VAL VERDE UNIFIED SCHOOL DISTRICT ANNUAL FINANCIAL REPORT JUNE 30, 2014

Transcription

1 VAL VERDE UNIFIED SCHOOL DISTRICT ANNUAL FINANCIAL REPORT

2 TABLE OF CONTENTS FINANCIAL SECTION Independent Auditor's Report 2 Management's Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 15 Statement of Activities 16 Fund Financial Statements Governmental Funds - Balance Sheet 17 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 18 Governmental Funds - Statement of Revenues, Expenditures, and Changes in Fund Balances 19 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities 20 Fiduciary Funds - Statement of Net Position 22 Fiduciary Funds - Changes in Net Position 23 Notes to Financial Statements 24 REQUIRED SUPPLEMENTARY INFORMATION General Fund - Budgetary Comparison Schedule 62 SELPA - Budgetary Comparison Schedule 63 Schedule of Other Postemployment Benefits (OPEB) Funding Progress 64 SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards 66 Local Education Agency Organization Structure 68 Schedule of Average Daily Attendance 69 Schedule of Instructional Time 70 Reconciliation of Annual Financial and Budget Report With Audited Financial Statements 71 Schedule of Financial Trends and Analysis 72 Combining Statements - Non-Major Governmental Funds Combining Balance Sheet 73 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 74 General Fund Selected Financial Information 75 Cafeteria Fund Selected Financial Information 76 Note to Supplementary Information 77 INDEPENDENT AUDITOR'S REPORTS 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 81 Report on Compliance for Each Major Program and Report on Internal Control Over Compliance Required by the OMB Circular A Report on State Compliance 85

3 TABLE OF CONTENTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS Summary of Auditor's Results 88 Financial Statement Findings 89 Federal Awards Findings and Questioned Costs 90 State Awards Findings and Questioned Costs 91 Summary Schedule of Prior Audit Findings 92

4 FINANCIAL SECTION 1

5 INDEPENDENT AUDITOR'S REPORT Governing Board Val Verde Unified School District Perris, California Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Val Verde Unified School District (the District) as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Standards and Procedures for Audits of California K-12 Local Education Agencies , issued by the California Education Audit Appeals Panel as regulations. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District'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 District's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2

6 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Val Verde Unified School District, as of June 30, 2014, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter - Change in Accounting Principles As discussed in Note 17 to the financial statements, the District has elected to change its method of accounting for cost of debt issuance as prescribed by GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the required supplementary information, such as management's discussion and analysis on pages 5 through 14 and budgetary comparison and other postemployment benefit information on pages 62 through 64, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Val Verde Unified School District's basic financial statements. The accompanying supplementary information such as the combining and individual nonmajor fund financial statements and Schedule of Expenditures of Federal Awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and the other supplementary information as listed on the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3

7 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 3, 2014, on our consideration of the Val Verde Unified School 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Val Verde Unified School District's internal control over financial reporting and compliance. Rancho Cucamonga, California December 3,

8 Val Verde Unified School District 975 W Morgan Street Perris, CA BOARD OF EDUCATION: Marla Kirkland Wraymond Sawyerr Suzanne Stotlar Michael M. Vargas D. Shelly Yarbrough This section of Val Verde Unified School District's (the District) annual financial report presents our discussion and analysis of the District's financial performance during the fiscal year that ended on June 30, 2014, with comparative information from Please read it in conjunction with the District's financial statements, which immediately follow this section. Juan López Superintendent R. Darrin Watters Assistant Superintendent Business Services Michael McCormick Assistant Superintendent Education Services Christi Goodloe Assistant Superintendent Human Resources OVERVIEW OF THE FINANCIAL STATEMENTS The Financial Statements The financial statements presented herein, include all of the activities of the District and its component units using the integrated approach as prescribed by Governmental Accounting Standards Board (GASB) Statement No 34. The Government-Wide Financial Statements present the financial picture of the District from the economic resources measurement focus using the accrual basis of accounting. These statements include all assets of the District as well as all liabilities (including long-term obligations). Additionally, certain eliminations have occurred as prescribed by the statement in regards to interfund activity, payables, and receivables. Governmental Activities are prepared using the economic resources measurement focus and the accrual basis of accounting. The Fund Financial Statements include statements for each of the two categories of activities: governmental and fiduciary. The Governmental Funds are prepared using the current financial resources measurement focus and modified accrual basis of accounting. The Fiduciary Funds are prepared using the economic resources measurement focus and the accrual basis of accounting. Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach. The Primary unit of the government is the Val Verde Unified School District. 5

