Audited Financial Statements
Merritt Academy New Haven, Michigan
June 30, 2016
345 Diversion Street Ɣ Suite 400 44725 Grand River Avenue Ɣ Suite 204 2505 NW Boca Raton Blvd. Ɣ Suite 202 Rochester, Michigan 48307 Novi, Michigan 48375 Boca Raton, Florida 33431-6652 Phone: 248.659.5300 Phone: 248.659.5300 Phone: 561.241.1040 Fax: 248.659.5305 Fax: 248.659.5305 Fax: 561.368.4641
www.croskeylanni.com
David M. Croskey, CPA Thomas B. Lanni, CPA Carolyn A. Jones, CPA, CFP® MST Clifton F. Powell Jr., CPA, CFP®, PFS Roger J. DeJong, CPA Patrick M. Sweeney, CPA Leonard A. Geronemus, CPA, PFS
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors of Merritt Academy
We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Merritt Academy as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Merritt Academy’s basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Merritt Academy as of June 30, 2016, and the respective changes in financial position, thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and budgetary comparison information on pages v – x and 19 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and the other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Merritt Academy’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, and statistical section, are presented for purposes of additional analysis and are not a required part of the basic financial statements.
The combining and individual nonmajor fund financial statements and the schedules of revenues and expenditures are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and the schedules of revenues and expenditures are fairly stated in all material respects in relation to the basic financial statements as a whole.
The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 27, 2016, on our consideration of Merritt Academy’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Merritt Academy’s internal control over financial reporting and compliance.
Croskey Lanni, PC
Rochester, Michigan October 27, 2016
ii
345 Diversion Street Ɣ Suite 400 44725 Grand River Avenue Ɣ Suite 204 2505 NW Boca Raton Blvd. Ɣ Suite 202 Rochester, Michigan 48307 Novi, Michigan 48375 Boca Raton, Florida 33431-6652 Phone: 248.659.5300 Phone: 248.659.5300 Phone: 561.241.1040 Fax: 248.659.5305 Fax: 248.659.5305 Fax: 561.368.4641
www.croskeylanni.com
David M. Croskey, CPA Thomas B. Lanni, CPA Carolyn A. Jones, CPA, CFP® MST Clifton F. Powell Jr., CPA, CFP®, PFS Roger J. DeJong, CPA Patrick M. Sweeney, CPA Leonard A. Geronemus, CPA, PFS
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
To the Board of Directors of Merritt Academy
We have audited, in accordance with the 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, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Merritt Academy, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Merritt Academy’s basic financial statements, and have issued our report thereon dated October 27, 2016.
Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Merritt Academy’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Merritt Academy’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters As part of obtaining reasonable assurance about whether the Merritt Academy’s financial statements are free from 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.
Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Croskey Lanni, PC
Rochester, Michigan October 27, 2016
iv
MANAGEMENT’S DISCUSSION AND ANALYSIS
This section of Merritt Academy’s, annual financial report presents our discussion and analysis of the school’s financial performance during the fiscal year that ended on June 30, 2016. Please read it in conjunction with the school’s financial statements, which immediately follow this section.
FINANCIAL HIGHLIGHTS
The total cost of basic programs was $2,543,575.
Revenues were at $5,502,995 while expenditures were $4,861,194 in the General Fund.
Blended enrollment used for state aid purposes was 633.73, a decrease of 15.16.
The school has a positive General Fund balance of $463,402.
OVERVIEW OF THE FINANCIAL STATEMENTS
This annual report consists of three parts – management’s discussion and analysis (this section), the basic financial statements and required supplementary information. The basic financial statements include two kinds of statements that present different views of the school:
The first two statements are school-wide financial statements that provide both short-term and longterm information about the school’s overall financial status.
The remaining statements are fund financial statements that focus on individual parts of the school, reporting the schools operations in more detail.
The governmental fund statements tell how basic services like regular and special education were financed.
Fiduciary funds statements provide information about the financial relationships in which the school acts solely as a trustee or agent for the benefit of others. These consist of student activity funds held by the school on behalf of the student group.
Summary Detail
The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements with a comparison of the school’s budget for the year. Figure A-1 shows how the various parts of this annual report are arranged and related to one another.
Fund Financial Statements
School-Wide Statements
Government Funds
Fiduciary Funds
Scope Entire school (except fiduciary funds)
The activities of the school that are not proprietary or fiduciary, such as special education and building maintenance.
