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HomeMy WebLinkAbout08-2162 SHIPPENSBURG AREA SCHOOL DISTRICT FINANCIAL REPORT JUNE 30, 2007 • ~ CONTENTS INDEPENDENT AUDITOR' S REPORT 1 _2 Management's Discussion & Analysis 3 - 10 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets 11 - 12 Statement of Activities 13 Fund Financial Statements: Balance Sheet -Governmental Funds 14 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 15 Combined Statement of Revenues, Expenditures and Changes in Fund Balances -Governmental Funds 16 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities 1 ~ Statement of Revenues, Expenditures and Changes in Fund Balance -Budget and Actual -General Fund 18 Statement of Net Assets -Proprietary Fund - Food Service 19 Statement of Revenues, Expenses and Change in Net Assets -Proprietary Fund -Food Service 20 Statement of Cash Flows -Proprietary Fund - Food Service 21 - 22 Statement of Fiduciary Net Assets 23 Notes to Financial Statements 24 - 38 CONTENTS (Continued) SUPPLEMENTARY INFORMATION General Fund -Schedule of Revenues 39 - 40 General Fund -Schedule of Expenditures 41 - 46 Combining Balance Sheet -Non-Major Governmental Funds 47 Combining Statement of Revenues, Expenditures and Changes in Fund Balances -Non-Major Governmental Funds 48 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 49 - 50 Independent Auditor's Report on Compliance with Requirements Applicable to Each Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133 51 - 52 Schedule of Findings and Questioned Costs 53 - 54 Schedule of Expenditures of Federal Awards 55 - 58 Notes to Schedule of Expenditures of Federal Awards 59 Summary Schedule of Prior Year's Audit Findings 60 . BAR Bow & Ri~rrER web Site: www.cpabr.com CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS INDEPENDENT AUDITOR'S REPORT Board of School Directors Shippensburg Area School District Shippensburg, Pennsylvania We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Shippensburg Area School District, as of and for the year ended June 30, 2007, which collectively comprise the District's basic financial statements as listed in the table of contents. These financial statements are the responsibility of Shippensburg Area School District's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Shippensburg Area School District, as of June 30, 2007, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated November 21, 2007, on our consideration of Shippensburg Area School District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. CAMP HILL CARLISLE CI'I~'IBERSBURG LEWISTOWN STATE COLLEGE An Independently Owned Member of the RSM McGladrey Network The Management's Discussion & Analysis on pages 3 through 10 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise Shippensburg Area School District's basic financial statements. The combining non-major fund financial statements and other schedules, listed in the table of contents as supplementary information are presented for purposes of additional analysis and are not a required part of the basic financial statements. 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, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. ,~~ Chambersburg, Pennsylvania November 21, 2007 2 MANAGEMENT'S DISCUSSION & ANALYSIS (MD&A) SHIPPENSBURG AREA SCHOOL DISTRICT JUNE 30, 2007 The discussion and analysis of Shippensburg Area School District's (District) financial performance provides an overall review of the District's financial activities for the fiscal year ended June 30, 2007. The intent of this discussion and analysis is to look at the District's financial performance as a whole; readers should also review the financial statements and the notes to the basic financial statements to enhance their understanding of the District's financial performance. The Management's Discussion & Analysis (MD&A) is an element of the new reporting model adopted by the Governmental Accounting Standards Board (GASB) in their Statement No. 34 Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments issued in June 1999. Certain comparative information between the current year and the prior year is required to be presented in the MD&A. Financial Highlights Special Education The trends of prior years indicate that during the fiscal year 2006-2007, the Shippensburg Area School District would experience another year of significant increases in the costs for Special Education Instruction. Alternative Education Alternative Education costs increased during the 2006-2007 fiscal year. The District transferred additional financial resources to fund Alternative Education Placements for at-risk students during the fiscal year. Building Program A new school, the Shippensburg Area Intermediate School, for grades 4 and 5 opened during the school year. Renovations and limited new construction began at the James Burd and Nancy Grayson Elementary Schools. The District applied for and received a variance of Pennsylvania Department of Education's (PDE) 20-year rule for reimbursable projects. The District will receive state reimbursement on the renovations of the existing elementary schools. The Board of School Directors and Administration are currently planning for an addition to the Shippensburg Area Senior High School and for upgrades to the outside athletic fields for that facility. Borrowing The District borrowed an additional $4,750,000 for renovations and construction at the existing Nancy Grayson and James Burd Elementary Schools. The Board plans to borrow an additional $2,250,000 for planned construction at the Shippensburg Area Senior High School. Table A-1 summarizes the major features of the District's financial statements, including the portion of the District they cover and the types of information they contain. The remainder to this overview section of MD&A explains the structure and contents of the statements. Table A-1 Major Features of Shippensburg Area School District's Government-Wide and Fund Financial Statements Government-Wide Fund Statements Statements Govemmentai Funds Pro rieta Funds Fiducia Funds Scope Entire District (except Activities of the District Activities the District Activities in which the fiduciary funds) that are not operates similar to District is the trustee or proprietary or private business - agent to someone else's fiduciary, such as Food Service resources education, Activity Funds administration and communi services Required Financial Statement of Net Assets Balance Sheet Statement of Net Assets Statement of Fiduciary Information Net Assets Statement of Revenues, Statement of Revenues, Statement of Activities Expenditures and Expenses and Changes Statement of Changes Changes in Fund in Net Assets in Fiduciary Net Assets Balances Statement of Cash Flows Accounting Basis and Accmal accounting and Modified-accrual Accrual accounting and Accrual accounting and Measurement Focus economic-resources accounting and current economic-resources economic-resources focus financial-resources focus focus focus Type ojasset/liability All assets and Only assets expected to All assets and All assets and information liabilities, both be used up and liabilities, both liabilities, both short- financial and capital, liabilities that come due financial and capital, term and long-term and short-term and during the year or soon and short-tenn and long-term thereafter; no capital long-term assets included Type ofin,~low/outflow All revenues and Revenues for which All revenues and All revenues and information expenses during the cash is received during expenses during the expenses during the year, regardless of or soon after the end of year, regardless of year, regardless of when cash is received the year; expenditures when cash is received when cash is received or paid when goods or services or paid or paid have been received and payment is due during the year or soon thereafter 4 Overview of Financial Statements Government-Wide Statements The government-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Assets includes all of the government's assets and liabilities. All of the current year's revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. The two government-wide statements report the District's net assets and how they have changed. Net assets, the difference between the District's assets and liabilities, are one way to measure the District's financial health or position. Over time, increases or decreases in the District's net assets are an indication of whether its financial health is improving or deteriorating, respectively. To assess the overall health of the District, additional non-financial factors, such as changes in the District's property-tax base and the performance of students, must be considered. The government-wide financial statements of the District are divided into two categories: • Governmental activities -All of the District's basic services are included here, such as instruction, administration and community services. Property taxes and state and Federal subsidies and grants finance most of these activities. • Business-type activities -The District conducts afood-service operation and charges fees to students, staff and visitors to cover the costs of their operation. Fund Financial Statements The District's fund financial statements provide detailed information about the most significant funds - not the District as a whole. Some funds are required by state law and by bond requirements. Governmental funds -Most of the District's activities are reported in governmental funds, which focus on the determination of financial position and changes in financial position, not on income determination. They 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 operations and the services it provides. Governmental-fund information helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled in the financial statements. Proprietary funds -These funds are used to account for the District's activities that are similar to business operations in the private sector; or where the reporting focuses on determining net income, financial position, changes in financial position, and where a significant portion of funding comes through user charges. When the District charges customers for services it provides -whether outside customers or to other units in the District -these services are generally reported in proprietary funds. The Food Service Fund is the District's proprietary fund and is the same as the business-type activities reported in the government-wide statements, but provides more detail and additional information such as cash flows. 