9 MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL HIGHLIGHTS OF THE PAST YEAR The District generated over $125 Million in revenue under the new Local Control Funding Formula. On October 31, 2013, the District issued a General Obligation Bond Anticipation Note in the amount of $28,770,000. The District broke ground on Orange Vista High School on March 7, Orange Vista is scheduled to open for the school year. The District continues to be the Administrative Unit for the Riverside County SELPA, and has recorded non pass-through SELPA activity in the General Fund of the District. Total revenues and other sources for SELPA were $12,823,639, while total expenditures and other uses were $12,944,882. The District continues to show their commitment to fiscal solvency by funding their OPEB liability. REPORTING THE DISTRICT AS A WHOLE The Statement of Net Position and the Statement of Activities The Statement of Net Position and the Statement of Activities report information about the District as a whole and about its activities. These statements include all assets and liabilities of the District using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the District's net position and changes in them. Net position is the difference between assets and deferred outflows of resources, and liabilities and deferred inflows of resources, which is one way to measure the District's financial health, or financial position. Over time, increases or decreases in the District's net position will serve as a useful indicator of whether the financial position of the District is improving or deteriorating. The relationship between revenues and expenses is the District's operating results. Since the responsibility of the Board of Education is to provide services to our students and not to generate profit as commercial entities do, one must consider other factors when evaluating the overall health of the District. The quality of the education and the safety of our schools will likely be an important component in this evaluation. In the Statement of Net Position and the Statement of Activities, the District activities are as follows: Governmental Activities - Most of the District's services are reported in this category. This includes the education of kindergarten through grade twelve students, the operation of child development activities, and the on-going effort to improve and maintain buildings and sites. Property taxes, State income taxes, user fees, interest income, Federal, State, and local grants, as well as certificates of participation, finance these activities. 6

10 MANAGEMENT'S DISCUSSION AND ANALYSIS REPORTING THE DISTRICT'S MOST SIGNIFICANT FUNDS Fund Financial Statements The fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money that it receives from the U.S. Department of Education. Governmental Funds - Most of the District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The differences of results in the governmental fund financial statements to those in the government-wide financial statements are explained in a reconciliation following each governmental fund financial statement. THE DISTRICT AS TRUSTEE Reporting the District's Fiduciary Responsibilities The District is the fiduciary for funds held on behalf of others, like our funds for associated student body activities and Community Facilities Districts. The District's fiduciary activities are reported in the Statements of Fiduciary Net Position and the Statement of Revenues, Expenses, and Changes in Net Position. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance its operations. The District is responsible for ensuring that the assets reported in these funds are used for their intended purposes. THE DISTRICT AS A SELPA ADMINISTRATIVE UNIT Reporting the District's Administrative Unit Responsibilities The District is the Administrative Unit for the Riverside County Special Education Local Plan Area (SELPA). As the SELPA's Administrative Unit, the Val Verde Unified School District receives funds and is responsible for ensuring that every eligible child receives appropriate services. Costs for the Administrative Unit are provided by special funding from the State. These financial statements reflect all SELPA activities within the District's General Fund and the Special Education Pass-Through Fund. 7

11 MANAGEMENT'S DISCUSSION AND ANALYSIS THE DISTRICT AS A WHOLE Net Position The District's net position was $362,794,792 for the fiscal year ended June 30, Of this amount, $18,269,142 was unrestricted. Restricted net position is reported separately to show legal constraints from debt covenants, grantors, constitutional provisions, and enabling legislation that limit the governing board's ability to use net position for day-to-day operations. Our analysis below, in summary form, focuses on the net position (Table 1) and change in net position (Table 2) of the District's governmental activities. Table 1 Governmental Activities (As Restated) Assets Current assets $ 189,538,344 $ 191,160,418 Capital assets 436,563, ,169,703 Total Assets 626,101, ,330,121 Liabilities Current liabilities 79,404,182 97,481,001 Long-term obligations 183,902, ,627,450 Total Liabilities 263,306, ,108,451 Net Position Net investment in capital assets 314,565, ,975,137 Restricted 29,960,319 24,318,601 Unrestricted 18,269,142 30,927,932 Total Net Position $ 362,794,792 $ 366,221,670 8

