southgate schools audit fy 2011.12

7/30/2019 Southgate Schools Audit Fy 2011.12

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SOUTHGATE COMMUNITY SCHOOL DISTRICT

FINANCIAL REPORT

WITH SUPPLEMENTAL INFORMATION

JUNE 30, 2012


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FINANCIAL REPORT


JUNE 30, 2012

TABLE OF CONTENTS

PAGE

INDEPENDENT AUDITORS REPORT 1-2

MANAGEMENTS DISCUSSION AND ANALYSIS 3-12

BASIC FINANCIAL STATEMENTSDistrict-wide Financial Statements

Statement of Net Assets 13

Statement of Activities 14

Fund Financial StatementsBalance Sheet - Governmental Funds 15Statement of Revenue, Expenditures and Changes in Fund Balance -

Governmental Funds 16Reconciliation of the Statement of Revenue, Expenditures and Changes in

Fund Balances of Governmental Funds to the Statement of Activities 17

Fiduciary FundsStatement of Net Assets 18Statement of Changes in Net Assets 19

Notes to Financial Statements 20-36

REQUIRED SUPPLEMENTAL INFORMATIONBudgetary Comparison Schedule - General Fund 37Budgetary Comparison Schedule - Special Revenue - Special Education Center Program 38

OTHER SUPPLEMENTAL INFORMATIONCombining Balance Sheet - Nonmajor Governmental Funds 39Combining Statement of Revenue, Expenditures and Changes in Fund

Balance - Nonmajor Governmental Funds 40

General FundBalance Sheet 41Statement of Changes in Fund Balance 42

Statement of Revenue and Other Financing Sources - Budget and Actual 43-44Statement of Expenditures and Other Financing Uses - Budget and Actual 45-53


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FINANCIAL REPORT


JUNE 30, 2012

TABLE OF CONTENTS

PAGE

OTHER SUPPLEMENTAL INFORMATION (Continued)Special Revenue Funds

Combining Balance Sheet 54Combining Statement of Revenue, Expenditures and Changes in Fund Balance 55Statement of Revenue and Expenditures - Budget and Actual - Special Education

Center Program 56Statement of Revenue and Expenditures - Budget and Actual - Cafeteria 57

Debt ServiceSchedule of Bonds Issued, Redeemed and Outstanding 58-65

Trust and Agency FundsBalance Sheet 66Statement of Revenue, Expenditures and Changes in Fund Balance -Private-Purpose Trust Funds 66


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INDEPENDENT AUDITORS REPORT

Board of EducationSouthgate Community School District

We have audited the accompanying financial statements of the governmental activities, each major fund and theaggregate remaining fund information of Southgate Community School District, as of and for the year ended June30, 2012, which collectively comprise the School District's basic financial statements as listed in the table ofcontents. These financial statements are the responsibility of Southgate Community School Districtsmanagement. 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 Americaand the standards applicable to financial audits contained in Government Auditing Standards, issued by theComptroller General of the United States. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement. An auditincludes 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 reasonablebasis for our opinions.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respectivefinancial position of the governmental activities, each major fund and the aggregate remaining fund information ofSouthgate Community School District as of June 30, 2012, and the respective changes in financial position for theyear 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 October 30, 2012, onour consideration of Southgate Community School Districts internal control over financial reporting and on ourtests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and othermatters. The purpose of that report is to describe the scope of our testing of internal control over financialreporting and compliance and the results of that testing, and not to provide an opinion on internal control overfinancial reporting or on compliance. That report is an integral part of an audit performed in accordance withGovernment Auditing Standardsand should be considered in assessing the results of our audit.

Accounting principles generally accepted in the United States of America require that the managementsdiscussion and analysis and budgetary comparison information on pages 3 through 12 and pages 37 and 38 bepresented to supplement the basic financial statements. Such information, although not a part of the basicfinancial 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 supplementaryinformation in accordance with auditing standards generally accepted in the United States of America, whichconsisted of inquiries of management about the methods of preparing the information and comparing theinformation for consistency with managements responses to our inquiries, the basic financial statements, andother knowledge we obtained during our audit of the basic financial statements. We do not express an opinion orprovide any assurance on the information because the limited procedures do not provide us with sufficientevidence to express an opinion or provide any assurance.


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Board of EducationSouthgate Community School DistrictPage 2

Our audit was conducted for the purpose of forming opinions on the financial statements that collectivelycomprise Southgate Community School Districts financial statements as a whole. The accompanying othersupplemental information, as identified in the table of contents, is presented for purposes of additional analysisand is not a required part of the financial statements. The other supplemental information is the responsibility of

management and was derived from and relate directly to the underlying accounting and other records used toprepare the financial statements. The information has been subjected to the auditing procedures applied in theaudit of the financial statements and certain additional procedures, including comparing and reconciling suchinformation directly to the underlying accounting and other records used to prepare the financial statements or tothe financial statements themselves, and other additional procedures in accordance with auditing standardsgenerally accepted in the United States of America. In our opinion, the information is fairly stated in all materialrespects in relation to the financial statements as a whole.

October 30, 2012


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Managements Discussion and AnalysisFor the Fiscal Year Ended June 30, 2012

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To the Citizens and Board of Education Members:

The Southgate Community School District (School District) is a public school district operating under the lawsof the State of Michigan to offer a free public education to all students (K-12) within its boundaries and Schoolsof Choice legislation. The School District is governed by a Board of Education consisting of seven publiclyelected members.

The enclosed document represents the annual financial report of the School District for the fiscal year endedJune 30, 2012. This report has been prepared by the School Districts Department of Finance. Responsibilityfor the accuracy of the presentation, including all disclosures, rests with the Superintendent. The datapresented in this report is accurate in all material respects and is presented in a manner designed to fairlydescribe the financial position and results of operations of the School District, as measured by the financialactivity of the School Districts various funds. All disclosures necessary to maximize user comprehension of thecontents of this report have been included.

Report Format

This financial report is in accordance with GASB No. 34 Financial Statement Reporting format. It includes a fullaccrual basis government-wide Statement of Net Assets and Statement of Activities and a ManagementsDiscussion and Analysis of operations.

The School District

The present Southgate Community School District was formed from a successful annexation of two schoolsystems that took place in May 1970. Prior to that date, the Southgate Community School District comprisedthe area formerly known as Ecorse Township #8 and the Heintzen School District, which included portions of the

now present City of Allen Park, but formerly Ecorse Township #7. The consolidated district covers 7 squaremiles within the entire present boundary of the City of Southgate and a portion of southern City of Allen Park.The present facilities include (6) K-5 elementary schools, (1) 6-7 middle school, (1) 8-9 middle school, (1) 10-12senior high school, and (1) adult and community education building. Enrollment within the School District hasshown modest increases for the last ten years, primarily due to school of choice. The 2011-12 school year,however, realized a decrease in students. The Southgate Community School District is also the fiscal agent forBeacon Center, an area program for emotionally impaired students located in the City of River Rouge.

The Southgate Community School District Board of Education has oversight responsibility and control over allactivities related to the School District. The School District is the lowest level of government exercising directresponsibility for all public school education within its boundaries. As a result, all significant activities andorganizations have been included in the basic financial statements.

The School District is financially independent. The Board of Education is the governing body and is exclusivelyresponsible for its public decisions. The Board of Education appoints the management of the School Districtand is accountable for all fiscal matters. The latitude afforded under the State statutes allows the Board ofEducation to significantly influence operations.

Additional information regarding the School District is presented in the other sections of this report.


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Economic Conditions

State school district funding in Michigan is dependent primarily upon a state aid formula. This means that localeconomic conditions have little or no impact on overall School District financing. The formula establishes afoundation base per pupil to fund the operation of the School District. The School District also receives variousfederal, state and foundation grants to fund specific programs.

During the fiscal year 1994-1995, the State revenue source was adjusted away from a local property tax-basedsystem and moved toward a predominately state sales tax-based system. As a result of this funding change,the School District now receives over 80 percent of its total General Fund revenue from the State, with theremainder coming from local, federal, and county sources. Therefore, the dependency on the State economybecomes paramount to what programming can be supported locally. The local economy continues to sufferfrom higher than average unemployment levels brought on by the loss of manufacturing jobs throughout theregion.

Funding from the State of Michigan for fiscal year 2011-12 was less than the 2010-2011 fiscal year funding

level. The State foundation allowance decreased by $470 per student from $7,535 to $7,065. This was partiallyoffset by the Best Practice Incentive. The School District implemented four of five best practices during the2011-2012 school year and received $100 per student. In addition, another addback was $107 per pupil tocover District short-falls in the MPSERS Retirement System. Reductions in expenditures through outsourcing ofthe maintenance and custodial staff and employee wage concessions of 5%-6% did not exceed increases inexpenditures due to increases in the MPSERS retirement rate, severance payments, six catastrophic healthclaims, higher legal expenses due to numerous contract and personnel issues and a decrease in the pupil countof 198 students.

