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HomeMy WebLinkAbout04-1121SOUTH MIDDLETON SCHOOL DISTRICT FINANCIAL REPORT JUNE 30, 2003 CONTENTS INDEPENDENT AUDITOR'S REPORT Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets Statement of Activities Fund Financial Statements: Balance Sheet - Governmental Funds Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General and Capital Reserve Funds Statement of Net Assets - Proprietary Fund - Food Service Statement of Revenues, Expenses and Changes in Net Assets - Proprietary Fund - Food Service Statement of Cash Flows - Proprietary Fund - Food Service Statement of Fiduciary Net Assets Statement of Changes in Fiduciary Net Assets - Trust Fund Notes to Financial Statements 1-2 3-4 5 6-7 8 9-10 ll 12- 13 14 15 16 17 18 19-37 CONTENTS (Continued) SUPPLEMENTARY INFORMATION Balance Sheet - Non-Major Governmental Fund - Special Revenue - Athletic Fund Statement of Revenues, Expenditures and Changes in Fund Balance - Non-Major Governmental Fund - Special Revenue - Athletic Fund Independent Auditor's Report on Compliance and on lnternal Control over Financial Reporting Based on an Audit of the Basic Financial Statements Performed in Accordance with Government Auditing Standards' 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 Schedule ofFindings and QuestionedCosts Schedule of Expenditures of Federal Awards Summary Schedule of Prior Year's Audit Findings 38 39 40-41 42- 43 44-45 46-51 52 [13qt ] BoY R a R T-rER CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS INDEPENDENT AUDITOR'S REPORT Board of School Directors South Middleton School District Boiling Springs, 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 the South Middleton School District, as of and for the year ended June 30, 2003, which collectively comprise the South Middleton District's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the South Middleton 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 that our audit provides a reasonable basis for our opinions. As stated in Note 2, the South Middleton School District adopted Governmental Accounting Standards Board (GASB) Statements No. 34, Basic Financial Statements and Management's Discussion and Analysis, No. 37, Basic Financial Statements - and Management's Discussion and Analysis - For State and Local Governments: Omnibus, and No. 38, Certain Financial Statement Note Disclosures, and GASB Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financials. 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 the South Middleton School District, as of June 30, 2003, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparisons for the General Fund and Capital Reserve 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 August 21, 2003, on our consideration of the South Middleton School District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. CAMP H~LL CARLISLE CHAMBERSBURG LEWISTOWN STATE COLLEGE Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the South Middleton School District's basic financial statements. The individual 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 the U.S. Office of Management and Budget Circular A-133, Audit of States, Local Governments, andNon-Profit Organizations, and is not a required part of the basic financial statements of South Middleton School District. 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. South Middleton School District has not presented Management's Discussion and Analysis (MD&A) as required by Statement of Governmental Accounting Standards (SGAS) No. 34. The Governmental Accounting Standards Board (GASB) has determined that MD&A is necessary to supplement, although not required to be part of, the basic financial statements. Camp Hill, Pennsylvania August 21, 2003 SOUTH MIDDLETON SCHOOL DISTRICT STATEMENT OF NET ASSETS June 30, 2003 ASSETS Current Assets Cash and cash equivalents Investments Receivables Taxes - net of allowance for uncollectible taxes of $67,397 Federal subsidies State subsidies Other Due from other governments Inventories Total current assets Governmental Business-Type Activities Activities Total $ 1,586,919 $ 190,956 $ 1,777,875 3,467,369 3,467,369 843,159 843,159 5,954 5,954 42,982 42,982 47,400 47,400 267,993 267,993 23,560 42,933 66,493 6,285,336 233,889 6,519,225 Noncurrent Assets Bond issuance costs - net Land and site improvements - net Building and building improvements - net Furniture and equipment - net Construction-in-progress - net Total noncurrent assets 337,975 337,975 725,616 725,616 17,344,274 17,344,274 2,029,422 327,601 2~357,023 325,173 325,173 20,762,460 327,601 21,090,061 Total assets $ 27,047,796 $ 561,490 $ 27,609,286 See Notes to Financial Statements~ 3 LIABILITIES AND NET ASSETS Liabilities Current Liabilities Accounts payable Due to other governments Current portion o£ long-term debt Current portion of' note payable Accrued salaries and benefits Accrued interest payable Deferred revenues Total current liabilities Noncurrent Liabilities Long-term debt - net of current portion Long-term note payable - net of current portion Long-term portion of compensated absences Total noncurrent liabilities Total liabilities Net Assets Invested in capital assets - net of related debt Restricted for: Athletic Capital reserve Debt service Unrestricted Total net assets Total liabilities and net assets Governmental Activities Business-Type Activities $ 340,558 $ 63 25,880 918,655 199,994 804,416 3,634 197,670 56,303 24,144 2,543,476 19,327,725 1,490,148 612,919 21,430,792 23,974,268 27,841 27,841 Total $ 340,621 25,880 918,655 199,994 808,050 197,670 80,447 2,571,317 19,327,725 1,490,148 612,919 21,430,792 24,002,109 178,105 327,601 505,706 (8,186) (8,186) 1,488,552 1,488,552 10 10 1,415,047 206,048 1,621,095 3,073,528 533,649 3,607,177 $ 27,047,796 $ 561,490 $ 27,609,286 SOUTH MIDDLETON SCHOOL DISTRICT BALANCE SHEET - GOVERNMENTAL FUNDS June 30, 2003 ASSETS Cash and cash equivalents Investments Receivables Taxes - net of allowance for uncollectible taxes of $67,397 Federal subsidies State subsidies Other Due from other governments Due from other funds Inventories Total assets LIABILITIES Accounts payable Deferred revenues Due to other governments Accrued salaries and benefits Due to other funds Total liabilities Fund Balances Reserved for Athletic Capital reserve Debt service Unreserved Total fund balances Total liabilities and fund balances See Notes to Financial Statements. General Fund $1,466,148 1,959,037 843,159 5,954 42,982 47,400 267,993 8,193 23,560 $ 4,664,426 $ 200,295 293,611 25,609 804,416 1,323,931 3,340,495 3,340,495 Capital Reserve Fund $ 120,483 1,508,332 De~ Service Fund $ 10 $1,628,815 $ l0 $ 140,263 140,263 1,488,552 1,488,552 10 10 $ 4,664,426 $ 1,628,815 $ 10 6 Non-Major Total Governmental Governmental Fund Funds $ 278 $ 1,586,919 3,467,369 $ 278 843,159 5,954 42,982 47,400 267,993 8,193 23,560 $ 6,293,529 (8,186) (8,186) 1,488,552 l0 3,340,495 (8,186) 4,820,871 $ 278 $ 6,293,529 $ $ 340,558 293,611 271 25,880 804,416 8,193 8,193 8,464 1,472,658 SOUTH