AUDIT HIGHLIGHTS YEAR ENDED JUNE 30, 2013

Audit Opinion- “Unqualified Opinion” audit report Pages 2-3 District’s Financial Position Improving!

Year Ended June 30, 2013 Year Ended June 30, 2012 Amount of Increase (Decrease) % Increase (Decrease) Local Sources Property Taxes$ 1,697,140$ 1,635,425$ 61, % Interest earnings 8,338 7, % Other 1,167,743 1,285,209 (117,466) (9.1)% State sources 10,035,296 10,038,479 3, % Federal sources 501, ,339 (186,293) (27.1)% Other Financing Sources ,051 54, % Total General Fund Revenue$ 13,471,937$ 13,662,413$ (190,476) (1.4)%

Year Ended June 30, 2013 Year Ended June 30, 2012 Amount of Increase (Decrease) % Increase (Decrease) Salaries$ 7,256,717$ 7,404,398$ (147,681) ( 2.0)% Employees benefits 1,720,497 1,713,318 7, % Purchased services 2,781,489 2,658, , % Supplies & material 732, ,102 64, % Non-Capital equipment 129, ,689 (14,544) (10.1)% Capital Expenditures 170,494 99,353 71, % Debt Service 243, ,865 18, % Other expenditures 60,074 69,566 (9,492) (13.6)% Total Expenditures$ 13,093,812$ 12,981,140$ 112,672.9%

Fund Balances (Deficits) Change Total Nonspendable323,491246,63276,859 Restricted for: Debt Payment264,290328,550(64,260) Community Education11,7169,595 2,121 Staff Development23,93033,118(9,188) Deferred Maintenance Operating Capital313,101344,063(30,962) Gifted and Talented1,9626,016(4,054) Safe Schools-0-1,395(1,395) Severance & Retirement273,261160,173113,088 Total Restricted888,261882,9115,350 Committed to: Separation478, Assigned to: Retirement-0-171,602(171,602) Music Department26, ,799 Total Assigned26,799171,602(144,803) Unassigned General997,051614,619382,432 Food Service(26,323)5,503(31,826) Total Fund Balances$ 2,687,581$2,399,589287,992

Fund balance is divided into five classifications:  Nonspendable Not in spendable form  Restricted Fund balance is reported as restricted when constraints externally imposed  Committed Can be used only for the specific purposes imposed by a formal action (resolution) of the School District Board of Education  Assigned Intended to be used by the School District for specific purposes  Unassigned All spendable amounts not contained in the other classifications

Current = Aprox. $1 million Ideal = Aprox. $2 million

"A budget tells us what we can't afford, but it keep us from buying it." — William Feather

Budgeted Amounts Actual General Fund Over (Under) Budget OriginalFinal Revenues Local property tax levies$ 1,723,894$ 1,718,909$ 1,697,140$ (21,769) Other local and county revenues 795,174 1,018,101 1,107,944 89,843 Revenues from state sources 9,890,364 9,939,359 10,035,296 95,937 Revenue from federal sources 520, , ,046 (375) Sales and other conversions of assets 41,634 67,695 68, Insurance recovery and settlement -0- Total Revenues$12,931,216$ 13,245,485$ 13,409,563$ 164,078

General Fund Expenditures2013 Budgeted Amounts 2013 Actual General Fund Over (Under) Final Budget Current:OriginalFinal District and school administration$ 570,055$ 646,873$ 628,284$ (18,589) District support services 298, , ,172 1,502 Regular instruction 4,850,662 4,846,392 4,857,328 10,936 Vocational instruction 58,294 59,166 59, Exceptional instruction 4,136,532 4,283,170 4,339,035 55,865 Community education and services -0- Instructional support services 121, , ,948 9,183 Pupil support services 1,142,201 1,121,730 1,127,854 6,124 Site, buildings and equipment 1,141,105 1,102,830 1,089,123 (13,707) Fiscal and other fixed cost programs 62,463 60, Total Current 12,381,158 12,498,991 12,550,878 51,877 Capital Outlay 188, , ,639 64,808 Debt Service: Principal 117, , ,251 (716) Interest 110, , , Debt issuance costs 6,350 5, Total Debt Service 233, , ,295 (493) Total Expenditures$12,803,908$12,977,610$ 13,093,812$ 116,202

Budgeted Amounts Actual General Fund Variances with Final Budget Favorable (unfavorable) OriginalFinal Excess (deficiency) of revenue over expenditures127, , ,75147,876 Other Financing Sources (Uses) Sale of real property and equipment -0- Capital Equipment Lease ,374 Total Other Financing Sources (Uses)$ -0- $ 62,374 Excess (Deficiency) of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing (Uses)$ 127,308$ 267,875$ 378,125$ 110,250 Fund Balances - Beginning of Year 2,032,924 $ 2,032, Fund Balances - End of Year$ 2,160,232$ 2,300,799$ 2,411,049$ 110,250

The property tax shift is an accounting entry that takes a portion of the school district's property tax revenue and moves it forward one fiscal year, i.e., taxes that would otherwise be revenue for fiscal year 2014 are shifted into fiscal year This shift replaces state aid that will be repaid at some future date. The property tax shift requirement is in Minnesota Statutes, section 123B.75, subdivision 5.

 In less than 3 years OPEB Fund will have no assets remaining. Early Retirement Incentive (Severance) Plan Post- Employment Insurance Benefits 2013 $653, $638,495 The District has reserved and committed fund balance to cover this liability. Fiscal Year EndedAnnual OPEB Cost Percentage of Annual OPEB Cost ContributedNet OPEB Assets 06/30/2013$ 253,8440.0%$ 696,972 06/30/2012$ 246,6260.0%$ 950,816 06/30/2011$ 135,5370.0%$ 1,195,642 06/30/2010$ 126,4710.0%$ 1,333,179 06/30/2009$ 184, %$ 1,459,650 : The District’s annual OPEB cost, the percentage of the annual OPEB cost contributed to the plan, and the net OPEB obligation are as follows

Prior Year Follow up Corrected Deficiency Ineligible students were being provided services by Title I teachers Deficiency Controls did not detect that ineligible students were receiving free and reduced meals & some students should have received free and reduced benefits, but didn’t. Deficiency – Documenting Time Charged to Federal Programs Work in Progress Deficiency – Period End Financial Reporting Process

The audit requires separate reporting on our consideration of Internal Controls and Compliance. Control deficiency is 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 financial misstatements on a timely basis. Material Weakness Reasonable possibility that a material misstatement of the financial statements will not be prevented or detected by the District’s internal controls. Significant Deficiency 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."

Internal Controls & Compliance Reporting Pages MATERIAL WEAKNESS Deficiency Day Treatment Billings. Page 70 SIGNIFICANT DEFICIENCY Deficiency – Period End Financial Reporting Page 71 STATE COMPLIANCE Page 69 No performance bond obtained on janitorial maintenance contract FEDERAL AWARDS COMPLIANCE Page 62 No deficiencies noted

The District has improved its financial position in the past year. Need to continue to strengthen its fund balances. The District needs to continue to closely monitor its accounting for revenues & expenditures related to Day Treatment & Special Ed. Billings need to be done in a timely manner with proper oversight. Once payments for the prior year are finalized the current year budget should be reviewed as actual receipts can vary from estimated receipts. The District needs to monitor its rising unfunded OPEB actuarial accrued liability and consider how it is going to fund the coming deficit. Also consider using General Fund assets instead of OPEB assets for future retirement incentives. The District needs to balance the need for capital maintenance with taking on additional debt.

 Thanks to the District Staff for their cooperation during the audit.