Classification of Funds

All funds of the School District are included in the annual financial report, which is available to the public atwww.SouthgateSchools.com. The financial section reports separately the major and non-major fundsadministered by the Board, as discussed in the Managements Discussion and Analysis.

The management of the Board is responsible for the financial information and representations contained in thefinancial statements and other sections of the annual report. In preparing the financial statements, it isnecessary that management make informed estimates and judgments, based on currently available information,of the effects of certain events and transactions.

The basic financial statements, supplemental statements and schedules presented in the financial section of thisreport present fairly, and with full disclosure, the financial position and results of the financial operations of thefunds in conformity with generally accepted accounting principles and demonstrate compliance with finance-related legal and contractual provisions. The purpose and description of each major fund, along with asummary of the significant accounting policies, are contained in Note 1 to the financial statements. The basis ofaccounting for each fund is consistent with activities and objectives of the fund as a fiscal and accounting entity.

In contrast to the fund level information, the district-wide financial statements report the financial condition andresults of operations of the School District as a whole.


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Budgetary and Accounting Controls

The Board maintains a system of budgetary and accounting controls designed to assist management in meetingits responsibility for reporting reliable financial information. The system is designed to provide reasonableassurance that assets are safeguarded and transactions are recorded and executed with managementsauthorization. Internal control systems are subject to inherent limitations with regard to the necessity to balancecosts against the benefits produced. Management believes that the existing system of budgetary andaccounting controls provides reasonable assurance that errors or irregularities that could be material to thefinancial statements are prevented or would be detected within a timely period. The Board utilizes a budget thatis prepared according to the guidelines and requirements set forth in State law and the State FinancialReporting Manual.

During the fiscal year, various financial reports are prepared for the governmental fund types and are distributedto the School District administrators as needed. In addition to these reports, each administrator and schoolprincipal is furnished with login and password information for tracking their budgets on a daily/monthly basis.

These reports convey the status of the General Fund expenditure accounts for which they are responsible. Thefinance system details the daily/monthly transactions and summarizes the balances to be spent from theappropriations allocated for goods and services among the programs so managed.

The report of our independent certified public accountants, Hungerford and Co. appears at the beginning of thefinancial section of this report. Their audit of the basic financial statements was performed in accordance withauditing standards generally accepted in the United States of America and Government Auditing Standards,issued by the Comptroller General of the United States, which includes a review of the Boards system ofbudgetary and accounting controls.


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Financial Condition of June 30, 2012

Revenues for General fund operations totaled $44,018,217 during the year ended June 30, 2012, a decrease of7.51% from June 30, 2011. The decrease resulted primarily from the discontinuation of the ARRA Stabilizationand Edu-Jobs programs, the reduction in the State Aid foundation allowance and reductions in funding fromvarious other Federal, State and County programs.

Percent of Percent of

Amount Total Amount Total Amount Percent

Revenue and Other Sources

Local Sources 5,934,526$ 13.49% 6,117,489$ 12.86% (182,963)$ -2.99%

State Sources 33,468,922 76.03% 34,820,892 73.16% (1,351,970) -3.88%Federal Sources 2,752,836 6.25% 4,568,436 9.60% (1,815,600) -39.74%

Other Sources 961,888 2.19% 1,257,738 2.64% (295,850) -23.52%

Inter-District Sources 900,045 2.04% 829,513 1.74% 70,532 8.50%

Total Revenue

and Other Sources 44,018,217$ 100.00% 47,594,068$ 100.00% (3,575,851)$ -7.51%

Expenditures and Other Uses

Instruction 27,383,983$ 59.84% 28,324,065$ 60.99% (940,082)$ -3.32%

Support Services 17,782,889 38.86% 17,809,193 38.35% (26,304) -0.15%

Other 537,797 1.17% 288,461 0.62% 249,336 86.44%

Inter-District Transfers 60,830 0.13% 20,056 0.04% 40,774 203.30%

Total Expenditures

and Other Uses 45,765,499$ 100.00% 46,441,775$ 100.00% (676,276)$ -1.46%

June 30, 2012 June 30, 2011 Variance

Expenditures decreased by $676,276 or 1.46% over the previous fiscal year. This was primarily due toemployee wage concessions of 5%-6% and privatization of the custodial staff.

Special Revenue Funds

The Special Revenue Funds are comprised of the Cafeteria and Special Education Funds. The SpecialEducation Fund is financed primarily through the Wayne County Regional Education Service Agency Act 18

Revenues; those property tax monies derived from a special education millage approved and levied underSections 1721-1729 of the School Code of 1976, being MCL 380.1721-380.1729, General Fund contributionsand per pupil state aid. The Center Program is operated by the School District to meet the individualeducational goals and objectives of the low-incident, special education students from within and outside of theSchool District.

The Cafeteria Fund is financed by serving school lunches and breakfast to students, part of which is funded bythe National School Lunch Program. For the fiscal year 2011-12, a net profit from operations amounted to$4,967.


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Debt Service Funds

The School District has issued General Obligation bonds with a principal balance due of $38,232,277 at June30, 2012. The largest portion of these obligations relates to a 1999 issue of School Building and Site Bonds soldin June 1999, for the purpose of remodeling, equipping, furnishing and re-furnishing school buildings.

In October 2002, the School District advance refunded a portion of the 1999 bond issue, resulting in a reductionin total debt service payments of $1,199,992 over the life of the issue.

Again in April 2005, the School District advance refunded a portion of the 1999 bond issue resulting in areduction in total debt service payments of $638,057 net present value savings over the life of the issue.

Again in September 2006, the School District advance refunded a portion of the 1999 bond issue resulting in areduction in total debt service payments of $326,595 net present value savings over the life of the issue.

Payments on the bond issues and semi-annual interest obligations are financed by millage levied againstproperty located within the School District. The debt was 4.90 and 5.15 mills for the 2010 and 2011 tax years,respectively. The last of the outstanding bonds will mature in 2025.

In April 2012, the School District advance refunded the 2002 Energy Bonds and a portion of the 2002 RefundingBonds, resulting in reductions in total debt service payments of $39,581 and $93,774, respectively.

Long-Term Obligations

Other long-term obligations are itemized under Note 8 to the financial statements. They consist of estimatedDurant Non-Plaintiff Bonds, capital equipment leases, installment notes for buses and three portable modularclassroom buildings and compensated absences.

Capital Project Funds

On March 14, 2012, the School District issued $2,755,000 General Obligation Limited Tax Bonds for energyconservation improvements in all of the buildings. This project, which is anticipated to take two years, incurredexpenditures of $1,344,750 as of June 30, 2012.

Cash Management

The Board has an aggressive cash management program that consists of expediting the receipt of revenuesand prudently investing available cash in obligations partially insured by the Federal Deposit InsuranceCorporation. Unfortunately, interest revenue in the General Fund has decreased considerably over the last

several years as interest rates have declined and the available cash to invest has diminished. The total interestfor the 2011-12 school year was $1,689 compared to the $50,916 interest received in 2008-09.


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The School District as a Whole

The following provides a summary of the School Districts net assets as of June 30:

TABLE 1

2011-12 2010-11

ASSETS

Current Assets 14.9$ 14.8$Capital Assets 34.8 34.9

Total Assets 49.7$ 49.7$

LIABILITIESCurrent Liabilities 19.8$ 18.9$Long-Term Liabilities 37.6 37.6

Total Liabilities 57.4 56.5

NET ASSETS

Invested in Capital Assets, Net of Related Debt (4.3) (3.5)Restricted for Debt Service - (0.3)Restricted for Capital Projects 1.4 -Restricted for Other Purposes 0.2 -Unrestricted Deficit (5.0) (3.0)

Total Net Assets (Deficit) (7.7)$ (6.8)$

Governmental Activities(in Millions)

The above analysis focuses on the net assets (see Table I). The change in net assets (see Table 2) of theSchool Districts governmental activities is discussed below. The School Districts net assets were a deficit of$7.7 million at June 30, 2012. Capital assets, net of related debt totaling $4.3 million, compares the originalcost, less depreciation of the School Districts capital assets to long-term debt used to finance the acquisition ofthose assets. Most of the debt will be repaid from voter-approved property taxes collected as the debt servicecomes due. Restricted net assets are reported separately to show legal constraints from debt covenants andenabling legislation that limit the School Districts ability to use those net assets for day-to-day operations. Theremaining amount of net assets or the unrestricted portion was a deficit of $5.0 million. The deficit of $5.0million in unrestricted net assets of governmental activities represents the accumulated results of the current

and prior years operations.


