Puget Sound Educational Service District King County

Transcription

1 Washington State Auditor s Office Financial Statements and Federal Single Audit Report Puget Sound Educational Service District King County Audit Period September 1, 2010 through August 31, 2011 Report No Issue Date May 29, 2012

2 Washington State Auditor Brian Sonntag May 29, 2012 Board of Directors Puget Sound Educational Service District Renton, Washington Report on Financial Statements and Federal Single Audit Please find attached our report on the Puget Sound Educational Service District s financial statements and compliance with federal laws and regulations. We are issuing this report in order to provide information on the District s financial condition. Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Insurance Building, P.O. Box Olympia, Washington (360) TDD Relay (800) FAX (360)

3 Table of Contents Puget Sound Educational Service District King County September 1, 2010 through August 31, 2011 Federal Summary... 1 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards... 3 Independent Auditor s 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 Independent Auditor s Report on Financial Statements... 7 Financial Section... 9

4 Federal Summary Puget Sound Educational Service District King County September 1, 2010 through August 31, 2011 The results of our audit of the Puget Sound Educational Service District are summarized below in accordance with U.S. Office of Management and Budget Circular A-133. FINANCIAL STATEMENTS An unqualified opinion was issued on the financial statements. Internal Control Over Financial Reporting: Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over financial reporting that we consider to be significant deficiencies. Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses. We noted no instances of noncompliance that were material to the financial statements of the District. FEDERAL AWARDS Internal Control Over Major Programs: Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over major federal programs that we consider to be significant deficiencies. Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses. We issued an unqualified opinion on the District s compliance with requirements applicable to each of its major federal programs. We reported no findings that are required to be disclosed under section 510(a) of OMB Circular A

5 Identification of Major Programs: The following were major programs during the period under audit: CFDA No. Program Title Title I Cluster, Part A Arts in Education Early Reading First ARRA - Title I Cluster, Part A (Recovery Act) Head Start Cluster ARRA - Head Start Cluster (Recovery Act) ARRA - Early Head Start Cluster (Recovery Act) ARRA - Prevention and Wellness - Communities Putting Prevention to Work - Funding Opportunities Annoucement (Recovery Act) The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by OMB Circular A-133, was $890,862. The District qualified as a low-risk auditee under OMB Circular A

6 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards Puget Sound Educational Service District King County September 1, 2010 through August 31, 2011 Board of Directors Puget Sound Educational Service District Renton, Washington We have audited the financial statements of the Puget Sound Educational Service District, King County, Washington, as of and for the year ended August 31, 2011, and have issued our report thereon dated May 4, 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. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit, we considered the District s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District s internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 3

7 COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the District s financial statements are free of material misstatement, we performed tests of the District s compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended for the information and use of management, the Board of Directors, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR May 4,

8 Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 Puget Sound Educational Service District King County September 1, 2010 through August 31, 2011 Board of Directors Puget Sound Educational Service District Renton, Washington COMPLIANCE We have audited the compliance of the Puget Sound Educational Service District, King County, Washington, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended August 31, The District s major federal programs are identified in the Federal Summary. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the District s management. Our responsibility is to express an opinion on the District s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the District s compliance with those requirements. In our opinion, the District complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended August 31,

9 INTERNAL CONTROL OVER COMPLIANCE The management of the District is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the District s internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended for the information of management, the Board of Directors, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR May 4,

10 Independent Auditor s Report on Financial Statements Puget Sound Educational Service District King County September 1, 2010 through August 31, 2011 Board of Directors Puget Sound Educational Service District Renton, Washington We have audited the accompanying financial statements of the Puget Sound Educational Service District, King County, Washington, as of and for the year ended August 31, 2011, as listed on page 9. These financial statements are the responsibility of the District s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As described in Note 2 to the financial statements, the District prepares its financial statements using accounting practices prescribed by Washington State statutes and the Accounting Manual for Educational Service Districts in the State of Washington, which demonstrates compliance with the regulatory basis of accounting which differs from accounting principles generally accepted in the United States of America. The differences between the regulatory basis of accounting and the accounting principles generally accepted in the United States of America are also described in Note 2. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Puget Sound Educational Service District, as of August 31, 2011, and the changes in financial position and, where applicable, cash flows thereof, and the budgetary comparison for the Governmental Fund, for the year then ended on the basis of accounting described in Note 2. In accordance with Government Auditing Standards, we have also issued our report 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 7

11 integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audit was performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. The accompanying Schedule of Long-Term Debt is also presented for purposes of additional analysis as required by the prescribed accounting manual. These schedules are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements, and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements taken as a whole. This report is intended for the information and use of the governing body and management of the District. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR May 4,

12 Financial Section Puget Sound Educational Service District King County September 1, 2010 through August 31, 2011 FINANCIAL STATEMENTS Balance Sheet Governmental Fund 2011 Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Fund 2011 Budgetary Comparison Schedule Governmental Fund Statement of Net Assets Combined Proprietary Funds 2011 Statement of Revenues, Expenses and Changes in Net Assets Combined Proprietary Funds 2011 Statement of Cash Flow Combined Proprietary Funds 2011 Statement of Fiduciary Net Assets Fiduciary Funds 2011 Statement of Changes in Fiduciary Net Assets Fiduciary Funds 2011 Notes to Financial Statements 2011 SUPPLEMENTARY INFORMATION Schedule of Long-Term Debt 2011 Schedule of Expenditures of Federal Awards and Notes

13 EDUCATIONAL SERVICE DISTRICT NO. 121 BALANCE SHEET GOVERNMENTAL FUND AUGUST 31, 2011 ASSETS Imprest Cash $ 55, Cash on Hand - Cash and Cash Equivalents 10,445, Warrants Outstanding (879,705.21) Accounts Receivable 4,359, Interest Receivable - Inventory Supplies & Materials - Inventory Cooperatives - Inventory Lunchrooms - Prepaid Items 328, Investments - Restricted Assets - TOTAL ASSETS $ 14,310, LIABILITIES Accounts Payable $ 3,036, Contracts and Notes Payable Current - Accrued Interest Payable - Accrued Salaries Payable - Payroll Deductions & Taxes Payable (4,773.63) Deposits 10, Unearned Revenue 1,130, Deferred Revenue 11, TOTAL LIABILITIES 4,184, FUND BALANCE Reserve for Debt Service $ - Reserve for Inventory - Reserve for Other Items 1,241, Reserve for Transportation Equipment 241, Reserve for Instructional Support Programs 4,889, Reserve for Non Instructional Support Programs 773, Unreserved Fund Balance 2,980, TOTAL FUND BALANCE 10,126, TOTAL LIABILITIES AND FUND BALANCE $ 14,310, The accompanying notes are an integral part of the financial statements. 10

14 EDUCATIONAL SERVICE DISTRICT NO. 121 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUND FOR THE FISCAL YEAR ENDED AUGUST 31, 2011 REVENUES Local Sources $ 4,123, State Government Sources 18,015, Federal Government Sources 29,682, Payments for Cooperative Programs 5,916, Payments for Other Programs 5,053, Investment Earnings 89, TOTAL REVENUES $ 62,879, EXPENDITURES Current: General Operations $ 4,970, Instructional Support 47,768, Non Instructional Support 5,152, Capital: Capital Outlay 373, Debt Service: Interest 527, Principal 882, TOTAL EXPENDITURES 59,674, EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ 3,205, OTHER FINANCING SOURCES (USES) Sale of Real Property $ - Sale of Personal Property 3, Compensated Loss of Capital Assets - Long-Term Financing 417, TOTAL OTHER FINANCING SOURCES (USES) 421, NET CHANGE IN FUND BALANCE $ 3,626, FUND BALANCE BEGINNING 6,499, Prior Year(s) Corrections or Restatements - FUND BALANCE ENDING $ 10,126, The accompanying notes are an integral part of the financial statements. 11