Instances in which the school administers resources on behalf of someone else, such as scholarship programs and student activities monies
Required financial statements
*Statement of net position *Statement of activities
*Balance sheet *Statement of revenues, expenditures and changes in fund balances
*Statement of fiduciary net position *Statement of changes in fiduciary net position
Accounting basis and measurement focus
Accrual accounting and economic resources focus
Modified accrual accounting and current financial resources
Accrual accounting and economic resources focus
Type of asset/liability information
All assets and liabilities both financial and capital, short-term and long-term
Generally assets expected to be used up and liabilities that come due during the year or soon thereafter, no capital assets or longterm liabilities included
All assets and liabilities, both shortterm and long-term
Type of inflow/outflow information
All revenues and expenses during year, regardless of when cash is received or paid
Revenues for which cash is received during or soon after the end of the year, expenditures when goods or services have been received and the related liability is due and payable
All additions and deductions during the year, regardless of when cash is received or paid
vi
Figure A-1 Organization of Merritt’s Annual Financial Report
Management’s Discussion and Analysis
Basic Financial Statements
Required Supplementary Information
Notes to Financial Statements
School-Wide Financial Statements
Fund Financial Statements
Figure A-2 Major Features of School-Wide and Fund Financial Statements
Figure A-2 summarizes the major features of the school’s financial statements, including the portion of the schools’ activities they cover and the types of information they contain. The remainder of this overview section of management’s discussion and analysis highlights the structure and contents of each of the statements.
SCHOOL-WIDE STATEMENTS
The school-wide statements report information about the school as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the school’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 school-wide statements report the school’s net position and how it has changed. Net position – the difference between the school’s assets and liabilities – are one way to measure the school’s financial health or position.
Over time, increases or decreases in the school’s assets are an indicator of whether its financial position is improving or deteriorating, respectively.
To assess the overall health of the school, you need to consider additional non-financial factors such as changes in the school’s enrollment and the condition of school buildings and other facilities.
FUND FINANCIAL STATEMENTS
The fund financial statements provide more detailed information about the school’s funds, focusing on it’s most significant or “major” funds – not the school as a whole. Funds are accounting devices the school uses to keep track of specific sources of funding and spending on particular programs:
Governmental activities – Most of the school’s basic services are included in the general fund, such as regular and special education and administration. State foundation aid finances most of these activities.
The school establishes other funds to control and manage money for particular purposes (like repaying its longterm debts) or to show that it is properly using certain revenues.
The school has one kind of fund:
Governmental funds – Most of the school’s basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the school’s programs. Because this information does not encompass the additional long-term focus of the school-wide statements, we provide additional information with governmental funds statements that explains the relationship (or differences) between them.
vii
FINANCIAL ANALYSIS OF THE SCHOOL AS A WHOLE
The school’s financial position is the product of many factors. General Fund Budgetary Analysis
Over the course of the year, the school reviewed and amended the annual operating budget several times.
Financial Outlook
Merritt Academy’s financial forecast continues to be optimistic heading into the 2016/2017 school year.
Enrollment is expected to be maintained at the current level.
2016 2015
2,292,632 $ 2,293,337 $ 5,216,039 5,318,816
7,508,671 7,612,153
6,850,000 7,085,000 953,462 901,053
7,803,462 7,986,053
(716,860) (863,902) 422,069 490,002
(294,791) $ (373,900) $
Unrestricted
Table A-3 Merritt Academy's Net Position
Total liabilities
Current and other assets Capital assets
Total assets
Total net position
Long-term debt outstanding Other liabilities
Net position: Restricted
viii
Revenues: 2016 2015
122,474 $ 185,055 $ 815,391 752,790
4,638,648 4,733,348 45,071 24,252
5,621,584 5,695,445
Expenses:
2,938,421 2,651,585 1,900,172 1,926,649 451,806 466,643 252,076 221,388
5,542,475 5,266,265
Increase (decrease) in net position 79,109$ 429,180 $
Support services Interest on long-term debt Unallocated depreciation
Total expenses
General revenues: State aid - unrestricted Miscellaneous
Total revenues
Instruction
Table A-4 Changes in Merritt Academy's Net Position
Federal and state operating grants Charges for services Program revenues:
CAPITAL ASSET AND DEBT ADMINISTRATION
Capital Assets
By the end of 2016, the school had invested $7,717,600 in capital assets, including computers and software. See table A5 below for a listing of capital assets, and the accumulated depreciation.
Balance
Balance June 30, 2016 June 30, 2015
Building 6,671,430$ 6,663,357 $ Equipment and furniture 548,636 494,204 Computers 497,534 410,740
Subtotal 7,717,600 7,568,301
Less: accumulated depreciation 2,501,561 2,249,485
Total net capital assets 5,216,039$ 5,318,816 $
Table A-5 Merritt Academy's Capital Assets
ix
Long-Term Debt
The Academy had $6,850,000 outstanding on 2 Certificates of Participation as of June 30, 2016. See Note 8 in the financial statements for additional information on Long-Term Debt.
The Academy Board is actively exploring refunding the 2 Certificates of Participation as of the date of these financial statements. It is anticipated that a refunding could occur prior to the end of the 16-17 fiscal year.
