy revenues, State revenues increased by $115,055. Such reductions in State funding included Basic Education funding of $680,000, Vocational Education funding of $123,000, Special Education funding of $20,000, Charter School reimbursement reduction of $50,000, and the reduction of $55,000 for our Accountability Block Grant. The largest offset to these reductions came in the way of one-time increases in debt subsidy reimbursements in the amount of $736,000. Prior year payment reimbursements were unable to be collected until PLANCON's were completed. The year and future years will be more in line with the years' reimbursements. Additional PSERS subsidy reimbursement in the amount of $137,000 was received, however, an increase in PSERS expenditures is tied to the increase in reimbursement. 8

12 Management's Discussion and Analysis (Unaudited) Federal Sources The $1,084,325 increase in Federal sources is a net result of the reclassifying of $1,375,000 Education Jobs Stimulus dollars from the State Basic Education Subsidy to a Federal subsidy, the addition of over $500,000 in 21 st Century funds, the reduction of over $560,000 in regular Title Grants, and $260,000 in ARRA reductions from the previous year. General Fund expenditures and other financing uses (transfers out) totaled $62,420,984, which represents an increase of $122,754 or 0.2% over The table below shows a summary of General Fund expenditures, by function, for the years ended and Increase % Amount Amount (Decrease) Change Instruction $ 37,120,736 $ 38,812,016 $ (1,691,280) 4.4 % Support services 17,378,664 16,818, , % Non-instructional services 2,551, ,676 1,697, % Capital outlay 43,371 (43,371) % Debt service/other financing uses 5,364,915 5,770,599 (405,684) 7.0 % Instruction Total $ 62,415,690 $ 62,298,230 $ 117, % Decreases of $1,691,280 in instructional expenses can be greatly attributed to a reduction in the number of unfilled professional teacher positions created through attrition. Support Services Increases in support services expenses of $560,096 were primarily due to an increase in contractual salaries, PSERS, and health insurance costs. Non-Instructional Services Increases in non-instructional expenditures of $1,697,699 were due to increased salaries, employer paid taxes, employee benefits, and supplies paid for by additional grants from 21 st Century. Other Financing Uses A net decrease in debt service and other financing uses of $405,684 was primarily due to the inclusion of the athletic operations within the General Fund this year, per GASB 54, versus the past practice of accounting for these funds separately and transferring funds from the General Fund to the Athletic Fund. 9

13 Management's Discussion and Analysis (Unaudited) Other Governmental Funds Capital Projects Fund The District's Capital Project Fund accounts for financial resources used to acquire or construct property and equipment. The Capital Projects Fund balance was $1,868,252 at, which consists of money to be used throughout the District for capital improvements and equipment and funds to complete the Central Mountain Stadium project. Debt Service Fund Tax Office The District's Debt Service Fund accounts for the proceeds of refunding bond issues and the proceeds from the sale of District land and buildings. The amount paid on existing debt (from the District's General Fund) included $3,639,613 of principal and $997,652 of interest. The District did not restructure any existing bonds or issue any new bonds in The Debt Service fund had no fund balance at. Keystone Central maintains a tax office for the purpose of collecting and distributing Earned Income and Business Privilege Taxes for the District as well as local municipalities. The cost of operating the office is prorated, based on taxes collected, to each governing body. Capital Assets The School District's investment in capital assets for its governmental and business-type activity as of is summarized below. Governmental Business-Type Activities Activity Totals Land $ 1,760,087 $ $ 1,760,087 Land improvements 5,544,808 5,544,808 Buildings and improvements 70,309,177 70,309,177 Furniture and equipment 12,442, ,190 12,554,426 Total 90,056, ,190 90,168,498 Less accumulated depreciation (41,325,040) (89,628) (41,414,668) Long Term Debt Net $ 48,731,268 $ 22,562 $ 48,753,830 At, the District's long-term debt of $34,494,613 (principal only) is below its legal limit of $ 142,255,639. $3,814,613 of this debt principal is scheduled for payment in Additional information on the District's long-term debt can be found in Note 6 on pages The District's bonds have a favorable "A+" rating from Standard and Poor's Rating Group. 10