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The results of this years operations for the School District as a whole are reported in the Statement of Activities

(see Table 2), which shows the changes in net assets for fiscal year ending June 30, 2012.

TABLE 2

2011-12 2010-11

REVENUE

Program RevenueCharges for Services 1.3$ 1.5$Operating Grants 14.7 17.0

General Revenue

Property Taxes 8.8 9.2State Foundation Allowance 30.8 31.9Other 0.2 0.2

Total Revenue 55.8$ 59.8$

FUNCTIONS/PROGRAM EXPENSES

Instruction 27.5$ 28.4$Support Services 17.6 17.2Food Services 1.5 1.5

Athletics 0.5 0.6Special Education Center Program 6.4 6.5Interest on Long-Term Debt 1.6 1.8

OtherDepreciation (Unallocated) 1.7 1.5

Total Expenses 56.8$ 57.5$

Governmental Activities(in Millions)

Decrease in Net Assets

As reported in the Statement of Activities, the cost of all of our governmental activities this year was $56.8million. Certain activities were partially funded from those who benefited from the programs ($1.3 million) or byother governments and organizations that subsidized certain programs with grants and contributions ($14.7million). The School District paid for the remaining public benefit portion of our governmental activities with$8.8 million in taxes, $30.8 million in State foundation allowance, and with our other revenues, i.e., interest andgeneral entitlements.


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The School Districts Funds

As we noted earlier, the School District uses funds to help it control and manage money for particular purposes.Looking at funds helps the reader consider whether the School District is being accountable for the resourcestaxpayers and others provide to it and may provide more insight into the School Districts overall financial health.

As the School District completed this year, the governmental funds reported a combined fund deficit of$1,322,902 which is an increase in the deficit of $362,361 from last year.

General Fund

In the General Fund, the fund balance decreased by $1,747,282 creating a $3,249,657 fund deficit at June 30,2012. The School District anticipated a gain of $626,712 in its amended 2011-12 budget. That amountdecreased by $2,373,994, primarily due to lower than anticipated funding from federal, state and countyprograms, higher health insurance costs and unexpected property tax write-offs by Wayne County.

Special Revenue Funds

The School District maintains several Special Revenue Funds to deal with a Special Education Center Programand Cafeteria Funds. No fund balances are maintained in these funds with the exception of the Cafeteria. TheSpecial Education Fund tracks the expenditures of our Act 18 Center program. This fund is also funded byState revenues and a local Wayne County special education millage.

Debt Service Funds

The combined Debt Service Funds showed a fund balance of $315,919. This is a decrease of $10,913 over theprior year caused primarily by unexpected property tax write-offs by Wayne County.

Capital Project Fund

During the year end June 30, 2012, the School District issued general obligation limited tax bonds in the amountof $2,755,000 for the purpose of making energy conservation improvements throughout the buildings in theSchool District. As of June 30, 2012, $1,344,750 of these bond proceeds was spent on the energy conservationprojects.

General Fund Budgetary Highlights

Over the course of the year, the School District revises its budget as it attempts to deal with unexpected

changes in revenues and expenditures. State law requires that the budget be amended to ensure thatexpenditures do not exceed appropriations. The final amendment to the budget was actually adopted on April 3,2012. (A schedule showing the School Districts original and final budget amounts compared with amountsactually paid and received is provided in required supplemental information of these financial statements).


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Capital Assets and Debt Administration

Capital Assets

At June 30, 2012, the School District had $34.8 million invested in a broad range of capital assets, includingconstruction in progress, buildings, and furniture and equipment. This amount represents a net decrease(including additions, deletions, and depreciation) of approximately $120,000 or 0.3 percent from last year.

This years additions of $2,039,827 included energy conservation improvements, copiers, equipment andbusses, but scattered throughout the District as well both out of the General Operating and Special EducationFunds.

DebtAt the end of this year, the School District had $38,232,277 in bonds outstanding versus $37,740,461 in theprevious year. Those bonds consisted of the following:

2012 2011

General Obligation Bonds 38,232,277$ 37,740,461$

The School Districts General Obligation Bond rating is BBB+ by Standard & Poors. The State limits theamount of general obligation debt that school districts can issue to 15 percent of the assessed value of alltaxable property within the School Districts boundaries. The School Districts statutorily imposed limit is$111,361,412 of unqualified debt. If the School District issues qualified debt, i.e., backed by the State of

Michigan, such obligations are not subject to this debt limit. The School District has no outstanding unqualifieddebt as of June 30, 2012.

Other obligations include compensated absences and equipment notes. We present more information aboutour long-term liabilities in the notes to financial statements.


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Economic Factors and Next Years Budgets and Rates

One of the most important factors when setting the School Districts budget is the uncertainty of the State ofMichigans financial outlook. The state foundation revenue is determined by multiplying the blended studentcount by the foundation allowance per pupil. The blended count for the 2012-2013 fiscal year is 90 percent and10 percent of the February 2012 and September 2012 student counts, respectively. The 2012-13 budget wasadopted in June 2012, based on an estimate of students that will be enrolled in September 2012. The SchoolDistrict continues to see a decrease in student population. The preliminary totals from the September 2012pupil count resulted in a decrease of 145 students. Once the final student count and related per pupil funding isvalidated, state law requires the School District to amend the budget if actual School District resources are notsufficient to fund original appropriations. Any reduction could result in further budget cuts.

Contacting the Districts Financial ManagementThe financial report is intended to provide our citizens and taxpayers with a general overview of the SchoolDistricts finances. If you have questions about this report or would like additional information, contact William J.Grusecki at the Business Office, Southgate Community School District.


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ACTIVITIES

ASSETS

CURRENT ASSETS

Cash in Bank 2,495,834$

Investments 2,788,331Taxes Receivable 154,893Accounts Receivable 126,868Due From Other Governmental Units 7,917,838Inventories 102,144Deposits With Paying Agents 336,220Prepaid Expenses 961,609

Total Current Assets 14,883,737

NONCURRENT ASSETS

Capital Assets 68,768,941Less: Accumulated Depreciation (33,930,808)

Total Noncurrent Assets 34,838,133

TOTAL ASSETS 49,721,870$

LIABILITIES

CURRENT LIABILITIES

Note Payable - State Aid 10,625,000$Accounts Payable 604,904Accrued Payroll and Withholdings 3,677,477Accrued Interest 394,130Due to Other Governmental Units 132,330Due To Fiduciary Funds 263

Other Liabilities 634,551Deferred Revenue 503,384Bonds Payable, Due Within One Year 3,007,277Other Obligations, Due Within One Year 214,837

Total Current Liabilities 19,794,153

NONCURRENT LIABILITIES

Bonds Payable 35,225,000Notes Payable/Capital Leases 681,726Compensated Absences 1,735,306

Total Noncurrent Liabilities 37,642,032

NET DEFICIT

Invested in Capital Assets, Net of Related Debt (4,290,707)Restricted for Debt Service (49,481)Restricted for Capital Projects 1,390,867Restricted for Other Purposes 219,969Deficit (4,984,963)

Total Net Deficit (7,714,315)

TOTAL LIABILITIES AND NET DEFICIT 49,721,870$


STATEMENT OF NET ASSETS

JUNE 30, 2012

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LIABILITIES AND NET DEFICIT

See accompanying notes.


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GOVERNMENTAL

ACTIVITIES

EXPENSES

CHARGES FOR

SERVICES

OPERATING

GRANTS

NET (EXPENSE)

REVENUE AND

CHANGES IN NET

ASSETS

FUNCTIONS/PROGRAMS

Governmental ActivitiesInstruction 27,515,719$ 607,497$ 4,365,506$ (22,542,716)$Support Services 17,657,614 - 2,024,328 (15,633,286)

Athletics 513,510 88,994 - (424,516)Cafeteria 1,475,247 586,389 981,378 92,520Special Education Center Program 6,401,344 - 7,283,551 882,207Interest on Long-Term Debt 1,594,985 - - (1,594,985)Depreciation - Unallocated 1,666,807 - - (1,666,807)

Total Governmental Activities 56,825,226 1,282,880 14,654,763 (40,887,583)

General RevenuesTaxes

Property Taxes Levied for General Operations 4,891,751Property Taxes Levied for Debt Service 3,823,408

Other Property Taxes 88,456State Aid - Unrestricted 30,824,643State Aid - Durant 36,419Interest on Investment and Taxes 1,689Miscellaneous 159,028

Total General Revenues 39,825,394

Change in Net Assets (1,062,189)

Net Deficit, Beginning of Year (6,790,933)

Prior Period Adjustment 138,807

Net Deficit, Beginning of Year, Restated (6,652,126)