12 MANAGEMENT'S DISCUSSION AND ANALYSIS Changes in Net Position The results of this year's operations for the District as a whole are reported in the Statement of Activities on page 16. Table 2 takes the information from the Statement of Activities, so you can see our total revenues for the year. As reported in the Statement of Activities on page 16, the cost of all of our governmental activities this year was $389,156,088. However, the amount that our taxpayers ultimately financed for these activities through local taxes was only $48,203,351, because the cost was paid by those who benefited from the programs $10,740,889, or by other governments and organizations who subsidized certain programs with grants and contributions $205,669,166. We paid for the remaining "public benefit" portion of our governmental activities with $110,325,422 in Federal and State funds, and with other revenues $10,790,382, like interest and general entitlements. Table 2 Governmental Activities Revenues Program revenues: Charges for services $ 10,740,889 $ 10,941,587 Operating grants and contributions 206,038, ,982,247 Capital grants and contributions (369,690) 9,996 General revenues: Federal and State aid not restricted to specific purposes 110,325,422 97,466,802 Property taxes 48,203,351 47,720,612 Other general revenues 10,790,382 7,097,300 Total Revenues 385,729, ,218,544 Expenses Instruction 120,036, ,359,175 Instruction-related activities 20,006,117 18,308,738 Pupil services 24,751,137 22,421,762 General administration 10,283,778 9,204,628 Plant services 17,870,874 17,655,305 Other 196,207, ,297,133 Total Expenses 389,156, ,246,741 Change in Net Position $ (3,426,878) $ (4,028,197) 9

13 MANAGEMENT'S DISCUSSION AND ANALYSIS Governmental Activities In Table 3, we have presented the cost of each of the District's primary functions - instruction, instruction-related activities, home-to-school transportation, food services, other pupil services, administration, plant services, ancillary services, interest on long-term obligations, and other outgo, as well as each program's net cost (total cost less revenues generated by the activities). As discussed above, net cost shows the financial burden that was placed on the District's taxpayers by each of these functions. Providing this information allows our citizens to consider the cost of each function in comparison to the benefits they are provided by that function. Table Net (Cost) Net (Cost) Total Cost Revenue Total Cost Revenue of Services of Services of Services of Services Instruction $ 120,036,665 $ 85,216,337 $ 110,359,175 $ 76,542,058 Instruction-related activities 20,006,117 15,566,040 18,308,738 13,102,033 Home-to-school transportation 2,308,782 2,308,782 2,122,318 1,301,084 Food services 10,605, ,243 9,798,467 (444,387) Other pupil services 11,837,142 8,010,390 10,500,977 6,980,645 Administration 10,283,778 8,840,729 9,204,628 8,286,905 Plant services 17,870,874 16,627,015 17,655,305 17,171,502 Ancillary services 973, , , ,952 Interest on long-term obligations 7,731,034 7,731,034 6,985,071 6,985,071 Other outgo 187,503,038 27,333, ,399,110 25,475,048 Total $ 389,156,088 $ 172,746,033 $ 391,246,741 $ 156,312,911 THE DISTRICT'S FUNDS As the District completed the fiscal year, our governmental funds reported a combined fund balance of $113,335,344, which is an increase of $16,935,317 from last year (Table 4). Table 4 Balances and Activity July 1, 2013 Revenues Expenditures June 30, 2014 General Fund $ 34,004,001 $ 174,594,501 $ 183,364,787 $ 25,233,715 Special Education Pass-Through Fund 839, ,918, ,120, ,015 Building Fund 40,125,396 28,143,334 7,827,532 60,441,198 Non-Major Governmental Funds 21,431,035 32,519,170 26,927,789 27,022,416 Total $ 96,400,027 $ 421,175,735 $ 404,240,418 $ 113,335,344 10

14 MANAGEMENT'S DISCUSSION AND ANALYSIS The primary reasons for these increases/decreases are: 1. The General Fund is the District's principal operating fund. During fiscal year , the fund balance in the General Fund decreased $8,770,286 leaving an ending balance of $25,233,715 due to the District deficit spending. 2. The Building Fund increased due to the issuance of the General Obligation Bond Anticipation Note. 3. The Capital Facilities Fund increased due to collection of developer fees and CFD Capital Fund increased due to proceeds from 2014 CFD Issuance. General Fund Budgetary Highlights, including SELPA Activity Over the course of the year, the District revises its budget as it attempts to deal with unexpected changes in revenues and expenditures. A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in our annual report on page 62. Our original General Fund revenue budget was projected to be $160,516,742. It was adjusted throughout the year with a final revision of $171,638,144. The actual amount of revenue received was $174,551,521, which was $2,913,377 more than the final budget. The increase was primarily due to State and Other Local Revenues. Our original expenditure budget was projected to be $165,858,726. It also was adjusted throughout the year with a final revision of $180,036,446. The actual amount of expenditures was $177,001,185, which was $3,035,261 less than the final budget. The increases/decreases in variances of the Final Budget to the Actual Expenditures were due to: 1. Increases in the cost of certificated ($802,705) and classified ($397,185) salary costs as well as the retroactive cost on extra duty. 2. Decreases in books and supplies ($803,128), and services and other operating expenditures ($714,507) due to money budgeted for use by restricted programs not being used in the current year. 11