15 EDUCATIONAL SERVICE DISTRICT NO. 121 BUDGETARY COMPARISON SCHEDULE GOVERNMENTAL FUND FOR THE FISCAL YEAR ENDED AUGUST 31, 2011 Variance with Adopted Adopted Budget Budget Actual Positive (Negative) REVENUES Local Sources $ 3,711, $ 4,123, $ 411, State Government Sources 19,063, ,015, (1,047,992.30) Federal Government Sources 37,885, ,682, (8,203,399.40) Payments for Cooperative Programs 8,241, ,916, (2,325,475.10) Payments for Other Programs 2,373, ,053, ,679, Investment Earnings 80, , , TOTAL REVENUES 71,355, ,879, (8,475,905.59) EXPENDITURES Current: General Operations 4,188, ,970, (781,139.64) Instructional Support 56,892, ,768, ,124, Non Instructional Support 8,512, ,152, ,359, Capital: Capital Outlay 850, , , Debt Service: Interest 525, , (1,637.23) Principal 385, , (497,922.11) TOTAL EXPENDITURES 71,355, ,674, ,680, EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES - 3,205, ,205, OTHER FINANCING SOURCES (USES) Sale of Real Property Sale of Personal Property - 3, , Compensated Loss of Capital Assets Long-Term Financing - 417, , TOTAL OTHER FINANCING SOURCES (USES) - 421, , NET CHANGE IN FUND BALANCE - 3,626, ,626, FUND BALANCE BEGINNING 4,203, ,499, ,296, Prior Year(s) Corrections or Restatements FUND BALANCE ENDING $ 4,203, $ 10,126, $ 5,922, The accompanying notes are an integral part of the financial statements. 12

16 EDUCATIONAL SERVICE DISTRICT NO. 121 STATEMENT OF NET ASSETS COMBINED PROPRIETARY FUNDS AUGUST 31, 2011 UNEMPLOYMENT FUND WORKERS' COMPENSATION TOTALS ASSETS FUND Imprest Cash $ - $ - $ - Cash on Hand Cash and Cash Equivalents 7,219, ,245, ,464, Warrants Outstanding - (395,314.94) (395,314.94) Accounts Receivable 50, , , Reinsurance Receivable Current Interest Receivable 4, , , Assessments Receivable Long-Term XXXXX - - Inventory Supplies and Materials Prepaid Items - 28, , Investments Capital Assets Land XXXXX XXXXX - Capital Assets Building XXXXX XXXXX - Equipment and Leasehold Improvements - 98, , Accumulated Depreciation Building Accumulated Depreciation Equipment - (93,648.76) (93,648.76) TOTAL ASSETS $ 7,273, $ 43,859, $ 51,132, LIABILITIES Accounts Payable $ 10, $ 497, $ 507, Contracts and Notes Payable Current Accrued Interest Payable Accrued Salaries Payable Estimated Vacation Leave Payable Estimated Sick Leave Payable Payroll Deductions and Taxes Payable Claims Reserve Current 1,331, ,094, ,425, Claims Reserve Prior Year - 5,481, ,481, IBNR Current - 4,464, ,464, IBNR Prior Year - 6,669, ,669, Future L & I Assessments XXXXX 4,016, ,016, Estimated Unallocated Loss Adjustment 140, ,562, ,703, Unearned Revenue Notes Payable Long-Term TOTAL LIABILITIES 1,481, ,786, ,268, NET ASSETS Restricted - 188, , Unrestricted 5,791, ,883, ,675, TOTAL NET ASSETS 5,791, ,072, ,863, TOTAL LIABILITIES AND NET ASSETS $ 7,273, $ 43,859, $ 51,132, The accompanying notes are an integral part of the financial statements. 13

17 EDUCATIONAL SERVICE DISTRICT NO. 121 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS COMBINED PROPRIETARY FUNDS FOR THE FISCAL YEAR ENDED AUGUST 31, 2011 WORKERS' UNEMPLOYMENT COMPENSATION FUND FUND TOTALS OPERATING REVENUES Member Contributions $ 2,773, $ 25,212, $ 27,985, Supplemental Member Assessments - (266,578.00) (266,578.00) Other Operating Revenue TOTAL OPERATING REVENUES 2,773, ,946, ,719, OPERATING EXPENSES Claims Paid on Current Losses 1,738, ,416, ,155, Estimated Current Claims Reserves - 8,558, ,558, Increase (Decrease) in Estimated Prior Year Claims Payable - (1,287,576.50) (1,287,576.50) ESD Administration 158, ,773, ,931, Professional Fees - 59, , Reinsurance Premiums - 623, , Labor & Industry Assessments XXXXX 7,085, ,085, Depreciation - 3, , Increase (Decrease) in Estimated Unallocated Loss Adjustment Expenses (41,923.97) 259, , Other Operating Expense TOTAL OPERATING EXPENSES 1,855, ,491, ,346, OPERATING INCOME (LOSS) 917, ,455, ,372, NONOPERATING REVENUES/(EXPENSES) Interest and Investment Revenue 53, , , Miscellaneous Nonoperating Revenue Interest Expense Miscellaneous Nonoperating Expense Dividend Expense TOTAL NONOPERATING REVENUES/(EXPENSES) 53, , , CHANGE IN NET ASSETS 971, ,765, ,737, TOTAL NET ASSETS BEGINNING 4,819, ,307, ,126, Prior Year(s) Corrections or Restatements TOTAL NET ASSETS ENDING $ 5,791, $ 17,072, $ 22,863, The accompanying notes are an integral part of the financial statements. 14

18 15 EDUCATIONAL SERVICE DISTRICT NO. 121 STATEMENT OF CASH FLOWS COMBINED PROPRIETARY FUNDS FOR THE FISCAL YEAR ENDED AUGUST 31, 2011 Workers' $ Unemployment Compensation Fund Fund Totals CASH FLOWS FROM OPERATING ACTIVITIES Cash Received From Contributions and Supplemental Member Assessments $ 2,723, $ 25,172, ,895, Cash Received From Other Operations Cash Payments to Employees for Salaries/Benefits Cash Payments to Suppliers for Goods and Services Cash Paid for Benefits/Claims (1,710,066.54) (11,806,177.60) (13,516,244.14) Cash Paid for ESD Administration (149,479.41) (2,467,580.71) (2,617,060.12) Cash Paid for Professional Services - (59,025.00) (59,025.00) Cash Paid for Reinsurance - (625,751.00) (625,751.00) Cash Paid for Labor & Industry Assessments XXXXX (6,555,233.42) (6,555,233.42) Cash Paid for Other Operating Expense NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 863, ,659, ,522, CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Net Borrowings (Repayments) From Notes Interest Paid on Notes Operating Grants Received NET CASH PROVIDED (USED) BY NONCAPITAL FINANCING ACTIVITIES CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds From Sale of Notes Acquisition/Construction of Capital Assets Principal Paid on Notes Interest Paid on Notes Proceeds From Sale of Capital Assets NET CASH PROVIDED (USED) BY CAPITAL AND RELATED FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Interest Income Received From Investments 54, , , Purchases of Investment Securities Proceeds From Sale(s) of Investment Securities NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 54, , , NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 918, ,973, ,891, CASH AND CASH EQUIVALENTS BEGINNING OF THE YEAR $ 6,301, ,271, ,572, CASH AND CASH EQUIVALENTS END OF THE YEAR $ 7,219, $ 43,245, ,464, The accompanying notes are an integral part of the financial statements.