Net Deficit, End of Year (7,714,315)$

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PROGRAM REVENUES


STATEMENT OF ACTIVITIES

FOR THE YEAR ENDED JUNE 30, 2012



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GENERAL

FUND

SPECIAL

EDUCATION

CENTER

PROGRAM

NONMAJOR

GOVERNMENTAL

FUNDS

TOTAL

GOVERNMENTAL

FUNDS

ASSETS

Cash in Bank 2,478,969$ -$ 16,865$ 2,495,834$Investments 1,329,948 - 1,458,383 2,788,331Taxes Receivable 99,524 - 55,369 154,893Accounts Receivable 107,866 - 19,002 126,868

Due From Other Funds - 577,415 403,362 980,777Due From Other Governmental Units 7,795,458 73,724 48,656 7,917,838Inventories 53,742 - 48,402 102,144Deposits With Paying Agent 336,220 - - 336,220Prepaid Expense 949,497 6,600 5,512 961,609

TOTAL ASSETS 13,151,224$ 657,739$ 2,055,551$ 15,864,514$

LIABILITIES

Note Payable - State Aid 10,625,000$ -$ -$ 10,625,000$Accounts Payable 517,249 16,299 71,356 604,904

Accrued Payroll and Withholdings 3,274,430 403,047 3,677,477Accrued Interest Payable 28,730 - - 28,730Due to Other Funds 981,040 - - 981,040Due to Other Governmental Units - 132,330 132,330

Other Liabilities 528,488 106,063 - 634,551

Deferred Revenue 445,944 - 57,440 503,384

Total Liabilities 16,400,881 657,739 128,796 17,187,416

FUND BALANCE (DEFICIT)

Nonspendable - - 8,973 8,973Restricted for Debt Service - - 315,919 315,919Restricted for Capital Projects - - 1,390,867 1,390,867

Restricted for Food Service - - 210,996 210,996

Unassigned (3,249,657) - - (3,249,657)

Total Fund Balance (Deficit) (3,249,657) - 1,926,755 (1,322,902)

TOTAL LIABILITIES AND FUND BALANCE (DEFICIT) 13,151,224$ 657,739$ 2,055,551$ 15,864,514$

Total Governmental Fund Balance (Deficit) (1,322,902)$

Amounts reported for governmental activities in the Statement of Net Assets are different because

Capital assets used in governmental activities are not financial resources and are not reported in the funds.

The cost of the capital assets is 68,768,941$

Accumulated depreciation is (33,930,808) 34,838,133

Long-term liabilities are not due and payable in the current period and are not reported in the fundBonds Payable (38,232,277)

Capital Leases Payable (537,967)Notes Payable (358,596)

Compensated Absences (1,735,306)Accrued interest is not included as a liability in governmental funds (365,400)

Net deficit of governmental activities (7,714,315)$


BALANCE SHEET - GOVERNMENTAL FUNDS

JUNE 30, 2012

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LIABILITIES AND FUND BALANCE (DEFICIT)



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GENERAL

FUND

SPECIAL

EDUCATION

CENTER

PROGRAM

NONMAJOR

GOVERNMENTAL

FUNDS

TOTAL

GOVERNMENTAL

FUNDS

REVENUE

Local Sources 5,934,526$ -$ 4,430,854$ 10,365,380$State Sources 33,468,922 2,175,000 96,776 35,740,698Federal Sources 2,752,836 284,034 921,021 3,957,891

Intergovernmental Sources 900,045 4,824,517 - 5,724,562

Total Revenue 43,056,329 7,283,551 5,448,651 55,788,531

EXPENDITURESInstruction 27,383,983 4,101,967 - 31,485,950Support Service 17,782,889 2,299,377 - 20,082,266

Cafeteria Expense - - 1,475,247 1,475,247Capital Projects - - 1,344,750 1,344,750Debt Service - - 4,147,871 4,147,871

Total Expenditures 45,166,872 6,401,344 6,967,868 58,536,084

Excess Revenue (Expenditures) (2,110,543) 882,207 (1,519,217) (2,747,553)

OTHER FINANCING SOURCES (USES)

Operating Transfers In (Out) 705,635 (874,335) 168,700 -

Payment on Equipment Loans (281,141) (7,872) - (289,013)Tuition to Other Districts (60,830) - - (60,830)Payment to Refunded Bond Escrow Agent - - (5,736,567) (5,736,567)Bond Issuance Costs - - (62,995) (62,995)Proceeds From Bond Refundings - - 5,780,000 5,780,000Bond Proceeds - - 2,755,000 2,755,000Expense Reimbursement Allocation (403) - - (403)

Total Other Financing Sources (Uses) 363,261 (882,207) 2,904,138 2,385,192

NET CHANGES IN FUND BALANCE (1,747,282) - 1,384,921 (362,361)

FUND BALANCE (DEFICIT), Beginning (1,376,681) - 277,333 (1,099,348)

Prior Period Adjustment (125,694) - 264,501 138,807

FUND BALANCE (DEFICIT), Beginning,

Restated (1,502,375) - 541,834 (960,541)

FUND BALANCE (DEFICIT), Ending (3,249,657)$ -$ 1,926,755$ (1,322,902)$

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STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE


GOVERNMENTAL FUNDS


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NET CHANGES IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS (362,361)$

Amounts reported for governmental activities in the Statement of Activities are different because:

Governmental funds reported capital outlays as expenditures; in the Statement of Activities,these costs are allocated over their estimated useful lives as depreciation

Depreciation Expense (1,963,168)$

Proceeds From Sale of Equipment (25,495)Loss on Sale of Equipment (171,409)Capital Outlay 1,466,401 (693,671)

Proceeds from bond issues are other financing sources in the governmental funds, butnot in the Statement of Activities (where it increases long-term debt) (8,535,000)

Defeasance of bonds are an other financing use in the governmental funds, but not in theStatement of Activities (where it decreases long-term debt) 5,630,000

Repayments of bond principal, installment notes and capital leases are expenditures in thegovernmental funds, but not in the Statement of Activities (where it reduces long-term debt) 2,783,442

Accrued interest is recorded in the Statement of Activities when incurred; it is notreported in governmental funds until paid 16,300

Decreases in compensated absences are reported as expenditures when financialresources are used in the governmental funds 99,101

CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES (1,062,189)$


RECONCILIATION OF THE STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN


FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES

See accompanying notes

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PRIVATE-PURPOSE

TRUST FUNDS -

SCHOLARSHIPS

AGENCY FUNDS -

STUDENT ACTIVITIES

ASSETS

Cash in Bank -$ 188,964$Investments 56,600 160,353Due From Other Funds - 263

Total Assets 56,600$ 349,580$

LIABILITIES

Accounts Payable -$ 6,897$Due to Student and Other School Groups - 342,683

Total Liabilities - 349,580$

NET ASSETS

Held in Trust 56,600$


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STATEMENT OF NET ASSETS

FIDUCIARY FUNDS

JUNE 30, 2012


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PRIVATE-PURPOSE

TRUST FUNDS -

SCHOLARSHIPS

ADDITIONS

Gifts, Contributions and Investment Income, Plus

Increase in Market Value of Investments 3,007$

DEDUCTIONS

Scholarships Awarded 15,557

Change in Net Assets (12,550)

NET ASSETS, Beginning of Year 69,150

NET ASSETS, End of Year 56,600$


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STATEMENT OF CHANGES IN NET ASSETS

FIDUCIARY FUNDS



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NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2012

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies of Southgate Community School District (the School District) conform to accountingprinciples generally accepted in the United States of America (GAAP) as applicable to governmental units. Thefollowing is a summary of the significant accounting policies used by the School District:

Reporting Entity

The School District is governed by an elected seven-member Board of Education. The accompanying financialstatements have been prepared in accordance with criteria established by the Governmental AccountingStandards Board for determining the various governmental organizations to be included in the reporting entity.These criteria include significant operational financial relationships that determine which of the governmentalorganizations are a part of the School Districts reporting entity, and which organizations are legally separate,component units of the School District. Based on the application of the criteria, the School District has nocomponent units.

District-Wide and Fund Financial Statements

The district-wide financial statements (i.e., the Statement of Net Assets and the Statement of Changes in NetAssets) report information on all of the nonfiduciary activities of the primary government. For the most part, theeffect of interfund activity has been removed from these statements. Governmental activities, normally supportedby taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to asignificant extent on fees and charges for support. All the School District's district-wide activities are consideredgovernmental activities.

The Statement of Activities demonstrates the degree to which the direct expenses of a given function are offsetby program revenues. Direct expenses are those that are clearly identifiable with a specific function. Programrevenues include: (1) charges to customers or applicants who purchase, use or directly benefit from goods,

services or privileges provided by a given function; and (2) grants and contributions that are restricted to meetingthe operational or capital requirements of a particular function. Taxes, intergovernmental payments and otheritems not properly included among program revenues are reported as general revenue.

Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter areexcluded from the district-wide financial statements. Major individual governmental funds are reported asseparate columns in the fund financial statements.

Measurement Focus, Basis of Accounting and Financial Statement Presentation

District-Wide Statements - The district-wide financial statements are reported using the economic resourcesmeasurement focus and the accrual basis of accounting, as are the fiduciary fund financial statements. Revenueis 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 revenue in the year for which they are levied. Grants,categorical aid and similar items are recognized as revenue as soon as all eligibility requirements imposed by theprovider have been met.

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JUNE 30, 2012

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fund-Based Statements - Governmental fund financial statements are reported using the current financialresources measurement focus and the modified accrual basis of accounting. Revenue is recognized as soon as itis both measurable and available. Revenue is considered to be available if it is collected within the current periodor soon enough thereafter to pay liabilities of the current period. For this purpose, the government considersrevenues to be available if they are collected within 60 days of the end of the current fiscal period. Expendituresgenerally are recorded when a liability is incurred, as under accrual accounting. However, debt serviceexpenditures and expenditures related to compensated absences are recorded only when payment is due.

Property taxes, unrestricted state aid, intergovernmental grants and interest associated with the current fiscalperiod are all considered to be susceptible to accrual and so have been recognized as revenue of the currentfiscal period. All other revenue items are considered to be available only when cash is received by thegovernment.

The fiduciary fund statement is also reported using the economic resources measurement focus and the accrualbasis of accounting.

The School District reports the following major governmental funds:

The General Fund is the School District's primary operating fund. It accounts for all financial resources of theSchool District, except those required to be accounted for in another fund.

The Special Education Center Program is a Special Revenue Fund, which operates a center program for WayneCounty RESA.

Additionally, the School District reports the following fund types:

Special Revenue Funds are used to account for the proceeds of specific revenue sources that are restricted toexpenditures for specified purposes.

The School Service Funds are Special Revenue Funds that segregate, for administrative purposes, thetransactions of a particular activity from regular revenue and expenditure accounts. The School District maintainsfull control of these funds. The School Service Funds maintained by the School District are the Cafeteria Fundand Special Education Center Program Fund.

The Debt Service Fund is used to record tax, interest and other revenue for payment of interest, principal andother expenditures on various bond issues.

The Capital Project Fund is used to record bond proceeds and the disbursement of monies specificallydesignated for energy improvements. The fund is kept open until the purpose for which the fund was created has

been accomplished.

Fiduciary Funds are used to account for assets held by the School District in a trustee capacity or as an agent.Fiduciary Fund net assets and results of operations are not included in the district-wide statements. AgencyFunds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations.

The School District presently maintains a Student Activities Fund to record the transactions of student and parentgroups for school and school-related purposes. The funds are segregated and held in trust for the students andparents.

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JUNE 30, 2012


As a general rule, the effect of inter-fund activity has been eliminated from the district-wide financial statements.

Amounts reported as program revenue include: (1) charges to customers or applicants for goods, services orprivileges provided; and (2) operating grants and contributions. Internally dedicated resources are reported asgeneral revenue rather than as program revenue. Likewise, general revenue includes all taxes and unrestrictedState Aid.

Assets, Liabilities and Net Assets or Equity

Bank Deposits and Investments - Cash and cash equivalents include cash on hand, demand deposits andshort-term investments with a maturity of three months or less when acquired. Investments are stated at fairvalue.

Receivables and Payables - In general, outstanding balances between funds are reported as "due to/from otherfunds". Activity between funds that is representative of lending/borrowing arrangements outstanding at the end ofthe fiscal year is referred to as "advances to/from other funds".

All property tax and other trade receivables are shown as net of allowance for uncollectible amounts. Propertytaxes are assessed on all real and personal property in the City of Southgate and the City of Allen Park as ofDecember 31 and the related property taxes become a lien on December 1 of the following year. These taxes arebilled on July 1 for approximately 50 percent of the taxes and on December 1 for the remainder of the propertytaxes. The final collection date is February 28, after which penalties and interest are assessed and the totaluncollected obligation is added to the Wayne County delinquent tax rolls.

The State of Michigan utilized a foundation allowance approach, which provides for a specific annual amount ofrevenue per student based on a state-wide formula. The foundation allowance is funded from a combination of

state and local sources. Revenues from state sources are primarily governed by the School Aid Act and theSchool Code of Michigan. The state portion of the foundation is provided from the state's School Aid Fund and isrecognized as revenue in accordance with state law and accounting principles generally accepted in the UnitedStates of America.

The School District also receives revenue from the state to administer certain categorical education programs.State rules require that revenue earmarked for these programs be used for its specific purpose. Certaincategorical funds require an accounting to the state of the expenditures incurred. For categorical funds meetingthis requirement, funds received, which are not expended by the close of the fiscal year are recorded as deferredrevenue. Other categorical funding is recognized when the appropriation is received.

Inventories and Prepaid Items - Inventories are valued at cost, on a first-in, first-out basis. Inventories ofgovernmental funds are recorded as expenditures when consumed rather than when purchased. Certain

payments to vendors reflect costs applicable to future fiscal years and are recorded as prepaid items in bothdistrict-wide and fund financial statements.

Capital Assets - Capital assets, which include land, buildings, equipment and vehicles, are reported in theapplicable governmental column in the district-wide financial statements. Capital assets are defined by the SchoolDistrict as assets with an initial individual cost of more than $5,000 and an estimated useful life in excess of 1year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donatedcapital assets are recorded at estimated fair market value at the date of donation. Costs of normal repair andmaintenance that do not add to the value or materially extend asset life are not capitalized. The School Districtdoes not have infrastructure type assets.

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JUNE 30, 2012


Buildings, equipment and vehicles are depreciated using the straight-line method over the following useful lives:

Land Improvements 10-20 yearsBuilding and Building Improvements 20-50 yearsBuses and Other Vehicles 5-15 yearsFurniture and Other Equipment 5-20 years

Compensated Absences - The liability for compensated absences reported in the district-wide statementsconsists of unpaid, accumulated annual and sick leave balances. The liability has been calculated using thevesting method, in which leave amounts for both employees who are currently eligible to receive terminationpayments and other employees who are expected to become eligible in the future to receive such payments upontermination are included.

Long-Term Obligations - In the district-wide financial statements, long-term debt and other long-term obligationsare reported as liabilities in the Statement of Net Assets.

Fund Equity - In the fund financial statements, governmental funds report the following components of fundbalance:

Nonspendable - Amounts that are not in spendable form or are legally or contractually required to bemaintained intact.

Restricted -Amounts that are legally restricted by outside parties, constitutional provisions, or enablinglegislation for use for a specific purpose.

Committed- Amounts that have been formally set aside by the Board of Education for use for specificpurposes. Commitments are made and can be rescinded only via resolution of the Board of Education.

Assigned - Intent to spend resources on specific purposes expressed by the Director of Business andFinance, who is authorized by a resolution approved by the Board of Education to make assignments.

Unassigned -Includes any remaining amounts after applying the above definitions.

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JUNE 30, 2012

NOTE 2 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY

Budgetary Information - Annual budgets are adopted on a basis consistent with generally accepted accountingprinciples and state law for the general and special revenue funds. All annual appropriations lapse at fiscal yearend. Annual operating budgets are adopted each fiscal year through approval of an annual budget ordinance andamended as required for all fund types. The same basis of accounting is used to reflect actual revenues andexpenditures recognized on a generally accepted accounting principle basis.

The budget document presents information by fund and function. The legal level of budgetary control adopted bythe governing body (i.e., the level at which expenditures may not legally exceed appropriations) is the functionlevel. State law requires the School District to have its budget in place by July 1. Expenditures in excess ofamounts budgeted is a violation of Michigan Law. State law permits districts to amend their budgets during theyear. The last amendment to the budget was adopted on April 3, 2012.

Encumbrance accounting is employed in governmental funds. Encumbrances (e.g. purchase orders, contracts)

outstanding at year-end do not constitute expenditures or liabilities because the goods or services have not beenreceived as of year-end; the commitments will be reappropriated and honored during the subsequent year.