MIDDLETON SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS June 30, 2003 Total Fund Balances - Governmental Funds Capital Assets used in governmental activities are not financial resources and, therefore, are not reported as assets in governmental funds. The cost of assets is $32,121,607, and the accumulated depreciation is $11,689,786. Property taxes receivable will be collected this year, but are not available soon enough to pay for the current period's expenditures, and therefore are deferred revenues in the funds. Governmental funds report bond issuance costs as expenditures. However, in the Statement of Activities the cost of the issuance is allocated over the life of the debt issue. This is the amount by which bond issuance costs exceeds accumulated amortization. Long-term liabilities, including bonds payable and compensated absences, are not due and payable in the current period, and therefore are not reported as liabilities in the funds. Long-term liabilities at year-end consist of: Bonds payable (20,246,380) Note payable (1,690,142) Accrued interest (197,670) Compensated absences (612,919) Total net assets - governmental activities See Notes to Financial Statements. 4,820,871 20,424,485 237,308 337,975 (22,747,111) 3,073,528 SOUTH MIDDLETON SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES/IN FUND BALANCES - GOVERNMENTAL FUNDS Year Ended June 30, 2003 Local sources State appropriations Federal appropriations Total revenues Capital Debt General Reserve Service Fund Fund Fund $ 13,103,856 5,574,160 240,336 18,918,352 $ 84,370 $ 25,473 84,370 Expenditures Instructional Support services Noninstructional services Capital outlay Debt service Principal Interest Total expenditures 10,460,805 5,801,400 266,584 16,528,789 1,525,460 1,525,460 Excess(deficiency) ofrevenues over expenditures 25,473 Other Financing Sources (Uses) Proceeds from bond issuance Operating transfers in Operating transfers out Refund of prior years' expenditures Compensation for capital assets Total other financing sources (uses) 177,797 Net change in fund balances 9,950,066 876,817 11,004,680 Fund Balances (Deficit) ~ July I, 2002 Change in reserve for inventories Fund Balances (Deficit) ~ June 30, 2003 2,389,563 (1,441,090) 00,979,207) 7 (2,138,420) (271,000 687 1,823 (2,135,903) (271~000 253,660 (1,712,090 3.084,788 3,200,642 2,047 3,340,495 $ 1,488,552 8,750,000 2,229,051 10,979,051 056) 166 I0 See Notes to Financial Statements. Non-Major Total Governmental Governmental Fund Funds $ 44,920 $ 13,258,619 5,574,160 240,336 44,920 19,073,115 154,412 154,412 (109,492) 10,460,805 5,979,197 420,996 1,525,460 9,950,066 876,817 29,213,341 (10,140,226) 8,750,000 117,403 2,346,461 (7) (2,409,427) 687 1,823 117,396 8,689,544 7,904 (1,450,682) (16,090) 6,269,506 2,047 $ (8,186) $ 4,820,871 10 SOUTH MIDDLETON SCHOOL DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES 1N FUND BALANCES TO THE STATEMENT OF ACTIVITIES Year Ended June 30, 2003 Net change in fund balances - total governmental funds Amounts reported for governmental activities in the statement of activities are different because: Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, ihe cost of those assets are allocated over their useful lives as depreciation expense. This is the amount by which depreciation exceeds capital outlays in the period. Capital outlays Less depreciation expense 730,565 (1,283,019) 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 increased by this amount this year. Inventories are accounted for on the consumption method. 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 is 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, are not reported as expenditures in the governmental funds. The issuance of long-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 &Activities. This amount is the net effect of these differences in the treatment of long- term debt and related items. Issuance of long-term debt Repayment of long-term debt Payment of bond issuance costs and other items Accounting loss on refinance of debt Amortization of bond issuance costs (8,750,000) 9,950,066 174,992 (114,486) (53,537) Change in net assets of governmental activities See Notes to Financial Statements. 11 (1,450,682) (552,454) (154,844) 2,047 (169,825) (164,801) 1,207,035 (1,283,524) SOUTH MIDDLETON SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL AND CAPITAL RESERVE FUNDS Year Ended June 30, 2003 General Fund Revenues Local sources State appropriations Federal appropriations Total revenues Budgeted Amounts Original Final Actual $ 13,198,096 $ 13,198,097 $ 13,103,856 5,641,140 5,641,140 5,574,160 32,000 32,000 240,336 18,871,236 18,871,237 18,918,352 Expenditures Instructional Support services Noninstructional services Capital outlay Total expenditures 10,706,991 10,561,492 10,460,805 5,952,401 5,879,307 5,801,400 260,106 253,840 266,584 16,919,498 16,694,639 16,528,789 Excess (deficiency) of revenues over expenditures 1,951,738 2,176,598 2,389,563 Other Financing Sources (Uses) Operating transfers in Operating transfers out Refund of prior years' expenditures Compensation for capital assets Budgetary reserve Total other financing sources (uses) (2,247,456 (50,000) (2,297,456) (2,247,456) (50,000) (2,297,456) 7 (2,138,420) 687 1,823 (2,135,903) Net change in fund balances $ (345,718) $ (120,858) Variance with Final Budget Favorable (Unfavorable) Fund Balances - July 1, 2002 Change in reserve for inventories Fund Balances - June 30, 2003 $ (94,241) (66,980) 208,336 47,115 100,687 77,907 (12,744) 165,850 212,965 7 109,036 687 1,823 50,000 161,553 253,660 $ 374,518 3,084,788 2,047 $ 3,340,495 See Notes to Financial Statements. 12 Capital Reserve Fund Variance with Final Budgeted Amounts Budget Favorable Original Final Actual (Unfavorable) 30,000 $ 30,000 $ 84,370 $ 54,370 30,000 30,000 84,370 54,370 2,206,599 2,206,599 1,525,460 681,139 2,206,599 2,206,599 1,525,460 681,139 (2,176,599) (2,176,599) (1,441,090) 735,509 (271,000) (271,000) $ (2,176,599) $ (2,176,599) (271,000) (271,000) (1,712,090) $ 464,509 3,200,642 $ 1,488,552 13 SOUTH MIDDLETON SCHOOL DISTRICT STATEMENT OF NET ASSETS - PROPRIETARY FUND - FOOD SERVICE June 30, 2003 ASSETS Current Assets Cash and cash equivalents Inventories Total current assets Noncurrent Assets Furniture and equipment - net of accumulated depreciation Total assets LIABILITIES AND NET ASSETS Liabilities - all current Accounts payable Accrued salaries and benefits Deferred revenues Total liabilities Net Assets Invested in capital assets Unrestricted Total net assets Total liabilities and net assets $ 190,956 42,933 233,889 327,601 $ 561,490 $ 63 3,634 24,144 27,841 327,601 206,048 533,649 $ 561,490 See Notes to Financial Statements. 