4 Fiduciary funds -The District is the trustee, or fiduciary, for several activity funds. All fiduciary activities are reported in a separate Statement of Net Assets. We exclude these activities from the District's other financial statements because the District cannot use these assets to finance operations. Financial Analysis of the District as a Whole The District's total net assets were $10,613,755, at June 30, 2007. Table A-2 As of June 30, 2007 and 2006 Net Assets Total Percentage Governmental Activities Business-Ty pe Activities Total Chance 6/30/06 6/30/07 6/30/06 6/30/07 6/30/06 6!30/07 2006-2007 Current and other assets $ 20,655,537 $ 18,490,692 $ 82,345 $ 88,036 $ 20,737,882 $ ] 8 578 728 -10 41% Capital assets Total t _ 30,463,977 34,007,363 174,228 147 778 30 638 205 , , 34 155 141 . 11.48% asse s $ 51 119 514 $ 52 498 055 $ 256 573 $ 235 814 $ 51 376 087 $ 52 733 869 2.64% Current and other liabilities $ 3,953,017 $ 4,602,195 $ 20,041 $ 56,234 $ 3,973,058 $ 4 658 429 -17 25% Long-tens liabilities 34,428,616 37,461,685 34 428 616 , , 37 461 685 . -8 81% Total liabilities $ 38,381,633 $ 42,063,880 $ 20,041 $ 56 234 $ 38 401 674 $ 42 120 114 . -9.68% Net Assets Invested in capital assets, net of related debt $ (4,631,749) $ (3,937,637) $ 174,228 $ 147,778 $ (4,457,521) $ (3,789 859) 14 98% Restricted 14,783,744 10,918,566 - - 14,783,744 , 10,918 566 . 26 14% Unrestricted 2 585,886 3,453,246 62 304 31 802 2 648 190 , 3 485 048 . -31 60% Total net assets $ 12,737,881 $ 10,434,175 $ 236,532 $ 179 580 $ 12 974 413 $ 10 613 755 . 18.19% Most of the District's net assets consist of restricted amounts. The remaining net assets are invested in capital assets (land, site improvements, buildings and equipment) and unrestricted amounts including designated and undesignated amounts. The restricted balances are amounts set aside to fund future purchases or capital projects as planned by the District. The results of this year's operations as a whole are reported in the Statement of Activities. All expenses are reported in the first column. Specific charges, grants, revenues and subsidies that directly relate to specific expense categories are presented to determine the final amount of the District's activities which are supported by other general revenues. The two largest general revenues are the Basic Education Subsidy provided by the Commonwealth of Pennsylvania, and the local taxes assessed to community taxpayers. 6 Table A-3 restates information from the Statement of Activities in a different format. Table A-3 Fiscal Years Ended June 30, 2007 and 2006 Changes in Net Assets Total Governmental Activities Business-T a Activities Total Percentage Revenues 6/30/06 6/30/07 6/30/06 6/30/07 6130/06 6/30!07 Chan e 2006-2007 Program revenues Charges for services Operating grants and contrib ti $ 96,034 $ 98,394 $ 747,122 $ 779,938 $ 843,156 $ 878,332 4.17% u ons General revenues 6,151,326 6,793,252 370,902 401,801 6,522,228 7,195,053 10.32% Property taxes Other taxes 13,615,805 15,321,577 - - 13,615,805 15,32],577 12.53% Grants, subsidies and 3,974,057 4,281,687 - - 3,974,057 4,281,687 7.74% contributions, unrestricted 7,007,126 7 469 850 - Other 1 289 754 , , 1 218 574 3 163 - 5 208 7,007,126 7,469,850 6.60% Total revenues 32 134 102 35 183 334 1 121 187 1 186 947 1 292 917 33 255 289 1 223 782 36 370 2 -5.35% 81 937% Expenses Instructional Instructional student sup ort 19,551,670 2 22,227,749 - - 19,551,670 22,227,749 -13.69% p Administrative and financial su ort PP ,207,988 2,447,017 2,978,688 2 614 879 - - 2,207,988 - 2,978,688 -34.91% Operation and main[. of plant services 2,222,057 , , 6 094 842 - 2,447,017 - 2,614,879 -6.86% Pupil transportation 1,538,885 , , 1 481 60] - 2,222,057 - 6,094,842 -174.29% Student activities 600,349 , , 653 620 - 1,538,885 - 1,48],601 3.72% Community services 18,654 , 19 399 - 600,349 - 653.620 _g.g7% Interest on long-term debt 1,384,526 , 1 416 262 - 18,654 - 19,399 -3.99% Food service , , - 1,384,526 1,416,262 _2.29% Total expenses - 29 971 146 - 37 487 040 1 1 ] 1 994 1 243 899 1 1 I 1 994 1 111 994 1 243 899 31 083 140 1 243 899 -I 1.86% 38 730 939 -24.60% Changes in net assets $ 2,162,956 $ (2 303 706) $ 9 193 $ (56 952) $ 2 172 149 $ (2 360 658) 208.68% 7 a The tables below present the expenses of both the Governmental and Business-Type Activities of the District. Table A-4 presents the District's seven (7) largest functions -instructional programs, instructional student support, administration, operation and maintenance of plant services, pupil transportation, student activities and community services and each program's net cost (total cost less revenues generated by the activities). This table also shows the net costs offset by the other unrestricted grants, subsidies and contributions to show the remaining financial needs supported by local taxes and other miscellaneous revenues. Table A-4 Fiscal Years Ended June 30, 2007 and 2006 Governmental Activities Instructional student support Administration Operation and maintenance Pupil transportation Student activities Community services Interest on long-term debt Total governmental activities Less unrestricted grants, subsidies Total needs for grants, taxes and other revenues 7,007,126 7,469,850 $ 16,716,660 $ 23,125,544 Table A-5 reflects the activities of the Food Service Program, the only business-type activity of the District. Table A-5 Fiscal Years Ended June 30, 2007 and 2006 Business-Type Activities Total Cost Net Cost of Services of Services Functions/Programs 6/30/2006 6/30/2007 6/30/2006 6/30/2007 Food services $ 1,111,994 $ 1,243,899 $ (6,030) $ 62,160 Add: investment earnings 3,163 5,208 Total business-type activities $ (9,193) $ 56,952 Total Cost Net Cost of Services of Services 6/30/2006 6/30/2007 6/30/2006 6/30/2007 9,551,670 $ 22,227,749 2,207,988 2,978,688 2,447,017 2,614,879 15,165,906 $ 17,118,690 1,825,388 2,572,934 2,304,786 2,449 859 2,222,057 6,094,842 1,778,442 5,750,090 1,538,885 1,481,601 732,299 713,431 600,349 653,620 514,462 555,503 18,654 19,3 99 17,977 18, 625 1,3 84,526 1,416,262 1,3 84,526 1,416,262 29,971,146 37,487,040 23,723,786 30,595,394 The Statement of Revenues, Expenses and Changes in Net Assets for this proprietary fund will further detail the actual results of operations. The District's Funds At June 30, 2007, the District's governmental funds reported a combined fund balance of $14,872,546, which reflects a decrease of $2,938,282 from June 30, 2006. General Fund Budget During the fiscal year, the Board of School Directors (Board) authorizes revisions to the original budget to accommodate differences from the original budget to the actual expenditures of the District. All adjustments are again confirmed at the time the annual audit is accepted, which is after the end of the fiscal year and not prohibited by state law. A schedule showing the District's original and final budget amounts compared with amounts actually paid and received is provided in the financial statements. The District applied for Federal, state and local grants. These grants cannot always be anticipated in the budgeting process. Budgeted Revenues increased by $318,213 as a result of additional approved grants. Budgeted expenditures and other financing uses also increased by the same amount to compensate for the additional approved grants. Transfers between specific categories of expenditures/financing uses occur during the year. The most significant transfers are from the budget reserve to specific expenditures. Capital Asset and Debt Administration Capital Assets At June 30, 2007, the District had $34,155,141 invested in a broad range of capital assets, including land, buildings, furniture and equipment. Table A-6 Fiscal Years Ended June 30, 2007 and 2006 Capital Assets -Net of Depreciation Total Governmental Activities Business-T a Activities Total Percentage Land and site improvements 6/30/06 $ 771 890 6/30107 $ 779 24 6/30/06 6/30/07 6/30/06 6/30/07 Chan e 2006-2007 Buildings and improvements , 14,600,323 , 4 29 845 924 $ - - $ - $ 77],890 $ 779,244 0.95% Furniture and equipment 3,720,674 , , 3 382 195 174 228 - 147 8 14,600,323 29,845,924 104.42% Conswction-in-progress 11371090 , , - , ,77 3,894,902 3,529,973 -9.37% $ 30 463 977 $ 34 007,363 - $ 174,228 $ 147 778 11371090 $ 30 638,205 $ _ 34 155 141 o 100.~g 9 Debt Administration As of July 1, 2006, the District had total outstanding bond principal of $34,825,000. During the year, the District borrowed an additional $4,750,000, made payments against principal of $1,630,000 resulting in ending outstanding debt as of June 30, 2007, of $37,945,000. Table A-7 Fiscal Years Ended June 30, 2007 and 2006 Outstanding Debt Total Governmental Activities Business-T a Activities Total Percentage General Obligation Bonds 6/30/06 6/30/07 6/30/06 6/30107 6/30106 6/30!07 Chan e 2006-2007 Series of 2001 $ 830,000 $ - $ - $ Series of2001A 8,870,000 - 8 325 000 $ 830,000 $ _ o° -100.00/ Series of 2004 15,420,000 , , - - 15 415 000 8,870,000 8,325,000 -6.14% Series of 2007 , , - - 15,420,000 15,415,000 -0.03% General Obligation Note - 4,750,000 - - - 4,750,000 100.00% Series of 2003 9 705 000 9 455 000 9 705 000 9 455 000 _2 gg $ 34,825,000 $ 37,945 000 $ - $ $ 34 825 000 $ 37 945 000 , 8.96% Other obligations include capital lease obligations and accrued vacation-pay and sick-leave for specific employees of the District. More detailed information about our long-term liabilities is included in Notes to the Financial Statements. Table A-8 reflects the comparison of revenue and expenditure categories by percentages. Table A-8 Revenues and Expenditures 2003-2004 2004-2005 2005-2006 2006-2007 Local revenues 55.9% 59.4% 60.7% 53 7% State revenues 41.3% 38.2% 36.9% . 32 6% Federal revenues 2.8% 2.4% 2.4% . 1 8% Other financing sources 0.0% 0.0% 0.0% . 11.9% Instruction 61.7% 60.9% 46.1% 49 9% Support services 27.6% 26.3% 20.4% . 21 9% Non-instructional/community 1.8% 1.7% 1.4% . 