Octorara Area School District - Financial and Compliance Report

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TABLE OF CONTENTS

Pages

INDEPENDENT AUDITOR'S REPORT........................................................................ 1 - 2

MANAGEMENTS DISCUSSION AND ANALYSIS..................................................... MD&A

BASIC FINANCIAL STATEMENTS

Government-Wide Financial Statements

Statement of Net Position ....................................................................................... 3

Statement of Activities ............................................................................................ 4

Fund Financial Statements

Balance Sheet - Governmental Funds .................................................................... 5

Reconciliation of the Governmental Funds Balance Sheet to theGovernment-Wide Statement of Net Position ...................................................... 6

Statement of Revenues, Expenditures, and Changes in Fund Balances -

Governmental Funds ........................................................................................... 7

Reconciliation of the Governmental Funds Statement of Revenues,Expenditures, and Changes in Fund Balances to the Government-WideStatement of Activities ......................................................................................... 8 - 9

Statement of Net Position - Proprietary Fund ......................................................... 10

Statement of Revenues, Expenses, and Changes in Net Position -Proprietary Fund .................................................................................................. 11

Statement of Cash Flows - Proprietary Fund .......................................................... 12 - 13

Statement of Net Position - Fiduciary Funds .......................................................... 14

Statement of Changes in Net Position - Fiduciary Funds ....................................... 15

Notes to Basic Financial Statements..................................................................... 16 - 44


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REQUIRED SUPPLEMENTARY INFORMATION

Budgetary Comparison Schedule for the General Fund ........................................... 45 - 46

Schedule of Funding Progress and Employer Contributions -Postemployment Benefits Plan .............................................................................. 47

Note to Required Supplementary Information ........................................................... 48

SUPPLEMENTARY INFORMATION

Schedule of Expenditures of Federal Awards ........................................................... 49

Notes to Schedule of Expenditures of Federal Awards ............................................. 50

INDEPENDENT AUDITORS REPORT ON INTERNAL CONTROL OVERFINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERSBASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED INACCORDANCE WITH GOVERNMENT AUDITING STANDARDS.......................... 51 - 52

INDEPENDENT AUDITORS REPORT ON COMPLIANCE FOREACH MAJOR PROGRAM AND ON INTERNAL CONTROLOVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133.............................. 53 - 55

SCHEDULE OF FINDINGS AND QUESTIONED COSTS........................................... 56 - 61

STATUS OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS......................... 62

CORRECTIVE ACTION PLAN..................................................................................... 63 - 66


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MembersofPKFNorthAmerica,PennsylvaniaInstituteofCPAs,

AmericanInstituteofCertifiedPublicAccountantsPrivateCompaniesPracticeSection

www.herbein.com

HERBEIN+COMPANY,INC.

2763CenturyBoulevard Reading,PA19610 Telephone:6103781175 Facsimile:6103780999

[email protected]

OtherOffices: PITTSBURGH GREENSBURG

INDEPENDENT AUDITOR'S REPORT

To the Board of School DirectorsOctorara Area School District

Atglen, Pennsyl vania

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-type activities, eachmajor fund, and the aggregate remaining fund information of the Octorara Area School District as of and for the year endedJune 30, 2013, and the related notes to the financial statements, which collectively comprise the Districts basic financialstatements as listed in the table of contents.

Managements Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance withaccounting principles generally accepted in the United States of America; this includes the design, implementation, andmaintenance of internal control relevant to the preparation and fair presentation of financial statements that are free frommaterial misstatement, whether due to fraud or error.

Audi tors Responsibi li ty

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit inaccordance with auditing standards generally accepted in the United States of America and the standards applicable tofinancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditors judgment, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entitys preparation and fair presentation of the financial statements in order to designaudit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of significant accounting estimates made bymanagement, 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, the business-type activities, each major fund, and the aggregate remaining fund information ofthe Octorara Area School District, as of June 30, 2013, and the respective changes in financial position and, where applicable,cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of

America.