14 Management's Discussion and Analysis (Unaudited) Economic Condition and Outlook Commonwealth of Pennsylvania (i.e., "State") funding continues to decrease and is predominantly due to a reduction of the Basic Education Subsidy. The State chose to use their Federal Stimulus funds to offset their contribution to our educational programs. The decrease in State funding is therefore seen as an increase in Federal funding for the year. Federal funding increased reflecting this change in funding as well as the Federal Stimulus funds the School. District received directly. Subsidy funding will continue to be an issue for all Pennsylvania school districts. Unfortunately, local school boards will be forced to make difficult decisions when trying to balance program offerings for students with local real estate tax increases in the community. The District's average daily membership decreased by 1.2% from 2010 to Local unemployment statistics are at 6.9% (September 2011/not seasonally adjusted) down from 7.8% a year ago. The Marcellus Shale natural gas industry has been a key factor in improving the areas job market. Other industries have also improved, and in most cases because of the Marcellus Shale industry, such as the manufacturing, trade, transportation, restaurant, and housing/hotel industry. The District's continuing proactive approach in utilizing energy conservation practices and shopping for natural gas and electricity needs has enabled us to significantly reduce expenditures for these major utilities. The District listed the McGhee Elementary School in Lock Haven for sale and will close on the property on November 14, The board is currently reviewing a plan to close an elementary school and relocate administrative departments to the Central Mountain High School as a means to reduce expenditures. The District continues to review alternatives that will enable the District to provide a quality education in a safe environment while being sensitive to community needs and limitations. Requests for Information Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Office of the Business Manager, Keystone Central School District, 110 East Bald Eagle Street, Lock Haven, Pennsylvania,

15 Statement of Net Assets c Governmental Business-Type Activities Activity Total Assets Current Assets Cash and cash equivalents $ 15,423,406 $ 610,313 $ 16,033,719 Internal balances 154,433 (154,433) Due from Agency Fund, net 6,881 6,881 Taxes receivable, net 1,760,503 1,760,503 Due from other governments 2,982,378 2,982,378 Other receivables 71,083 33, ,883 Inventories 84,772 81, ,998 Prepaid expenses 270, ,839 Total current assets 20,754, ,906 21,325,201 Capital Assets 48,731,268 22,562 48,753,830 Deferred Charges 847, ,688 Assets Held for Capital Projects 731, ,138 Total assets $ 71,064,389 $ 593,468 $ 71,657,857 Liabilities and Net Assets Liabilities Current liabilities: Current maturities of long-term debt $ 3,814,613 $ $ 3,814,613 Accounts payable 959, ,028 Accrued salaries and benefits 3,333,065 2,965 3,336,030 Payroll deductions and withholdings 806, ,761 Accrued interest payable 203, ,288 Deferred revenue 109,417 35, ,039 Other current liabilities 235, ,812 Total current liabilities 9,462,913 38,658 9,501,571 Noncurrent liabilities: Long-term debt 30,680,000 30,680,000 Compensated absences 787,238 75, ,913 Other postemployment benefits 1,793,461 1,793,461 Total noncurrent liabilities 33,260,699 75,675 33,336,374 Total liabilities 42,723, ,333 42,837,945 Net Assets Invested in capital assets, net of related debt 15,815,481 22,562 15,838,043 Unrestricted 12,525, ,573 12,981,869 Total net assets 28,340, ,135 28,819,912 Total liabilities and net assets $ 71,064,389 $ 593,468 $ 71,657,857 See notes to financial statements 12

16 Statement of Activities Year Ended June 3D, 2011 Governmental Activities Instruction Instructional student support Administrative and financial support services Operation and maintenance of plant services Pupil transportation Student activities Community services Interest on bonds payable Unallocated depreciation Business-Type Activity Food service Total governmental activities Total Program Revenues Charges Operating for Grants and _ Expenses Services Contributions $ (37,270,975) $ 131,194 $ 12,563,165 (4,275,755) 3,169,463 (5,408,898) 534,104 (4,731,395) 310,489 (3,399,284) 3,024,435 (1,188,249) 125, ,520 (1,366,126) 26,319 1,301,663 (978,852) 1,659,642 (2,798,511) (61,418,045) 282,678 22,701,481 (2,178,893) 996,890 1,239,946 $ (63,596,938) $ 1,279,568 $ 23,941,427 General Revenues Property taxes levied for general purposes, net Other taxes levied Grants, subsidies and contributions not restricted Investment earnings Miscellaneous income Net Assets, Beginning Net Assets, Ending Total general revenues Change in net assets Net (Expense) Revenues and Change in Net Assets Capital Grants and Governmental Business-Type Contributions Activities Activity Total $ $ (24,576,616) $ (24,576,616) (1,106,292) (1,106,292) (4,874,794) (4,874,794) 48,052 (4,372,854) (4,372,854) (374,849) (374,849) (924,564) (924,564) (38,144) (38,144) 680, ,790 (2,798,511) (2,798,511 ) 48,052 (38,385,834) (38,385,834) $ 57,943 57,943 $ 48,052 (38,385,834) 57,943 (38,327,891) 19,289,479 19,289,479 6,169,826 6,169,826 17,469,041 17,469, , , , ,414 43,339, ,340,343 4,954,084 58,368 5,012,452 23,386, ,767 23,807,460 $ 28,340,777 $ 479,135 $ 28,819,912 See notes to financial statements 13