FACTORS BEARING ON THE SCHOOL’S FUTURE
Continuation of positive enrollment trends
State aid foundation grant stabilization
CONTACTING THE SCHOOL’S FINANCIAL MANAGEMENT
This financial report is designed to provide our students, parents and creditors with a general overview of the school’s finances and to demonstrate the school’s accountability for the money it receives. If you have questions about this report or need additional information, contact the management office at:
The Romine Group, 7877 Stead, Utica, MI 48317 (586)731-5300
Current Assets
Cash and cash equivalents 253,445 $ Investments 917,101 Accounts receivable 13,802 Due from other governmental units 1,064,121 Prepaid expenses 44,163
Total current assets 2,292,632
Capital Assets - Net of Accumulated Depreciation 5,216,039
Total assets and deferred outflows 7,508,671 $
Current Liabilities
Accounts payable 512,901 $ Notes payable 165,109 Unearned revenue 44,640 Other accrued expenses 230,812 Long-term debt - current portion 250,000
Total current liabilities 1,203,462
Long-Term Debt - Long-Term Portion 6,600,000
Net Position
Net investment in capital assets (1,633,961) Restricted 917,101 Unrestricted 422,069
Total net position (294,791)
Total liabilities, deferred inflows and net position 7,508,671 $
ASSETS AND DEFERRED OUTFLOWS
LIABILITIES, DEFERRED INFLOWS AND NET POSITION
See accompanying notes to financial statements
- 1
MERRITT ACADEMY
STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 See Independent Auditor’s Report
Net (Expense) Revenues and Changes in Program Revenues Net Position Government Charges for Operating Type Expenses Services Grants Activities
Functions Instruction Basic programs 2,543,575$ 43,277$ 213,966$ (2,286,332) $ Added needs 394,846 - 394,846 Support services Pupil support services 147,734 - 106,894 (40,840) Instructional staff support services 23,809 - - (23,809) General administration 673,947 - - (673,947) School administration 405,198 - - (405,198) Business support services 35,685 - - (35,685) Operations and maintenance 297,752 - - (297,752) Pupil transportation services 81,594 - - (81,594) Central support services 34,166 - - (34,166) Athletic activities 60,642 40,398 - (20,244) Food services 126,698 18,901 99,685 (8,112) Community services 12,947 19,898 - 6,951 Unallocated depreciation 252,076 - - (252,076) Unallocated interest 451,806 - - (451,806)
Total primary government 5,542,475$ 122,474$ 815,391$ (4,604,610)
General Purpose Revenues State school aid - unrestricted 4,638,648 Miscellaneous revenues 45,071 Total general purpose revenues 4,683,719
Change in net position 79,109
Net position - July 1, 2015 (373,900)
Net position - June 30, 2016 (294,791) $
See accompanying notes to financial statements - 2
Non-Major Debt Special General Service Revenue Total
Cash and cash equivalents 243,382$ -$ 10,063$ 253,445 $ Investments 14,294 902,807 - 917,101 Accounts receivable 13,802 - - 13,802 Due from other governmental units 1,064,121 - - 1,064,121 Prepaid expenses 44,163 - - 44,163
Total assets 1,379,762$ 902,807$ 10,063$ 2,292,632 $
Liabilities Accounts payable 512,901$ -$ -$ 512,901 $ Notes payable 165,109 - - 165,109 Unearned revenue 44,640 - - 44,640 Other accrued expenses 193,710 - - 193,710
Total liabilities 916,360 - - 916,360
Fund Balance Nonspendable 44,163 - - 44,163 Restricted 14,294 902,807 10,063 927,164 Unassigned 404,945 - - 404,945
Total fund balance 463,402 902,807 10,063 1,376,272
Total liabilities and fund balance 1,379,762$ 902,807$ 10,063$ 2,292,632 $
ASSETS
LIABILITIES AND FUND BALANCE
Amounts reported for governmental activities in the statement of net position are different because:
Total Governmental Fund Balances 1,376,272 $
Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. The cost of the assets is $7,717,600 and the accumulated depreciation is $2,501,561. 5,216,039
Interest is not payable until due in governmental activities and, therefore, is not recorded in the funds. (37,102)
Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the funds. (6,850,000)
Net Position of Governmental Activities (294,791) $
Non-Major Debt Special General Service Revenue Total
Revenues Local sources 151,287$ 3$ 18,901$ 170,191 $ State sources 5,067,090 - 1,246 5,068,336 Federal sources 212,448 - 98,439 310,887 Interdistrict sources 72,170 - - 72,170 Total governmental fund revenues 5,502,995 3 118,586 5,621,584 Expenditures Instruction Basic programs 2,543,575 - - 2,543,575 Added needs 394,846 - - 394,846 Support services Pupil support services 147,734 - - 147,734 Instructional staff support services 23,809 - - 23,809 General administration 673,947 - - 673,947 School administration 405,198 - - 405,198 Business support services 35,685 - - 35,685 Operations and maintenance 297,752 - - 297,752 Pupil transportation services 81,594 - - 81,594 Central support services 34,166 - - 34,166 Athletic activities 60,642 - - 60,642 Food services - - 126,698 126,698 Community services 12,947 - - 12,947 Capital outlay 149,299 - - 149,299 Debt principal and interest - 688,119 - 688,119 Total governmental fund expenditures 4,861,194 688,119 126,698 5,676,011 Excess (deficiency) of revenues over expenditures 641,801 (688,116) (8,112) (54,427) Other Financing Sources (Uses) Operating transfers in - 697,935 - 697,935 Operating transfers out (697,935) - - (697,935) Total other financing sources (uses) (697,935) 697,935 - Excess (deficiency) of revenues and other financing sources over expenditures and other uses (56,134) 9,819 (8,112) (54,427) Fund balance - July 1, 2015 519,536 892,988 18,175 1,430,699 Fund balance - June 30, 2016 463,402$ 902,807$ 10,063$ 1,376,272 $