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2

Emphasis of Matter

As described in Note 14 to the financial statements, effective July 1, 2012, the Octorara Area School District adopted newaccounting guidance, Governmental Accounting Standards Board Statement No. 63, Financial Reporting of Deferred Outflowsof Resources, Deferred Inflows of Resources, and Net Positionand Statement No. 65, Items Previously Reported as Assetsand Liabilities. Our opinion is not modified with respect to this matter.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the managements discussion andanalysis, budgetary comparison schedule for the general fund, and the schedule of funding progress and employercontributions - postemployment benefits plan 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, whoconsiders it to be an essential part of financial reporting for placing the basic financial statements in an appropriateoperational, 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 ofinquiries of management about the methods of preparing the information and comparing the information for consistency withmanagements responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit ofthe basic financial statements. We do not express an opinion or provide any assurance on the information because the limitedprocedures 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 theOctorara Area School Districts basic financial statements. The schedule of expenditures of federal awards is presented forpurposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, LocalGovernments, and Non-Profit Organizations, and is not a required part of the basic financial statements. The information isthe responsibility of management and was derived from and relates directly to the underlying accounting and other recordsused to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in theaudit of the basic financial statements and certain additional procedures, including comparing and reconciling such informationdirectly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financialstatements themselves, and other additional procedures in accordance with auditing standards generally accepted in theUnited States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated, in all materialrespects, in relation to the basic financial statements as a whole.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated November 18, 2013, on ourconsideration of the Districts internal control over financial reporting and on our tests of its compliance with certain provisionsof laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope ofour testing of internal control over financial reporting and compliance and the results of that testing, and not to provide anopinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed inaccordance with Government Auditing Standards in considering the Districts internal control over financial reporting andcompliance.

Reading, Pennsyl vaniaNovember 18, 2013


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MD&A 1

OCTORARAAREA SCHOOL DISTRICTManagements Discussion and Analysis (MD&A)

June 30, 2013AUN Number: 124156503

Managements Discussion & Analysis (MD&A) for the Octorara Area School Districts financial performance provides an overall reviewof the Schools financial activities for the fiscal year ended June 30, 2013. The intent of the MD&A is to look at the financialperformance as a whole. Readers should review the basic financial statements and corresponding notes to the financial statements toenhance their understanding of the Schools financial performance.

The Management Discussion and Analysis (MD&A) is an element of the reporting model adopted by the Governmental AccountingStandards Board (GASB) in their Statement No. 34 Basic Financial Statements and Managements Discussion and Analysis forState and Local Governments issued June 1999. Certain comparative information between the current year and the prior year isrequired to be presented in the MD&A.

SCHOOL DISTRICT

Octorara Area School District is a public school district in Chester County, Pennsylvania organized under the Public School Code ofPennsylvania. The School provides educational programs from kindergarten through twelfth grade to students who are residents of theschool district and non-residents on a tuition basis. The District maintains five school buildings under the following grade structure (K-23-4, 5-6, 7-8, and 9-12).

MISSION STATEMENT

Octorara Area School District, through a partnership among school, community and family, is to promoteeducational excellence in a safe, secure environment, empowering our students with the skills necessary to be

successful, responsible members of society.

SCHOOL DISTRICT FINANCIAL HISTORY

The School District and its predecessors have never defaulted on the payment of lease rentals or debt service.The status of the School Districts present indebtedness is shown in the table entitled Outstanding School Financing, in Appendix A.

FUTURE FINANCING

In August of 2011, the majority of the additions and renovations were completed on the Octorara High School. Other than routinerepairs and maintenance, no future projects have been planned. During the 2012-13 fiscal year, the District refinanced the 2008 SeriesBond and recognized a savings of $260,000 that was spread over the 2012-13 and 2013-14 fiscal years. The District will continue tomonitor the market and take advantage of future bond refinancing opportunities.

FINANCIAL HIGHLIGHTS

The District ended the 2012-13 fiscal year with a surplus of $1.8M in the general fund. The 2012-13 budget approved in June 2012included the appropriation of $1.2M of fund balance. The majority of the variance can be attributed to lower health care expenditures,lower salaries and utility expenses, not using the budgetary reserve and lower than anticipated charter school costs. The general fundreported a positive fund balance of $8.4M.

FINANCIAL STATEMENTS

The financial statements consist of three parts: Management Discussion and Analysis (this section), the basic financial statements andrequired supplementary information (RSI). The basic financial statements include two kinds of statements that present different viewsof Octorara Area School District.