17 Balance Sheet - Governmental Funds Major Fund General Other Totals Assets Cash and cash equivalents Taxes receivable Due from other funds Due from other governments Other receivables Inventories Prepaid expenses Total assets $ 14,705,971 1,760, ,697 2,933,748 71,083 84, ,839 $ 20,084,613 $ 1,448,573 $ 16,154, ,760, , ,069 3,747. 2,937,495 71,083 84, ,839 $ 2,188,692 $ 22,273,305 Liabilities and Fund Balances Liabilities Accounts payable Due to other funds Accrued salaries and benefits Payroll deductions and withholdings Deferred revenue Other current liabilities $ 787, ,300 3,320, ,761 1,249, ,574 $ 172,022 $ 959, , ,755 12,725 3,333, ,761 1,249,399 32, ,812 Total liabilities 7,097, ,440 7,417,749 Fund Balances Nonspendable Committed Assigned Unassigned 355,611 7,088,988 5,542, ,611 7,088,988 1,868,252 1,868,252 5,542,705 Total fund balances Total liabilities and fund balances 12,987,304 $ 20,084,613 1,868,252 14,855,556 $ 2,188,692 $ 22,273,305 See notes to financial statements 14

18 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets Total Fund Balances - Governmental Funds $ 14,855,556 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not reported as assets in governmental funds. The cost of assets is $90,056,308 and the accumulated depreciation is $41,325,040. Property taxes receivable will be collected this year, but are not available soon enough to pay for the current period's expenditures, and therefore are deferred in the funds. Certain expenses incurred in connection with the issuance of long-term debt are expensed in the funds, but are deferred and amortized over the term of the bonds in the entity-wide statements. Long-term liabilities, including bonds payable, are not due and payable in the current period, and therefore are not reported as liabilities in the funds. Long-term liabilities at year end consist of: Bonds payable Accrued interest on bonds Compensated absences Other postemployment benefits Additional state rental subsidy receivable on accrued interest payable. Total Net Assets - Governmental Activities $ (34,494,613) (203,288) (787,238) (1,793,461) 48,731,268 1,139, ,688 (37,278,600) 44,883 $ 28,340,777 See notes to financial statements 15

19 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds Year Ended Major Fund General Other Totals Revenues Local sources $ 26,797,519 State sources 31,515,950 Federal sources 7,571,281 Total revenues 65,884,750 Expenditures Instruction 37,120,736 Support services 17,378,664 Noninstructional services 2,554,375 Capital outlay Debt service 4,637,265 Total expenditures 61,691,040 Excess (Deficiency) of Revenues Over Expenditures Before Other Financing Sources (Uses) 4,193,710 Other Financing Sources (Uses) Refund of prior year receipts (644) Refund of prior year expenses 2,294 Transfers in Transfers out (729,300} Tqtal other financing sources (uses), net (727,650} Net changes in fund balances 3,466,060 Fund Balances, Beginning As previously reported 9,521,244 Effect of adoption of GASB No. 54 As restated 9,521,244 Fund Balances, Ending $ 12,987,304 $ 514,074 $ 27,311,593 2,052 31,518,002 7,571, ,126 66,400,876 37,120, ,416 17,714,080 2,554, , ,354 4,637,265 1,332,770 63,023,810 (816,644) 3,377,066 (644) 2, , ,300 (729,300} 729,300 1,650 (87, 344} 3,378, ,541 10,519, , ,055 1,955,596 11,476,840 $ 1,868,252 $ 14,855,556 See notes to financial statements 16