14 SOUTH MIDDLETON SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS - PROPRIETARY FUND - FOOD SERVICE Year Ended June 30, 2003 Operating Revenues Sales Operating Expenses Food and milk Labor, taxes and benefits Supplies Trash removal Equipment repairs and maintenance Travel and other Depreciation Total operating expenses Operating loss Nonoperating Revenues Investment earnings Social security reimbursement Retirement subsidy Federal and state subsidies Total nonoperating revenues Operating Transfer In Change in net assets Net Assets - July 1,2002 - As previously reported Prior Period Adjustment Net Assets - July 1,2002 ~ As restated Net Assets - June 30, 2003 See Notes to Financial Statements. 15 392,152 264,185 329,703 4,204 5,663 7,402 2,266 37,768 651,191 (259,039) 1,105 7,705 1,160 134,936 144,906 62,966 (51,167) 334,335 250,481 584,816 533,649 SOUTH MIDDLETON SCHOOL DISTRICT STATEMENT OF CASH FLOWS - PROPRIETARY FUND - FOOD SERVICE Year Ended June 30, 2003 Cash Flows From Operating Activities Cash received from meal sales Cash payments for goods and services Cash payments to employees for services Net cash used in operating activities Cash Flows From Noncapital Financing Activities Operating transfer in Federal and state subsidies Social Security reimbursement Retirement subsidy Net cash provided by noneapital financing activities Cash Flows From Investing Activities Investment income Purchase of equipment Net cash used in investing activities Net decrease in cash and cash equivalents Cash and Cash Equivalents: July 1, 2002 June 30, 2003 Reconciliation of Operating Loss to Net Cash used in Operating Activities Operating loss Adjustments to reconcile operating loss to net cash used in operating activities Depreciation Value of donated commodities used Changes in assets and liabilities: (Increase) decrease in: Inventories (Decrease) increase in: Accounts payable Accrued salaries and benefits Deferred revenues Net cash used in operating activities See Notes to Financial Statements. 16 $ 392,152 (243,629) (326,069) (177,546) 62,966 96,076 7,705 1,160 167,907 1,105 (4,100) (2,995) (12,634) 203,590 190,956 (259,039) 37,768 38,860 5,345 63 3,634 (4,177) (177,546) SOUTH MIDDLETON SCHOOL DISTRICT STATEMENT OF FIDUCIARY NET ASSETS June 30, 2003 ASSETS Cash and cash equivalents Total assets LIABILITIES Accounts payable Amounts available for student activities Total liabilities NET ASSETS Reserved for Trust Fund Total liabilities and net assets See Notes to Financial Statements. $ $ 17 Activity Fund 109,389 109,389 140 109,249 109,389 109,389 $ $ Fiduciary Trust Fund 38,892 38,892 38,892 38,892 Total 148,281 148,281 140 109,249 109,389 38,892 148,281 SOUTH MIDDLETON SCHOOL DISTRICT STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS - TRUST FUND Year Ended June 30, 2003 Additions Contributions Interest Total additions Deductions Scholarships and awards Change in net assets Net Assets - July 1, 2002 - As previously reported Prior period adjustment Net Assets - July 1, 2002 - As restated Net Assets - June 30, 2003 See Notes to Financial Statements. 8,380 917 9,297 7,883 1,414 37,478 37,478 38,892 18 SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies The South Middleton School District operates two elementary schools, one middle school, and one high school in Boiling Springs, 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 a locally elected nine member Board form of government. The financial statements of the South Middleton 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 The South Middletoo 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. The South Middleton 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 soumes and must comply with the requirements of these source entities. The District is affiliated with the Cumberland/Perry Area Vocational-Technical School and eleven member school districts. The District is also affiliated with the Harrisburg Area Community College (HACC). The member school districts participate in providing oversight responsibility to the Cumberland/Perry Vocational-Technical School and HACC through the following: · Appointment of Board members who are also Board members of the participating schools. · Approval and funding of operating budgets. Despite the foregoing, the overriding issue is that the volume of participating school districts does not permit South Middleton School District to exercise "significant influence": over the operations of the Cumberland/Perry Area Vocational-Technical School and HACC and are not considered "component units: of the South Middleton School District in determining the "reporting entity" as required by Government Accounting Standards Board Statement No. 14. SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies (Continued) 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. 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. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are 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 properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided in the report for all of the governmental funds, proprietary funds, and the fiduciary funds of the School District, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and the major enterprise fund 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 School 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 fund 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. 2O SOUTH MIDDLETON 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) 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 am recognized when the related expenditures are incurred; accordingly, when such funds am received, they are recorded as deferred revenues until earned. Expenditures generally are recorded when a liability is 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 School 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 School District are financed. The acquisition, use, and balances of the School District's expendable financial resources and the related liabilities (except those accounted for in Proprietary funds) are accounted for through Governmental funds. 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 tax, per capita and occupational taxes, and state and Federal distributions. Many of the more important activities of the School District, including instruction, administration of the School District and certain non-instructional services are accounted for in this Fund. The Capital Reserve Fund (Section 2932 is authorized by P.L. 145, Act of April 30, 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 School District at the end of any fiscal year. This fund is included in the financial statements as a Special Revenue Fund. The Debt Service Fund accounts for accumulation of resources for, and the payment of long-term debt principal, interest and related costs, The District operates one enterprise fund, the Food Service Fund. This fund accounts for the activities of the District's food service program. 21 SOUTH MIDDLETON 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) Additionally, the District reports the following Non-Major governmental fund: The Athletic Fund is authorized by Section 511 of the Public School Code of 1949 to account for certain revenues and expenditures of athletic activities. The fund accounts for gate receipts and other revenues from athletic events and certain budgeted costs of the District's athletic program. 