15 MANAGEMENT'S DISCUSSION AND ANALYSIS CAPITAL ASSET AND DEBT ADMINISTRATION Net Capital Assets At June 30, 2014, the District had a net $436,563,445 in a broad range of capital assets, including land, buildings, and furniture and equipment - each having a value of at least $5,000. This amount represents a net increase (including additions and depreciation) of $3,393,742, or 0.8 percent, above last year. Table 5 Governmental Activities Land and construction in process $ 120,712,368 $ 118,340,616 Buildings and improvements 307,686, ,473,135 Equipment 8,164,846 5,355,952 Total $ 436,563,445 $ 433,169,703 This year's additions of $6,926,060 include mostly cost associated with the building of Orange Vista High School and an Aquatic Center at Citrus Hill High School. Several capital projects are planned for the year. We anticipate capital additions to be around $60 million for the year. We present more detailed information about our capital assets in Note 4 to the financial statements. Long-Term Obligations At the end of this year, the District had $183,902,815 in long-term obligations outstanding versus $160,627,450 last year, an increase of 14.5 percent. Long-term obligations at June 30, 2014, consisted of: Table 6 Governmental Activities General obligation bonds $ 76,130,443 $ 78,908,625 Bond anticipation notes 28,770,000 - Certificates of participation 79,052,230 81,198,013 Capitalized lease obligations 69,315 97,945 Supplemental employee retirement program 44, ,604 Net OPEB obligation (163,541) 263 Total $ 183,902,815 $ 160,627,450 12

16 MANAGEMENT'S DISCUSSION AND ANALYSIS The District's long-term obligations are: 1. General Obligation Bonds balance at June 30, 2014; include the 2008 Series A ($24,475,000), the 2010 Series B ($9,044,768), the 2013 Series A ($39,140,000) and a Premium on Issuance ($3,470,675). The 2008 Series A was partially refunded by the 2010 Series B. 2. Certificates of Participation obligation balances at June 30, 2014, include the 2005 Series B Refunding Certificates of Participation (COPs) ($36,805,000), the 2009 Series A ($42,560,000), and a Discount on Issuance ($312,770). The 2008 Series A was refunded by the 2009 Series A. In order to respond to rapid growth, the COPs were issued to construct schools, install modular classrooms, and finance costs of planning and design of sites to be used for the public education activities of the District. 3. Lease obligations are for equipment that the District eventually will own when the lease payments are completed. We present more detailed information regarding our long-term obligations in Note 9 of the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES In considering the District Budget for the year, the District Board of Education and Management used the following criteria: The key assumptions in our revenue forecast are: 1. Local Control Funding Formula per Average Daily Attendance (ADA) Cost of Living Adjustment (COLA) of 0.85 and a GAP Percentage of percent. 2. Federal income will be projected at the prior year level. 3. Other State income (categorical projects) will be projected at the prior year level. Expenditures are based on the following Student - Teacher Ratio Forecasts: Grade Staffing Ratio Enrollment Ratios Kindergarten 30:1 30:1 Grades one through three 30:1 30:1 Grades four and five 32:1 32:1 Grades six through eight 30:1 36:1 Grades nine through twelve 30:1 36:1 13

17 MANAGEMENT'S DISCUSSION AND ANALYSIS The new items specifically addressed in the expenditure budget are: 1. Increases in spending as a result of increased Concentration and Supplemental dollars through LCFF. 2. Increases to the employer contribution rate for CalSTRS. 3. Reinstatement of Education Code Section , which requires a school district to deposit 3 percent of its General Fund expenditures into a routine restricted maintenance account. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, students, and investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. If there are questions about this report or a need for any additional financial information, contact Kristin Merritt, Director of Fiscal Services, at Val Verde Unified School District, 975 W. Morgan Street, Perris, California, 92571, or at kmerritt@valverde.edu. 14