Excess of Expenditures Over Appropriations in Budgeted Funds - During the year, the School Districtincurred expenditures in certain budgeted funds which were in excess of the amounts appropriated, as follows:

Total Amount of Budget

Fund Appropriations Expenditures Variance

General Fund - Basic Instruction 20,300,957$ 20,529,580$ (228,623)$General Fund - Instructional Staff 1,747,735 1,965,857 (218,122)General Fund - General Administration 799,238 838,709 (39,471)

General Fund - School Administration 2,538,231 2,644,533 (106,302)General Fund - Business Services 1,618,037 2,473,838 (855,801)General Fund - Operations and Maintenance 3,448,945 3,566,412 (117,467)General Fund - Central Services 754,965 848,536 (93,571)General Fund - Community Service 404,707 428,525 (23,818)General Fund - Operating Transfers Out - 256,253 (256,253)General Fund - Tuitions to Other Districts 10,001 60,830 (50,829)General Fund - Expense Reimbursement Allocation - 403 (403)

Fund Balance Deficit As of June 30, 2012, the School Districts General Fund had a cumulative fund balancedeficit of $3,249,657.

Net Asset Deficit As of June 30, 2012, the Government Wide Statement of Net Assets had a cumulative net

asset deficit of $7,714,315 because outstanding debt on capital assets exceeded the book value of those assetsby $4,290,707, accrued interest on long-term debt exceeded assets available for debt service by $49,481, andcurrent liabilities (primarily the liability for compensated absences) exceeded current assets by $4,984,963.These factors were offset by available funds for energy conservation improvements and food service operationsof $1,390,867 and $219,969, respectively.

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JUNE 30, 2012

NOTE 3 DEPOSITS AND INVESTMENTS

Michigan Compiled Laws, Section 129.91, authorizes the School District to make deposits and invest in theaccounts of federally insured banks, credit unions and savings and loan associations that have an office inMichigan. The School District is allowed to invest in bonds, securities and other direct obligations of the UnitedStates or any agency or instrumentality of the United States; United States government or federal agencyobligations; repurchase agreements; bankers acceptance of United States banks; commercial paper rated withinthe two highest classifications which mature not more than 270 days after the date of purchase; obligations of theState of Michigan or its political subdivisions which are rated as investment grade; and mutual funds composed ofinvestment vehicles which are legal for direct investment by local units of government in Michigan. The SchoolDistrict's deposits and investment policy are in accordance with statutory authority.

As of June 30, 2012, the School District's deposits and investments were reported in the basic financialstatements in the following categories:

Governmental Fiduciary Total Primary

Activities Funds Government

Cash in Bank 2,495,834$ 188,964$ 2,684,798$Investments 2,788,331 216,953 3,005,284

Total 5,284,165$ 405,917$ 5,690,082$

The breakdown between deposits and investments for the School District is as follows:

Deposits (Checking) 2,684,798$Investment in Securities, Mutual Funds and Similar Vehicles 3,005,284

Total 5,690,082$

The bank balance of the School Districts deposits is $3,510,010, which is 100% covered by federal depositoryinsurance.

The School District's investments at June 30, 2012 were bank investment pools and interlocal agreementinvestment pools that had a carrying amount and market value of $3,005,284. The bank investment pools areregulated by the Michigan Banking Act and the investments under the interlocal agreement (MILAF) are regulatedby the Urban Cooperation Act. The fair value of the position in the bank investment pools and interlocalagreement pools is the same as the value of the pool shares.

Investments are normally categorized to give an indication of the level of risk assumed by the School District;however, bank investment pools and interlocal agreement investment pools are not categorized because they are

not evidenced by securities that exist in physical or book entry form. Management believes the investments in thefunds comply with the investment authority noted above.

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JUNE 30, 2012

NOTE 4 RECEIVABLES

Receivables as of year-end for the School District's individual major and nonmajor funds and fiduciary funds in theaggregate, are as follows:

General Special Education Nonmajor

Fund Center Program Funds Total

ReceivablesTaxes 99,524$ -$ 55,369$ 154,893$Accounts 107,866 - 19,002 126,868Intergovernmental 7,795,458 73,724 48,656 7,917,838

Net Receivables 8,002,848$ 73,724$ 123,027$ 8,199,599$

There are no applicable allowances for uncollectible accounts.

Governmental funds report deferred revenue in connection with receivables for revenue that are not considered tobe available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition inconnection with resources that have been received but not yet earned. At the end of the current fiscal year, thevarious components of deferred revenue are as follows:

Unavailable Unearned

Payments Received Prior to Meeting all EligibilityRequirements

Summer School Tuition -$ 47,737$

Grants and Categorical Aid Payments - 455,647-$ 503,384$

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JUNE 30, 2012

NOTE 5 CAPITAL ASSETS

Capital asset activity of the School Districts Governmental activities for the current year was as follows:

Balance Disposals and Balance

July 1, 2011 Additions Adjustments June 30, 2012

Capital Assets Not Being DepreciatedConstruction in Progress -$ 1,344,750$ -$ 1,344,750$

Capital Assets Being DepreciatedLand Improvements 5,365,786 97,092 - 5,462,878

Building and Building Improvements 54,220,605 18,944 - 54,239,549Buses and Other Vehicles 2,055,549 225,605 260,475 2,020,679Furniture and Equipment 5,813,690 353,436 466,041 5,701,085

Subtotal 67,455,630 695,077 726,516 67,424,191

Accumulated DepreciationLand Improvements 2,449,558 167,962 - 2,617,520Building and Building Improvements 24,954,284 1,419,638 - 26,373,922Buses and Other Vehicles 1,442,648 93,646 260,475 1,275,819Furniture and Equipment 3,650,761 281,922 269,136 3,663,547

Subtotal 32,497,251 1,963,168 529,611 33,930,808

Net Capital Assets Being Depreciated 34,958,379 (1,268,091) 196,905 33,493,383

Net Capital Assets 34,958,379$ 76,659$ 196,905$ 34,838,133$

Depreciation expense was charged to activities of the School District as follows:

Governmental ActivitiesInstruction 230,837$Support Services 236,934Unallocated 1,495,397

Total Governmental Activities 1,963,168$

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JUNE 30, 2012

NOTE 6 - OPERATING LEASES

The School District has entered into a lease agreement for office space for an administration building. The leaseis an operating lease for a period of three years ending May 1, 2015. The School District has also entered intotwo lease agreements for property in Southgate and River Rouge, Michigan to operate its Center Program. Theleases are operating leases. The Southgate lease was for a period of three years ending July 1, 2012 and wasrenewed for an additional three years through July 1, 2015. The River Rouge lease is for a period of five yearsending August 1, 2013. Future obligations over the primary terms of the School Districts long-term leases as ofJune 30, 2012 are:

June 30, 2013 177,200$June 30, 2014 105,950June 30, 2015 74,700

NOTE 7 INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS

The composition of interfund balances is as follows:

Due To/From Other Funds

Receivable Fund Payable Fund Amount

Special Education Center Program General Fund 577,415$Nonmajor Governmental Funds General Fund 403,362Fiduciary Funds General Fund 263

Amounts due to/from the General Fund and to/from other funds are a result of the

General Fund providing banking services for these funds. All amounts due arescheduled to be repaid within one year.

Interfund Transfers

Transfer in Transfer Out Amount

General Fund Nonmajor Governmental Funds 87,553$Nonmajor Governmental Funds General Fund 256,253General Fund Special Education Center Program 874,335

Interfund transfers to the General Fund are made to cover overhead/indirect costs forthe Special Education Center Program and the Cafeteria Fund.

Interfund transfers from the General Fund are made to cover the Debt Service Fundpayments for the energy bonds.

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JUNE 30, 2012

NOTE 8 LONG-TERM DEBT

The School District issues bonds, notes and other contractual commitments to provide for the acquisition andconstruction of major capital facilities and improvements and the acquisition of certain equipment. Generalobligation bonds are direct obligations and pledge the full faith and credit of the School District. Other long-termobligations include capital leases and compensated absences.