1 5% Facilities acquisition, construction . and improvement services 2.3% 2 9% 24 9% 19 7 . . . % Contacting the District's Financial Management Our financial report is designed to provide our citizens, taxpayers, parents, students, investors and creditors with a general overview of the District's finances and to show the Board's accountability for the money it receives. If you have questions about this report or wish to request additional financial information, please contact Deborah Westover, Business AdministratorBoard Secretary, at the Shippensburg Area School District, 317 North Morris Street, Shippensburg, PA 17257, (717) 530-2702. 10 SHIPPENSBURG AREA SCHOOL DISTRICT STATEMENT OF NET ASSETS June 30, 2007 ASSETS Governmental Business-Type Activities Activities Tntal Current Assets Cash Investments Receivables Taxes -net of allowance for uncollectibles Federal subsidies State subsidies Other Internal balances Prepaid expenses Inventories Total current assets Noncurrent Assets Bond issuance costs -net Land and improvements -net Building and improvements -net Furniture and equipment -net Construction-in-progress Total noncurrent assets Total assets See Notes to Financial Statements. $ 13,932,155 $ 5,896 $ 13,938,051 1,644,952 - 1,644,952 1,472,866 - 1,472,866 685,122 39,951 725,073 325,635 4,415 330,050 15,989 260 16,249 31,000 - 31,000 1,315 - 1,31.5 - 37,514 37,514 18,109,034 88,036 18,197,070 381,658 - 381,658 779,244 - 779,244 29,845,924 - 29,845,924 3,382,195 147,778 3,529,973 34,389,021 147,778 34,536,799 $ 52,498,055 $ 235,814 $ 52,733,869 11 LIABILITIES AND NET ASSETS Governmental Activities Business-Type Activities Total Current Liabilities Accounts payable $ 833,775 $ 792 $ 834,567 Current portion of long-term debt General obligation debt 1 690 000 - 1,690,000 Accrued expenses Salaries and benefits 1,658,420 - 1,658,420 Payroll withholdings 259,782 - 259,782 Internal balances - 31,000 31,000 Interest payable 153 006 ~ - 153,006 Deferred revenues - 24,442 24,442 Unearned revenues 7,212 - 7,212 Total current liabilities 4,602,195 56,234 4,658,429 Noncurrent Liabilities Long-term debt -net of current portion General obligation debt 36 25S 000 ~ ~ - 36,255,000 Compensated absences 1 206 685 - 1,206,685 Total noncurrent liabilities 37,461,685 - 37,461,685 Total liabilities 42,063,880 56,234 42,120,114 Net Assets (Deficit) Invested in capital assets -net of related debt (3,937,637) 147,778 (3,789,859) Restricted for: Capital projects 10,709,144 - 10,709,144 Capital reserve 157 536 - 157,536 Athletic 51,886 - 51,886 Unrestricted 3,453,246 31,802 3,485,048 Total net assets 10,434,175 179,580 10,613,755 Total liabilities and net assets $ 52,498,055 $ 235,814 $ 52,733,869 12 H U F Q a 0 x U Q W d as wA 1~1 W [~ o° N d O ~ M 0 O F z '' ~ ~' W at ti ~ h ~". y N ~ r„i ~z ~ .~ ~ ~ K w ~. +, U z C F" N ~ ~ N ~ ~ ~ V ~ Q C. ~' ~~ •'F'• O U O Q O~tO~O~-.M~nN O~ M ~ O\ M O N ~O ~D O~ 00 O ~h M ~O N ~ N Oi O 'M-. ~ oO ~ [~ N N ~ v V ~~~ ~ 69 ,, 69 M ~ O t\ n ~ h . -, '~ v i^ ~O o o ~ ~ ~ ~ ~ b b ~ M N~ O i N N M O i O ~ ~ oo CV N M N ~ ,,,~ O O ^ ' ~O ~p i ~ ~ p i O ~ ^' "'' N N O~ ~ ~ ~ V'1 ~O ,-. ^ ,-. ,-. ^ ,-, ,-, l-, O ~ ~ O M ~ N ~ C~ M V1 O~ M O N ~D D1 ~O Q\ oo O d~ v1 \O N M 00 N O\ O M ~ 00 ~O V1 "'~ ~ ~ l/'1 ~--' In .r ~ ~ h [t l ~ l~ ~n ~ 'ct ~n N N v"> ~ ~ ,--; O ,~~`. 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'O p" ~ a-+ O ~. ~ ~~ O ,ICE+ N ~O ~ y„ ~ ~ ~ L' f.Q Gd F+U ZZ U w 0 p z M SHIPPENSBURG AREA SCHOOL DISTRICT BALANCE SHEET -GOVERNMENTAL FUNDS June 30, 2007 Capital Non-Major Total Projects Governmental Governmental ASSETS General Construction Funds Funds Cash Investments $ 2,898,235 $ 10,814,764 $ 219,156 $ 13,932,155 Receivables 1,644,952 - - 1,644,952 Taxes -net of allowance for uncollectibles 1,472,866 - - 1 472 866 Federal subsidies 685,122 - - , , 685 122 State subsidies 325,635 - - , 325 635 Other 15,989 - - , 15,989 Due from other funds 31 000 - Prepaid expenses , 1 315 - 31,000 Total assets , $ 7,075,114 $ 10,814,764 219,156 1,315 18,109,034 LIABILITIES AND FUND BALANCES Accounts payable Accrued expenses Salaries and benefits Payroll withholdings Deferred revenues Unearned revenue Total liabilities Fund Balances Reserved for Capital projects Capital reserve Athletic Unreserved Total fund balances Total liabilities and fund balances See Notes to Financial Statements. $ 719,137 $ 105,620 $ 9,018 $ 833,775 1,658,420 - - 1,658,420 259,782 - - 259,782 477,299 - - 477,299 6,496 - - 6,496 3,121,134 105,620 9,018 3,235,772 - 10,709,144 - 10,709,144 - - 157,536 157,536 - 51,886 51,886 3,953,980 - - 3,953,980 3,953,980 10,709,144 209,422 14,872,546 $ 7,075,114 $ 10,814,764 $ 218,440 $ 18,108,318 14 SHIPPENSBURG AREA SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS June 30, 2007 ~ u~a~ r una isaiances - vovernmental Funds Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital Assets used in governmental activities are not financial resources, and therefore, they are not reported as assets in governmental funds. The cost of assets is $50,363,719, and the accumulated depreciation is $16,356,356. Property taxes receivable will be collected this year, but are not available soon enough to pay for the current period's expenditures, and therefore, they are deferred revenues in the funds. Governmental funds report bond issuance costs as expenditures. However, in the Statement of Activities, the costs of issuance are allocated over the lives of the debt issues. This is the amount by which bond issuance costs exceed accumulated amortization. Long-term liabilities, including bonds payable and compensated absences, are not due and payable in the current period, and therefore, they are not reported as liabialities in the funds. Long-term liabilities at year-end consist of: Bonds payable (37,945,000) Accrued interest (153,006) Compensated absences (1,206,685) Total net assets -governmental activities See Notes to Financial Statements. $ 14,872,546 34,007,363 477,299 381,658 (39,304,691) $ 10,434,175 15 SHIPPENSBURG AREA SCHOOL DISTRICT COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -GOVERNMENTAL FUNDS Year Ended June 30, 2007 Capital Non-Major Total Projects Governmental Governmental General Construction Funds Funds Revenues Local sources $ 20,767,181 $ 577,556 $ 69,896 $ 21 414 633 State appropriations 12,976,837 - - , , 12 976 837 Federal appropriations 727,907 - - , , 727,907 Total revenues 34,471,925 577,556 69,896 35,119,377 Expenditures Instructional Support services Operation ofnon-instructional services Construction improvement services Debt service Principal Interest Total expenditures 20,850,680 490,894 9,023,254 302,628 469,546 - - 8,432,075 - 21,341,574 45,248 9,371,130 169,142 638,688 5,000 8,437,075 Excess (deficiency) of revenues over expenditures Other Financing Sources (Uses) Bond proceeds Refund of prior years' receipts Operating transfers in Operating transfers out Total other financing sources (uses) Net changes in fund balances Fund Balances -July 1, 2006 Fund Balances -June 30, 2007 See Notes to Financial Statements. 1,630,000 - - 1,630,000 1,388,577 - - 1,388,577 33,362,057 9,225,597 219,390 42,807,044 1,109,868 (8,648,041) (149,494) (7,687,667) - 4,750,000 - 4,750,000 (615) - - (615) 2 - 182,359 182,361 (182,359) (2) - (182,361) (182,972) 4,749,998 182,359 4,749,385 926,896 (3,898,043) 32,865 (2,938,282) 3,027,084 14,607,187 176,557 17,810,828 $ 3,953,980 $ 10,709,144 $ 209,422 $ 14,872,546 16 SHIPPENSBURG AREA SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES Year Ended June 30, 2007 .~~^ .^.a^^go m ^uuu va~ances - i0ia1 governmental funds Amounts reported for governmental activities in the Statement of Activities are different because: $ (2,938,282) Capital outlays are reported in governmental funds as expenditures. However, in the Statement of Activities, the costs of those assets are allocated over their useful lives as depreciation expense. This is the amount by which capital outlays exceed depreciation in the period. Capital outlays Less depreciation expense 4,790,383 (1,082,296) 3,708,087 The net effect of various miscellaneous transactions involving capital assets (ie. sales, trade-ins, and donations) is to decrease net assets. Because some property taxes will not be collected for several months after the District's fiscal year ends, they are not considered as "available" revenues in the governmental funds. Deferred tax revenues decreased by this amount this year. Interest on long-term debt in the Statement of Activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due, and thus requires the use of current financial resources. In the Statement of Activities, interest expense is recognized as the interest accrues, regardless of when it is due. The additional interest accrued in the Statement of Activities over the amount due is shown here. Some expenses reported in the Statement of Activities do not require the use of current financial resources, and therefore, they aze not reported as expenditures in governmental funds. The issuance oflong-term debt provides current financial resources to governmental funds, while the repayment of the principal of long- term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. This amount is the net effect of these differences in the treatment oflong-term debt and related items. Issuance oflong-term debt Repayment oflong-term debt Bond issuance costs Amortization of bond issuance costs Change in net assets of governmental activities See Notes to Financial Statements. 106,025 63,957 (27,685) (176,115) (4,750,000) 1,630,000 112,928 _ (32,621) (3,039,693) $ (2,303,706) 17 SHIPPENSBURG AREA SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL -GENERAL FUND Year Ended June 30, 2007 Variance with Final Budgeted Amounts Budget Favorable Original Final Actual (Unfavorable) Revenues Local sources $ 20,351,483 $ 20,361,060 $ 20,767,181 $ 406,121 State appropriations 12,445,448 12,754,078 12,976,837 222,759 Federal appropriations 716,266 716,266 727,907 11,641 Total revenues 33,513,197 33,831,404 34,471,925 640,521 Expenditures Instructional Support services Operation ofnon-instructional services Debt service Total expenditures Excess (deficiency) of revenues over expenditures Other Financing Uses Refund of prior years' receipts Operating transfers in Operating transfers out Budgetary reserve Total other financing uses Net changes in fund balance Fund Balance -July 1, 2006 Fund Balance -June 30, 2007 See Notes to Financial Statements. 