18 STATEMENT OF NET POSITION Governmental Activities ASSETS Deposits and investments $ 124,492,402 Receivables 64,867,879 Stores inventories 178,063 Capital assets Land and construction in process 120,712,368 Other capital assets 418,051,783 Accumulated depreciation (102,200,706) Total Capital Assets 436,563,445 Total Assets 626,101,789 LIABILITIES Accounts payable 58,954,703 Due to retiree benefits trust 850,650 Interest payable 3,201,182 Unearned revenue 657,647 Current loans 15,740,000 Long-term obligations Current portion of long-term obligations 4,415,063 Noncurrent portion of long-term obligations 179,487,752 Total Long-Term Obligations 183,902,815 Total Liabilities 263,306,997 NET POSITION Net investment in capital assets 314,565,331 Restricted for: Debt service 12,477,512 Capital projects 5,264,514 Educational programs 7,114,674 Other activities 5,103,619 Unrestricted 18,269,142 Total Net Position $ 362,794,792 The accompanying notes are an integral part of these financial statements. 15

19 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED Net (Expenses) Revenues and Changes in Program Revenues Net Position Charges for Operating Capital Services and Grants and Grants and Governmental Functions/Programs Expenses Sales Contributions Contributions Activities Governmental Activities: Instruction $ 120,036,665 $ 6,526,956 $ 28,663,062 $ (369,690) $ (85,216,337) Instruction-related activities: Supervision of instruction 6,462,640 76,702 3,978,826 - (2,407,112) Instructional library, media, and technology 1,464,181-51,186 - (1,412,995) School site administration 12,079,296 23, ,282 - (11,745,933) Pupil services: Home-to-school transportation 2,308, (2,308,782) Food services 10,605, ,573 9,708,397 - (139,243) All other pupil services 11,837,142 6,684 3,820,068 - (8,010,390) Administration: Data processing 2,598,393 (42,990) 46,415 - (2,594,968) All other administration 7,685,385 94,160 1,345,464 - (6,245,761) Plant services 17,870,874 18,360 1,225,499 - (16,627,015) Ancillary services 973, (973,445) Interest on long-term obligations 7,731, (7,731,034) Other outgo 187,503,038 3,280, ,889,657 - (27,333,018) Total Governmental Activities $ 389,156,088 $ 10,740,889 $ 206,038,856 $ (369,690) (172,746,033) General revenues and subventions: Property taxes, levied for general purposes 43,292,477 Property taxes, levied for debt service 3,929,862 Taxes levied for other specific purposes 981,012 Federal and State aid not restricted to specific purposes 110,325,422 Interest and investment earnings 167,518 Miscellaneous 10,622,864 Subtotal, General Revenues 169,319,155 Change in Net Position (3,426,878) Net Position - Beginning 368,579,990 Prior Period Adjustment (2,358,320) Net Assets - Beginning, As Restated 366,221,670 Net Position - Ending $ 362,794,792 The accompanying notes are an integral part of these financial statements. 16

20 GOVERNMENTAL FUNDS BALANCE SHEET Special Education General Pass-Through Building Fund Fund Fund ASSETS Deposits and investments $ 20,711,722 $ 14,662,033 $ 61,911,311 Receivables 25,818,783 37,299,613 56,146 Due from other funds 3,519, ,539 - Stores inventories 42, Total Assets $ 50,093,171 $ 52,836,185 $ 61,967,457 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 6,177,869 $ 51,152,500 $ 1,526,259 Due to other funds 2,283,940 1,045,670 - Current loan 15,740, Unearned revenue 657, Total Liabilities 24,859,456 52,198,170 1,526,259 Fund Balances: Nonspendable 67, Restricted 7,114, ,015 60,441,198 Assigned 861, Unassigned 17,189, Total Fund Balances 25,233, ,015 60,441,198 Total Liabilities and Fund Balances $ 50,093,171 $ 52,836,185 $ 61,967,457 The accompanying notes are an integral part of these financial statements. 17

21 Non-Major Governmental Funds Total Governmental Funds $ 27,207,336 $ 124,492,402 1,693,337 64,867, ,751 4,952, , ,063 $ 29,594,496 $ 194,491,309 $ 98,075 $ 58,954,703 2,474,005 5,803,615-15,740, ,647 2,572,080 81,155, , ,482 26,878,925 95,072, ,579-17,189,471 27,022, ,335,344 $ 29,594,496 $ 194,491,309 17

22 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION Total Fund Balance - Governmental Funds $ 113,335,344 Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of capital assets is: $ 538,764,151 Accumulated depreciation is: (102,200,706) Net Capital Assets 436,563,445 In governmental funds, unmatured interest on long-term obligations is recognized in the period when it is due. On the government-wide financial statements, unmatured interest on long-term obligations is recognized when it is incurred. (3,201,182) Long-term obligations at year-end consist of: General obligation bonds 101,317,205 Premium on issuance 3,470,675 Certificates of participation 79,365,000 Discount on issuance (312,770) Capital lease obligations 69,315 Supplemental Early Retirement Program (SERP) 44,368 Net OPEB obligation (163,541) In addition, the District has issued "capital appreciation" general obligation bonds. The accretion of interest on the general obligation bonds to date is: 112,563 Total Long-Term Obligations (183,902,815) Total Net Position - Governmental Activities $ 362,794,792 The accompanying notes are an integral part of these financial statements. 18