See accompanying notes to financial statements
Amounts reported for governmental activities in the statement of activities are different because:
Net Change in Fund Balances - Total Governmental Funds (54,427) $
Governmental funds report capital outlays as expenditures. However, in the statement of activities, assets are capitalized and the cost is allocated over their estimated useful lives and reported as depreciation and amortization expense. This is the amount by which depreciation and amortization exceeded capital outlay in the current period:
Capital outlay 149,299 $ Depreciation and amortization expense (252,076) (102,777)
The governmental funds report loan proceeds as an other financing source, while repayment of loan principal is reported as an expenditure. Interest is recognized as an expenditure in the governmental funds when it is due. The net effect of these differences in the treatment of general loan obligations is as follows:
Repayment of loan principal 235,000 $ Interest expense 1,313 236,313
Change in Net Position of Governmental Activities 79,109 $
See accompanying notes to financial statements
The accounting policies of Merritt Academy (the “Academy”) conform to generally accepted accounting principles applicable to public school academies. The following is a summary of the significant accounting policies:
Reporting Entity
Merritt Academy was formed as a public school academy pursuant to the Michigan School Code of 1976, as amended by Act No. 362 of the Public Acts of 1993 and Act No. 416 of the Public Acts of 1994. The Academy filed articles of incorporation as a nonprofit corporation pursuant to the provisions of the Michigan Nonprofit Corporation Act of 1982, as amended, on May 30, 1997, and began operation in July 2002.
In June 2007, the Academy entered into a five-year contract with Saginaw Valley State University's Board of Control to charter a public school academy. In May of 2015 the contract has been renewed for five years through June 2020. The contract requires the Academy to act exclusively as a governmental agency and not undertake any action inconsistent with its status as an entity authorized to receive state school aid funds pursuant to the State constitution. The University’s Board of Control is the fiscal agent for the Academy and is responsible for overseeing the Academy’s compliance with the contract and all applicable laws. The Academy pays Saginaw Valley State University's Board of Control three percent of state aid as administrative fees. Total administrative fees paid for the year ended June 30, 2016 were approximately $138,900.
In June 2011, the Academy entered into an agreement with The Romine Group, Inc. In May of 2015 this agreement was renewed for five years through June 2020. Under the terms of this agreement, The Romine Group, Inc. provides a variety of services including financial management, educational programs and consulting, as well as teacher training. The Academy is obligated to pay The Romine Group, Inc. ten percent of its state school aid revenue and all other governmental revenue sources. Total compensation in no event shall be less than $250,000 and no more than $800,000 in any fiscal year. The total paid for these services amounted to approximately $494,000 for the year ended June 30, 2016.
The accompanying financial statements have been prepared in accordance with criteria established by the Governmental Accounting Standards Board for determining the various governmental organizations to be included in the reporting entity. These criteria include significant operational or financial relationships with the public school Academy. Based on application of criteria, the Academy does not contain component units.
Fund Financial Statements
Fund financial statements report detailed information about the Academy. The focus of governmental fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. Non-major funds are aggregated and presented in a single column.
Basis of Presentation – Fund Accounting
The accounts of the Academy are organized on the basis of funds. The operations of a fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund balance, revenue and expenditures. Government resources are allocated to and accounted for in individual funds based on the purposes for which they are to be spent and the means by which spending activities are controlled. The various funds are grouped, in the combined financial statements in this report, into generic fund types in two broad fund categories.