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 ongoing operations. The principal operating revenues of the School District's enterprise fund are food service charges. Operating expenses for the School 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 School 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 School District accounts for assets held by the District in a trustee capacity in a private-purpose trust fund. This fund accounts for activities in the various scholarship accounts, whose sole purpose is to provide annual scholarships to particular students as prescribed by donor stipulations. The Activity Fund accounts for the monies authorized by Section 511 of the Public School Code of 1949 for school publications and organizations. A portion of the Activity Fund 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. D. Budget 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 School District's budget and reporting of its financial statements, specifically: 22 SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies (Continued) D. Budget and Budgetary Accounting (Continued) The School District, before levying annual school taxes, is required to prepare an operating budget for the succeeding fiscal year. The School District is required to publish notice by adve~tisement, 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 School 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 &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 and the nonexpendable trust fund, the School District considers all highly-liquid investments with maturities of three months or less when purchased to be cash equivalents. Investments: Investments are stated at fair value. Allowances for Estimated Uncollectible Taxes and Deferred Revenues: The allowance for estimated uncollectible taxes is based upon a historical estimate of delinquent taxes that will not be received within one year of the fiscal year-end. Deferred revenues are based upon a 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 60 days of June 30 is recorded as revenues 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. 23 SOUTH MIDDLETON 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 Cafeteria Fund food and supplies was taken as of June 30, 2003. The inventory consisted of government donated commodities which were valued at estimated fair market value, and purchased commodities and supplies, both valued at costs using the first-in, first-out (FIFO) method. Ca!0ital Assets and Depreciation: Capital assets, which include property, plant, and equipmeut and infrastructure assets, are reported in the applicable governmental or business4ype activities column in the government-wide financial statements. Capital assets am capitalized at the discretion of management, unless the assets acquired by debt proceeds, in which case the asset is required to be capitalized. Management considers various factors in the capitalization of assets, including the asset's estimated useful life, cost, and the extent to which the asset is part of a larger capital project. 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 straight4ine basis over the estimated useful life of the asset or group of assets as determined by management. Lon~-Term Obligations: In the government-wide financial statements, and proprietary fund types in the fund 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 life of the bonds using the effective interest method. Bonds payable are reported net of applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term 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 School District accrues for certain accumulated employee benefits, such as unpaid vacation and sick pay. The 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 School 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. 24 SOUTH MIDDLETON 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 School District classifies fund balances as follows: Reserved Reserve fund 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. · Reserve for athletics represents that portion of fund balance legally restricted to athletic programs. · Reserve for capital reserve represents that portion of fund balance legally restricted to capital projects. · Reserve for debt service represents that portion of fund balance legally restricted to debt service. Unreserved Designation 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 revenues and expenditures. Note 2. Change in Accounting Principles During the year ended June 30, 2003, the District adopted Statement of Government Accounting Standard (SGAS) No. 34, Basic Financial Statements and Management's Discussion and Analysis, No. 37, Basic Financial Statements - and Management's Discussion and Analysis - For State and Local Governments: Omnibus, and No. 38, Certain Financial Statement Note Disclosures, and GASB Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financials. Adoption of these pronouncements is predicated upon management's beliefs that the prescribed reporting model, by incorporating new information and restructuring previously reported information, will be more comprehensive, informative and useful than previously utilized reporting models. 25 SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 3. Deposits and Investments Under Section 440.1 of the Public School Code of 1949, as amended, the School 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 instrumentalities · Deposits in savings accounts or time deposits or share accounts of institutions insured by: 1. The Federal Deposit Insurance Corporation (FDIC), or 2. The Federal Savings and Loan Insurance Corporation, or 3. The National Credit Union Share Insurance Fund to the extent that such accounts are so insured, and for any amounts above maximum, provided that approved collateral as provided by law therefore shall be pledged by the depository. · Obligations of(a) the United States of America or its agencies or instrumentalities backed by full faith and credit of the United States of America, (b) the Commonwealth of Pennsylvania or instrumentalities backed by the full faith and credit of the political subdivision. · Shares of investment companies whose investments are restricted to the above categories. The deposit and investment policy of the School District adheres to state statutes and prudent business practices. There were no deposit or investment transactions during the year that were in violation of either state statutes or the policy of the School District. Deposits Deposits of the School District are held at various financial institutions and are carried at cost. Insured (FDIC) Uninsured, uncollateralized Carrying Bank Amount Balance $ 101,011 $ 101,011 1,825,145 2,046,439 $ 1,926,156 $ 2,147,450 At June 30, 2003, the cash and cash equivalents of the School District can be categorized to indicate the level of risk assumed. Category 1 includes bank balances that are insured or collateralized by insured or registered securities held