23 GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED Special Education General Pass-Through Building Fund Fund Fund REVENUES Local Control Funding Formula $ 125,188,130 $ 25,013,293 $ - Federal sources 10,149,443 42,994,579 - Other State sources 16,277, ,869,214 - Other local sources 22,936,055 41, ,699 Total Revenues 174,551, ,918, ,699 EXPENDITURES Current Instruction 110,996, Instruction-related activities: Supervision of instruction 6,470, Instructional library, media, and technology 1,466, School site administration 11,690, Pupil services: Home-to-school transportation 2,308, Food services 81, All other pupil services 11,730, Administration: Data processing 2,117, All other administration 7,253, Plant services 17,981,332-12,628 Facility acquisition and construction 2,938,886-7,762,820 Ancillary services 974, Other outgo 508, ,120,310 - Debt service Principal Interest and other 481,082-9,104 Total Expenditures 177,001, ,120,310 7,784,552 Deficiency of Revenues Under Expenditures (2,449,664) (201,580) (7,529,853) OTHER FINANCING SOURCES (USES) Transfers in 42, Other sources ,888,635 Transfers out (6,363,602) - (42,980) Net Financing Sources (Uses) (6,320,622) - 27,845,655 NET CHANGE IN FUND BALANCES (8,770,286) (201,580) 20,315,802 Fund Balances - Beginning 34,004, ,595 40,125,396 Fund Balances - Ending $ 25,233,715 $ 638,015 $ 60,441,198 The accompanying notes are an integral part of these financial statements. 19

24 Non-Major Governmental Funds Total Governmental Funds $ - $ 150,201,423 9,584,874 62,728,896 2,062, ,209,977 12,758,623 35,991,021 24,406, ,131,317 1,375, ,372,524-6,470,286-1,466, ,900 12,098,846-2,308,782 10,312,490 10,394, ,028 11,855,126-2,117, ,361 7,995, ,738 18,305, ,702 11,498, ,640 23, ,652,388 4,943,630 4,943,630 6,769,241 7,259,427 25,807, ,713,243 (1,400,829) (11,581,926) 6,633,545 6,676,525 1,479,258 29,367,893 (1,120,593) (7,527,175) 6,992,210 28,517,243 5,591,381 16,935,317 21,431,035 96,400,027 $ 27,022,416 $ 113,335,344 19

25 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED Total Net Change in Fund Balances - Governmental Funds $ 16,935,317 Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Capital outlay to purchase or build capital assets are reported in governmental funds as expenditures, however, for governmental activities, those costs are shown in the Statement of Net Position and allocated over their estimated useful lives as annual depreciation expenses in the Statement of Activities. This is the amount by which capital outlay exceeds depreciation in the period. Capital outlay $ 13,078,324 Depreciation expense (9,684,582) 3,393,742 In the Statement of Activities, certain operating expenses - special termination benefits (early retirement) are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). This year, special termination benefits used were more than the amounts earned by $378, ,236 In the Statement of Activities Other Postemployment Benefit Obligations (OPEB) are measured by an actuarially determined Annual Required Contribution (ARC). In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). This year, amounts contributed toward the OPEB obligation were more than the ARC by $163, ,804 Proceeds received from issuance of debt is a revenue in the governmental funds, but it increases long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: Sale of bond anticipation notes (28,770,000) The accompanying notes are an integral part of these financial statements. 20

26 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES (Continued) FOR THE YEAR ENDED Repayment of principal is an expenditure in the governmental funds, but it reduces long-term obligations in the Statement of Net Position and does not affect the Statement of Activities: General obligation bonds $ 2,755,000 Certificates of participation 2,160,000 Capital lease obligations 28,630 The accretion of interest on capital appreciation bonds is not recognized in the governmental funds, but it increases long-term obligations in the Statement of Net Position and increases interest expense in the Statement of Activities. (112,563) Under the modified basis of accounting used in the governmental funds, expenditures are not recognized for transactions that are not normally paid with expendable available financial resources. In the Statement of Activities, however, which is presented on the accrual basis, expenses and liabilities are reported regardless of when financial resources are available. This adjustment combines the net changes of the following balances: Amortization of debt premium $ 135,745 Amortization of debt discount (14,217) Combined adjustment 121,528 Interest on long-term obligations in the Statement of Activities differs from the amount reported in the governmental funds because interest is recorded as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due. The accrued interest reported in the Statement of Activities on the certificates of participation and general obligation bonds increased by $480,572. (480,572) Change in Net Position of Governmental Activities $ (3,426,878) The accompanying notes are an integral part of these financial statements. 21