19 16 EDUCATIONAL SERVICE DISTRICT NO. 121 STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE FISCAL YEAR ENDED AUGUST 31, 2011 Unemployment Workers' Comp Fund Fund Totals OPERATING INCOME (LOSS) $ 917, $ 2,455, $ 3,372, ADJUSTMENTS TO RECONCILE OPERATING INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (Increase) Decrease in Accounts Receivable (50,000.00) 119, , (Increase) Eecrease in Assessments Receivable-Long-Term - 3, , (Increase) Decrease in Prepaid Items - (2,639.94) (2,639.94) (Increase) Decrease in Reinsurance Receivable (Increase) Decrease in Interest Receivable (Increase) Decrease in Warrants Outstanding - 60, , Increase (Decrease) in Accumulated Depreciation - 3, , Increase (Decrease) in Accounts Payable 8, , , Increase (Decrease) in Contracts Payable-Current Increase (Decrease) in Salaries Payable Increase (Decrease) in Payroll Taxes Payable Increase (Decrease) in Estimated Vacation Leave Payable Increase (Decrease) in Estimated Sick Leave Payable Increase (Decrease) in Claims Reserve-Current 28, (412,073.00) (383,272.44) Increase (Decrease) in Claims Reserve-Prior Year - (159,279.00) (159,279.00) Increase (Decrease) in IBNR-Current - 230, , Increase (Decrease) in IBNR-Prior Year - 358, , Increase (Decrease) in Unearned Revenue Increase (Decrease) in Future L & I Assessments XXXXX 551, , Increase (Decrease) in Estimated Unallocated Loss Adjustment Expenses (41,923.97) 259, , Total Adjustments (54,332.85) 1,203, ,149, NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 863, $ 3,659, ,522, The accompanying notes are an integral part of the financial statements.

20 EDUCATIONAL SERVICE DISTRICT NO. 121 STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS AUGUST 31, 2011 Compensated Absences Pool ASSETS Imprest Cash $ - Cash on Hand - Cash and Cash Equivalents 1,488, Warrants Outstanding - Accounts Receivable 150, Interest Receivable Inventory Supplies & Materials - Prepaid Items - Investments - Restricted Assets - Capital Assets Land - Capital Assets Buildings - Capital Assets Pupil Transportation Equipment - Capital Assets Equipment & Leasehold Improvements - Accumulated Depreciation Buildings - Accumulated Depreciation Equipment - TOTAL ASSETS $ 1,638, LIABILITIES Accounts Payable $ 244, Contracts and Notes Payable Current - Contracts Payable Long-Term - Accrued Interest Payable - Accrued Salaries Payable - Estimated Vacation Leave Payable - Estimated Sick Leave Payable - Payroll Deductions & Taxes Payable - Deposits - Estimated Unallocated Loss Adjustment - Deferred Compensation Payable - Deferred Revenue - TOTAL LIABILITIES 244, NET ASSETS Held in trust for: Benefits and other purposes $ 1,394, The accompanying notes are an integral part of the financial statements. 17

21 EDUCATIONAL SERVICE DISTRICT NO. 121 STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS AUGUST 31, 2011 Compensated Absences Fund ADDITIONS Contributions: Employers $ 448, Members - Total Contributions 448, Investment Income: Net appreciation (depreciation) in fair value of investments 5, Interest and dividends 5, Less: Investment expenses - Net Investment Income 11, Other Additions - Total Other Additions - TOTAL ADDITIONS 459, DEDUCTIONS Administrative expenses 1, Distributions to pool participants 244, Payment to or on behalf of individuals, organizations, and other governments in accordance with trust agreements - TOTAL DEDUCTIONS 246, CHANGE IN NET ASSETS 212, NET ASSETS BEGINNING 1,181, Prior Year(s) Corrections or Restatements - NET ASSETS ENDING $ 1,394, The accompanying notes are an integral part of the financial statements. 18

22 Puget Sound Educational Service District No. 121 Notes to Financial Statements September 1, 2010, through August 31, 2011 Note 1 Reporting Entity The Puget Sound Educational Service District is one of nine quasi-municipal corporations organized pursuant to Title 28A Revised Code of Washington (RCW) for the purpose of: 1) Providing cooperative and informational services to local school districts. 2) Assisting the Superintendent of Public Instruction and State Board of Education in the performance of their respective duties. 3) Providing services to school districts to assure equal educational opportunities for students. The district is located in the Puget Sound and serves surrounding school districts in King and Pierce Counties as well as the Bainbridge Island School District in Kitsap County. These districts comprise approximately 40% of the total enrollment of Washington s public schools. Oversight responsibility for the district s operations is vested with the independently elected board of directors. Management of the district is appointed by and is accountable to the board of directors. Fiscal responsibility, including budget authority and the power to operate cooperative agreements and set fees consistent with provisions of state statutes, also rests with the board of directors. Management authority differs somewhat from school districts and resides with the ESD Superintendent. Board policies dictate Superintendent management authority and responsibility. For financial reporting purposes, the Puget Sound Educational Service District includes all funds and account groups that are controlled by or dependent on the district s board of directors. Control by or dependence on the district was determined on the basis of budget adoption, outstanding debt secured by the general credit of the district or obligation of the district to finance any deficits that may occur. Note 2 Summary of Significant Accounting Policies a. Basis of Presentation - Fund Accounting The Puget Sound Educational Service District s accounting policies as reflected in the accompanying financial statements conform to the Accounting Manual for Educational Service Districts in the State of Washington, issued jointly by the State Auditor and the Superintendent of Public Instruction by the authority of RCW This allows for a practice that differs from generally accepted accounting principles in the following manner: 1) District wide statements are not presented. 2) The financial statements do not report capital assets. 3) Debt is not reported on the face of the financial statements. It is reported in the notes to the financial statements and on the Schedule of Long Term Debt, which are required parts of the financial statements. 4) The Management Discussion and Analysis is not required. 19

23 The accounts of the District are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures (or expenses), as appropriate. The District uses governmental, proprietary and fiduciary funds as listed below. Additional notes provide descriptions of each fund s accounting policies and practices, and other information as needed. b. Basis of Accounting, Revenue and Expenditure Recognition The modified accrual basis of accounting is used. Revenues are recognized as soon as they are both measurable and available. Measurable means the amount of the transaction can be determined and the District considers all revenues available if they are collected within 60 days after year end to pay liabilities of the current period. Program claims and inter-district billings are measurable and available and are, therefore, accrued. Expenditures are recognized under the modified basis of accounting when the related fund liability is incurred, except for un-matured principal and interest on long-term debt which are recorded when due. The fund liability is incurred when the goods or services have been received. For federal grants, the recognition of expenditures is dependent on the obligation date, (obligations means purchase order issued, contracts awarded, or goods and services received). The General Fund reporting focus is primarily on the sources, uses, and balances of current financial resources and often has a budgetary orientation. This means that only current assets and current liabilities are included on the balance sheet. GOVERNMENTAL FUNDS General Fund This fund is used to account for all expendable financial resources, except those required to be accounted for in another fund. The Accounting Manual for Educational Service Districts establishes the accounting policies of the General Fund accounting system. The accounting and reporting practices for the General Fund are described in note 2a. PROPRIETARY FUNDS These funds are used to account for operations that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that costs of providing services are financed primarily through user charges. These funds use the full accrual basis of accounting. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of these pools and trust are contributions from participating member districts. Operating expenses for proprietary funds include the costs of sales and services, administrative expense, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The primary non-operating revenue for these pools and trust is investment earnings on cash balances. 20

24 The District reports the following proprietary funds: Workers Compensation Trust The Workers' Compensation Trust began operation on April 1, This fund is used to account for all the financial resources belonging to member school districts participating in this self-insurance program. The purpose of this fund is to provide industrial insurance benefits to employees injured in the course of their employment as allowed by RCW The Trust has thirty-four member school districts (thirty-five including PSESD). The Trust is non-budgetary and is accounted for according to GAAP for proprietary funds on the full accrual basis. Puget Sound Educational Service District 121 has been designated as the administrative agency and the fiscal agent responsible for overseeing the day-to-day operations. Unemployment Compensation Pool The Unemployment Compensation Pool is used to account for all the financial resources belonging to member school districts participating in this self-insurance program. The purpose of this fund is to self-insure the member districts for unemployment compensation claims arising from previous employees of the eighteen member school districts (nineteen including PSESD). The Pool is non-budgetary and is accounted for according to GAAP for proprietary funds on the full accrual basis. This pool is not considered a risk-sharing pool for purposes of GASB Statement 10. All estimated claims payable are considered attributable to the current year. Puget Sound Educational Service District 121 has been designated as the administrative agency and the fiscal agent responsible for overseeing the day-to-day operations. Member districts pay a percentage of their employees' wages. These contributions plus investment earnings pay for unemployment claims and for the administration of the fund. FIDUCIARY FUNDS The District reports the following fiduciary fund: Compensated Absences Liability Pool An Agency Fund is used to account for assets held by the district as an agent for the Compensated Absences Liability Pool (CALP). This fund has no revenues, expenditures, or fund balance. Its assets equal its liabilities. The purpose of the Compensated Absences Liability Pool, which began operation in October 1993, is to provide a funding mechanism to pay for the cash-out of liability for compensated absences when employees of member districts leave service or retire. Member districts pay in a monthly assessment based on their estimated unfunded compensated absences liability. The member districts submit a claim once a year to be reimbursed for qualifying cash outs of unused vacation and sick leave. As of August 31, 2011, membership consisted of the Riverview School District, the Sumner School District and the Puget Sound ESD. 21