20 Reconciliation of the Statement of Revenues, Expenditures and Change In Fund Balances of Governmental Funds To the Statement of Activities Year Ended Total Net Change in Fund Balances - Governmental Funds $ 3,378,716 Amounts reported for governmental activities in the statement of activities are different because: Capital outlays are reported in governmental funds as expenditures. However, in the statements of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation expense exceeded capital outlays in the period: Capital outlays Depreciation expense $ 955,229 (2,798,511) (1,843,282) Because some property taxes will not be collected for several months after the District's fiscal year ends, they are not considered available revenues in the governmental funds. Deferred tax revenues decreased by this amount this year. (30,396) The issuance of long-term debt (e.g. bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. During the fiscal year ended year ended, the following transactions factor into this reconciliation: Retirement of principal of long-term debt Amortization of issuance costs, premiums, and discounts, net Interest on long-term debt in the statement of activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the statement of activities, interest expense is recognized as the interest accrues, regardless of when it is due. The additional interest accrued in the statement of activities over the amount due is shown here, net of state subsidy. $ 3,639,613 (61,253) 3,578,360 19,510 Other postemployment benefits payable are considered long-term in nature, and are not reported as liabilities within the funds. Such liabilities are, howev.er, reported within the statement of net assets, and changes in these liabilities are reflected within the statement of activities. This amount represents the change in other postemployment benefits payable for the year ended. (158,249) In the statement of activities, certain operating expenses including compensated absences (vacations and sick days) are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used. This amount represents the difference between the amount earned versus the amount used.. Change in Net Assets of Governmental Activities 9,425 $ 4,954,084 See notes to financial statements 17

21 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund Year Ended Original Budget Revenues Local sources $ 26,690,473 $ State sources 32,661,879 Federal sources 6,520,229 Total revenues 65,872,581 Expenditures Regular programs 25,387,687 Special programs 11,163,447 Vocational programs 2,115,436 Other instructional programs 1,011,554 Nonpublic school programs 32,585 Adult education programs 19,704 Pupil personnel services 1,453,827 Instructional staff services 944,624 Administrative services 4,591,935 Pupil health 667,855 Business services 499,527 Operation and maintenance of plant services 4,833,916 Student transportation services Central & other support services Student activities Community services Debt service 3,693,326 1,475,149 1,239,750 1,571,063 4,637,975 Variance With Final Budget Final Positive Budget Actual {Negative} 26,690,473 $ 26,797,519 $ 107,046 32,661,879 31,515,950 (1,145,929) 6,520,229 7,571,281 1,051,052 65,872,581 65,884,750 12,169 24,921,602 24,364, ,489 11,163,447 9,936,482 1,226,965 2,115,436 2,055,075 60,361 1,011, , ,694 32,585 29,265 3,320 24,944 24, ,625,157 1,625, ,183,804 1,183, ,591,935 3,888, , , , , ,455 88,072 4,833,916 4,689, ,936 3,693,326 3,399, ,042 1,480,274 1,467,341 12,933 1,239,750 1,188,248 51,502 1,571,063 1,366, ,936 4,637,975 4,637, Total expenditures Excess of Revenues Over Expenditures Before Other Financing Uses 65,339, ,221 65,339,360 61,691,040 3,648, ,221 4,193,710 3,660,489 Other Financing Sources (Uses) Refund of prior year receipts Refund of prior year expenses Transfers in Transfers out Budgetary reserve Total other financing uses, net Net change in fund balance Fund Balance, Beginning Fund Balance, Ending 978,288 (729,300) {809,529) (560,541) (27,320) 6,655,549 $ 6,628,229 $ (644) (644) 2,294 2, ,288 (978,288) (729,300) (729,300) (809,529} 809,529 {560,541) (727,650) (167,109) (27,320) 3,466,060 3,493,380 6,655,549 9,521,244 2,865,695 6,628,229 $ 12,987,304 $ 6,359,075 See notes to financial statements 18

22 Balance Sheet - Proprietary Fund Assets Current Assets Cash and cash equivalents Other receivables Inventories Total current assets Capital Assets Equipment Accumulated depreciation Capital assets, net Total assets $ 610,313 33,800 81, , ,190 (89,628) 22,562 $ 747,901 Liabilities and Net Assets Liabilities Current liabilities: Accounts payable Due to other funds Accrued salaries and benefits Deferred revenue Total current liabilities $ ,433 2,965 35, ,091 Noncurrent liabilities, Compensated absences Total liabilities Net Assets Invested in capital assets, net of related debt Unrestricted Total net assets Total liabilities and net assets 75, ,766 22, , ,135 $ 747,901 See notes to financial statements 19