27 FIDUCIARY FUNDS STATEMENT OF NET POSITION Retiree Student Total Benefits Financing Body Fiduciary Trust Authority Funds Funds ASSETS Deposits and investments $ 3,240,677 $ 4,912,347 $ 765,849 $ 8,918,873 Receivables - - 8,216 8,216 Due from other funds 850, ,650 Stores inventories ,931 64,931 Total Assets $ 4,091,327 $ 4,912,347 $ 838,996 $ 9,842,670 LIABILITIES Due to bondholders $ - $ 4,912,347 $ - $ 4,912,347 Due to student groups , ,996 Total Liabilities - 4,912, ,996 5,751,343 NET POSITION Held in trust for retiree benefits 4,091, ,091,327 Total Net Position $ 4,091,327 $ - $ - $ 4,091,327 The accompanying notes are an integral part of these financial statements. 22

28 FIDUCIARY FUNDS CHANGES IN NET POSITION FOR THE YEAR ENDED Retiree Benefits Trust ADDITIONS Increase in Fair Market Value $ 234,590 District contributions 850,650 Interest 83,216 Total Additions 1,168,456 DEDUCTIONS Retiree benefits 32,754 Change in Net Position 1,135,702 Net Position - Beginning 2,955,625 Net Position - Ending $ 4,091,327 The accompanying notes are an integral part of these financial statements. 23

29 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Financial Reporting Entity The Val Verde Unified School District (the District) was unified on July 1, 1991, under the laws of the State of California. The District operates under a locally elected five-member Board form of government and provides educational services to grades K - 12 as mandated by the State and/or Federal agencies. The District operates twelve elementary schools, four middle schools, two high schools, one opportunity school, one independent study program, and a continuation high school. A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, boards, and agencies that are not legally separate from the District. For Val Verde Unified School District, this includes general operations, food service, and student related activities of the District. Component Units Component units are legally separate organizations for which the District is financially accountable. Component units may also include organizations that are fiscally dependent on the District, in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable but the nature and significance of the organization's relationship with the District is such that exclusion would cause the District's financial statements to be misleading or incomplete. For financial reporting purposes, the component units have a financial and operational relationship which meets the reporting entity definition criteria of the Governmental Accounting Standards Board (GASB) Statement No. 14, The Financial Reporting Entity, and thus are included in the financial statements of the District. The component units, although legally separate entities, are reported in the financial statements using the blended presentation method as if they were part of the District's operations because the governing board of the component units is essentially the same as the governing board of the District and because their purpose is to finance the construction of facilities to be used for the benefit of the District. Val Verde Unified School District has financial and operational relationships, which meet the reporting entity definition criteria of the GASB Codification of Governmental Accounting and Financial Reporting Standards, Section 2100, for inclusion as component units of the District with the following entity: Perris Valley Financing Authority (COP) The financial activities of the COPs have been included in the financial statements of the District. Certificates of participation issued by the Corporation and Financing Authorities are included in the long-term obligations footnote. Individually prepared financial statements are not prepared for the Corporations. 24

30 NOTES TO FINANCIAL STATEMENTS The Val Verde Unified School District Community Facilities Districts (CFDs) financial activity is presented in the financial statements as the CFD Capital Fund and in the Fiduciary Funds Statement as the Financing Authority. Special Tax Bonds issued by the CFDs are not included in the long-term obligations of the Statement of Net Position as they are not obligations of the District. Individually prepared financial statements are not prepared for each of the CFDs. The following are those aspects of the relationship between the District and the above entities, which satisfy GASB Codification Section 2100 criteria. Manifestations of Oversight The entities' Board of Directors was appointed by the District's governing board. The entities have no employees. The District's Superintendent and Assistant Superintendent, Business Services, function as agents of the entities. Neither individual receives additional compensation for work performed in this capacity. The District exercises significant influence over operations of the entities. It is anticipated that the District will be the sole lessee of all facilities owned by the COP. Accountability for Fiscal Matters All major financing arrangements, contracts, and other transactions of the entities must have the consent of the governing board. Any deficits incurred by the COP will be reflected in the lease payments of the District. Any surpluses of the COPs revert to the District at the end of the lease period. It is anticipated that the District's lease payments will be the sole revenue source of the COPs. Scope of Public Service The entities were created for the sole purpose of financially assisting the District. The entities are a nonprofit, public benefit corporation incorporated under the laws of the State of California and recorded by the Secretary of State. The entities were formed to provide financing assistance to the District for construction and acquisition of major capital facilities. Upon completion, the District intends to occupy all COP facilities under a lease-purchase agreement effective through the year At the end of the lease term, title of all COP property will pass to the District for no additional consideration. 25