25 c. Asset, Liabilities, and Net Assets or Equity Cash Equivalents Cash equivalents include cash balances and investments with original maturities of three months or less. See Note 3 for more information. Investments The King County treasurer is the ex-officio treasurer for the Educational Service District. In this capacity, the county treasurer receives deposits and transacts investments on the district's behalf. See Note 3 for more information. In accordance with authorized investment laws, the District invests in various mortgagebacked securities, such as collateralized mortgage obligations. These securities are used to enhance yield. These securities are reported at cost in the balance sheet. They are reported in aggregate as mortgage-backed securities in the disclosure of custodial credit risk. In accordance with authorized investment laws, the District invests in the King County Investment Pool. The Pool invests in mortgage-backed securities to enhance yield. As of August 31, 2011, such securities composed 0.6% of the Pool s portfolio. As of August 31, 2011, the District s funds invested in the Pool comprised 1.30% of the Pool s portfolio. The District s investment in the Non-Impaired Pool is reported as a cash equivalent. Receivables Accounts Receivable at August 31, 2011 consist primarily of accrued revenue on categorical grants. All receivables are shown net of an allowance for un-collectibles. The District considers receivables collected within sixty days after year-end to be available and recognizes them as revenues of the current year. Trade accounts receivable in excess of 180 days comprise the trade accounts receivable allowance for un-collectibles. Uncollectible accounts are written off on an annual basis. These amounts have not been material in the past and are not expected to be material in the future. In fiscal year , $0 was written off. Inventories and Prepaid Items The District does not maintain material amounts of inventory. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the financial statements. Deposits The district has entered into lease arrangements for various facilities for program staff. The deposits represent payments made for security deposits on these leases as well as prepaid rent payments. 22

26 Restricted Assets The District participates in the Compensated Absences Liability Pool. As of August 31, 2011 the District had a balance with the Pool of $97,772. This amount is restricted to the payment of District employees unused vacation and sick leave balances when they leave service. Fixed Assets Capital assets are defined by the District as assets with an initial, individual cost of more than $5,000 for equipment and $100,000 for buildings and improvements and an estimated useful life in excess of two years. Such assets are recorded at historical cost. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend useful lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Property, plant and equipment of the District is depreciated using the straight line method over the following estimated useful lives: Buildings Leasehold Improvements School Buses Vans Automobiles Equipment Computers 40 years term of lease 15 years 10 years 5 years 5 years 4 years The district's fixed assets are insured in the amount of $38,333,820 which reflects replacement cost coverage. This amount exceeds the amount of fixed assets on the books because the assets are insured at replacement cost and because items costing less than $5,000 are not capitalized Deferred Revenue Deferred revenue represents memberships and other payments for services that pertain to the fiscal year and that are not available for expenses of the fiscal year. In the general fund financial statements, deferred revenue also includes accounts receivables which, under the modified accrual basis of accounting are measurable but not yet available. Compensated Absences Under the provisions of Chapter 28A.58 Revised Code of Washington, sick leave accumulated by district employees is reimbursed at death or retirement at the rate of one day for each four days of accrued leave. Employees earn sick leave at a rate of one day per month and may accumulate such leave to a maximum of 180 days at their anniversary date of employment. This chapter also provides for an annual buy out of an amount up to the maximum annual accumulation of 12 days. Sick leave expenditures are recorded when paid, except termination sick leave that is accrued upon death or retirement. 23

27 Employees earn annual leave at an increasing rate. Beginning employees earn 12 days per year increasing over time to 22 days per year. Non-represented Administrative staff earn 22 days per year. Employees may accrue up to thirty days of annual leave. Vacation leave and vested sick leave are entered as outstanding debt in the general fund schedule of long term debt. Prior to , all expenditures for these items were recorded when paid. Beginning in , Puget Sound ESD joined the Compensated Absences Liability Pool (CALP). Payroll contributions are made to the Pool at the time leave is earned to reserve assets for expenditures related to sick leave and vacation leave buy out at retirement and certain other instances. Such expenditures are recorded at the time leave is earned rather than at the time of cash out. Expenditures of leave taken during employment continue to be recorded when paid. The Pool allows member districts to accumulate funds for payment of accrued sick and/or annual leave due to annual cash out, long-term medical leave, retirement and/or death of employees. Changes for the fiscal year are summarized below. Summary of the Fiscal Year Beginning long term liability 9/1/2010 $ 1,433, Beginning CALP balance 9/1/ , Payments to CALP 144, Interest 3, Withdrawals from CALP (244,980.53) Less Ending CALP balance 8/31/ , (97,771.71) Increase (decrease) to estimates of longterm liability 124, Ending unfunded liability August 31, 2011 $ 1,460, Long-term obligations In the fund financial statements, the general fund recognizes bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Unpaid Claims Liabilities The District establishes claims liabilities for its Workers' Compensation Trust and its Unemployment Compensation Pool based on estimates of the ultimate cost of claims, including future claim adjustment expenses, that have been reported but not settled, and of claims that have been incurred but not reported. The length of time for which such costs must be estimated varies depending on the coverage involved. Estimated amounts reinsurance recoverable on unpaid claims are deducted from the liability for unpaid claims. Because actual claims costs depend on such complex factors as 24

28 inflation, changes in doctrines of legal liability, and damage awards, the process used in computing claims liabilities does not necessarily result in an exact amount. Claims liabilities are recomputed periodically using a variety of actuarial and statistical techniques to produce current estimates that reflect recent settlements, claim frequency, and other economic and social factors. A provision for inflation in the calculation of estimated future claims costs is implicit in the calculation because reliance is placed both on actual historical data that reflect past inflation and on other factors that are considered to be appropriate modifiers of past experience. Adjustments to claims liabilities are charged or credited to expense in the periods in which they are made. No annuity contracts have been purchased from third parties to settle claims liabilities. Claims Reserves Claims are charged to income as incurred. Claims reserves represent the accumulation of estimates for reported, unpaid claims, plus a provision for claims incurred, but not reported. These estimates are continually reviewed and updated, and any resulting adjustments are reflected in current earnings. Reserve For Estimated Unallocated Loss Adjustment Expenses The reserve for unallocated loss adjustment expenses represents the estimated cost to be incurred with respect to the settlement of claims in process and claims incurred but not reported. This includes, but is not limited to, the assessments by the Department of Labor and Industries on Workers' Compensation claims. This reserve is estimated at the end of each year. The change in liability is reflected in current earnings. Experience Refund Starting in FY , the Unemployment Compensation Pool initiated a process for experience refunds. Member districts whose share of equity in the Pool exceed three times the recommended pool reserve ratio of 0.20% (.60% of total wages) will be notified of their status and given the opportunity to claim a refund of prior contributions in October. No experience refunds were paid during the year ended August 31, Exemption From Federal And State Taxes Pursuant to revenue ruling number 90-74, income of Municipal Risk Pools is excluded from gross income under Internal Revenue Code Section 115(1). Chapter Revised Code of Washington exempts the Pools from insurance premium taxes, and business and occupation taxes imposed pursuant to Chapter Debt Service In the governmental funds, principal and interest on general long-term debt is recognized only when due. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. 25