by the government or its agent in the District's name. Category 2 includes bank balances collateralized by insured or registered securities held by pledging financial institution's trust department or agent in the District's name. Category 3 includes bank balances collateralized with securities held by the pledging financial institutions, or its trust department or agent, but not in the District's name. SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 3. Deposits and Investments (Continued) Investments GASB # 3, Deposits with Financial Institutions, Investments, and Reverse Repurchase Agreements, requires the disclosure of carrying amounts and market values by the following categories: Category 1 are insured or registered securities held by the District or its agent in the District's name. Registered securities are those registered in the District's name. Category 2 are uninsured and unregistered, with securities held by the counterparty's trust department or its agent in the District's name. Category 3 are uninsured and unregistered, with securities held by the counterparty or by its trust department or agent but not in the District's name. The District invests in the Pennsylvania School District Liquid Asset Fund (PSDLAF) and the Pennsylvania Local Government Investment Trust (PLGIT) as authorized by the Board. PSDLAF was established to enable school districts to pool funds for investment in instruments authorized by Section 440.l of the Pennsylvania School Code of 1949, as amended. PLGIT insures that it will not place deposits with any single issuing institution if the largest participants share exceeds $100,000, unless such deposits are collateralized as prescribed by Act 72 of the Commonwealth of Pennsylvania. These funds have the characteristics of open-end mutual funds and are not subject to credit risk classification. At June 30, 2003, the investments of the District were as follows: Pennsylvania School District Liquid Asset Fund Pennsylvania Local Government Investment Trust Orrstown Trust Department U.S. Treasury Notes Carrying Category Amount 1 $1,627,330 $ 1,457,948 382,091 $ 3,467,369 $ Fair Value Category Category 2 3 $ $ 382,091 $ 382,091 $ Not Categorized $1,627,330 1,457,948 $ 3,085,278 SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 4. Taxes Receivable, Deferred Revenues and Estimated Uncollectible Taxes A summary of the taxes receivable and related accounts at June 30, 2003, are as follows: Uncollected taxes Estimated uncollectibles taxes Taxes Receivable - Net Taxes to be collected within 60 days Deferred revenues - delinquent taxes Taxes Receivable - Net Deferred Revenues - General Fund Delinquent taxes Retiree insurance premiums Summer course fees Total Deferred Revenues - General fund Deferred Revenues - Proprietary fund Total Deferred Revenues $ 910,556 67,397 $ 843,159 $ 605,851 237,308 $ 843,159 $ 237,308 56,243 6O 293,611 24,144 $ 317,755 28 SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 5. Property Taxes Based upon assessed valuations provided by County, the municipal tax collector bills and collects property taxes on behalf of the School District. The schedule for property taxes levied for 2002-2003 is as follows: July 1,2002 Through August 31,2002 Through October 31,2002 November 1, 2002 4th Monday, 2003 January 1, 2003 tax levy date 2% discount face payment period 10% penalty period lien filing date interim tax levy date The School District tax rate for all purposes in 2002-2003 was 10.60 mills ($10.60 per $1,000 assessed valuation). Refunds on payments of prior year taxes are classified as Other Debt Service items under the Commonwealth of Pennsylvania accounting system. Current tax collections for the School District were approximately 94.55% of the total tax levy. Note 6. Interfund Accounts Individual fund receivable and payable balances at June 30, 2003, are as follows: Due to Due from Fund other funds other funds General $ 8,193 $ Athletic 8,193 $ 8,193 $ 8,193 Note 7. Cafeteria Fund Inventory The composition of Cafeteria Fund inventory at June 30, 2003, is as follows: Materials and supplies Purchased food Donated food Amount $ 2,723 16,066 24,144 $ 42,933 SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 8. General Fixed Assets Capital asset activity for the year ended June 30, 2003, was as follows: July 1, 2002 Increases Governmental Activities Land and site improvements $ 1,419,980 $ Buildings and building improvements 25,851,763 48,276 Fumiture and equipment 5,175,243 357,116 Construction-in-progress 325,173 Total Governmental Activities Capital Assets 32,446,986 730,565 Less accumulated depreciation Land and site improvements Buildings and building improvemems Fumiture and equipment Total Accumulated Depreciation Governmental Activities, Capital Assets - Net 597,356 611,100 7,944,665 97,008 2,928,026 574,911 11,470,047 1,283,019 $20,976,939 $ (552,454) $ Business-Type Activities Furniture and equipment $ 700,155 $ 4,100 Total Business-Type Activities Capital Assets 700,155 4,100 Less accumulated depreciation Furniture and equipment Total Accumulated Depreciation 338,886 37,768 338,886 37,768 Business-Type Activities, Capital Assets - Net D~creases $ 361,269 $ (33,668) $ June 30, 2003 $ 1,419,980 25,900,039 5,532,359 325,173 33,177,551 1,208,456 8,041,673 3,502,937 12,753,066 $20,424,485 $ 704,255 704,255 376,654 376,654 $ 327,601 SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 8. General Fixed Assets (Continued) Depreciation expense was charged to the functions/programs of the District as follows: Governmental Activities Instruction Instructional student support Administration and financial support Student activities Total Governmental Activities Business-Type Activities Food Service Total School District Amount 932,636 101,110 224,140 25,133 1,283,019 37,768 1,320,787 Note 9. Long-Term Obligations Long-term obligations changed as follows: General Obligation Bonds Payable General Obligation Bonds - Series of 199 I General Obligation Bonds - Series A of 1994 General Obligation Bonds - Series of 1998 General Obligation Bonds - Series of 2001 General Obligation Bonds - Series of 2003 Total Bonds Payable Notes Payable - G.E. Capital Note Compensated Absences Total Long-Term Obligations Balances July 1, 2002 $ 2,728,916 685,229 8,905,000 8,740,000 21,059,145 1,875,208 318,117 $ 23,252,470 31 Increases $ 164,056 38,179 8,750,000 8,952,235 294,802 $ 9,247,037 Decreases $ (845,000) (8,905,000) (15,000) (9,765,000) (185,066) $ (9,950,066) Balances June 30, 2003 $ 2,047,972 723,408 8,725,000 8,750,000 20,246,380 1,690,142 612,919 $ 22,549,441 SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 9. Long-Term Obligations (Continued) General Oblieation Bonds - Series of 1991 (Caoital Apr~reciation Bonds) During fiscal 1990-91, the Board of Directors of the South Middleton School District issued General Obligation Bonds, Series of 1991, in the aggregate principal amount of $4,835,460. The annual interest rates for the 1991 Bond Issue vary from 5.50% to 6.85%. Interest is payable at