20,823,476 20,978,043 20,850,680 127,363 9,232,311 9,437,172 9,023,254 413,918 451,935 470,035 469,546 489 3,100,143 3,100,143 3,018,577 81,566 33,607,865 33,985,393 33,362,OS7 623,336 (94,668) (153,989) 1,109,868 1,263,857 - - (61S) (61 S) - - 2 2 (182,359) (182,359) (182,359) _ (375,000) (313,670) - 313,670 (SS7,359) (496 029) (182,972) 313,OS7 _$ (652,027) $ (650,018) 926,896 $ 1,576,914 3,027,084 $ 3,953,980 18 SHIPPENSBURG AREA SCHOOL DISTRICT STATEMENT OF NET ASSETS - PROPRIETARY FUND -FOOD SERVICE June 30, 2007 ASSETS Current Assets Cash $ 5,896 Receivables Federal subsidies 39,951 State subsidies 4,415 Other Inventories 260 Total current assets 37,514 88,:036 Noncurrent Assets Furniture and equipment -net Total assets 147,778 $ 235,814 LIABILITIES AND NET ASSETS Liabilities Accounts payable $ 7 Due to other funds 92 Deferred revenues 31,000 Total liabilities -all current 24,442 56,234 Net Assets Invested in capital assets Unrestricted 147,778 Total net assets 31,802 179,580 Total liabilities and net assets $ 23 5,814 See Notes to Financial Statements. 19 SHIPPENSBURG AREA SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENSES AND CHANGE IN NET ASSETS - PROPRIETARY FUND -FOOD SERVICE Year Ended June 30, 2007 Uperating Revenues Food service revenue $ 779,938 Operating Expenses Labor, taxes and benefits 623 881 Professional and technical services , 8 450 Disposal services , 2 316 Electricity , 20,000 Equipment repairs and maintenance 19,961 Extermination services 1 240 Advertising , 1 179 Printing and binding , 1,501 Travel 1 190 Supplies , 46,361 Food and milk 419,522 Donated commodities used 62,167 Depreciation 27 688 Equipment -replacement , 6,723 Dues and fees 1,720 Total operating expenses 1,243,899 Operating loss (463,961) Nonoperating Revenues (Expense) Investment income 5,208 Federal subsidies 281 236 State subsidies , 58 398 Value of donated commodities , 62,167 Total nonoperating revenues 407,009 Change in net assets (56,952) Net Assets -July 1, 2006 236 532 Net Assets -June 30, 2007 , $ 179,580 See Notes to Financial Statements. 20 SHIPPENSBURG AREA SCHOOL DISTRICT STATEMENT OF CASH FLOWS - PROPRIETARY FUND -FOOD SERVICE Year Ended June 30, 2007 Cash Flows From Operating Activities Cash received from meal sales $ 779,938 Cash payments for goods and services (498,070) Cash payments to employees for services (623,881) Net cash used in operating activities (342,013) Cash Flows From Non-Capital Financing Activities Federal subsidies State subsidies 281,236 Net cash provided by non-capital 58,398 financing activities 339,634 Cash Flows From Capital and Related Financing Activities Acquisition of equipment (1,238) Cash Flows From Investing Activities Investment income 5,208 Net increase in cash 1,591 Cash: July 1, 2006 June 30, 2007 4,305 $ 5 ,896 (Continued) 21 SHIPPENSBURG AREA SCHOOL DISTRICT STATEMENT OF CASH FLOWS - PROPRIETARY FUND -FOOD SERVICE (Continued) Year Ended June 30, 2007 Keconciliation of Operating Loss to Net Cash Used in Operating Activities Operating loss $ (463,961) Adjustments to reconcile operating loss to net cash used in operating activities Depreciation 27,688 Value of donated commodities 62,167 Changes in assets and liabilities: (Increase) decrease in: Receivables (853) Inventories (3,247) (Decrease) increase in: Accounts payable 224 Due to other funds 31,000 Deferred revenues 4 969 Net cash used in operating activities , $ (342,013) See Notes to Financial Statements. 22 SHIPPENSBURG AREA SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET ASSETS June 30, 2007 James Burd Nancy Grayson Intermediate Elementary Elementary School Middle School Senior High Activity Fund Activity Fund Activi Fund Activity Fund Activity Fund ASSETS Cash $ 4,932 $ 4 $ 4,840 $ 18,988 $ 86,366 LIABILITIES Due to student groups $ 4,932 $ 4 $ 4,840 $ 18,988 $ 86,366 See Notes to Financial Statements. 23 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies Shippensburg Area School District operates three elementary schools, one middle school and one high school in Shippensburg, Pennsylvania. The District operates under current standards prescribed by the Pennsylvania Department of Education in accordance with the provisions of the School Laws of Pennsylvania. The District operates under alocally-elected, nine-member Board. The financial statements of Shippensburg Area School District (the District) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the authoritative standard-setting body for the establishment of governmental accounting and financial reporting principles. The more significant of these accounting policies are as follows: A. Reporting Entity Shippensburg Area School District's financial statements include the operations of all entities for which the School Board exercises oversight responsibility. Oversight responsibility is demonstrated by financial interdependency, selection of governing authority, designation of management, ability to significantly influence operations, and accountability for fiscal matters. Shippensburg Area School District is the lowest level of government which has oversight responsibility and control over all activities related to public school education in the Commonwealth of Pennsylvania. The District receives funding from local, state and Federal government sources and must comply with the requirements of these funding-source entities. However, the District is not included in any other governmental "reporting entity" since the School Board Members are elected by the public and have decision-making authority, the power to designate management, the ability to significantly influence operations and primary accountability for fiscal matters. Additionally, the District does not exercise oversight responsibility over any other entities, and consequently, no other entities have been included in the accompanying financial statements. B. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the Statement of Net Assets and the Statement of Activities) report information on all of the non-fiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain legally- separate component units for which the primary government is financially responsible. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not included among program revenues are reported as general revenues. 24 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies (Continued) B. Government-wide and Fund Financial Statements (Continued) Separate-fund financial statements are provided in the report for all of the governmental, proprietary, and fiduciary funds of the District, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Non-major funds are aggregated and presented in a single column. Fiduciary funds are reported by fund type. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The District complies with accounting principles generally accepted in the United States of America (GAAP) and applies all relevant Governmental Accounting Standards Board (GASB) Pronouncements. The government-wide financial statements are reported using the economic-resources measurement focus and the accrual basis of accounting, as are the proprietary and fiduciary-fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenues as soon as all eligibility requirements imposed by the provider have been met. Net assets (total assets less total liabilities) are used as a practical measure of economic resources and the operating statement includes all transactions and events that increased or decreased net assets. Depreciation is charged as expense against current operations and accumulated depreciation is reported on the Statement of Net Assets. Governmental-fund financial statements are reported using the current financial-resources measurement focus and the modified-accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Revenues from Federal, state and other grants designated for payment of specific School District expenditures is recognized when the related expenditures are incurred; accordingly, when such funds are received, they are recorded as deferred revenues until earned. Expenditures generally are recorded when liabilities are incurred, as under accrual accounting. However, debt-service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. When both restricted and unrestricted resources are available for use, it is the District's policy to use restricted resources first, then unrestricted resources as they are needed. Governmental Funds are those through which most governmental functions of the District are financed. The acquisition, use and balances of the District's expendable financial resources and related liabilities (except those accounted for in proprietary funds) are accounted for through Governmental Funds. 25 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies (Continued) C. Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued) The District reports the following major governmental funds: The General Fund is the District's primary operating fund. It accounts for all financial resources except those required to be in another fund. Revenues are primarily derived from local property, earned income, per capita and occupational taxes, and state and Federal distributions. Many of the more important activities of the District, including instruction, administration of the District and certain non-instructional services are accounted for in this fund. The Capital Projects Fund is used to account for financial resources available for the acquisition or construction of major capital facilities (other than those financed by proprietary funds). The District operates one enterprise fund, the Food Service Fund. This fund accounts for the activities of the District's food service program. Additionally, the District reports the following non-major governmental funds: The Athletic Funds are authorized by Section 511 of the Public School Code of 1949 to account for the revenues and expenditures of athletic activities. The funds account for gate receipts and other revenues from athletic events and certain budgeted costs of the District's athletic programs. The Capital Reserve Fund (Section 2932 is authorized by P.L. 145, Act of Apri130, 1943, known as Section 2932 School Laws of Pennsylvania) accounts for (1) monies transferred during any fiscal year from appropriations made for any particular purpose which may not be needed, and (2) surplus monies in the General Fund of the District at the end of any fiscal year. This fund is included in the financial statements as a Special Revenue Fund. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary fund's principal on-going operations. The principal operating revenues of the District's enterprise fund are food service charges. Operating expenses for the District's enterprise fund include food production costs, supplies, administrative costs, and depreciation on capital assets. All revenues or expenses not meeting this definition are reported as nonoperating revenues and expenses. The District does not attempt to allocate "building-wide costs" to the Food Service Fund. Thus, General Fund expenditures which partially benefit the Food Service Fund (utilities, janitorial services, insurance, etc.) are not proportionately recognized within the Food Service Fund; similarly, the Food Service Fund does not recognize a cost for the building space it occupies (no rental-of-facilities expense). The Activity Funds account for the monies authorized by Section 511 of the Public School Code of 1949 for school publications and organizations. A portion of the Activity Funds is an Agency Fund which is separate from other Agency Funds because of legal requirements. Agency Funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Agency Funds are also accounted for using the modified-accrual basis of accounting. 26 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies (Continued) D. Budgets and Budgetary Accounting An operating budget is adopted prior to the beginning of each year for the General Fund on a modified- accrual basis of accounting. The General Fund is the only fund for which a budget is legally required. The Pennsylvania School Code dictates specific procedures relative to adoption of the District's budget and reporting of its financial statements: The District, before levying annual school taxes, is required to prepare an operating budget for the succeeding ftscal year. The District is required to publish notice by advertisement, at least once in two newspapers of general circulation in the municipality in which it is located, and within fifteen days of final action, that the proposed budget has been prepared and is available for public inspection at the administrative office of the District. Notice that public hearings will be held on the proposed operating budget must be included in the advertisement; such hearings are required to be scheduled at least ten days prior to when final action on adoption is taken by the Board. Legal budgetary control is maintained at the sub-function/major-object level. The Board of School Directors may make transfers of funds appropriated to any particular item of expenditure by legislative action in accordance with the Pennsylvania School Code. Management may amend the budget at the sub- function/sub-object level without Board approval. Appropriations lapse at the end of the fiscal period. Budgetary information reflected in the financial statements is presented at or below the level of budgetary control and includes the effect of approved budget amendments. E. Assets, Liabilities and Net Assets or Equity Cash and Cash Equivalents: For purposes of the Statement of Cash Flows presented for the proprietary fund, the District considers all highly-liquid investments with maturities of three months or less when purchased to be cash equivalents. Investments: Investments are stated at market value. Allowance for Estimated Uncollectible Taxes and Deferred Revenues: The allowance for estimated uncollectible taxes is based upon an historical estimate of delinquent taxes that will not be received within one year of the fiscal year-end. Deferred revenues are based upon an historical estimate of delinquent taxes expected to be received within one year of the fiscal year-end. The portion of taxes receivable which is expected to be received within sixty days of June 30 is recorded as revenue in the current year. The remaining amount of taxes receivable which is expected to be received within one year from June 30 is recorded as deferred revenues. All other amounts in taxes receivable are written off as estimated uncollectible taxes. 27 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies (Continued) E. Assets, Liabilities and Net Assets or Equity (Continued) Inventories: On government-wide financial statements, inventories are presented at the lower of cost or market on a first-in, first-out basis, and are expensed when used. A physical inventory of the Food Service Fund's food and supplies was taken as of June 30, 2007. The inventory consisted of government-donated commodities which were valued at estimated fair market value, and purchased commodities and supplies, valued at cost using the first-in, first-out (FIFO) method. The District has adopted an inventory recordkeeping system which does distinguish between donated and purchased commodities. Accordingly, deferred revenue for donated commodities has been recorded. Capital Assets and Depreciation: Capital assets, which include property, plant and equipment, are reported in the applicable governmental or business-type activities column in the government-wide financial statements. Capital assets are capitalized at the discretion of management, unless the assets are acquired by debt proceeds, in which case the assets must be capitalized. Management considers various factors in the capitalization of assets, including the assets' estimated useful lives, costs, and the extent to which the assets are part of a larger capital project. The District's capital assets include library books, classroom texts, computer equipment, classroom furniture, and other instructional equipment, subject to the on-going discretion of management. The costs of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized. Depreciation is provided for fixed assets on the straight-line basis over the estimated useful lives of the assets or groups of assets as determined by management. Long-Term Obli ations: In the government-wide financial statements, long-term debt and other long- term obligations are reported as liabilities in the applicable governmental or business-type activity columns in the Statement of Net Assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the lives of the issues using the effective interest method. Bonds payable are reported net of applicable bond premiums or discounts. Bond issuance costs are reported as deferred charges and amortized over the terms of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of the debt issued is reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Compensated Absences: Under the system of financial accounting and reporting for Pennsylvania School Systems, the District accrues certain accumulated employee benefits, such as unpaid vacation and sick pay. Calculation of this amount is determined by the appropriate vacation, sick and retirement lump-sum payments which would be available to employees if they would leave or retire from the District and is adjusted for expected turnover rates of employees. Accrued benefit days, multiplied by appropriate salary amounts, are reflected as a long-term liability unless retirements are likely within the upcoming fiscal year. Those costs, determined to be current-year costs, are reflected as a liability of the General Fund. 28 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies (Continued) E. Assets, Liabilities and Net Assets or Equity (Continued) Transfers: Advances between funds that are not expected to be repaid are accounted for as transfers. In those cases when repayment is expected, the advances are accounted for through the various "due from" and "due to" accounts. Fund Balance: The District classifies fund balances as follows: Reserved Reserved is used to denote that portion of the fund balance, which is not available for expenditure appropriation or is legally segregated for a specific purpose. • Reserved for athletics represents that portion of fund balance legally restricted to athletic programs. • Reserved for capital reserve represents that portion of fund balance legally restricted to capital projects. Unreserved • Designated is used to indicate intentions for financial-resource utilization. • Undesignated is used to denote that portion of fund balance which is available for appropriations. Use of Estimates: Management uses estimates and assumptions in preparing financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities and the reported revenue, expenditures and disclosures. 29 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 2. Deposits and Investments Under Section 440.1 of the Public School Code of 1949, as amended, the District is permitted to invest funds consistent with sound business practices in the following types of investments: • U.S. Treasury Bills • Short-term obligations of the U. S. Government or its agencies or its instrumentalities • Deposits in savings accounts or time deposits or share accounts of institutions insured by either: 1. The Federal Deposit Insurance Corporation (FDIC), or 2. The Federal Savings and Loan Insurance Corporation (FSLIC), or 3. The National Credit Union Share Insurance Fund (NCUSIF) to the extent that such accounts are so insured, and for any amounts above maximum insurable limits, provided that approved collateral as provided by law shall be pledged by the depository • Obligations of (a) the United States of America or its agencies or instrumentalities backed by the full-faith and credit of the United States of America, and (b) the Commonwealth of Pennsylvania or instrumentalities thereof backed by the full-faith and credit of these political subdivisions • Shares of investment companies whose investments are restricted to the above categories The deposit and investment policies of the District adhere to state statutes and prudent business practices. There were no deposit or investment transactions during the year that violated either state statutes or District policies. Deposits: Custodial-Credit Risk Custodial-credit risk is the risk that in the event of a bank failure, the District's investments may not be returned to it. As of June 30, 2007, $15,836,232 of the District's total bank balances of $15,936,232, was exposed to custodial-credit risk as follows: viiinsurea ana coiiateralizeu by assets maintained in conformity with Act 72 $ 15 836 232 Act 72 is an act standardizing the procedures for pledges of assets to secure deposits of public funds with banking institutions pursuant to other laws; establishing a standard rule for the types, amounts and valuations of assets eligible to be used as collateral for deposits of public funds; permitting assets to be pledged against deposits on a pooled basis and authorizing the appointment of custodians to act as the pledgor of the assets. 