29 d. Budgetary Data General Budgetary Policies Chapter 28A.310 Revised Code of Washington and Chapter Washington Administrative Code mandate Educational Service District budget policies and procedures. The budget is adopted by the board after a public hearing. An appropriation is a prerequisite to expenditure. Appropriations lapse at the end of the fiscal period. For budget and accounting purposes, revenues and expenditures are accounted for on a modified accrual basis as prescribed in law for all governmental funds. Fund balance is budgeted as available resources and, pursuant to law; the budgeted ending fund balance cannot be negative. Encumbrances Encumbrance accounting is employed in governmental funds. Purchase order, contracts, and other commitments for the expenditure of monies are recorded in order to reserve a portion of the applicable appropriation. Encumbrances are closed at the end of the fiscal year and reopened the following year. Note 3 Deposits and Investments The King County Treasurer is the ex-officio treasurer for PSESD. In this capacity, the county treasurer receives deposits and transacts investments on the District s behalf. The King County Investment Pool and the District Imprest Checking Accounts are considered cash equivalents. Bank Deposits - Imprest Checking Accounts The carrying amount of Imprest Checking Accounts as of August 31, 2011 was $55,500. The bank balance was $51,887. Bank balances are covered by collateral held by the District s agent in the District s name. Investments and Cash Equivalencies Washington State law restricts the district's investments to obligations of the United States Treasury and instrumentalities, bankers' acceptances issued in the secondary market, primary certificates of deposit issued by Washington State qualified public depositories as defined under RCW 39.58, the State Treasurer's Investment Pool and King County's Investment Pool. The District has not adopted a formal investment policy. All District funds are invested in the King County Investment Pool. The District is relying on the investment policy for King County for its funds. All investments are stated at fair value. Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties. The district intends to hold time deposits and securities until maturity. 26

30 Investments and cash equivalencies held at August 31, 2011 were as follows: Cash Equivalents General Fund Workers Comp Unemp Pool Comp Absences Total King County Investment Pool $10,425,972 $43,136,920 $7,194,954 $1,482,228 $62,240,074 King County Impaired Inv Pool 20, ,345 24,210 5, ,434 Total Cash Equivalents 10,445,981 43,245,265 7,219,164 1,488,097 62,398,507 Total Investments and Cash Equivalents $10,445,981 $43,245,265 $7,219,164 $1,488,097 $62,398,507 Impaired Investments In September 2008, King County bifurcated its Investment Pool to separate out the investments in impaired commercial paper assets. The County has restricted pool member access to these funds by placing them in Impaired Investment Retainage accounts at the County. As cash is received by the County on these investments, these Retainage accounts are reduced and the cash is placed into the County Pool members unrestricted cash accounts. The cash value of these Retainage accounts is $300,609 with a Fair Market Value of $158,434 in this pool. As of August 31, 2011, the King County impaired investment pool held one commercial paper asset that is impaired and part of an enforcement event where a trustee or receiver is appointed to determine the best options for selling assets and/or restructuring the portfolio; and the residual investments in four commercial paper assets that were part of completed enforcement events. The amount of recognized unrealized losses for these investments is $142,175 and has been reduced from the Cash and Cash Equivalents. Credit Risk As of August 31, 2011, the district s investment in the Pool was not rated by a nationally recognized statistical rating organization (NRSRO). In compliance with state statutes, Pool policies authorize investments in U.S. Treasury securities, U.S. agency securities and mortgage-backed securities, municipal securities (rated at least A by two NRSROs), commercial paper (rated at least the equivalent of A-1 by two NRSROs), certificates of deposits issued by qualified public depositaries, repurchase agreements, and the Local Government Investment Pool managed by the Washington State Treasurer s office. Custodial Credit Risk The investments in the King County Investment Pool do not expose the District to custodial risk Concentration of Credit Risk The District does not have investments in any one issuer that represents 5% or more of total investments. 27

31 Interest Rate Risk As of August 31, 2011, the Pool s average duration was 0.66 years. As a means of limiting its exposure to rising interest rates, securities purchased in the Pool must have a final maturity, or weighted average life, no longer than five years. While the Pool s market value is calculated on a monthly basis, unrealized gains and losses are not distributed to participants. The Pool distributes earnings monthly using an amortized cost methodology. Note 4 - Receivables Receivables as of August 31, 2011 for the District s individual funds including the applicable allowances for uncollectible accounts are as follows: General Workers Compensation Trust Unemployment Compensation Pool Compensated Absences Pool Receivables: Interest $ 0 $ 29,786 $ 4,029 $ 846 Reinsurance Governmental 4,371, ,801 Gross $ 4,371,257 $ 979,587 $ 4,029 $ 846 Less: Allowance for Bad Debt (11,373) Net Receivables $ 4,359,884 $ 979,587 $ 4,029 $ 846 Note 5 Bonds, Notes, Compensated Absences and Proprietary Fund Obligations Changes to Bonds, Notes, Compensated Absences and Proprietary Fund Obligations of the District The following is a summary of general obligations, long term debt transactions of the district: Long Term Debt Payable 9/1/10 $11,402,923 Debt issued 0 Debt retired (802,923) Long Term Debt Payable 8/31/11 $10,600,000 28

32 Changes in Bond Debt and Proprietary Fund Activities for the period September 1, 2010 through August 31, 2011 are summarized below. Balance 9/1/10 Increase Balance 8/31/11 General Fund Activities: (Decrease) 2006 LGO Bonds $10,905,000 $(305,000) $10,600, Greenbridge Loan 497,923 (497,923) 0 Compensated Absences 1,433,314 26,699 1,460,013 Total General Fund Activities $12,836,237 $(776,224) $12,060,013 Proprietary Fund Activities Claims Payable $21,994,503 $46,463 $22,040,966 Assessment Payable 3,414, ,886 4,016,464 Total Proprietary Fund Activities $25,409,081 $648,349 $26,057,430 Schedule of General Obligation Debt Service for the District (Years Ending August 31) The following table presents annual debt service of the bonds and loan. Year Principal Interest Total 2012 $ 315,000 $ 495,376 $ 810, , , , , , , , , , , , , ,105,000 1,939,331 4,044, ,640,000 1,379,000 4,019, ,365, ,875 3,996, ,000 19, ,500 Total $10,600,000 $ 6,311,452 $16,911,452 Note 6 Construction and Other Significant Commitments The District committed to constructing the Greenbridge Early Learning Center. Upon completion, the Center will house an early childhood education program. Construction in progress is composed of: Project Project Authorized Amount Expended as of 8/31/2011 Additional Local Funds Committed Greenbridge ELC $ 19,775,000 $ 19,109,735 $ 665,265 Total $ 19,775,000 $ 19,109,735 $ 665,265 Additional State Funds Committed Additional Federal Funds Committed 29

33 Note 7 Operating Leases and Subleases The District leases office facilities and equipment under non-cancelable operating leases. The future minimum lease payments for these leases are as follows: Summary of equipment and property leases Year Ending 8/31 Obligation Amount ,117, ,098, , , ,059, ,073, ,072, ,072, ,072, ,048, ,048, ,048, ,048, ,048, ,048, ,048, ,048, ,048, ,048, ,569 Total $ 19,952,887 Total lease expenditures for 2011 were $1,066,952. The District sublets office space at its leased facility in Tukwila. The future minimum sublease revenue for this facility is as follows: FY Amount , ,594 Total $ 236,022 Note 8 Self-Insured Retention The Workers' Compensation Trust (Trust) retains responsibility for the payment of claims within specified self-insured retention limits prior to the application of coverage provided by their excess insurance contracts. 30