The first two statements are government-wide financial statements the Statement of Net position and the Statemenof Activities. These provide both long-term and short-term information about the Schools overall financial status.

The remaining statements are fund financial statements that focus on individual parts of the Schools operations inmore detail than the government-wide statements.

The governmental funds statements tell how basic services such as regular and special education were financedwere financed in the short term as well as what remains for future spending.

Proprietary fund statements offer short- and long-term financial information about the activities that the Schooloperates like a business. For the School, this is our Food Service Fund.

Fiduciary fund statements provide information about financial relationships where the School acts solely as a trusteeor agent for the benefit of others.


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MD&A 2

The financial statements also include notes that explain some of the information in the financial statements and provide more detaileddata. The statements are followed by a section of required supplementary information that further explains and reports the financialstatements with the comparison of Octorara Area School Districts budget for the year.

Figure A-1 shows how the required parts of the Financial Section are arranged and relate to one another:

Figure A-1Required components of

Octorara Area School DistrictsFinancial Report

Summary Detail

Figure A-2 summarizes the major features of the financial statements, including the portion of the Program they cover and the types ofinformation they contain. The remainder of this overview section of management discussion and analysis explains the structure andcontents of each of the statements.

Figure A-2Major Features of Octorara Area School DistrictsGovernment-wide and Fund Financial Statements

Fund Statements

Government-Wide Statements Governmental Funds Proprietary Funds Fiduciary Funds

Scope Entire School (exceptfiduciary funds).

The activities of the School that is notproprietary or fiduciary, such as education,administration and community services.

An activity the Schooloperates similar toprivate business FoodServices andProduction.

Instances in which theSchool is the trustee oragent to someone elsesresources ScholarshipFunds.

Required financialstatements.

Statement of net positionStatement of activities.

Balance SheetStatement of revenues, expenditures, andchanges in fund balance.

Statement of netpositionStatement of revenues,expenses and changesin net positionStatement of cash flows.

Statement of fiduciary netpositionStatement of changes infiduciary net position.

Accounting basisand measurementfocus.

Accrual accounting andeconomic resourcesfocus.

Modified accrual accounting and currentfinancial resources focus.

Accrual accounting andeconomic resourcesfocus.

Accrual accounting andeconomic resources focus.

Type of

asset/liabilityinformation.

All assets and liabilities,

both financial andcapital, and short-termand long-term.

Only assets expected to be used up and

liabilities that come due during the year orsoon thereafter; no capital assets included.


both financial andcapital, and short-termand long-term.


both short-term and long-term.

Type of inflow-outflowinformation.

All revenues andexpenses during year,regardless of when cashis received or paid.

A revenue for which cash is received duringor soon after the end of the year;expenditures when goods or services havebeen received and payment is due duringthe year or soon thereafter.

All revenues andexpenses during year,regardless of when cashis received or paid.

All revenues and expensesduring year, regardless ofwhen cash is received orpaid.

ManagementDiscussion and

Analysis

BasicFinancial

Statements

RequiredSupplementary

Information

Government-wideFinancial

Statements

FundFinancial

Statements

Notes to theFinancial

Statements


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MD&A 3

OVERVIEW OF FINANCIAL STATEMENTS

Government-Wide Statements

The government-wide statements report information about the school as a whole using accounting methods similar to those used byprivate-sector companies. The statement of net position includes all of the governments assets and liabilities. All of the current yearsrevenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid.

The two government-wide statements report the schools net position and how they have changed. Net position, the difference betweenthe schools assets, deferred outflows of resources, liabilities, and deferred inflows of resources are one way to measure the schoolsfinancial health or position.

Over time, increases or decreases in the schools net position are an indication of whether its financial health is improvingor deteriorating, respectively.

To assess the overall health of the school, you need to consider additional factors, such as changes in theCommonwealth of Pennsylvania contributions, increase of the Public School Employees Retirement contributions, andthe projected enrollment of the students.

The government-wide financial statements of the school are divided into two categories:

Governmental activities All of the schools basic services are included here, such as instruction, administration andcommunity services. Local tax revenue and state subsidies finance most of these activities.

Business type activities The school operates a food service operation and charges fees to staff, students and visitors to

help it cover the costs of the food service operation.

Fund Financial Statements

The Districts fund financial statements provide more detailed information about the districts funds, focusing on its most significant ormajor funds not the district as a whole. Some funds are required by state law and by bond requirements.