30 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 3. Taxes Receivable, Deferred Revenues and Estimated Uncollectible Taxes A summary of the taxes receivable and related accounts at June 30, 2007, follows: Uncollected taxes -real estate Amount Uncollected taxes -personal $ 685,770 Interest and commissions -net 9,507 Earned income taxes 5,737 Realty transfer taxes 618,221 153,631 Taxes Receivable -Net $ 1,472,866 Taxes to be collected within 60 days $ 1,000,157 Deferred revenues -delinquent taxes 477,299 Allowance for uncollectible taxes (4,590) Taxes Receivable -Net $ 1,472,866 Deferred Revenue -General Fund Delinquent taxes $ 477,299 Deferred Revenue -Food Service Fund Student deposits $ 12,411 Donated commodities 12,031 $ 24,442 31 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 4. Interfund Accounts Individual fund receivable and payable balances at June 30, 2007, are as follows: Interfund Interfund Receivables Pa ables General $ 31,000 $ Food Service - 31,000 $ 31,000 $ 31,000 Individual fund transfer activity at June 30, 2007, is as follows: Transfers Tn TranefPre (>n1 ~enerat Capital Reserve Construction Senior High Athletic Middle School Athletic Note 5. Food Service Fund Inventory $ 2 $ 182,359 60,615 - _ 2 87,433 - 34,311 - $ 182,361 $ 182,361 The composition of Food Service Fund inventory at June 30, 2007, is as follows: iviaieriais and supplies Purchased food Donated food Note 6. Property Taxes $ 7,203 18,280 12,031 $ 37,514 Property taxes are levied on July 1st. Taxes are collected at a discount until August 31st, at their face amount from September 1st until October 31st, and include a penalty thereafter. The taxes are billed and collected by elected tax collectors. The County Tax Bureaus collect delinquent real estate taxes for the District. 32 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 7. General Fixed Assets Capital asset activity for the year ended June 30, 2007, was as follows: July 1, 2006 Increases Decreases June 30, 2007 overnmenta ctivit~es Capital assets, not being depreciated Land $ 272,820 $ $ - $ 272,820 Construction-in-progress 11,371,090 (11,371,090) _ _ Total capital assets, not being depreciated 11,643,910 (11,371,090) - 272 820 Site improvements $ 894,699 $ 35,000 $ $ 929 699 Buildings and improvements 25,485,158 16,000,000 - , 41 485 158 Furniture and equipment 7,977,926 126,473 428,357 , , 7,676 042 Total capital assets, being depreciated 34,357,783 16,161,473 428,357 , 50,090,899 Less accumulated depreciation Site improvements Buildings and improvements Furniture and equipment Total accumulated depreciation Total capital assets, being depreciated, net Governmental Activities, Capital Assets -Net Business-Type Activity Machinery and equipment Accumulated depreciation Business-Type Activity, Capital Assets -Net 395,629 27,646 - 423,275 10,884,835 754,399 - 11,639,234 4,257,252 300,251 263,656 4,293,847 15,537,716 1,082,296 263,656 16,356,356 18,820,067 15,079,177 164,701 33,734,543 $ 30,463,977 $ 3,708,087 $ 164,701 $ 34,007,363 ~ 686,860 $ 1,238 $ - $ 688,098 (512,632) (27,688) - (540,320) $ 174,228 $ (26,450) $ - $ 147,778 Depreciation expense was charged to the functions/programs of the District as follows: Governmental Activities Amount Instructional $ 8 Instructional student support 15,470 Administration and financial support 91,635 Operation and maintenance of plant services 98,562 Student activities 42,298 Community services 33,868 Total governmental activities 463 Business-Type Activity 1,082,296 Food Service Total School District 27,688 33 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 8. Accrued Salaries and Benefits Accrued salaries and benefits at June 30, 2007, consist of the following: Amnnnt Accrued salaries Retirement Social security Workers' compensation $ 1,141,669 421,720 85,898 9,133 $ 1,658,420 Accrued salaries represent teachers' salaries earned during the 2006-07 school year which will be paid subsequent to June 30, 2007. Accrued retirement represents the public school employees' retirement board-contribution for the second quarter of calendar year 2007, including the portion pertaining to accrued salaries at June 30, 2007. Accrued social security represents the District's liability arising from accrued salaries at June 30, 2007. Note 9. Long-Term Debt During the fiscal year ended June 30, 2007, general long-term debt changed as follows: Balances Balances July 1, 2006 Increase Decrease June 30, 2007 Governmental Activities General Long-Term Obligations: General Obligation Bonds - Series of 2001 $ 830,000 $ - $ 830,000 $ General Obligation Bonds - Series A of 2001 8,870,000 - 545,000 8,325,000 General Obligation Note - Series of 2003 9,705,000 - 250,000 9,455,000 General Obligation Bonds - Series of 2004 15,420,000 - 5,000 15,415,000 General Obligation Bonds - Series of 2007 - 4,750,000 - 4,750,000 Capital lease obligation 270,726 - 270,726 - Compensated absences payable 1,030,570 176,115 - 1,206,685 $ 36,126,296 $ 4,926,115 $ 1,900,726 $ 39,151,685 34 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 9. Long-Term Debt (Continued) General Obligation Bonds -Series of 2001 - On September 1, 2001, the District issued General Obligation Bonds in the principal amount of $4,500,000. The bonds bear annual interest rates ranging from 2.60% to 3.65%. Interest is payable semi-annually on November 15 and May 15, and the bonds mature serially in amounts ranging from $615,000 to $830,000 through November 15, 2006. These bonds were satisfied during fiscal year ended June 30, 2007. General Obligation Bonds - Series A of 2001 - On October 15, 2001, the District issued General Obligation Bonds in the principal amount of $9,805,000. The bonds bear annual interest rates ranging from 2.40% to 4.20%. Interest is payable semi-annually on November 15 and May 15, and the bonds mature serially in amounts ranging from $5,000 to $1,660,000 through November 15, 2012. General Obligation Note -Series of 2003 - On December 30, 2003, the District obtained secured financing from the New Garden General Authority in the principal amount of $9,945,000. Principal payments, commencing on November 1, 2005, are due annually, and interest is payable monthly, commencing on May 1, 2005, at a variable rate not to exceed 12.00%. General Obligation Bonds -Series of 2004 - On October 1, 2004, the District issued General Obligation Bonds in the principal amount of $15,420,000. The bonds bear annual interest rates ranging from 2.05% to 4.45%. Interest is payable semi-annually on November 15 and May 15, and the bonds mature serially in amounts ranging from $5,000 to $2,035,000 through November 15, 2020. General Obligation Bonds -Series of 2007 - On May 1, 2007, the District issued General Obligation Bonds in the principal amount of $4,750,000. The bonds bear annual interest rates ranging from 3.60% to 4.15%. Interest is payable semi-annually on November 15 and May 15, and the bonds mature serially in amounts ranging from $150,000 to $330,000 through November 15, 2028. The District is in compliance with all debt covenants of the outstanding bond issues. Those covenants include the following: District shall include the annual debt service in its budget for the fiscal year, shall appropriate these amounts from its general revenues, and shall punctually cause the payment of the principal and interest of each of the bonds. 35 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 9. Long-Term Debt (Continued) Maturities of the long-term debt issues are as follows: Year Ending June 30, Principal Governmental Activities Interest Total 2008 $ 1,690,000 $ 2,240,650 $ 3,930,650 2009 1,900,000 2,146,364 4,046,364 2010 1,975,000 2,051,166 4,026,166 2011 2,045,000 1,950,074 3,995,074 2012 2,130,000 1,843,153 3,973,153 2013-2017 10,930,000 7,607,465 18,537,465 2018-2022 10,925,000 4,437,815 15,362,815 2023-2027 3,935,000 2,100,568 6,035,568 2028-2030 2,415,000 332,633 2,747,633 $ 37,945,000 $ 24,709,888 $ 62,654,888 Compensated Absences -Under the terms of the District's employment policies, employees are reimbursed for accrued vacation upon retirement or other termination of employment. The reimbursement rate is established by the employment contract and varies by employee classification. In addition, employees are granted sick days per school year and any unused sick days are permitted to be carried over to fixture years. Upon retirement from the District, employees are reimbursed for accumulated sick days equal to the number of unused days multiplied by an amount per the employment contract. The employees are also offered options regarding retirement payouts as prescribed in the contract if certain conditions are met. For the year ended June 30, 2007, benefits attributed to employees retiring during the 2006-07 year amounted to $70,429 for 9 participants. The total liability for accrued vacation, and sick leave at June 30, 2007, has been reflected in the Statement of Net Assets and totals $1,206,685. Note 10. Post-Employment Benefits Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the District provides healthcare benefits to eligible former employees and their dependents. Requirements are outlined by the Federal Government for this coverage. The premium plus a 2% administrative fee is paid in full by the eligible participant. This program is offered for duration of up to 18 months or 36 months after an employee's termination date. At June 30, 2007, there were 3 participants covered under COBRA. 