34 Fiscal Year For fiscal year , the Trust's per-occurrence retention limit is $350,000. For individual claims of less than $350,000, the Trust's annual aggregate retention for all lines of coverage is $17,186,360. Fiscal Year For fiscal year , the Trust's per-occurrence retention limit is $350,000. For individual claims of less than $350,000, the Trust's annual aggregate retention for all lines of coverage is $17,056,378. The Unemployment Compensation Pool does not purchase reinsurance. Note 9 Excess Insurance Contracts Excess insurance for the Workers' Compensation Trust prior to September 1, 2006 is provided by Safety National Casualty Company. Excess insurance for the Workers Compensation Trust beginning September 1, 2006 is provided by Midwest Employers Casualty Company. For the year ended August 31, 2011, excess insurance covered any amount on any one incident over the first $350,000 paid by the Trust. Excess insurance also covered any amount over an aggregate total for the Trust in any one fiscal year. For the fiscal year ended August 31, 2011, the aggregate total was $17,056,378. The exact aggregate amount is.3522 per employee hour worked and cannot be calculated until the end of the fiscal year. Excess insurance premiums for the year ended August 31, 2011, were $623,111. The Unemployment Compensation Pool does not maintain excess insurance contracts. Note 10 Interfund Receivables and Payables The composition of interfund balances as of August 31, 2011 is as follows: Receivable Fund Payable Fund Amount General Fund Unemployment Pool $ 1,408 General Fund Workers Comp Trust 53,315 General Fund Compensated Absences 244,481 Total $ 299,204 Interfund payables from the Unemployment Pool and the Workers Compensation Trust to the General Fund consist of reimbursements of administrative expenses paid by the General Fund on behalf of the other funds. Interfund payables from the Compensated Absences Pool to the General Fund consists of claims for reimbursement from the Pool for paid sick leave and vacation leave cashouts. 31

35 Note 11 Capital Assets The districts capital assets are insured in the amount of $38,333,820 for FY Workers Compensation Trust Fixed Assets Workers Compensation Trust fixed assets consisted of the following at August 31, The Trust capitalization policy is to capitalize all property and equipment having a cost value in excess of $5,000. Balance 9/1/2010 Additions Deletions Adjustments Balance 8/31/2011 Equipment $ 98, $ $ 98, Accumulated Depreciation (90,401.90) (3,246.86) (93,648.76) Equipment, Net $ 8, $ (3,246.86) $ 5, Depreciation is based on the straight-line method over the estimated useful life of the assets. The net amount is shown on the Statement of Net Assets as a Restricted balance. Note 12 Unpaid Claims Liabilities As discussed in Note 2 the Workers' Compensation Trust and the Unemployment Compensation Pool establish liabilities for both reported and unreported insured events, which include estimates of both future payments of losses and related claim adjustment expenses. The liabilities are based on the estimated ultimate cost of settling the claims, including the effects of inflation and other societal and economic factors. Note 13 Self-Insured Employee Benefits The District made payments of $150,000 to the Unemployment Compensation Pool during the fiscal year ended August, 31, The district made payments totaling $274,370 to the Workers' Compensation Trust during the fiscal year ended August 31, These funds are administered by the Puget Sound Educational Service District on behalf of several local school districts. These funds are operated for the district's benefit in-lieu-of the district having to make monthly premium payments to the State of Washington for unemployment and industrial insurance beneficiaries as they occur and minimizes the districts' costs for the two programs. Note 14 - Risk Management Pool The District is a member of the Washington Schools Risk Management Pool (formerly known as the Puget Sound Schools Risk Management Pool). The District made payments totaling $111,203 to the Pool for the fiscal year end August 31,

36 Note 14 - Pensions Substantially all Puget Sound Educational Service District full-time and qualifying part-time employees participate in one of three contributory, multi-employer, cost-sharing statewide retirement systems managed by the State of Washington Dept of Retirement Systems (DRS): Teachers Retirement System (TRS), Public Employees Retirement System (PERS) and School Employees Retirement System (SERS) Participation in the programs was as follows: Membership by retirement system program as of June 30, 2010: Program Active Members Inactive Vested Members Retired Members TRS 66,325 8,950 40,570 PERS 156,526 28,860 76,899 SERS 52,339 9,700 5,384 Certificated public employees are members of TRS. Noncertificated public employees are members of PERS (if Plan 1) or SERS. Plan 1 under the TRS and PERS programs are defined benefit pension plans whose members joined the system on or before September 30, Plan 1 members are eligible to retire with full benefits after five years of credited service and attainment of age 60, after 25 years of credited service and attainment of age 55, or after 30 years of credited service. Plan 2 under the TRS or SERS programs are defined benefit pension plans whose members joined on or after October 1, 1977, but before June 30, 1996 or August 31, 2000, for TRS or SERS programs, respectively. Members of TRS and SERS are eligible to retire with full benefits after five years of credited service and attainment of age 65, after 20 years of credited service and attainment of age 55 with the benefit actuarially reduced from age 65 or 30 years of credited service and receive either a reduced benefit ofr stricter return-towork rules.. Plan 3 under the TRS and SERS programs are defined benefit, defined contribution pension plans whose members joined on or after July 1, 1996, or September 1, 2000, for TRS and SERS, respectively. Members are eligible to retire with full benefits at 65, or they may retire at age 55 with at least 10 service years with a reduced benefit amount, or they may retire at age 55 with at least 30 years of service and receive either a reduced benefit or stricter return-to-work rules. Average final compensation (AFC) of Plan 1 TRS and PERS members is the highest average salary during any two consecutive years. For Plan 2 and Plan 3 TRS and SERS members, it is the highest average salary during any five consecutive years. The retirement allowance of Plan 1 TRS and PERS members is the AFC multiplied by 2 percent per year of service capped at 60 percent with a cost-of-living adjustment. For Plan 2 TRS and SERS members, it is the AFC multiplied by 2 percent per year of service with provision for a cost-of-living adjustment. For the defined benefit portion of Plan 3 TRS and SERS it is the AFC multiplied by 1 percent per year of service with a cost-of-living adjustment. The employer contribution rates for PERS, TRS, and SERS (Plans 1, 2, and 3) and the TRS and SERS Plan 2 employee contribution rates are established by the Pension Funding Council based upon advice from the Office of the State Actuary. The employee 33

37 contribution rate for Plan 1 in PERS and TRS is set by statute at 6 percent and does not vary from year to year. The employer rate is the same for all plans in a system. The methods used to determine the contribution requirements are established under chapters 41.40, 41.32, and RCW for PERS, TRS and SERS respectively. The district contribution represents its full liability under both systems, except that future rates may be adjusted to meet the system needs. Employee contribution rates as of August 31, 2011: Plan 1 TRS 6.00% Plan 1 PERS 6.00% Plan 2 TRS 3.36% Plan 2 SERS 3.15% Plan 3 TRS 5.00% (minimum) Plan 3 TRS 15.0% maximum) Plan 3 SERS 5.00% (minimum) Plan 3 SERS 15.0% (maximum) For plan 3 TRS And SERS, rates adjusted based on age may be chosen. The optional rates range begins at 5% and increase to a maximum of 15% Employer contribution rates as of August 31, 2011: Plan 1 TRS 6.14% Plan 1 PERS 7.07% Plan 2 TRS 6.14% Plan 2 SERS 5.45% Plan 3 TRS 6.14% Plan 3 SERS 5.45% Rate effective July 1, 2011 through August 31, From September 1, 2010 through June 30, 2011, the rate was 5.31%. Under current law the employer must contribute 100 percent of the employer-required contribution. Employer required contribution in dollars (Participant information for all plans is as of August 31): Plan FY10-11 FY09-10 FY08-09 Plan 1 TRS $37, $44, $59, Plan 2 TRS 11, , , Plan 3 TRS 58, , , Plan 1 PERS 24, , , Plan 2 SERS 442, , , Plan 3 SERS 585, , , Historical trend information showing TRS and PERS progress in accumulating sufficient assets to pay benefits when due is presented in the State of Washington's June 30, 2010, comprehensive annual financial report. Refer to said report for detailed trend information. It is available from: State of Washington Office of Financial Management 300 Insurance Building P.O. Box Olympia, WA