Long-term obligation activity can be summarized as follows:

Beginning Ending Due Within

Balance Additions Reductions Balance One Year

Bonds Payable 37,740,461$ 8,535,000$ 8,043,184$ 38,232,277$ 3,007,277$

Other Obligations

Capital Leases Payable 224,450 573,426 259,909 537,967 100,018Installment Notes Payable 468,945 - 110,349 358,596 114,819Compensated Absences 1,834,407 340,686 439,787 1,735,306 -

Total Other Obligations 2,527,802 914,112 810,045 2,631,869 214,837

Total 40,268,263$ 9,449,112$ 8,853,229$ 40,864,146$ 3,222,114$

Bonds Payable

Bonds payable at June 30, 2012 consist of the following issues:

1998 Durant Bonds of $518,642 are due in one remaining annual installment of

$244,703, including interest, on May 15, 2013. 182,277$

2002 Refunding Bonds of $14,260,000 are due in one remaining annual installment

of $2,590,000 on May 1, 2015, plus Interest at 5.00%. 2,590,000

2005 Refunding Bonds of $17,840,000 are due in annual installments of

$2,520,000 - $2,550,000 through May 1, 2022. Interest rates are from 3.00% - 5.00%. 17,750,000

2006 Refunding Bonds of $8,360,000 are due in annual installments of $20,000 $2,685,000 through May 1, 2025. Interest rates are from 4.00% - 4.35%. 8,260,000

2007 Energy Bonds of $1,250,000 are due in annual installments of $75,000 $110,000 through May 1, 2022. Interest rates are from 4.00% - 4.15%. 915,000

2012 Refunding Bonds of $5,090,000 are due in annual installments of $2,460,000 $2,630,000 through May 1, 2014 at an interest rate of 1.8% 5,090,000

2012 Refunding Energy Bonds of $690,000 are due in annual installments of$130,000 - $150,000 through May 1, 2017 at an interest rate of 2.5% 690,000

2012 Energy Bonds of $2,755,000 are due in annual installments of $140,000 , t roug ay , . nterest rates are rom . - . . 2,755,000

38,232,277$

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JUNE 30, 2012

NOTE 8 LONG-TERM DEBT (Continued)

Annual debt service requirements to maturity for the above governmental bond obligations are as follows:

Principal Interest Total

2013 3,007,277$ 1,692,375$ 4,699,652$2014 3,015,000 1,557,328 4,572,3282015 2,990,000 1,498,788 4,488,7882016 2,960,000 1,357,713 4,317,7132017 2,970,000 1,218,209 4,188,209

2018-2022 14,205,000 4,002,770 18,207,7702023-2027 9,085,000 810,398 9,895,398

38,232,277$ 12,137,581$ 50,369,858$

Current Years Defeasance

On March 12, 2012, the School District issued refunding bonds of $5,090,000 with an interest rate of 1.80% toadvance refund the 2002 General Obligation Unlimited Tax Refunding Bonds that were due and payable on May 1in the years 2013 and 2014 with interest rates ranging from 3.60% to 3.75% and a par value of $4,960,000. The2012 Refunding Bonds were issued at par, and after paying issuance costs of $39,003, the net proceeds were$5,050,997. These net proceeds were deposited in an irrevocable trust with an escrow agent until the 2012Refunding Bonds are due on May 1, 2013 and 2014. The advance refunding met the requirements of an in-substance debt defeasance and the term bonds were removed from the School Districts district-wide financialstatements.

As a result of the advance refunding, the School District reduced its total debt by $93,774, which resulted in aneconomic gain (difference between the present value of the debt service payments on the old and new debt) of$94,021.

In addition, On March 14, 2012, the School District issued refunding bonds of $690,000 with an interest rate of2.5% to advance refund the 2002 General Obligation Limited Tax Energy Bonds that were due and payable onMay 1 in the years 2013 through 2017 with interest rates ranging from 4.40% to 4.80% and a par value of$670,000. The 2012 Energy Refunding Bonds were issued at par, and after paying issuance costs of $4,430, thenet proceeds were $685,570. These net proceeds were deposited in an irrevocable trust with an escrow agentuntil the 2012 Refunding Bonds are due on May 1, 2013 through 2017. The advance refunding met therequirements of an in-substance debt defeasance and the term bonds were removed from the School Districtsdistrict-wide financial statements.

As a result of the advance refunding, the School District reduced its total debt by $39,581, which resulted in aneconomic gain (difference between the present value of the debt service payments on the old and new debt) of$36,313.

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JUNE 30, 2012


Compensated Absences

Under several contracts and agreements, School District employees may accumulate payment for sick and vacationdays that are not taken as time off. At June 30, 2012, the maximum possible exposure for accumulated sick time isshown below. This liability could be less depending upon the circumstances preceding payment. Retirementincentives are included in the long-term portion.

Short-Term -$Long-Term 1,735,306

1,735,306$

Capital Leases

The School District has entered into agreements to purchase computer equipment, copy machines, technologyequipment and buses through eleven capital leases. Assets acquired and liabilities incurred through theseagreements are accounted for in the Statement of Net Assets.

The following is a schedule of fixed assets and outstanding liabilities relating to capital lease agreements:

Fixed Assets

Capital

Lease

Payable

Equipment and Vehicles 573,426$ 537,967$

The following is a schedule of future minimum capital lease payments with the present value of the net minimumlease payments as of June 30, 2012:

Year Ended June 30, Lease Payments

2013 147,055$

2014 147,0552015 147,0552016 141,0132017 85,005

667,183

Less: Amounts Representing Interest 129,216

Present Value of Net Minimum Lease Payments 537,967$

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JUNE 30, 2012


Installment Notes Payable

The School District has entered into the following installment purchase agreements.

Note Payable dated July 20, 2009 for the purchase of five 71-passenger school

buses, due July 20, 2014, payable in annual payments of $84,830 including interest

at 4.05% per annum 235,189$

Note Payable dated July 20, 2009 for the purchase of a portable modular

classroom building, due July 20, 2014, payable in annual payments of $44,512,nc u ng n eres a . per annum 123,407

358,596$

The principal and interest requirements to maturity for the installment purchase agreements for the years endingJune 30 are as follows:

Principal Interest Total

2013 114,819$ 14,523$ 129,342$

2014 119,469 9,873 129,3422015 124,308 5,034 129,342

Total 358,596$ 29,430$ 388,026$

NOTE 9 NON-PLAINTIFF DURANT SETTLEMENT

Public Act 142 of 1997 was enacted in November 1997 as part of the Durant Resolution Package. Schooldistricts and intermediate school districts were offered settlement amounts to settle, compromise and resolve inthe entirety, any potential claims they may have asserted for violations of Section 29, Article IX, of the Constitutionthrough September 30, 1997. The claims are or were similar to the claims asserted by the plaintiffs in the Durantvs. State of Michigan case. Southgate Community School Districts Board of Education adopted and submitted awaiver resolution, waiving any potential claims through September 30, 1997.

As a non-plaintiff, the School District was awarded a settlement amount of $518,642. The School District agreed toparticipate in a special November 1998 Michigan Municipal Bond Authority Bonding Program, so the settlement is

being received and the bonds are being paid off in fifteen annual installments, starting May 15, 1999.

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JUNE 30, 2012

NOTE 10 STATE AID NOTE PAYABLE

As of June 30, 2012, the School District had outstanding borrowings of $10,625,000 pursuant to Act No. 451 of thePublic Acts of 1976. This Act authorizes the borrowing of money in a single series of notes in anticipation of thecollection of State Aid payments for the 2011-2012 school year.

Beginning Ending

Balance Additions Reductions Balance

State Aid Note Payable datedAugust 20, 2010, bearinginterest at 0.40% and is dueAugust 22, 2011 9,710,000$ -$ 9,710,000$ -$

State Aid Note Payable dated

August 22, 2011, bearinginterest at 0.311% and is dueAugust 20, 2012 - 10,625,000 - 10,625,000

9,710,000$ 10,625,000$ 9,710,000$ 10,625,000$

NOTE 11 DEFINED BENEFIT AND CONTRIBUTION PENSION PLANS AND POST RETIREMENTBENEFITS

Plan Description - The School District participates in the Michigan Public School Employees' Retirement System(MPSERS), a statewide, cost-sharing, multiple-employer defined benefit public employee retirement system, with

a defined contribution component for those who first worked on or after July 1, 2010, governed by the State ofMichigan that covers substantially all employees of the School District. The system provides retirement, survivorand disability benefits to plan members and their beneficiaries. MPSERS issues a publicly available financialreport that includes financial statements and required supplementary information for the system. That report maybe obtained by writing to the system at 7150 Harris Drive, P.O. Box 30673, Lansing, MI 48909-8103 or is availableon the Office of Retirement Services (ORS) Web site http://www.michigan.gov/ors.

Funding Policy - Employer contributions to the system result from the implementing effects of the SchoolFinance Reform Act. Under these procedures, each school district is required to contribute the full actuarialfunding contribution amount to fund pension benefits, plus an additional amount to fund retiree health care benefitamounts on a cash disbursement basis.

The pension benefit rates are as follows:Employed Before Employed on or

July 1, 2010 After July 1, 2010(Basic/MIP) (Pension Plus)

July 1, 2011 - September 30, 2011 20.66% 19.16%October 1, 2011 - June 30, 2012 24.46% 23.23%

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JUNE 30, 2012

NOTE 11 DEFINED BENEFIT AND CONTRIBUTION PENSION PLANS AND POST RETIREMENT

BENEFITS (Continued)

In addition, basic plan members make no contributions, but Member Investment Plan members contribute atrates ranging from 3 percent to 4.3 percent of gross wages. The School Districts contributions to the MPSERSplan for the years ended June 30, 2012, 2011 and 2010 were $6,608,695, $5,973,404 and $5,297,155,respectively.