Governmental Funds
A governmental fund is a fund through which most academy functions typically are financed. The acquisition, use and balances of the Academy’s expendable financial resources and the related current liabilities are accounted for through a governmental fund.
General Fund - The general fund is used to record the general operations of the Academy pertaining to education and those operations not provided for in other funds. Included are all transactions related to the approved current operating budget.
Special Revenue Fund - The special revenue fund is used to account for the food service program operations. The special revenue fund is a subsidiary operation and is an obligation of the general fund. Therefore any shortfall in the special revenue fund will be covered by an operating transfer from the general fund.
Debt Service Fund - The debt service fund is used to record certain revenue and the payment of interest, principal and other expenditures on long-term debt.
Capital Projects Fund - The capital projects fund, which the Academy does not currently maintain, accounts for financial resources to be used for the acquisition, construction, or improvement of capital facilities.
Fiduciary Fund - The fiduciary fund, which the Academy does not currently maintain, is used to account for assets held by the Academy in a trustee capacity or as an agent. The agency fund is custodial in nature and does not involve the measurement of results of operations.
Governmental and agency funds utilize the modified accrual basis of accounting. Modifications in such method from the accrual basis are as follows:
a. Revenue that is both measurable and available for use to finance operations is recorded as revenue when earned. 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 Academy considers revenues to be available if they are collected within sixty days of the end of the current fiscal period.
b. Payments for inventoriable types of supplies, which are not significant at year end, are recorded as expenditures at the time of purchase.
c. Principal and interest of general long-term debt are not recorded as expenditures until their due dates.
d. The State of Michigan utilizes a foundation allowance funding approach, which provides for specific annual amount of revenue per student based on a state-wide formula. The foundation allowance is funded from a combination of state and local sources. Revenue from state sources is primarily governed by the School Aid Act and the School Code of Michigan. The state portion of the foundation is provided from the State’s School Aid Fund and is recognized as revenue in accordance with state law. A major portion of the Academy’s revenue is derived from this state aid. As such, the Academy is considered to be economically dependent on this aid. The Academy’s existence is dependent upon qualification for such aid.
Government-Wide Financial Statements
The government-wide financial statements (i.e. the Statement of Net Position and the Statement of Activities) report information on all of the non-fiduciary activities of the primary government. The government-wide financial statements are prepared using the economic resources measurement focus and the accrual basis of accounting. This approach differs from the manner in which governmental fund financial statements are prepared. Therefore, governmental fund financial statements include reconciliations with brief explanations to better identify the relationships between the government-wide statements and the statements for governmental funds.
The government-wide Statement of Activities presents a comparison between expenses and program revenues for each segment of the business-type activities of the Academy and for each governmental program. Direct expenses are those that are specifically associated with a service, program or department and are therefore clearly identifiable to a particular function. The Academy does not allocate indirect expenses to programs. Program revenues include charges paid by the recipients of the goods or services offered by the programs and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues not classified as program revenues are presented as general revenues. The comparison of program revenues and expenses identifies the extent to which each program or function is self financing or draws from the general revenues of the Academy. When both restricted and unrestricted resources are available for use, it is the Academy’s policy to use restricted resources first.
Net position should be reported as restricted when constraints placed on net position use is either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The Academy first utilizes restricted resources to finance qualifying activities.
Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the government - wide financial statements.
Cash and Cash Equivalents
The Academy's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with maturities of three months or less from the date of acquisition. The Academy reports its investments in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools and GASB No. 40, Deposit and Investment Risk Disclosures. Under these standards, certain investments are valued at fair value as determined by quoted market prices or by estimated fair values when quoted market prices are not available. The standards also provide that certain investments are valued at cost (or amortized cost) when they are of a short-term duration, the rate of return is fixed, and the Academy intends to hold the investment until maturity. The Academy held investments in mutual funds that invest solely in U.S. Treasury obligations. The funds are held in trust for debt service and capital projects. State statutes authorize the Academy to invest in bonds and other direct and certain indirect obligations of the U.S. Treasury; certificates of deposit, saving accounts, deposit accounts, and or depository receipts of a bank, savings and loan association, or credit union, which is a member of the Federal Deposit Insurance Corporation, Federal Savings and Loan Corporation or National Credit Union Administration, respectively; in commercial paper rated at the time of purchase within the three highest classifications established by not less than two standard rating services and which matures not more than 270 days after the date of purchase. The Academy is also authorized to invest in U.S. Government or Federal agency obligation repurchase agreements, bankers' acceptances of U.S. banks, and mutual funds composed of investments as outlined above.
Receivables
Receivables at June 30, 2016 consist primarily of state school aid due from the State of Michigan and the federal government. All receivables are expected to be fully collected in July and August of 2016 and are considered current for the purposes of these financial statements.