23 Statement of Revenues, Expenses and Change in Fund Net Assets - Proprietary Fund Year Ended June, 30, 2011 Operating Revenues Food service revenue Operating Expenses Salaries Employee benefits Purchased property services Other purchased services Supplies Depreciation Dues and fees Other operating expenses Total operating expenses Operating loss Nonoperating Revenues Earnings on investments State sources Federal sources Total nonoperating revenues Net Income Net Assets, Beginning Net Assets, Ending $ 996, , ,540 27,115 4,632 1,091,745 9,136 4,941 3,793 2,178,893 (1,182,003) ,115 1,108,831 1,240,371 58, ,767 $ 479,135 See notes to financial statements 20

24 Statement of Cash Flows - Proprietary Fund Year Ended June 30,2011 Cash Flows from Operating Activities Cash received from customers Cash paid to suppliers for goods and services Cash paid to employees for service Internal activity - receipts from other funds Net cash used in operating activities Cash Flows from Noncapital Financing Activities State sources Federal sources Net cash provided by noncapital financing activities Cash Flows Provided by Investing Activities Earnings on investments Decrease in cash and cash equivalents Cash and Cash Equivalents, Beginning Cash and Cash Equivalents, Ending Supplemental Disclosure of Noncash Transactions, USDA donated commodities Reconciliation of Operating Loss to Net Cash Used in Operating Activities Operating loss Adjustments to reconcile operating loss to net cash used in operating activities, Depreciation Change in assets and liabilities resulting in the provision (use) of cash: Other receivables Inventory Accounts payable Due to other funds Accrued salaries and benefits Deferred revenue Net cash used in operating activities $ 1,049,494 (1,170,412) (1,036,364) (159,7q9) (1,317,041) 131,115 1,120,186 1,251, (65,315) 675,628 $ 610,313 $ 79,931 $ (1,182,003) 9,136 53,289 (31,084) (7,102) (159,759) 1,167 (685) $ (1,317,041) See notes to financial statements 21

25 Statement of Fiduciary Net Assets - Fiduciary Funds Agency Assets Cash and cash equivalents Due from other funds Total assets $ 1,028, $1,029,173 Liabilities Due to other funds Other current liabilities Total liabilities and assets $ $ 7,072 1,022,101 1,029,173 See notes to financial statements 22

26 Notes to Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies The major accounting principles and practices followed by Keystone Central School District (the "District") are summarized below: Nature of Operations The District provides elementary and secondary education to the residents of the following municipalities: the City of Lock Haven, the Boroughs of Beech Creek, Flemington, Loganton, Mill Hall, Renovo, and South Renovo, and 22 townships within Clinton, Centre and Potter Counties of Pennsylvania. The District assesses the taxpayers of these municipalities based upon taxing powers at its disposal. The ability of the District's taxpayers to pay their assessments is dependent upon economic and other factors affecting the taxpayers. Reporting Entity The reporting entity has been defined in accordance with the criteria established in Statement Nos. 14 and 39, issued by the Governmental Accounting Standards Board ("GASB"). The specific criteria used in determining whether other organizations should be included in the District's financial reporting entity are financial accountability, fiscal dependency and legal separation. As defined above, there are no other related organizations that should not be included in the District's financial statements, nor is the District considered to be a component unit of any other government. Basis of Presentation - Government-Wide Financial Statements The government-wide financial statements include the statement of net assets and the statement of activities. These financial statements report financial information for the District as a whole, excluding fiduciary activities, on a full accrual, economic resource basis. Individual funds are not displayed but the statements distinguish governmental activities, generally supported by taxes and District general revenues, from business-type activities, generally financed in whole or in part with fees charged to customers. The District's General, Tax Office Special Revenue Fund, Capital Projects and Debt Service funds are classified as governmental activities. The District's Food Service Fund is classified as a business-type activity. The statement of activities reports the expenses of a given function or program offset by program revenues directly connected with that function or program. A function is an assembly of similar activities and may include portions of a fund or summarize more than one fund to capture the expenses and program revenues associated with a distinct functional activity. Program revenues include (1) charges for services to users of the District's services, (2) operating grants and contributions that finance annual operating activities and (3) capital grants and contributions that fund the acquisition, construction or rehabilitation of capital assets. These revenues are subject to externally imposed restrictions to these program uses. Taxes and other revenue sources not properly included with program revenues are reported as general revenues. 23