36 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 11. Defined-Benefit Pension Plan Plan Description: The District contributes to the statewide Public School Employees' Retirement System (the System), a governmental, cost-sharing, multiple-employer, defined-benefit plan administered by the System. In addition to regular retirement benefits, the System also provides for disability, legislatively-mandated ad hoc cost-of-living adjustments, and healthcare insurance-premium assistance to qualifying annuitants. Membership in the System is mandatory for substantially all full-time public school employees in the Commonwealth of Pennsylvania (Commonwealth). State statutes assign the authority to establish and amend benefit provisions of the Pennsylvania Public School Employees' Retirement Code to the Pennsylvania General Assembly (Act No. 96 of October 2, 1975, as amended), (24 Pa. C.S. 8101-8535). The System issues a comprehensive annual financial report that includes financial statements and required supplementary information for the plan. A copy of the report may be obtained by writing to Barbara D. Flurie, Office of Financial Management, Public School Employees' Retirement System, P.O. Box 125, Harrisburg, Pennsylvania, 17108-0125. This publication is also available on the PSERS website at www.psers.state.pa.us/publications/cafr/index.htm. Fundin Policy: The contribution policy is established by the Public School Employees' Retirement Code and requires contributions by the active members, employers, and the Commonwealth. Contribution Rates: The current contribution rate for active members joining the System before July 22, 1983, is set by law at 5.25% or at 6.50% of the member's qualifying compensation. For active members joining the System on or after July 22, 1983, and who were active or inactive as of July 1, 2001, the rate of contribution is 6.25% or 7.50% of the member's qualifying compensation. Members who joined the System after June 30, 2001, contribute at 7.50%. For all new hires, the higher contribution rates began with service rendered on or after January 1, 2002. District Contributions: The District's required contributions are based upon an actuarial valuation. For the fiscal year ended June 30, 2007, the District's rate of contribution was 6.46% of covered payroll. The 6.46% rate is composed of a pension contribution rate of 5.72% for pension benefits and 0.74% for healthcare insurance-premium assistance. The District is required to pay the entire contribution and will be reimbursed by the Commonwealth in an amount equal to the Commonwealth's share as determined by the income-aid ratio (as defined in Act 29 of 1994), which is at least one-half of the total District's rate. The District's contributions to the Plan for the years ended June 30, 2007, 2006 and 2005, were $1,049,064, $751,041, and $626,952, respectively, and are equal to the required contributions for each year. 37 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 12. Participation in Risk-Sharing Pool The District is a participant in arisk-sharing pool to provide workers' compensation coverage. The expense for this coverage for the 2006-07 year was $67,518, comprised of aself-insured retention of $26,585 and a contribution to the Central Fund of $40,933. Actual claims during the year are first paid out of the self-insured retention. Claims that exceed the self-insured retention are satisfied by the Central Fund. The Central Fund maintains excess insurance to cover any claims that exceed $400,000 per accident. There are approximately 79 districts participating in the pool. If there is a deficiency in the pooled funds, each member is assessed a proportionate share of the deficiency. Upon withdrawal by a member from the pool, the terminating member has no rights to funds in the pool. Note 13. Risk Management The District is exposed to various risks of loss related to torts; theft of, damage to, or destruction of assets and errors or omissions. Significant losses are covered by commercial insurance for all major programs. For insured programs, there have been no significant reductions in settlement coverage. Settlement amounts have not exceeded insurance coverage for the current year or the three prior years. 38 SUPPLEMENTARY INFORMATION SHIPPENSBURG AREA SCHOOL DISTRICT GENERAL FUND -SCHEDULE OF REVENUES Year Ended June 30, 2007 Revenues Local sources Real estate taxes Current $ 14,472,214 Interim 22,206 Public utility tax 26,874 Payments in lieu of taxes 18,528 Current per capita taxes 679 52,737 511 52,737 Occupational privilege tax Earned income tax 61,457 3,429,466 Real estate transfer taxes 645,202 Delinquent real estate taxes 744,672 Delinquent per capita taxes 679 6,017 511 6,017 Delinquent occupation tax 1,180 Interest 395,864 IDEA 558,358 Rentals 10,004 Tuition 27 527 Refunds and other miscellaneous revenue 236,121 Total local sources 20,767,181 State appropriations Basic instructional subsidy 7,469,850 Charter schools 44,962 Section 1305 and 1306 Homebound instruction 88,546 Vocational education 2,139 Alternative education 84 Migratory children 14,700 Special education 80 Transportation 1,649,221 768,170 (Continued) 39 SHIPPENSBURG AREA SCHOOL DISTRICT GENERAL FUND -SCHEDULE OF REVENUES (Continued) Year Ended June 30, 2007 Revenues (Continued) -- State appropriations (Continued) Rentals and sinking fund payments 857 899 Health services , 69,067 Dual enrollment grant 12,014 Social security reimbursement 639,592 Retirement reimbursement 559 055 Accountability block grant , 451 981 Classrooms for the Future grant , 347 173 Extra grants , 2,304 Total state appropriations 12,976,837 Federal appropriations Title I -Grants to Local Educational Agencies Title II -Improving Teacher Quality 503,237 Title V -Innovative Education 150,138 Medical Assistance Program 3,261 71,271 Total Federal appropriations 727,907 Other Financing Sources Operating transfers in 2 Total revenues $ 34,471,927 40 SHIPPENSBURG AREA SCHOOL DISTRICT GENERAL FUND -SCHEDULE OF EXPENDITURES Year Ended June 30, 2007 Expenditures Instructional Regular programs Salaries $ 9,314,035 Employee benefits 3,128,247 Purchased services Professional and technical 10,499 Property 123,310 Other 657,571 Supplies 555,644 Property 21,963 Other objects 6,187 Total regular programs 13,817,456 Special programs Salaries 2,282,470 Employee benefits 945,478 Purchased services Professional and technical 1,485,982 Property 189 Other 251,121 Supplies 51,316 Property 9,627 Other objects 250 Total special programs 5,026,433 Vocational education programs Salaries 432,332 Employee benefits 126,873 Purchased services Property 763 Other 653,365 Supplies 16,524 Other objects 1,335 Total vocational education programs 1,231,192 (Continued) 41 SHIPPENSBURG AREA SCHOOL DISTRICT GENERAL FUND -SCHEDULE OF EXPENDITURES (Continued) Year Ended June 30, 2007 Expenditures (Continued) Instructional (Continued) Other instructional programs Salaries 572,796 Employee benefits 174,431 Purchased services Professional and technical 1,318 Other 3,000 Supplies 7,761 Total other instructional programs 759,306 Adult education programs Salaries 3,002 Employee benefits 406 Supplies 871 Total adult education programs 4,279 Community college education program 12,014 Total instructional 20,850,680 Support Services Pupil personnel Salaries 731,373 Employee benefits 248,430 Purchased services Professional and technical 35,635 Property 74 Other 7,775 Supplies 16,291 Property 1,415 Other objects 2,000 Total pupil personnel 1,042,993 (Continued) 42 SHIPPENSBURG AREA SCHOOL DISTRICT GENERAL FUND -SCHEDULE OF EXPENDITURES (Continued) Year Ended June 30, 2007 Expenditures (Continued) Support Services (Continued) Instructional staff Salaries 456,020 Employee benefits 180,435 Purchased services Professional and technical 9,255 Property 47,725 Other 6,642 Supplies 189,422 Property 517,270 Other objects 4,463 Total instructional staff 1,411,232 Administration Salaries 1,317,334 Employee benefits 411,857 Purchased services Professional and technical 181,833 Property 1,809 Other 69,789 Supplies 24,433 Property 5,923 Other objects 15,762 Total administration 2,028,740 Pupil health Salaries 229,007 Employee benefits 89,255 Purchased services Professional and technical 17,875 Property 60 Supplies 10,082 Total pupil health 346,279 (Continued) 43 SHIPPENSBURG AREA SCHOOL DISTRICT GENERAL FUND -SCHEDULE OF EXPENDITURES (Continued) Year Ended June 30, 2007 Expenditures (Continued) Support Services (Continued) Business Salaries 206,131 Employee benefits 111,182 Purchased services Professional and technical 2,270 Property 173 Other 24,027 Supplies 3,633 Other objects 705 Total business 348,121 Operation and maintenance of plant services Salaries 653,788 Employee benefits 305,136 Purchased services Property 703,640 Other 130,716 Supplies 329,868 Property 141,574 Other objects 250 Total operation and maintenance of plant services 2,264 972 Student transportation services Purchased services Professional and technical 7,125 Other 1,473,152 Supplies 1,324 Total student transportation services 1,481 601 (Continued) 44 SHIPPENSBURG AREA SCHOOL DISTRICT GENERAL FUND -SCHEDULE OF EXPENDITURES (Continued) Year Ended June 30, 2007 Expenditures (Continued) Support Services (Continued) Central service Purchased services Professional and technical 28,992 Property 24,172 Other 179 Supplies 18 780 Other objects 901 Total central service 73,024 Other support services 26,292 Total support services 9,023,254 Operation ofNon-Instructional Services Student activities Salaries 343,926 Employee benefits 71,993 Purchased services Property 16,000 Other 11,329 Supplies 7,362 Total student activities 450,610 (Continued) 45 SHIPPENSBURG AREA SCHOOL DISTRICT GENERAL FUND -SCHEDULE OF EXPENDITURES (Continued) Year Ended June 30, 2007 Expenditures (Continued) Operation ofNon-Instructional Services (Continued) Community services Salaries 7,150 Employee benefits 1,047 Purchased services Supplies 6 014 Other objects 4,725 Total community services 18,936 Total operation of non-instructional services 469,546 Debt service 3,018,577 Other financing uses Refund of prior years' receipts 615 Operating transfers in (2) Operating transfers out 182,359 Total other financing uses 182,972 Total expenditures $ 33,545,029 46 SHIPPENSBURG AREA SCHOOL DISTRICT COMBINING BALANCE SHEET -NON-MAJOR GOVERNMENTAL FUNDS June 30, 2007 Special Revenue Total Non-Major Middle School Senior High Capital Governmental Athletic Athletic Reserve Funds ASSETS Cash LIABILITIES AND FUND BALANCES Liabilities Accounts payable Unearned revenue Total liabilities Fund Balances Reserved for Capital reserve Athletic Total fund balances Total liabilities and fund balances $ 12,480 $ 41,440 $ 165,236 $ 219,156 $ - $ 1,318 $ 7,700 $ 9,018 - 1,318 7,700 9,018 - - 157,536 157,536 12,480 39,406 - 51,886 12,480 39,406 157,536 209,422 $ 12,480 $ 40,724 $ 165,236 $ 218,440 47 SHIPPENSBURG AREA SCHOOL DISTRICT COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -NON-MAJOR GOVERNMENTAL FUNDS Year Ended June 30, 2007 Special Revenue Total Non-Major Middle School Senior High Capital Governmental Athletic Athletic Reserve Funds xevenues Local sources Expenditures Support services Operation ofnon-instructional services Construction improvement services Total expenditures Deficiency of revenues over expenditures Other Financing Sources Operating transfers in Net change in fund balances Fund Balances -July 1, 2006 Fund Balances -June 30, 2007 $ 12,930 $ 56,554 $ 412 $ 69,896 - - 45,248 45,248 44,799 124,343 - 169,142 - - 5,000 5,000 44,799 124,343 50,248 219,390 (31,869) (67,789) (49,836) (149,494) 34,311 87,433 60,615 182,359 2,442 19,644 10,779 32,865 10,03 8 19, 762 146,757 176, 55 7 48 ~~ BOYER & BITTER web Site: www.cpabr.com CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITINGSTANDARDS Board of School Directors Shippensburg Area School District Shippensburg, Pennsylvania We have audited the financial statements of Shippensburg Area School District as of and for the year ended June 30, 2007, and have issued our report thereon dated November 21, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to fmancial 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 Shippensburg Area School 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 control deficiency 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 misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity's internal control. 