Pension Plus plan members have the option of contributing 2 percent of gross wages to a tax-deferred savingsaccount (with the option of increasing their contribution up to the annual IRS limit), with the School Districtmatching 50% of the employees contribution up to 1 percent. During the year ended June 30, 2012, contributionsmade by the members and the School District totaled $14,466 and $7,233, respectively.

Post Employment Benefits - Under the MPSERS Act, all retirees participating in the MPSERS Pension Planhave the option of continuing health, dental and vision coverage. Retirees having these coverages contribute anamount equivalent to the monthly cost for Part B Medicare and 10 percent of the monthly premium amount for thehealth, dental and vision coverages. Required contributions for post employment health care benefits make up8.50% of the School Districts total contribution to the MPSERS plan discussed above.

NOTE 12 LITIGATION, CONTINGENCY AND RISK MANAGEMENT

The School District is the recipient of several Federal and State Grant programs. The expenditures for eachprogram are subject to audit for technical compliance by an appropriate agency. In the event such auditprocedures indicate that the School District is not in compliance, the Federal government could require repaymentof funds to the grantor(s). In the opinion of management, such repayment, if any, is not likely to be material.

There are various legal actions that the School District believes will be favorably resolved and some that will be

unfavorably resolved, or it is too early to estimate any possible loss resulting from the outcome of such cases. Itis the School Districts opinion, the ultimate effect of these matters on the School Districts basic financialstatements will not be material.

The School District is exposed to various risks of loss related to torts; theft of, damage to and destruction ofassets; errors and omissions; injuries to employees and natural disasters. Except as noted below, for the yearended June 30, 2012, the School District purchased commercial insurance policies to satisfy any claims related togeneral liability, vehicle liability, property and casualty, athletic participation, employee health and accident anderrors and omissions. The General Fund, since there is no Internal Service Fund, accounts for all risk-financingactivity.

During the year ended June 30, 2012, there was no significant reduction in insurance coverage in any of the riskcategories mentioned above. Additionally, the School District has had no settlements in excess of insurance

coverage during any of the past three fiscal years.

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JUNE 30, 2012

NOTE 12 LITIGATION, CONTINGENCY AND RISK MANAGEMENT (Continued)

The School District is self-insured for workers compensation and health insurance claims up to specific andaggregate limits. Those limits are as follows:

1. Workers Compensation - $250,000 per occurrence and subject to an aggregate loss fund in an amountequal to 100% of the standard premiums not to exceed $5 million.

2. Health Care Benefits - $125,000 per occurrence. The School District maintains a deposit of $15,000 forworkers compensation claims and a floating deposit depending on a 90-day claims projection for healthinsurance with a third-party administrator to process and approve claims on behalf of its employees. Thedeposits are reported as other assets on the balance sheet of the General Fund.

Claims expenditures are funded through budgetary appropriations of the General Fund and those SpecialRevenue Funds that incur claims liabilities. A reconciliation of claims liability (receivable) reported in the

General Fund is as follows:

Fiscal Liability Claims and Changes Claims Liability

Year (Receivable) in Estimates Paid (Receivable)

2010/11 (369,565)$ 6,183,644 6,158,371 (344,292)$

2011/12 (344,292) 5,537,727 5,528,026 (334,591)

NOTE 13 INSURANCE

The School District is a self-insurer under the Michigan Workers' Disability Act. The School District is insured for

coverage in excess of $250,000 self-insured retention to a maximum of $5,000,000.

The School District has entered into an Administrative Services Contract (ASC) with Blue Cross/Blue Shield ofMichigan (BCBSM). ASC is a financing mechanism that allows the School District to self-fund the cost of healthinsurance yet still retain all services and advantages of a traditional BCBSM third-party administrator of plan benefits.The School District maintains excess claim (stop loss) insurance with BCBSM for specific claims in excess of$125,000.

The School District is a reimbursing employer to Michigan Employment Security Commission and as such isresponsible to pay the Commission for those benefits paid and charged to its account. Appropriate liabilities havebeen recorded for all claims paid by the Commission. However, no provision has been made for future paymentsthat might result from claims in process or unfiled.

NOTE 14 SUBSEQUENT EVENTS

On August 20, 2012, the School District borrowed $5,548,400 on a state aid anticipation note through the MichiganMunicipal Bond Authority. The note is payable at an annual interest rate of .27% and is due on August 20, 2013.

On August 20, 2012, the School District borrowed $4,539,600 on a state aid anticipation note through the MichiganMunicipal Bond Authority. The note is payable at an annual interest rate of 1.46% and is due on August 20, 2013.

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JUNE 30, 2012

NOTE 15 PRIOR PERIOD ADJUSTMENT

During the year ended June 30, 2012, it was discovered that the required transfer from the General Fund to theDebt Service Fund to cover the debt service payments for the energy bonds was not recorded at June 30, 2011. Inaddition, the overpayment with BCBSM as of June 30, 2011 was understated.

The government-wide and fund financial statements were restated as follows:

Government-Wide

Statements

Governmental Debt Service

Activities General Fund Fund

Net Assets/Fund Balance (Deficit) as of June 30, 2011,

as Previously Reported (6,790,933)$ (1,376,681)$ 62,33$

Transfer from General Fund to Debt Service Fund - (264,501) 264,50

Overpayment for BCBSM Claims 138,807 138,807

Total Prior Period Adjustments 138,807 (125,694) 264,50

Net Assets/Fund Balance (Deficit) as of June 30, 2011,as Restated (6,652,126)$ (1,502,375)$ 326,83$

Fund Financial Statements

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ORIGINAL

BUDGET FINAL BUDGET ACTUAL

VARIANCE WITH

FINAL BUDGET

FAVORABLE

(UNFAVORABLE)

REVENUE

Local Sources 5,709,765$ 6,116,058$ 5,934,526$ (181,532)$

State Sources 34,326,346 33,538,377 33,468,922 (69,455)

Federal Sources 2,501,113 3,284,175 2,752,836 (531,339)

Intergovernmental Sources 625,000 880,000 900,045 20,045

Total Revenue 43,162,224 43,818,610 43,056,329 (762,281)

EXPENDITURES

Instruction

Basic Instruction 19,717,061 20,300,957 20,529,580 (228,623)

Added Needs 6,974,685 7,486,031 6,854,403 631,628

Total Instruction 26,691,746 27,786,988 27,383,983 403,005

Support

Pupil Services 2,906,949 3,369,831 3,339,404 30,427

Instructional Staff 1,754,545 1,747,735 1,965,857 (218,122)

General Administration 540,641 799,238 838,709 (39,471)

School Administration 2,619,879 2,538,231 2,644,533 (106,302)

Business Services 1,472,359 1,618,037 2,473,838 (855,801)

Operations and Maintenance 3,063,924 3,448,945 3,566,412 (117,467)

Pupil Transportation 821,592 1,210,018 1,163,565 46,453

Central Services 861,754 754,965 848,536 (93,571)

Athletic Activities 537,233 537,233 513,510 23,723

Community Service 443,328 404,707 428,525 (23,818)

Total Support 15,022,204 16,428,940 17,782,889 (1,353,949)

Total Expenditures 41,713,950 44,215,928 45,166,872 (950,944)

Excess Revenue (Expenditures) 1,448,274 (397,318) (2,110,543) (1,713,225)

OTHER FINANCING SOURCES (USES)

Operating Transfers In 930,500 1,376,994 961,888 (415,106)

Operating Transfers Out - - (256,253) (256,253)

Payment on Equipment Loans (286,000) (301,000) (281,141) 19,859

Tuitions to Other Districts (124,637) (10,001) (60,830) (50,829)

Indirect Cost Allocation - (41,963) - 41,963

Expense Reimbursement Allocation - - (403) (403)

Total Other Financing Sources (Uses) 519,863 1,024,030 363,261 (660,769)

Excess Revenue and Other Sources

(Expenditures and Other Uses) 1,968,137$ 626,712$ (1,747,282) (2,373,994)$

FUND DEFICIT, Beginning (1,376,681)

Prior Period Adjustment (125,694)

FUND DEFICIT, Beginning, Restated (1,502,375)

FUND DEFICIT, Ending (3,249,657)$

BUDGETARY COMPARISON SCHEDULE - GENERAL FUND

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ORIGINAL

BUDGET

FINAL

BUDGET ACTUAL

VARIANCE WITH

FINAL BUDGET

FAVORABLE

(UNFAVORABLE)

REVENUE

State Sources 2,175,000$ 2,175,000$ 2,175,000$ -$Federal Sources 282,820 282,820 284,034 1,214

Interg

southgate schools audit fy 2011.12

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