Governmental funds Most of the schools activities are reported in governmental funds, which focus on thedetermination of financial position and change in financial position, not on income determination. They are reported usingan accounting method called modified accrual accounting, which measures cash and all other financial assets that canreadily be converted to cash. The governmental fund statements provide a detailed short-term view of the Schooloperations and the services it provides. Governmental fund information helps the reader determine whether there aremore or fewer financial resources that can be spent in the near future to finance the schools programs. The relationship(or differences) between governmental activities (reported in the Statement of Net position and the Statement of Activitiesand governmental funds is reconciled in the financial statements.

Proprietary funds These funds are used to account for the schools activities that are similar to business operations inthe private sector; or where the reporting is on determining net income, financial position, changes in financial position,and a significant portion of funding through user charges. When the School charges customers for services it provides whether to outside customers or to other units in the school these services are generally reported in proprietary funds.The Food Service Fund is the Schools proprietary fund and is the same as the business-type activities reported in thegovernment-wide statements, but provide more detail and additional information, such as cash flows.

Fiduciary funds The school is the trustee, or fiduciary, for assets that belong to others, such as scholarship funds orstudent activity funds. The School is responsible for ensuring that the assets reported in these funds, are used only fortheir intended purposes and by those to whom the assets belong. The School excludes these activities from the District-wide financial statements because it cannot use these assets to finance its operations.


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MD&A 4

FINANCIAL ANALYSIS OF THE SCHOOL AS A WHOLE

The Schools total net position was $17,272,719 at June 30, 2013.

Table A-1Fiscal Years Ended June 30, 2012 and June 30, 2013

Statement of Net Position

2013 2012 2013 2012 2013 2012

ASSETS

Cash and cash equivalents 12,815,647$ 11,999,389$ 274,665$ 259,272$ 13,090,312$ 12,258,661$

Taxes receivable 1,504,657 1,514,427 - - 1,504,657 1,514,427

Internal balances 12,442 44,607 (12,442) (44,607) - -

Due from other governments 555,073 516,781 7,808 5,084 562,881 521,865

Other receivables 125,185 84,967 10 - 125,195 84,967

Inventories - - 26,389 17,628 26,389 17,628

Prepaid expenses 7,039 24,155 170 - 7,209 24,155

Capital Assets Not Being Depreciated:

Land and improvements 4,202,324 4,202,324 - - 4,202,324 4,202,324

Capital Assets, Net of Accum. Deprec.

Site Improvements 167,237 185,191 - - 167,237 185,191

Building and Improvements 71,443,507 72,414,402 - - 71,443,507 72,414,402

Fixtures and Equipment 1,717,524 2,065,716 27,433 21,854 1,744,957 2,087,570

TOTAL ASSETS 92,550,635 93,051,959 324,033 259,231 92,874,668 93,311,190

DEFERRED OUTFLOWS OF RESOURCE

Deferred Charge Bond Refunding 407,646 492,359 - - 407,646 492,359

LIABILITIES

Accounts payable 915,194 1,559,002 43 34 915,237 1,559,036

Accrued salaries and benefits 1,552,345 1,498,516 103 103 1,552,448 1,498,619

Payroll Deductions and Withholdings 661,007 701,633 - - 661,007 701,633

Other Current Liabilities 35,677 25,968 - - 35,677 25,968

Accrued interest 437,343 471,539 - - 437,343 471,539

Unearned revenue 58,037 48,762 12,885 12,335 70,922 61,097

Retirement Incentive Payable - 12,000 - - - 12,000

Long-term liabilities

Portion due or payable within one year Bonds payable in future years 3,220,000 3,159,475 - - 3,220,000 3,159,475

Bonds payable, Net 67,323,185 70,411,378 - - 67,323,185 70,411,378

Postemployment Benefits 943,042 793,111 - - 943,042 793,111

Accumulated compensated absences 850,734 1,071,998 - - 850,734 1,071,998

TOTAL LIABILITIES 75,996,564 79,753,382 13,031 12,472 76,009,595 79,765,854

NET POSITION

Net Investment in Capital Assets 9,854,953 8,329,109 27,433 21,854 9,882,386 8,350,963

Restricted Fund Balance 358,212 297,617 - - 358,212 297,617

Unrestricted 6,748,552 5,164,210 283,569 224,905 7,032,121 5,389,115

TOTAL NET POSITION 16,961,717$ 13,790,936$ 311,002$ 246,759$ 17,272,719$ 14,037,695$

Governmental Activities Business-Type Activities Totals

Most of the Schools net position is invested in capital assets (buildings, land, and equipment). The remaining unrestricted net positionis a combination of assigned and unassigned amounts. The assigned balances are amounts set-aside to fund future equipmentpurchases, debt service, PSERS increases, health care or capital projects as may be planned by the School.