Prepaid Assets
Payments made to vendors for services that will benefit periods beyond June 30, 2016, are recorded as prepaid items using the consumption method. A current asset for the prepaid amount is recorded at the time of the purchase and an expenditure is reported in the year in which services are consumed.
Capital Assets and Depreciation
All capital assets are capitalized at cost (or estimated historical cost) and updated for additions or retirements during the year. The Academy follows the policy of not capitalizing assets with a useful life of less than one year. The Academy does not possess any infrastructure assets.
All reported capital assets, with the exception of land, are depreciated. Improvements are depreciated over the remaining useful lives of the related capital assets. Depreciation is computed using the straight-line method over the following useful lives:
Building and improvements 10 – 50 years Furniture and equipment 5 – 15 years Computers and software 3 – 10 years
Accrued Liabilities and Long-Term Obligations
All payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements. In general, payables and accrued liabilities that will be paid from governmental funds are reported on the governmental fund financial statements regardless of whether they will be liquidated with current resources. However, the noncurrent portion of capital leases that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they will be paid with current, expendable, available financial resources. In general, payments made within sixty days after year-end are considered to have been made with current available financial resources. Other long-term obligations that will be paid from governmental funds are not recognized as a liability in the fund financial statements until due.
Net Position
Net position represents the difference between assets, deferred outflows, liabilities, and deferred inflows. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the Academy or through external restrictions imposed by creditors, grantors or laws of regulations of other governments.
Fund Equity
The Academy has adopted GASB 54 as part of its fiscal year reporting. The intention of the GASB is to provide a more structured classification of fund balance and to improve the usefulness of fund balance reporting to the users of the Academy’s financial statements. The reporting standard establishes a hierarchy for fund balance classifications and the constraints imposed on those resources.
GASB 54 provides for two major types of fund balances, which are nonspendable and spendable. Nonspendable fund balances are balances that cannot be spent because they are not expected to be converted to cash or they are legally or contractually required to remain intact. This category typically includes prepaid items and inventories.
In addition to nonspendable fund balance, GASB 54 has provided a hierarchy of spendable fund balances, based on a hierarchy of spending constraints.
a. Restricted fund balance – amounts constrained to specific purposes by their providers (such as grantors, bondholders, and higher levels of government), through constitutional provisions, or by enabling legislation. The balances shown as restricted, include $917,101 of resources held in trust for the payment of revenue bond obligations.
b. Committed fund balance – amounts constrained to specific purposes by the Board; to be reported as committed, amounts cannot be used for any other purpose unless the Board takes action to remove or change the constraint.
c. Assigned fund balance – amounts the Board intends to use for a specific purpose; intent can be expressed by the Board or by an official or committee to which the Board delegates the authority.
d. Unassigned fund balance – amounts that are available for any purpose; these amounts are reported only in the general fund.
The Academy follows the policy that restricted, committed, or assigned amounts will be considered to have been spent when an expenditure is incurred for purposes for which both unassigned and restricted, committed, or assigned fund balances are available.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.
NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY
Annual budgets are adopted on a consistent basis with accounting principles generally accepted in the United States of America and state law for the general fund. All annual appropriations lapse at fiscal year end and encumbrances are not formally recorded.
The budget document presents information by fund and function. The legal level of budgetary control adopted by the governing body is the function level. State law requires the Academy to have its budget in place by July 1. Expenditures in excess of amounts budgeted is a violation of Michigan Law. The Academy is required by law to adopt general and special revenue fund budgets. During the year ended June 30, 2016 the budget was amended in a legally permissible manner. The Academy incurred expenditures in certain budgetary functions which were insignificantly in excess of the amounts appropriated for the year ended June 30, 2016 as detailed on page 19 of these financial statements.
As of June 30, 2016, the Academy had the following investments:
Type S&P Rating Maturities Carrying Value
Deposits: Demand deposits 253,445 $
Investments: U.S. Treasury and agency obligations AAAm Various 917,101
Total deposits and investments 1,170,546 $
The above amounts are reported in the financial statements as follows:
Deposits: Cash - General fund 243,382 $ Cash - Special revenue fund 10,063
Investments: Investments - General fund 14,294 Investments - Debt service fund 902,807
Total deposits and investments 1,170,546 $
Interest Rate Risk
In accordance with its investment policy, the Academy will minimize interest rate risk, which is the risk that the market value of securities in the portfolio will fall due to changes in market interest rates, by; structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities in the open market; and, investing operating funds primarily in shorter-term securities, liquid asset funds, money market mutual funds, or similar investment pools and limiting the average maturity in accordance with the Academy's cash requirements.
Credit Risk
State law limits investments in commercial paper and corporate bonds to a prime or better rating issued by nationally recognized statistical rating organizations (NRSROs). As of June 30, 2016, the Academy's investments were rated AAAm by Standards & Poor's and Aaa by Moody's Investors Service.