38 Note 15 Related Party Transactions Puget Sound ESD (PSESD) successfully operates several early childhood learning centers in the region. With intent to expand the number and quality of early learning centers, state and private foundation leaders approached the PSESD to build and operate a new early learning center demonstration project. Funding to build the new early learning center was originally planned to come from grants and donations. As fundraising gained momentum, an advantageous financing opportunity emerged through the possibility of using Federal New Market Tax Credits (FNMTCs). FNMTCs are available to nonprofit and community organizations. An Internal Revenue Code section 501(c)3 entity, the PSESD Foundation, was formed in 2008 for the purpose of obtaining NMTCs. The PSESD Foundation owns the building that will be occupied and used by the Puget Sound Educational Service District for operation of the early childhood center demonstration program. In December of 2008, Puget Sound Educational Service District entered into a Master Lease Agreement with the PSESD Foundation for occupancy and use of the building. The Lease agreement, which is also included as a part of Note 7, Long Term Leases is as follows: Year Ending 8/31 Obligation Amount , , , , , ,048, ,048, ,048, ,048, ,048, ,048, ,048, ,048, ,048, ,048, ,048, ,048, ,048, ,048, ,569 Total $ 17,833,639 The PSESD Foundation has independent financial statements available from Novogradic and Co., LLP, 121 SW Morrison, Suite 350, Portland, OR Note - 16 Subsequent Events PSESD has reviewed its financial statements and evaluated subsequent events for the period of time from its year ended August 31, 2011 through March 31, 2012, the date the financial statements were issued. Management is not aware of any subsequent events that would require recognition or disclosure in the accompanying financial statements. 35

39 36 EDUCATIONAL SERVICE DISTRICT NO. 121 SCHEDULE OF LONG-TERM DEBT FOR THE FISCAL YEAR ENDED AUGUST 31, 2011 Beginning Ending Outstanding Amount Amount Outstanding Debt Issued/ Redeemed/ Debt Description 09/01/10 Increased Decreased 08/31/11 Total Non-Voted Bonds $ 11,402, $ - $ 802, $ 10,600, Other Long-Term Debt Capital Leases Notes Payable Long-Term NonCancellable Operating Leases 20,514, , ,066, ,952, Claims & Judgments Estimated Vacation Leave Payable Long-Term 916, , , , Estimated Sick Leave Payable Long-Term 516, , , , Other Long-Term Debt 438, , , Total Other Long-Term Debt 22,386, , ,391, ,771, Total Long-Term Debt $ 33,789, $ 777, $ 2,194, $ 32,371, * Beginning Outstanding Debt at September 1 is equal to Ending Outstanding Debt, August 31 of prior year.

40 37 CFDA Number Expenditures From Federal Agency Through Direct note Awards Awards Total Ref. Name Federal Program Title Grant Name PPSS Number Pass-Through Agency Pass- From Foot- U.S. Department of Agriculture Child and Adult Care Food Program ECEAP OSPI 31,252 31, Child and Adult Care Food Program ECEAP OSPI 276, , Child and Adult Care Food Program Head Start OSPI 24,661 24, Child and Adult Care Food Program Head Start OSPI 39,462 39, Child and Adult Care Food Program Head Start OSPI 276, , Child and Adult Care Food Program Early Head Start OSPI 15,017 15, Child and Adult Care Food Program Early Head Start OSPI 2,213 2, Child and Adult Care Food Program Early Head Start OSPI 9,061 9, Child and Adult Care Food Program ReLife 3860 OSPI 2,875 2,875 Subtotal for CFDA #10.558: 677, ,784 U.S. Department of Justice U.S. Department of Agriculture Subtotal: 677, ,784 Juvenile Justice and Delinquency Prevention _Allocation to States Positive Steps-GJJAC WA DSHS 63,429 63,429 Subtotal for CFDA #16.540: 63,429 63,429 U.S. Department of Labor U.S. Department of Justice Subtotal: 63,429 63, WIA Pilots, Demonstrations, and Research Projects Community Workstudy WA DSHS 8,126 8, WIA Pilots, Demonstrations, and Research Projects Community Workstudy WA DSHS 33,996 33, WIA Pilots, Demonstrations, and Research Projects Community Workstudy WA DSHS 8,115 8,115 Subtotal for CFDA #17.261: 50,237 50,237 U.S. Department of Transportation Puget Sound Educational Service District #121 Schedule of Expenditures of Federal Awards For the Year Ending August 31, 2011 U.S. Department of Labor Subtotal: 50,237 50, Job Access_Reverse Commute Pierce County Van Program WA DOT 114, , Job Access_Reverse Commute Pierce County Van Program WA DOT 10,898 10, Job Access_Reverse Commute King County Van Program King County 13,704 13,704 Subtotal for CFDA #20.516: 139, ,550 U.S. Department of Transportation Subtotal: 139, ,550 Page 1 of 5

41 38 CFDA Number Puget Sound Educational Service District #121 Schedule of Expenditures of Federal Awards For the Year Ending August 31, 2011 Expenditures From Federal Agency Through Direct note Awards Awards Total Ref. Name Federal Program Title Grant Name PPSS Number Pass-Through Agency Pass- From Foot- U.S. Department of Education Title I Grants to Local Educational Agencies CSA Title I School Improvement OSPI 75,477 75, Title I Grants to Local Educational Agencies CSA Title I School Improvement OSPI 11,627 11, Title I Grants to Local Educational Agencies Education Advocate Pilot Program OSPI 1,027 1, Title I Grants to Local Educational Agencies EA Detention OSPI 87,412 87, Title I Grants to Local Educational Agencies EA King Co OSPI 3,561 3, Title I Grants to Local Educational Agencies EA King Co OSPI 86,810 86, Title I Grants to Local Educational Agencies EA Pierce Co OSPI 3,589 3, Title I Grants to Local Educational Agencies EA Pierce Co OSPI 82,806 82, Title I Grants to Local Educational Agencies EA Middle/High School OSPI 73,296 73,296 Subtotal for CFDA #84.010: 425, ,605 U.S. Department of Education (cont.) Special Education_Grants to States WEA OSPI 39,385 39, Special Education_Grants to States WEA OSPI 76,675 76, Special Education_Grants to States Special Education IDEA OSPI 18,543 18, Special Education_Grants to States Special Education IDEA OSPI 424, , Special Education_Grants to States Special Education IDEA OSPI Special Education_Grants to States WSDS NCESD 11,537 11, Special Education_Grants to States WSDS NCESD 366, , Special Education_Grants to States ITEIP NCESD 37,823 37, Special Education_Grants to States ITEIP NCESD 1,711 1,711 Subtotal for CFDA #84.027: 976, , Indian Education_Grants to Local Educational Agencies Native American Ed UPSD 293, , Indian Education_Grants to Local Educational Agencies Native American Ed UPSD 13,207 13,207 Subtotal for CFDA #84.060: 306, , Special Education_Preschool Grants WEA Special Ed Preschool OSPI 4,309 4, Special Education_Preschool Grants WEA Special Ed Preschool OSPI 11,062 11, Special Education_Preschool Grants Special Education Preschool OSPI 2,644 2, Special Education_Preschool Grants Special Education Preschool OSPI 58,013 58, Special Education_Preschool Grants WSDS Preschool NCESD 2,135 2, Special Education_Preschool Grants WSDS Preschool NCESD 49,480 49,480 Subtotal for CFDA #84.173: 127, , Special Education_Grants for Infants and Families Family Resource Coordinator ESD 112 8,759 8,759 Subtotal for CFDA #84.181: 8,759 8,759 Safe and Drug-Free Schools and Communities_ National Programs Project Success ESD ,862 54,862 Subtotal for CFDA #84.184: 54,862 54,862 Page 2 of 5