The long-term liabilities decreased in the 2013 fiscal year due to the regularly scheduled payments on the Districts outstanding bonds.


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MD&A 5

The results of this year's operations as a whole are reported in the Statement of Activities. All expenses are reported in the first column.Specific charges, grants, revenues and subsidies that directly relate to specific expense categories are represented to determine thefinal amount of the Schools activities that are supported by other general revenues. The largest general revenue category is taxrevenue. Table A-2 takes the information from the Statement of Activity, rearranges it slightly, so you can see our total revenues for theyear.

The tables below present the expenses of both the Governmental Activities and the Business-type Activities of the School.

Table A-2Fiscal Years ended June 30, 2012 and June 30, 2013

Statement of Activities

Net (Expense) Revenue and

Program Revenues Changes in Net position

Operating Capital

Charges for Grants and Grants and Governmental Business-type Total

Functions/Programs Expenses Services Contributions Contributions Activities Activities 2013 2012

GOVERNMENTALACTIVITIES

Instruction $26,659,934 $176,842 $4,273,750 $0 ($22,209,342) $0 ($22,209,342) ($22,437,976InstructionalStudent Support $2,903,374 $0 $296,000 $0 ($2,607,374) $0 ($2,607,374) ($2,460,448Administrative &Financial SupportServices $3,093,686 $0 $176,653 $0 ($2,917,033) $0 ($2,917,033) ($2,853,964Operation &Maintenance ofPlant Services $4,108,887 $60,126 $58,585 $0 ($3,990,176) $0 ($3,990,176) ($4,691,944

Pupil Transportation $2,871,831 $1,069,817 $0 ($1,802,014) $0 ($1,802,014) ($1,646,019

Student Activities $562,811 $45,004 $119,800 $0 ($398,007) $0 ($398,007) ($359,635CommunityServices $10,397 $0 $5,535 $0 ($4,862) $0 ($4,862) ($36Interest on long-term debt $2,899,257 $0 $0 $687,354 ($2,211,903) $0 ($2,211,903) ($2,411,749TOTALGOVERNMENTALACTIVITIES $43,110,177 $281,972 $6,000,140 $687,354 ($36,140,711) $0 ($36,140,711) ($36,861,771

BUSINESS-TYPEACTIVITIES

Food service $707,813 $324,688 $446,680 $0 $0 $63,555 $63,555 $66,995

TOTAL PRIMARYGOVERNMENT $43,817,990 $606,660 $6,446,820 $687,354 ($36,140,711) $63,555 ($36,077,156) ($36,794,776

GENERAL REVENUES

Property taxes, levied for general purposes $30,022,180 $0 $30,022,180 $29,207,189

Taxes levied for specific purposes $2,225,332 $2,225,332 $1,564,636

Grants, Subsidies $6,789,664 $0 $6,789,664 $6,797,346

Investment earnings $143,882 $688 $144,570 $174,216

Loss on Sale of Fixed Assets

Miscellaneous $130,434 $0 $130,434 $160,022TOTAL GENERAL REVENUES $39,311,492 $688 $39,312,180 $37,903,409

CHANGE IN NET POSITION $3,170,781 $64,243 $3,235,024 $1,108,633

NET POSITION BEGINNING OF YEAR -RESTATED $13,790,936 $246,759 $14,037,695 $12,929,062

NET POSITION END OF YEAR $16,961,717 $311,002 $17,272,719 $14,037,695


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MD&A 6

Fund Balances

At June 30, 2013, the Schools governmental funds reported a combined fund balance of $10,798,792 which is an increase of$1,435,360 from June 30, 2012.

General Fund:The School General Fund balance has no reserves.