Concentration of Credit Risk
The Academy will minimize concentration of credit risk, which is the risk of loss attributed to the magnitude of the Academy's investment in a single issuer, by diversifying the investment portfolio so that the impact of potential losses from any one type of security or issuer will be minimized. More than 5% of the Academy's investments are in pooled investment accounts which represent 100% of the Academy's total investments.
Custodial Credit Risk - Deposits
In the case of deposits, this is the risk that in the event of a bank failure, the Academy's deposits may not be returned to it. As of June 30, 2016, $50,578 of the Academy's cash was exposed to custodial credit risk because it was uninsured. All cash balances were uncollateralized as of June 30, 2016.
Custodial Credit Risk - Investments
For an investment, this is the risk that, in the event of the failure of the counterparty, the Academy will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party.
The Academy will minimize custodial credit risk, which is the risk of loss due to the failure of the security issuer or backer, by; limiting investments to the types of securities allowed by law; and pre-qualifying the financial institutions, broker/dealers, intermediaries and advisors with which the Academy will do business.
Foreign Currency Risk
The Academy is not authorized to invest in investments which have this type of risk.
NOTE 4 – DUE FROM OTHER GOVERNMENTAL UNITS Amounts due from other governmental units consist of the following:
Local sources 41,334 $ State sources 958,390 Federal sources 64,397
Total 1,064,121 $
NOTE 5 - CAPITAL ASSETS
Capital asset activity of the Academy's governmental activities was as follows:
Balance Balance July 1, 2015 Additions Disposals June 30, 2016
Capital assets subject to depreciation Building 6,663,357$ 8,073$ -$ 6,671,430 $ Equipment 26,985 2,795 - 29,780 Furniture 467,219 535 - 467,754 Computer 410,740 137,896 - 548,636
Sub-total 7,568,301 149,299 - 7,717,600
Accumulated depreciation Building 1,520,717 168,134 - 1,688,851 Equipment 26,828 380 - 27,208 Furniture 428,517 25,318 - 453,835 Computer 273,423 58,244 - 331,667
Sub-total 2,249,485 252,076 - 2,501,561
Total net capital assets 5,318,816$ (102,777)$ -$ 5,216,039 $
Depreciation and amortization expense was not charged to activities as the Academy considers its assets to impact multiple activities and allocation is not practical.
NOTE 6 – NOTES PAYABLE
Notes payable as of June 30, 2016 can be summarized as follows:
Loan Information
Interest Maturity Rate Date
SAAN 14-15 1.84% August, 2015
SAAN 15-16 1.85% August, 2016
Loan Activity
Balance Retirements Balance July 1, 2015 Additions and Payments June 30, 2016
SAAN 14-15 181,628$ -$ 181,628$ $ SAAN 15-16 - 900,000 734,891 165,109
181,628 $ 900,000$ 916,519$ 165,109 $
Other
Paid in full
To provide academy with funds to finance school operations, secured by future state aid payments.
NOTE 7 – ACCRUED EXPENSES
Accrued expenses may be summarized as follows:
Net Position Funds
Purchased services - payroll and benefits 71,423$ 71,423 $ Management fee 97,023 97,023 University oversight fee 25,264 25,264 Interest 37,102
Total accrued expenses 230,812$ 193,710 $
NOTE 8 - LONG-TERM OBLIGATIONS PAYABLE
The following is a summary of long-term obligations for the Academy during the year ended June 30, 2016:
Loan Information
Interest Maturity Rate Date
Certificates of Participation 2004 6.25% December, 2024
Certificates of Participation 2006 7.00% December, 2036
Loan Activity
Retirements Due Balance and Balance Within July 1, 2015 Additions Payments June 30, 2016 One Year
Certificates of Participation 2004 2,360,000$ -$ 135,000$ 2,225,000$ 145,000 $ Certificates of Participation 2006 4,725,000 - 100,000 4,625,000 105,000
7,085,000 $ -$ 235,000$ 6,850,000$ 250,000 $
Following are maturities of long-term obligations for principal and interest for the next five years and in total:
Principal Interest
2017 250,000$ 436,819 $ 2018 265,000 419,494 2019 285,000 400,994 2020 305,000 381,138 2021 325,000 359,925 2022-2026 2,030,000 1,402,481 2027-2031 1,105,000 895,469 2032-2036 1,505,000 490,781 2037 780,000 24,375
Collateralized by a mortgage on the Academy's facility as well as a pledge for 20% of the state school aid payments and funds held in trust for debt service.
Collateralized by a mortgage on the Academy's facility as well as a pledge for 20% of the state school aid payments and funds held in trust for debt service.