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 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. CAMP HILL CARLISLE CHAI\'IBERSBURG LEWISTOWN STATE COLLEGE An Independently Owned Member of the RSM McGladrey Network Compliance and Other Matters As part of obtaining reasonable assurance about whether Shippensburg Area School District's financial statements are free of material misstatement, we performed tests of its 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 solely for the information and use of the Board of School Directors, management, Federal-awarding agencies and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. ~~ Chambersburg, Pennsylvania November 21, 2007 50 BAR BOYF1~ & BITTER CERTIFIED PC7BLIC ACCOUNTANTS AND CONSULTANTS web Site: www.cpabr.com INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Board of School Directors Shippensburg Area School District Shippensburg, Pennsylvania Compliance We have audited the compliance of Shippensburg Area School District with the types of compliance requirements described in the U. S. Office of Management and Budget (OMB) Circular A-133, Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2007. Shippensburg Area School District's major Federal programs are identified in the summary of auditor's results section of the accompanying Schedule of Findings and Questioned Costs. 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 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, Shippensburg Area School District complied, in all material respects, with the requirements referred to above that are applicable to each of its major Federal programs for the year ended June 30, 2007. CAMP HILL CARLISLE CFIAMBERSBURG LEWISTOWN STATE COLLEGE M Independently Owned Member of the RSM McGladrey Network Internal Control Over Compliance The management of Shippensburg Area School 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 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 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 control deficiency in an entity's internal control over compliance 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 noncompliance with a type of compliance requirement of a Federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to, administer a Federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a Federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a Federal program will not be prevented or detected by any entity's internal control. 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 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 solely for the information and use of the Board of School Directors, management, Federal-awarding agencies and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. ~ ~~ Chambersburg, Pennsylvania November 21, 2007 52 SHIPPENSBURG AREA SCHOOL DISTRICT Schedule of Findings and Questioned Costs Year Ended June 30, 2007 Section I -- Summary of Independent Auditor's Results Financial Statements Type of auditor's report issued: Unqualified Internal control over financial reporting: • Material weaknesses identified? • Significant deficiencies identified that are not considered to be material weaknesses? Noncompliance material to financial statements noted? _ Yes X No Yes X None Reported Yes X No Federal Awards Internal control over major programs: • Material weaknesses identified? • Significant deficiencies identified that are not considered to be material weaknesses? Yes X No Yes X None Reported Type of auditor's report issued on compliance for major programs: Unqualified • Any audit findings disclosed that are required to be reported in accordance with Section .510(a) of OMB Circular A-133? Yes X No 53 SHIPPENSBURG AREA SCHOOL DISTRICT Schedule of Findings and Questioned Costs Year Ended June 30, 2007 Section I -- Summary of Independent Auditor's Results (Continued) Identification of major programs: CFDA Numbers Name of Federal Program or Cluster 84.010 Title I -Grants to Local Educational Agencies Dollar threshold used to distinguish between type A and type B programs $300,000 Auditee qualified as low-risk auditee? X Yes No Section II -- Financial Statement Findings A. Significant Deficiencies in Internal Control There were no findings relating to the financial statement audit required to be reported. B. Compliance Findings There were no findings relating to the financial statement audit required to be reported. Section III -- Findings and Questioned Costs for Federal Awards A. Significant Deficiencies in Internal Control There were no findings relating to the Federal awards required to be reported in accordance with Section .510(a) of OMB Circular A-133. B. Compliance Findings There were no findings relating to the Federal awards required to be reported in accordance with Section .510(a) of OMB Circular A-133. 54 SHIPPENSBURG AREA SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2007 Federal Source C.F.D.A. Code Number Pass- Through Grantor's Grant Number Period U. S. Department of Education Passed through the Pennsylvania Department of Education Title I -Grants to Local Educational Agencies Title I -Grants to Local Educational Agencies Title V -Innovative Education Title V -Innovative Education Title II -Improving Teacher Quality Title II -Improving Teacher Quality Passed through the Capital Area Intermediate Unit Consortium Special Education -Grants to States Special Education -Grants to States Special Education -Grants to States - Inclusive Practices Mini Grant Total U. S. Department of Education I 84.010 013-070387 06-07 I 84.010 013-060387 OS-06 I 84.298 011-070387 06-07 I 84.298 011-060387 OS-06 I 84.367 020-070387 06-07 I 84.367 020-060387 OS-06 I 84.027 N/A 06-07 I 84.027 N/A OS-06 I 84.027 N/A OS-06 (Continued) 55 . , Total Accrued Accrued Program Received (Deferred) (Deferred) or Annual (Refunded) in Revenue at Revenue Revenue at Award Fiscal Year 7/1/2006 Recognized Expenditures 6/30/2007 $ 548,170 $ 352,618 $ - $ 439,354 $ 439,354 $ 86,736 $ 505,116 134,722 70,839 63,883 63,883 - $ 3,137 3,137 - 3,137 3,137 - $ 6,215 414 290 124 124 $ 160,237 102,972 - 119,711 119,711 16,739 $ 158,714 63,486 33,059 30,427 30,427 - $ 558,358 - - 558,358 558,358 558,358 $ 481,349 134,728 134,728 - - - $ 10,000 8,698 8,698 - - - 800,775 247,614 1,214,994 1,214,994 661,833 56 SHIPPENSBURG AREA SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) Year Ended June 30, 2007 Pass- Federal Through Source C.F.D.A. Grantor's Grant Code Number Number Period U. S. Department of Agriculture Passed through the Pennsylvania Department of Education: National School Lunch Program I (F) 10.555 N/A National School Lunch Program I (F) 10.555 N/A National School Lunch Program I (S) N/A N/A National School Lunch Program I (S) N/A N/A Special Milk Program for Children I (F) 10.556 N/A Special Milk Program for Children I (F) 10.556 N/A Passed through the Pennsylvania Department of Agriculture: Food Donation (a) I (F) 10.550 N/A Total U. S. Department of Agriculture Total Expenditures of Federal Awards Source Codes: Legends: D -Direct Funding (a) Donated commodities valued at local market values I -Indirect Funding (b) Total amount of commodities received from (F) -Federal Share Department of Agriculture (S) -State Share (c) Inventories at July 1, 2006 (d) Total amount of commodities used (e) Inventories at June 30, 2007 See Notes to Schedule of Expenditures of Federal Awards. 06-07 OS-06 06-07 OS-06 06-07 OS-06 06-07 57 Total Accrued Accrued Program Received (Deferred) (Deferred) or Annual (Refunded) Revenue at Revenue Revenue at Award Fiscal Year 7/1/2006 Recognized Expenditures 6/30/2007 N/A 237,440 - 276,830 276,830 39,390 N/A 38,617 38,617 - - - N/A 26,905 - 31,320 31,320 4,415 N/A 4,564 4,564 - - N/A N/A N/A 3,845 - 4,406 4,406 561 593 593 - - (b) 64,475 (c) (9,723) 62,167 (d) 62,167 (e) (12,031) 376,439 34,051 374,723 374,723 32,335 $ 1,177,214 $ 281,665 $ 1,589,717 $ 1,589,717 $ 694,168 Test of 25% Rule: Total Expenditures Less State Expenditures Total Federal Expenditures Programs selected for testing as major programs: Title I -Grants to Local Educational Agencies $ 1,589,717 31,320 $ 1,558,397 $ 503,237 / 1,558,397 = 32.29% 58 SHIPPENSBURG AREA SCHOOL DISTRICT NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Note 1. Significant Accounting Policies The accompanying Schedule of Expenditures of Federal Awards is a summary of the activity of the District's Federal award programs and presents transactions that would be included in the financial statements of the District presented on the accrual basis of accounting, as contemplated by accounting principles generally accepted in the United States of America. Note 2. Title I -Grants to Local Educational Agencies Title I -Grants to Local Educational Agencies has been audited in accordance with OMB Circular A-133. 59 SHIPPENSBURG AREA SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR YEAR'S AUDIT FINDINGS Year Ended June 30, 2007 There were no audit findings for the year ended June 30, 2006. 60 °~ 1 6~ h ~, ~ o ~' 0 1 ~ ~ C ~, F, ~ ~ Q ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ,c- ~-~- ~ ~: ~., ~ ~ ~~, rrt ~ -- - :~ ~ ry Y ,