maturity, and the bonds mature serially in amounts ranging from $5,000 to $860,000 through September 1,2007. General Obligation Bonds - Series A of 1994 During fiscal 1994-95, the Board of Directors of the South Middleton School District issued General Obligation Bonds, Series A of 1994 - Capital Appreciation Bonds in the aggregate principal amount of $446,422. The interest rates for the Series A 1994 Bond Issue vary from 3.25% to 5.70%. The Capital Appreciation Bonds bear interest upon maturity, and the bonds mature on September 1, 2005 and 2006 in amounts from $445,000 and $405000, respectively. The Capital Appreciation Bonds are not subject to early redemption. General Obligation Bonds - Series of 1997 During fiscal 1997-98, the Board of Directors of the South Middleton School District issued General Obligation Bonds, Series of 1997 in the aggregate principal amount of $8,510,000. The proceeds of the Bonds were used to: (1) refund a portion of the General Obligation Bonds, Series A of 1994: (2) funding of costs and expenses of capital projects which consist of planning, designing, acquiring, constructing, equipping and furnishing alternations, additions, renovations or improvements to public school buildings and facilities, and the acquisition of fixtures, furnishings or equipment related thereof; and (3) pay the costs and expenses related to the foregoing and the issuance of such bonds. The interest rates for the 1997 Bond Issue vary from 3.80% to 5.10%. These bonds were called during the year ended June 30, 2002. General Obligation Bonds - Series of 1998 During fiscal 1998-99, the Board of Directors of the South Middleton School District issued General Obligation Bonds, Series of 1998 in the aggregate principal amount of $9,995,000. The proceeds of the bonds were used to: (1) refund a portion of the General Obligation Bonds, Series of 1995; (2) advance refunding the School District's General Obligation Bonds - Series of 1996; and (3) pay the costs and expenses related to the foregoing and the issuance of such bonds. The interest rates for the 1998 Bond Issue vary from 3.50% to 4.80%. The bonds mature serially in the amounts ranging from $25,000 to $410,000 through November 15, 2016. During the year ended 2003, these bonds were refunded in connection with the issuance of the General Obligation Bonds - Series of 2003. 32 SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 9. Long-Term Obligations (Continued) General Obligation Bonds - Series of 2001 During fiscal 2001-02, the Board of Directors of the South Middleton Sch6ol District issued General Obligation Bonds, Series of 2001 in the aggregate principal amount of $8,470,000. The proceeds of the bonds were used to call the General Obligation Bonds, Series of 1998 and to pay the costs and expenses related to the foregoing and the issuance of such bonds. The bonds bear interest semi-annually with rates ranging from 2.10% to 4.10%. The bonds mature serially in amounts ranging f?om $15,000 to $1,175,000 through September I, 2013. General Obligation Bonds - Series of 2003 During fiscal 2002-03, the Board of Directors of the South Middleton School District issued General Obligation Bonds, Series of 2003 in the aggregate principal amount of $8,750,000. The proceeds of the bonds were used to: (1) advance refunding the School District's General Obligation Bonds - Series of 1998; and (2) pay the costs and expenses related to the foregoing and the issuance of such bonds. The interest rates for the 2003 Bond Issue vary from 1.20% to 4.10%. The bonds mature serially in the amounts ranging from $200,000 to $410,000 through November 15, 2016. G.E. Capital Note During fiscal 2000-01, the Board of Directors of the South Middleton School District issued a ten-year note in the aggregate principal amount of $2,213,371. The proceeds of the note are to be used for a Performance-Based Energy Savings Project, an agreement between the School District and PP&L Spectrum, Inc., that will yield guaranteed energy savings for the District. The interest rate for the Capital Note is 5.79%. Principal payments ranging from $84,263 and $144,581 are due through January 30, 2010. The following is a schedule of the principal and interest requirements to service the general long-term bonds of the School District: General Oblig~ion Debt Years Principal Interest Total 2003-2004 $ 918,655 $ 728,542 $ 1,647,197 2004-2005 1,368,679 673,357 2,042,036 2005-2006 1,644,982 607,181 2,252,163 2006-2007 1,839,064 543,855 2,382,919 2007-2008 1,890,000 487,075 2,377,075 2009-2013 8,665,000 1,586,938 10,251,938 2014-2018 3,920,000 221,756 4,141,756 $ 20~246,380 $ 4,848,704 $ 25,095,084 SOUTH MIDDLETON SCHOOL D/STRICT NOTES TO FINANCIAL STATEMENTS Note 9. Long-Term Obligations (Continued) The following is a schedule of the principal and interest requirements to service the long-term note of the School District: Years Note Payable 2003-2004 Principal Interest Total 2004-2005 $ 199,994 $ 95,006 $ 295,000 214,312 83,222 297,534 2005-2006 226,900 70,633 297,533 2006-2007 240,227 57,306 297,533 2007~2008 254,338 43,195 297,533 2009~2013 554,371 40,695 595,066 $ 1,690,142 $ 390,057 $ 2,080,199 Compensated Absences Under the terms of the School 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 pertained to be carried over to future years. Upon retirement from the School District, employees are reimbursed fbr accumulated sick days equal to the number of unused days multiplied by an amount pre-established amount per the employment contract. The employees are also offered options regarding retirement payoots as prescribed in the contract if certain conditions are met. The total liability for accrued vacation, sick leave and retirement bonuses at June 30, 2003, has been reflected in the Statement of Net Assets and totals $612,919. Note 10. Prior-Year Defeasance of Debt In prior years, the District defeased certain general obligations and other bonds by placing the proceeds of new bonds in irrevocable trusts to provide for all future debt service payments on the old bonds. accordingly, the trust account assets and the liability' for the defensed bonds are not included in the District's financial statements. At June 30, 2003, $2,060,000 of bonds outstanding are considered defensed. 