Other
NOTE 9 - RETIREMENT PLAN
All employees leased by the Academy are eligible to participate in a retirement plan established by The Romine Group which qualifies under the provisions of Section 401(k) of the Internal Revenue Code. The employer under this plan will contribute 4% of salaries regardless of the amount of the employee contribution. The employer will additionally match up to 4% of employee contributed funds. Eligible employees may contribute up to 15% of their salaries under the terms of this plan.
NOTE 10 - INTERFUND TRANSFERS
During the normal course of the school year the Academy transferred amounts between its major funds as follows:
General Debt Service
Transfer In -$ 697,935 $
Transfer Out 697,935
As stipulated by the Academy's revenue bond agreement as described in Note 8, the Academy must transfer 20% of its state aid to a trustee. The trustee retains the required portion for debt service and returns the remainder to the Academy. The general fund also subsidizes the Special Revenue Funds lunch activities. These above transactions account for the major activity in the Academy's interfund transfer accounts.
NOTE 11 - RISK MANAGEMENT
The Academy is exposed to various risks of loss related to property loss, torts, errors and omissions and employee injuries (worker’s compensation), as well as medical benefits provided to employees. The Academy has purchased commercial insurance for all claims. Settled claims relating to the commercial insurance have not exceeded the amount of insurance coverage in any of the past three fiscal years.
- 18
SUPPLEMENTAL INFORMATION
Original Final Budget Budget Actual Variance
Revenues Local sources 158,000$ 137,865$ 151,287$ 13,422 $ State sources 5,078,700 5,105,542 5,067,090 (38,452) Federal sources 229,006 228,697 212,448 (16,249) Other sources 46,300 70,000 72,170 2,170 Total governmental fund revenues 5,512,006 5,542,104 5,502,995 (39,109)
Expenditures Instruction Basic programs 2,311,675 2,584,468 2,543,575 (40,893) Added needs 569,767 418,999 394,846 (24,153) Support services Pupil support services 88,461 148,562 147,734 (828) Instructional staff support services 19,800 27,727 23,809 (3,918) General administration 660,897 667,039 673,947 6,908 School administration 420,330 405,690 405,198 (492) Business support services 42,000 43,510 35,685 (7,825) Operations and maintenance 518,200 296,474 297,752 1,278 Pupil transportation services 77,100 80,000 81,594 1,594 Central support services 16,000 35,500 34,166 (1,334) Athletic activities 51,445 59,895 60,642 747 Community services 20,301 13,350 12,947 (403) Capital outlay - 149,299 149,299 Total governmental fund expenditures 4,795,976 4,930,513 4,861,194 (69,319) Excess (deficiency) of revenues over expenditures 716,030 611,591 641,801 30,210
Other Financing Sources (Uses) Operating transfers out (697,000) (695,540) (697,935) (2,395) Excess (deficiency) of revenues and other financing sources over expenditures and other uses 19,030 (83,949) (56,134) 27,815 Fund balance - July 1, 2015 519,536 519,536 519,536 Fund balance - June 30, 2016 538,566$ 435,587$ 463,402$ 27,815 $
Local Sources Authorizer grant 2,648 $ Student activities 40,398 Other local revenues 108,241
Total local sources 151,287
State Sources At risk 136,618 Great start readiness program 211,320 Special education 80,504 State aid 4,638,648
Total state sources 5,067,090
Federal Sources IDEA 118,671 Title I 84,676 Title II A 9,101
Total federal sources 212,448
Interdistrict Sources 72,170
Total general fund revenues 5,502,995 $
Basic Programs Purchased services 2,390,843 $ Supplies and materials 129,422 Other expenditures 23,310
Total basic programs 2,543,575
Added Needs Purchased services 393,821 Supplies and materials 1,025
Total added needs 394,846
Pupil Support Services Guidance services 72,216 Speech pathology and audiology 52,937 Social work services 22,581
Total pupil support services 147,734
Instructional Staff Support Services Purchased services 11,501 Supplies and materials 12,308
Total instructional staff support services 23,809
General Administration Purchased services 39,772 Management fees 494,021 University oversight 138,889 Other expenditures 1,265
Total general administration 673,947
School Administration Purchased services 389,923 Supplies and materials 4,549 Other expenditures 10,726
Total school administration 405,198
Business Support Services Purchased services 21,883 Other expenditures 13,802
Total business support services 35,685
Operations and Maintenance Purchased services 25,452 Repairs and maintenance 215,039 Supplies and materials 56,910 Other expenditures 351
Total operations and maintenance 297,752
Pupil Transportation Services Other expenditures 81,594
Central Support Services Other expenditures 34,166
Athletic Activities Purchased services 22,932 Other expenditures 37,710
Total athletic activities 60,642
Community Services Purchased services 11,862 Other expenditures 1,085
Total community services 12,947
Capital Outlay 149,299
Total general fund expenditures 4,861,194 $