27 Notes to Financial Statements Basis of Presentation - Fund Financial Statements The accounts of the District are organized on the basis of funds, each of which constitutes a separate accounting entity. The operations of each fund are accounted for within a separate set of self-balancing accounts that comprises its assets, liabilities, fund balances, revenues and expenditures/expenses. Resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent. The District uses the following fund types(* - denotes a major fund): Governmental Fund Types Governmental funds are those through which most governmental functions of the District are financed. The acquisition, use and balances of the District's expendable financial resources and the related liabilities are accounted for through governmental funds. The following is a description of the governmental funds of the District: General Fund* The General Fund accounts for the general operations of the District and all financial transactions not accounted for in another fund. Special Revenue Fund The special revenue fund accounts for proceeds of specific revenue sources (other than special assessments and expendable trusts) that are legally restricted to expenditures for specific purposes. This fund includes. the activities of the Tax Office Special Revenue Fund. Capital Projects Fund The Capital Projects Fund accounts for receipt and disbursement of resources for the purpose of building or buying major capital assets. This fund includes the activities of Capital Projects Fund #30, Capital Projects Fund #32 (formerly Capital Reserve Fund), Capital Projects Fund #34, and Capital Projects Fund #35. Debt Service Fund The Debt Service Fund accounts for resources accumulated for the purpose of funding general long-term debt obligations. Proprietary Fund Type Proprietary funds account for the operations of the District that are financed and operated in a manner similar to those often found in the private sector. The fund included in this category is the Enterprise Fund, which accounts for the food service operations of the District. The Food Service Fund distinguishes between operating revenues and expenses and non-operating items. Operating revenues consist of charges for food served. Operating expenses consist mainly of food and food preparation costs, supplies and other direct costs. All other revenues and expenses are reported as non-operating. 24

28 Notes to Financial Statements Fiduciary Fund Type Fiduciary funds account for the assets held by the District as a trustee or agent for individuals, private organizations and/or other governmental units. The fund included in this category is the Agency Fund, which accounts for assets held by the District as an agent for others. This fund is accounted for in a manner similar to governmental funds and includes the Student Activities Fund and the Tax Office Agency Fund 17. Measurement Focus Government-Wide Financial Statements The government-wide financial statements are prepared using the economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of the District are included on the statement of net assets. The statement of activities presents increases (i.e., revenues) and decreases (i.e., expenses) in the District's net total assets. Fund Financial Statements Governmental funds are accounted for using the current financial resources measurement focus. With this measurement focus, only current assets and current liabilities generally are included on the balance sheet. Operating statements of these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. Proprietary funds are also accounted for using the economic resources measurement focus. Basis of Accounting Basis of accounting refers to the point at which revenues or expenditures/expenses are recognized in the accounts and reported in the financial statements. It relates to the timing of the measurements made regardless of the measurement focus applied. Accrual Basis Government-wide financial statements and the proprietary and fiduciary fund type financial statements are prepared using the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when incurred. Tax revenues are recognized in the year levied while grant revenue is recognized when grantor eligibility requirements are met. 25

29 Notes.to Financial Statements Modified Accrual Basis Governmental funds use the modified accrual basis of accounting. Under the modified accrual basis, revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to be used to pay the liabilities of the current period. The District considers property and other taxes as available if they are collected within 60 days after year end. A one-year availability period is used for revenue recognition for all other governmental fund revenues (primarily inter-governmental in nature). Expenditures, other than principal and interest on bonds payable, compensated absences and.claims and judgments, are recorded when the related fund liability is incurred. Principal and interest on bonds payable, compensated absences and claims and judgments are recorded as fund liabilities when due and unpaid. The District reports deferred revenue on its fund financial statements. Deferred revenue arises when potential revenues do not meet both the "measurable" and "available" criteria for recognition in the current period. Deferred revenues may also arise when the District receives resources before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for deferred revenue is removed and revenue is recognized. The District applies all relevant GASB pronouncements and applicable Financial Accounting Standards Board ("FASB") pronouncements issued on or before November 30, 1989, unless they conflict with GASB pronouncements. The District does not apply FASB pronouncements issued after November 30, Allocation of Indirect Expenses The District allocates certain building-related costs to the proprietary fund. It does not allocate any other indirect costs including depreciation. Budgets and Budgetary Accounting An operating budget is adopted each year for the General Fund on a modified accrual basis of accounting. The Pennsylvania School Code dictates specific procedures relative to adoption of the District's budget and reporting of its financial statements, specifically: The District, before levying annual school taxes, is required to prepare an operating budget for the succeeding fiscal year. The District is required to have the budget printed, or otherwise made available for public inspection at least twenty (20) days prior to the date set for the adoption of the budget. Final action may not be taken on any proposed budget in which the estimated expenditures exceed two thousand dollars ($2,000), until after ten (10) days public notice. 26