34 SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 11. Affiliates As explained in Note 1, the South Middleton School District is affiliated with the Cumberland/Perry Area Vocational-Technical School (Vo-Tech School). Total payments of $279,558 were made by the School District to the Vo-Tech School as the former's share of operating expenses for the year ended June 30, 2003. In addition, total payments of $138,045 were made by the School District to the Vo-Tech School as the former's share of construction project billings for the year ended June 30, 2003. Note 12. Defined-Benefit Pension Plan Plan Description: The School District contributes to the statewide Public School Employee's Retirement System (the System), a governmental cost-sharing multiple-employer defined-benefit pension 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 (the Code) to the Pennsylvania General Assembly (Act No. 96 of October 2, 1975, as amended)(24 Pa. C.S. 8101-8535). The Public School Employees' Retirement System issues a publicly available comprehensive annual financial report that includes financial statements and required supplementary information for the defined-benefit pension plan. This report may be obtained by writing to Barbara D. Flurie, Office of Financial Management, Public School Employees' Retirement System of Pennsylvania, P.O. Box 125, Harrisburg, PA 17108-0125. This report is also available in the publications section of the PSERS website and www.psers.state.pa.us. Funding Policy: The contribution policy is established in the Public School Employees' Retirement Code and requires contributions by the active employees, School District and the Commonwealth. SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 12. Defined-Benefit Pension Plan (Continued) Contribution Rates: The current contribution rate for active employees joining the System before July 22, 1983, is set by law at 5.25% or at 6.50% for the employee's qualifying compensation. For active employees joining the System on or after July 22, 1983, and who were active or inactive as of July 1, 200l, the rate of contribution is 6.25% or at 7.50% of the employee'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 School District's required contributions are based upon an actuarial valuation. For the fiscal year ended June 30, 2003, the District's rate of contribution was 1.15% of covered payroll. The 1.15% rate is composed of a pension contribution rate of .18 percent for pension benefits and .97 for healthcare insurance premium assistance. The School 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 ration (as defined in Act 29 of 1994), with is at least one half of the total School District's rate. The School District's contributions to the Plan for the years ended June 30, 2003, 2002, and 2001, were $l 12,684, $107,979 and $181,879, respectively, and are equal to the required contributions for the year. Note 13. Risk Management The District is exposed to various risks of loss related to torts; theft of, damage to, or destruction of assets, 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 or the three prior years. Note 14. Significant Commitments As of June 30, 2003, the District has entered into the following significant contract commitments: Payee Description Amount Rogele, Inc. Football Stadium/ Track Project $ 242,782 Tomlinson Bomberger Soccer Field Renovation $ 15,500 SOUTH MIDDLETON SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS Note 15. Prior Period Adjustments An appraisal was performed by an independent appraisal company, evaluating the current estimated value, original acquisition cost, and depreciable amount for the assets owned by the South Middleton School District, including those of the food service fund. The valuation of the District's fixed assets presents a more comprehensive picture of the assets of the cafeteria fund than previously utilized mechanisms which reflected only fixed assets purchased through the food service fund. To better reflect the net assets and result of operations in the food service fund, an adjustment was necessary to increase the fixed assets to those as reflected in the appraisal report. As a result, the July I, 2002, net assets for the food service fund were increased by $250,481, representing cost of $203,966 and the accumulated depreciation of $46,515. The trust fund is a scholarship fund set up to hold assets to provide students who plan to attend college an opportunity to receive scholarship funding from the District upon acceptance to college. The total amount of the scholarships funds were displayed incorrectly on the 01-02 financial statements as accounts payable. As a result, the July I, 2002, net assets for the fiduciary trust fund were increased by $37,478. The June 30, 2002, accounts payable were previously overstated by $37,478. 37 SUPPLEMENTARY INFORMATION SOUTH MIDDLETON SCHOOL DISTRICT BALANCE SHEET - NON-MAJOR GOVERNMENTAL FUND - SPECIAL REVENUE - ATHLETIC FUND June 30, 2003 ASSETS Cash and cash equivalents Total assets LIABILITIES AND FUND BALANCE Liabilities - all current Due to other governments Due to other funds Total liabilities Fund Balance Reserved for Athletic Total fund balance Total liabilities and fund balance 38 $ $ 278 278 271 8,193 8,464 (8,186) ( 8,186) 278 SOUTH MIDDLETON SCHOOL DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - NON-MAJOR GOVERNMENTAL FUND - SPECIAL REVENUE - ATHLETIC FUND Year Ended June 30, 2003 Revenues Local sources Total revenues Expenditures Noninstructional services Total expenditures Deficiency of revenues over expenditures Other Financing Sources (uses) Operating transfers in Operating transfers out Total other financing sources Net change in fund balance Fund Balance - July 1,2002 Fund Balance - June 30, 2003 39 44,920 44,920 154,412 154,412 (109,492) 117,403 (7) 117,396 7,904 (16,090) (8,186) lB&R] BOYFR & RITTER CERTIFIED PUBLIC ACCOUrNTANTS AND CONSULTANTS INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF THE BASIC FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITING STANDARDS Board of School Directors South Middleton School District Boiling Springs, Pennsylvania We have audited the basic financial statements of South Middleton School District as of and for the year ended June 30, 2003, and have issued a report thereon dated August 21, 2003. 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. Compliance As part of obtaining reasonable assurance about whether South Middleton School District's basic financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, 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 that are required to be reported under Government Auditing Standards. Internal Control over Financial Reportin~ In planning and performing our audit, we considered South Middleton School District's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the basic financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively Iow level the risk that misstatements in amounts that would be material in relation to the basic financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. However, we noted other matters involving the intemal control over financial reporting that we have reported to management of South Middleton School District in a separate letter dated August 21, 2003. STATE COLLEGE CAMP HILL CARLISLE CHAMBERSBURG LEWISTOWN Ar/Independently Owned Member of the RSM McGladrey Net'~vork This report is intended 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. Camp Hill, Pennsylvania August 21, 2003 41 [13qt) BOYF a RrrTt R CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Board of School Directors South Middleton School District Boiling Springs, Pennsylvania Compliance We have audited the compliance of South Middleton School District with the types of compliance requirements described in the