31 NOTES TO FINANCIAL STATEMENTS Basis of Presentation - Fund Accounting The accounting system is organized and operated on a fund basis. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The District's funds are grouped into two broad fund categories: governmental and fiduciary. Governmental Funds Governmental Funds are those through which most governmental functions typically are financed. Governmental fund reporting focuses on the sources, uses, and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is reported as fund balance. The following are the District's major and non-major governmental funds: Major Governmental Funds General Fund The General Fund is the chief operating fund for all districts. It is used to account for the ordinary operations of the District. All transactions except those accounted for in another fund are accounted for in this fund. One fund currently defined as special revenue fund in the California State Accounting Manual (CSAM) does not meet the GASB Statement No. 54 special revenue fund definition. Specifically, Fund 17, Special Reserve Fund for Other Than Capital Outlay Projects is not substantially composed of restricted or committed revenue sources. While this fund is authorized by statute and will remain open for internal reporting purposes, this fund functions effectively as an extension of the General Fund, and accordingly has been combined with the General Fund for presentation in these audited financial statements. As a result, the General Fund reflects an increase in assets, fund balance, and revenues of $7,408,342, $7,408,342, and $25,658, respectively. Special Education Pass-Through Fund This fund is used by the Administrative Unit of a multi-district Special Education Local Plan Area (SELPA) to account for Special Education revenue passed through to other member districts. Building Fund The Building Fund exists primarily to account separately for proceeds from the sale of bonds (Education Code Section 15146) and may not be used for any purposes other than those for which the bonds were issued. 26

32 NOTES TO FINANCIAL STATEMENTS Non-Major Governmental Funds Special Revenue Funds The Special Revenue funds are used to account for the proceeds from specific revenue sources (other than trusts, major capital projects, or debt service) that are restricted or committed to expenditures for specified purposes and that compose a substantial portion of the inflows of the fund. Additional resources that are restricted, committed, or assigned to the purpose of the fund may also be reported in the fund. Child Development Fund The Child Development Fund is used to account separately for Federal, State, and local revenues to operate child development programs and is to be used only for expenditures for the operation of child development programs. Cafeteria Fund The Cafeteria Fund is used to account separately for Federal, State, and local resources to operate the food service program (Education Code Sections ) and is used only for those expenditures authorized by the governing board as necessary for the operation of the District's food service program (Education Code Sections and 38100). Capital Project Funds The Capital Project funds are used to account for financial resources that are restricted, committed, or assigned to the acquisition or construction of major capital facilities and other capital assets (other than those financed by proprietary funds and trust funds). Capital Facilities Fund The Capital Facilities Fund is used primarily to account separately for monies received from fees levied on developers or other agencies as a condition of approving a development (Education Code Sections ). Expenditures are restricted to the purposes specified in Government Code Sections or to the items specified in agreements with the developer (Government Code Section 66006). County School Facilities Fund The County School Facilities Fund is established pursuant to Education Code Section to receive apportionments from the 1998 State School Facilities Fund (Proposition la), the 2002 State School Facilities Fund (Proposition 47), the 2004 State School Facilities Fund (Proposition 55), or the 2006 State Schools Facilities Fund (Proposition 1D) authorized by the State Allocation Board for new school facility construction, modernization projects, and facility hardship grants, as provided in the Leroy F. Greene School Facilities Act of 1998 (Education Code Section et seq.). CFD Capital Fund The CFD Capital Fund is used to account for capital projects financed by Community Facilities Districts and similar entities that are considered blended component units of the District under generally accepted accounting principles (GAAP). Debt Service Funds The Debt Service funds are used to account for the accumulation of restricted, committed, or assigned resources for and the payment of principal and interest on general long-term debt. Bond Interest and Redemption Fund The Bond Interest and Redemption Fund is used for the repayment of bonds issued for a district (Education Code Sections ). Debt Service Fund for Blended Component Units The Debt Service Fund for Blended Component Units is used to account for the accumulation of resources for the payment of principal and interest on bonds issued by entities that are considered blended component units of the District under generally accepted accounting principles (GAAP). 27