42 Education Technology State Grants, Recovery Act ETDC - Federal OSPI 13,387 13,387 2 Subtotal for CFDA #84.386: 13,387 13,387 Puget Sound Educational Service District #121 Schedule of Expenditures of Federal Awards For the Year Ending August 31, CFDA Number Expenditures From Federal Agency Through Direct note Awards Awards Total Ref. Name Federal Program Title Grant Name PPSS Number Pass-Through Agency Pass- From Foot- U.S. Department of Education (cont.) Twenty-First Century Community Learning Centers Great Pathways II OSPI 12,193 12, Twenty-First Century Community Learning Centers Great Pathways II OSPI 379, , Twenty-First Century Community Learning Centers Achievers After School OSPI 311, , Twenty-First Century Community Learning Centers Achievers After School OSPI 76,912 76, Twenty-First Century Community Learning Centers Tacoma Impact OSPI 12,210 12, Twenty-First Century Community Learning Centers Tacoma Impact OSPI 380, ,190 Subtotal for CFDA #84.287: 1,173,029 1,173, Indian Education -- Special Programs for Indian Children Red Road Demonstration Project ,604 6, Indian Education -- Special Programs for Indian Children Native American Early Learning Project Indian Education -- Special Programs for Indian Children Native American Early Learning Project , , Indian Education -- Special Programs for Indian Children Native American Early Learning Project ,763 27,763 Subtotal for CFDA #84.299: 302, , Special Education - State Personnel Development RTI Professional Development OSPI Special Education - State Personnel Development RTI Train the Trainer OSPI 6,207 6,207 Subtotal for CFDA #84.323: 7,048 7, Special Education - Personnel Development to Improve Services and Results for Children with Disabilities Project RTI UW Tacoma UW Tacoma 19,811 19,811 Subtotal for CFDA #84.325T: 19,811 19, Special Education_Technical Assistance and Dissemination to Improve Services and Results Deaf/Blind NCESD 20,203 20,203 for Children with Disabilities Deaf/Blind NCESD 147, ,859 Subtotal for CFDA #84.326: 168, , Arts In Education Arts in Literacy ,003 68, Arts In Education Arts in Literacy , , Arts In Education Arts Impact ,629 48, Arts In Education Math Artistic Pathways , , Arts In Education Math Artistic Pathways ,963 15, Arts In Education Arts Impact Dissemination and Expansion , , Arts In Education Arts Impact Dissemination and Expansion ,973 63,973 Subtotal for CFDA #84.351: 976, , Early Reading First Early Reading First , , Early Reading First Early Reading First ,167,230 1,167, Early Reading First Early Reading First ,126 2,126 Subtotal for CFDA #84.359B: 1,333,728 1,333, Improving Teacher Qualtiy State Grants CSA Qualified Teachers OSPI 50,000 50, Improving Teacher Qualtiy State Grants HEC Board Grant Seattle University 95,421 95, Improving Teacher Qualtiy State Grants HEC Board Grant Seattle University 11,237 11,237 Subtotal for CFDA #84.367: 156, ,658 U.S. Department of Education (cont.) Page 3 of 5

43 40 CFDA Number Puget Sound Educational Service District #121 Schedule of Expenditures of Federal Awards For the Year Ending August 31, 2011 Expenditures From Federal Agency Through Direct note Awards Awards Total Ref. Name Federal Program Title Grant Name PPSS Number Pass-Through Agency Pass- From Foot Title I Grants to Local Educational Agencies, Recovery Act Compassionate Schools Tacoma School District 137, , Title I Grants to Local Educational Agencies, Recovery Act EA Middle School ARRA OSPI 1,500 1, Title I Grants to Local Educational Agencies, Recovery Act EA Middle School ARRA OSPI 97,844 97, Title I Grants to Local Educational Agencies, Recovery Act EA Jail ARRA OSPI 4,316 4, Title I Grants to Local Educational Agencies, Recovery Act EA Jail ARRA OSPI 140, ,964 2 Subtotal for CFDA #84.389: 381, ,913 Special Education - Grants for Infants and Families, Recovery Act ITEIP - ARRA NCESD 102, ,407 2 Subtotal for CFDA #84.393: 102, ,407 U.S. Department of Education Subtotal: 3,922,764 2,613,267 6,536,031 U.S. Department of Health and Human Services Universal Newborn Hearing Screening WSDS DOH DOH 30,996 30,996 Subtotal for CFDA #93.251: 30,996 30, Drug-Free Communities Support Program Grants SS/HS Coalition ,197 29, Drug-Free Communities Support Program Grants SS/HS Coalition ,473 93,473 Subtotal for CFDA #93.276: 122, , Drug Abuse and Addiction Research Programs ONE-DA UW 81,652 81, Drug Abuse and Addiction Research Programs ONE-DA UW 28,376 28,376 Subtotal for CFDA #93.279: 110, , Temporary Assistance for Needy Families Community Jobs Pierce County TPCETC 150, , Temporary Assistance for Needy Families Community Jobs KIng County YWCA 60,837 60,837 Subtotal for CFDA #93.558: 211, , Head Start HeadStart Playgroud Grant ,615 9, Head Start HeadStart ,991,015 3,991, Head Start HeadStart ,498,808 12,498, Head Start Early HeadStart , , Head Start Early HeadStart ,222,487 1,222,487 Subtotal for CFDA #93.600: 18,154,416 18,154,416 Page 4 of 5

44 41 CFDA Number Puget Sound Educational Service District #121 Schedule of Expenditures of Federal Awards For the Year Ending August 31, 2011 Expenditures From Federal Agency Through Direct note Awards Awards Total Ref. Name Federal Program Title Grant Name PPSS Number Pass-Through Agency Pass- From Foot- U.S. Department of Health and Human Services (cont.) ARRA - Head Start HeadStart ARRA COLA , , ARRA - Head Start Early HeadStart ARRA COLA ,460 44, ARRA - Head Start HeadStart ARRA - Expansion , , ARRA - Head Start HeadStart ARRA - Expansion , ,620 2 Subtotal for CFDA #93.708: 1,319,691 1,319, ARRA - Early Head Start Early HeadStart ARRA Mentor Coaches , , ARRA - Early Head Start Early HeadStart ARRA Expansion , , ARRA - Early Head Start Early HeadStart ARRA Expansion , ,888 2 Subtotal for CFDA #93.709: 1,126,265 1,126, ARRA - Prevention and Wellness KC CPPW ARRA Prevention Public Health 42,714 42, Communities Putting Prevention to Work KC CPPW ARRA Prevention Seatttle & King County 116, , ARRA - Prevention and Wellness KC CPPW ARRA Head Start Public Health 26,810 26, Communities Putting Prevention to Work KC CPPW ARRA Head Start Seatttle & King County 62,309 62,309 2 Subtotal for CFDA #93.724: 248, , Medical Assistance Program ECEAP EPSDT DSHS 14,603 14, Medical Assistance Program ECEAP EPSDT DSHS 18,042 18,042 Subtotal for CFDA #93.778: 32,645 32, Block Grants for Prevention and Treatment ofsubstance Abuse P/I Federal OSPI 861, , Block Grants for Prevention and Treatment ofsubstance Abuse P/I Federal OSPI 9,987 9,987 Subtotal for CFDA #93.959: 871, ,797 Department of Health and Human Services Subtotal: 1,505,344 20,723,041 22,228,385 Total Federal Awards Expended: 6,359,108 23,336,309 29,695,416 Note 1 - Basis of Accounting The Schedule of Expenditures of Federal Awards is prepared using modified accrual basis of accounting. Expenditures represent only the federally funded portions of the program. District records should be consulted to determine amounts expended or matched from non-federal sources. Note 2 - American Recovery and Reinvestment Act (ARRA) The funding for this program was provided by the American Recovery and Reinvestment Act. Notes to the Schedule Page 5 of 5

45 ABOUT THE STATE AUDITOR'S OFFICE The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. Our mission is to work with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office employees are located around the state to deliver services effectively and efficiently. Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments and fraud, whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our Web site and through our free, electronic subscription service. We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive quality assurance program. State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Deputy Chief of Staff Doug Cochran Chief Policy Advisor Jerry Pugnetti Director of Audit Chuck Pfeil, CPA Director of Performance Audit Larisa Benson Director of Special Investigations Jim Brittain, CPA Director for Legal Affairs Jan Jutte, CPA, CGFM Director of Quality Assurance Ivan Dansereau Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) Toll-free Citizen Hotline (866) Website Subscription Service (SAO FACTS.DOC - Rev. 09/11)