fAS. Office of Management and Budget (OMBy Circular A~133 Compliance Supplement that are applicable to each of its major Federal programs for the year ended June 30, 2003. South Middleton 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 with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in GovernmentAudiling Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major Federal program occurred. An audit includes examining, on a test basis, evidence about the District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provided 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, South Middleton School District complied, in all material respects, with the requirements referred to above that are applicable to each of/ts major Federal programs for the year ended June 30, 2003. CAMP HILL CARLISLE CHAMBERSBURG LEWlSTOWN STATE COLLEGE Internal Control over Compliance The management of South Middleton 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 and to test and report on internal control over compliance in accordance with OMB Circular A-133. Our consideration of internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively Iow level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major Federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider material weaknesses. This report is intended 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. Camp Hill, Pennsylvania August 21, 2003 43 SOUTH MIDDLETON SCHOOL DISTRICT Schedule of Findings and Questioned Costs Year Ended June 30, 2003 Section I -- Summary of Auditor's Results Financial Statements Type of auditor's report issued: Unqualified Internal control over financial reporting: Material weakness identified: Reportable conditions identified that are not considered to be material weaknesses? Yes X No __ Yes X None Reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over the major programs: Material weakness identified? __ Yes X No Reportable condition identified that is not considered to be a material weakness? __ Yes X None Reported Type of auditor's report issued on compliance for the major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Section .510(a) of Circular A- 133 ? Yes X No 44 SOUTH MIDDLETON SCHOOL DISTRICT Schedule of Findings and Questioned Costs Year Ended June 30, 2003 Identification of the major programs: CFDA Number(s) 84.027 Name of Federal Program/Cluster Special Education - Grants to States - IDEA Pan B 84.352 School Renovation Grant Dollar threshold used to distinguish between type A and type B programs Auditee qualified as low-risk auditee? $300,000 X Yes No Section I1 - Financial Statement Findings Reportable Conditions in Internal Control There were no findings relating to the financial statement audit required to be reported. B. Compliance Findings There were no compliance findings relating to the financial statement audit required to be reported. Section Ill -- Federal Award Findings and Questioned Costs A. Reportable Conditions in Internal Control There were no findings relating to the Federal awards as 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 as required to be reported in accordance with Section .510(a) of OMB Circular A- 133. 45 SOUTH MIDDLETON SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year Ended June 30, 2003 U.S. Department of Education Passed through the Pennsylvania Department of Education: Title I - Grants to Local Educational Agencies Innovative Education Program Strategies Innovative Education Program Strategies Safe and Drug-Free Schools and Communities Safe and Drug-Free Schools and Communities Improving Teacher Quality School Renovation Grant Passed through the Capital Area Intermediate Unit: Special Education - Grants to States Total U.S. Department of Education Federal Emergency Management Agency Passed through the Pennsylvania Emergency Management Agency Public Assistance Grants Total Federal Emergency Management Agency Source Code Federal C.F.D.A. Number 84.010 84.298 84.298 84.186 84,186 84.367 84.352 84.027 83.544 Pass Through Orantor's Number 107-020397 011-020397 011-030397 100-020398 100-030398 020-030397 004-020397 N/A N/A Grant Period 01-02 01-02 02-03 01-02 02-03 02-03 02-03 02-03 02-03 46 Program or Annual Award Total Received (Refunded) in Fiscal Year $ 3,230 $ 3,230 $ 8,036 3,331 $ 8,030 8,030 $ 8,528 1,009 $ 5,290 3,174 $ 33,341 30,960 $ 38,072 38,072 $ 137,477 2,102 137,477 225,283 2,102 2,102 Accrued (Deferred) Revenue at 7/1/2002 $ (10,013) 3,331 (2,417) (9,099) 47 Recognized $ 13,243 8,030 3,426 4,645 33,341 38,072 137,477 238,234 2,102 2,102 Expendimres $ 13,243 $ 8,030 3,426 4,645 33,341 38,072 137,477 238,234 2,102 2,102 Accrued (Deferred) Revenue at 6/30/2003 1,471 2,38l 3,852 SOUTH MIDDLETON SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) Year Ended June 30, 2003 U.S. Department of Agriculture Passed through the Pennsylvania Department of Education: National School Lunch Program National School Lunch Program Source Code ! I (s) Federal C.F,D.A. Number 10.555 N/A School Breakfast Program School Breakfast Program I(F) I(S) 10.553 N/A Passed through the Pennsylvania Department of Agriculture: Food Donation (a) I(F) 10.550 Total U.S. Department of Agriculture Total Expenditures of Federal Awards Pass Through Orantor's Number N/A N/A N/A N/A N/A Grant Period 02-03 02-03 02-03 02-03 02-03 48 Program or Annual Award N/A N/A N/A N/A N/A Total Accrued Received (Deferred) (Refunded) in Revenue at Revenue Fiscal Year 7/1/2002 Recognized 67,672 23,111 4,092 1,201 (b) 34,683 130,759 $ 358,144 67,672 23,111 4,092 1,201 (c) (28,321) 38,860 (28,321) 134,936 $ (37,420) $ 375,272 49 Expenditures 67,672 23,111 4,092 1,201 Accrued (Deferred) Revenue at 6/30/2003 (d) 38,860 (e) (24,144) 134,936 (24,144) $ 375,272 $ (20,292) SOUTH MIDDLETON SCHOOL DISTRICT SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (Continued) Year Ended June 30, 2003 Source Codes: D - Direct Funding I -lndirect Funding (F) - Federal Share (S) - State Share Legends: (a) Donated commodities value at local market values (b) Total amount of commodities received from Department of Agriculture (c) Inventories at July 1, 2002 (d) Total amount of commodities used (e) Inventories at June 30, 2003 Test of 50% Rule: Total Expenditures Less State Expenditures Total Federal Expenditures $ 375,272 (24,312) $ 350,960 Program selected for testing major programs Special Education - Grants to States School Renovation Grant $ 137,477 38,072 $ 175,549 / $350,960 = 50.02% See Note to Schedule of Expenditures of Federal A~vards. 50 SOUTH MIDDLETON SCHOOL DISTRICT NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Note L Significant Accounting Policies The accompanying Schedule of Expenditures of Federal Awards includes the Federal grant activity of the District's Federal award programs and presents transactions that would be included in 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. 51 SOUTH MIDDLETON SCHOOL DISTRICT SUMMARY SCHEDULE OF PRIOR YEAR'S AUDIT FINDINGS Year Ended June 30, 2005 There were no prior year audit findings. 52