Capital Project Fund:In 2004, the school district borrowed $37,000,000 in General Obligation Bonds for the construction of a new grade 5-6Intermediate School, a new maintenance building and renovation and addition projects at the High School. This was the firspart of borrowing of the funds for a projected project of approximately $60M. The school district borrowed $10M in March o2009, another $10M in February of 2010, and $7.5M in February of 2012.

Table A-3Fiscal Years ended June 30, 2012 and June 30, 2013

Fund Balance

Fund Balance June 30, 2012 Fund Balance June 30, 2013 Increase (Decrease)

General $ 6,545,320 $ 8,379,979 $ 1,834,659

Capital Projects $ 2,818,112 $ 2,418,813 $ (399,299)

Total $ 9,363,432 $ 10,798,792 $ 1,435,360

General Fund Budget

During the fiscal year, the school board authorizes revisions to the original budget to accommodate differences from the original budgetto the actual expenditures of the School. A schedule showing the Schools original and final budget amounts compared with amountsactually paid and received is provided in the financial statements. Below are line items contributing to the net surplus for the year.

2012-13 Budget Actual Variance

Revenues $ 45,564,536 $ 46,241,449 $ 676,913Expenses $ 46,664,374 $ 44,406,790 $ 2,257,584Net $ (1,099,838) $ 1,834,659 $ 2,934,497

Contributing L ine Items:Revenue

Local Revenue $ 32,449,126 $ 33,258,094 $ 808,968State Revenue $ 11,897,722 $ 11,744,866 $ (152,856)Federal Revenue $ 1,217,688 $ 1,238,489 $ 20,801

Expense

Salaries $ 18,930,094 $ 18,270,659 $ 659,435Healthcare $ 2,288,050 $ 1,737,364 $ 550,686Dental $ 254,206 $ 161,093 $ 93,113Prescription $ 771,638 $ 1,014,288 $ (242,650)Retirement Contributions $ 2,337,367 $ 2,197,106 $ 140,261Social Security Contribution $ 1,442,368 $ 1,354,938 $ 87,430Charter School Tuition $ 2,627,000 $ 2,310,080 $ 316,920

Utilities $ 750,000 $ 604,970 $ 145,030Tuition to Aps $ 150,634 $ 74,645 $ 75,989Budgetary Reserve $ 250,000 $ 0 $ 250,000Principal / Interest $ 6,091,088 $ 5,954,673 $ 136,415


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MD&A 7

FUND BALANCEThe school district will end the 20122013 fiscal year with a fund balance of $8.4M. Of this amount $4.8M has been assigned foranticipated increases in PSERS, increased costs associated with health care, future facilities improvements and debt serviceobligations. Amounts have also been designated for increased health care with some smaller amounts for buildings & grounds.

CAPITAL ASSET AND DEBT ADMINISTRATIONAt June 30, 2013, the School had $77,530,592 in Governmental Funds and $27,433 in Business Type invested in a broad range ofcapital assets, including land, buildings, furniture and equipment. This amount represents a net decrease (including additions, deletionsand depreciation) of $1,337,041 Governmental Activities and a net increase of $5,579 from Business Activities from June 30, 2012.

The chart below demonstrates the breakdown of the 2012-13 general fund revenues


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MD&A 9

FACTORS BEARING ON OCTORARA AREA SCHOOL DISTRICTS FUTURE

Factors that will affect the future finances of the School are employee health benefits, PSERS projected retirement rates, Real EstateTax appeals and reduced state revenue.

ACT 1 of 2006 provides for the school district to limit budget increases to an establish index that changes from year to year. Thebudget process is limited unless budget exceptions are approved by the PA Department of Education. The index for the Octorara AreaSchool District for the budget process of 2007 2008 was 5.4%. The index provided by the PA Department of Education for the 2014 2015 fiscal year has been established at 2.6%. This low index will make it difficult to balance the 2014-15 budget without using aportion of the Districts fund balance.

CONTACTING THE SCHOOL FINANCIAL MANAGEMENT

This financial report is designed to provide citizens, taxpayers, parents, students, investors and creditors with a general overview of theSchools finances and to show the accountability for the money it receives. If you have questions about this report or wish to requestadditional financial information, please contact the Business Office, Octorara Area School District, 228 Highland Road, Suite #1, AtglenPA 19310.


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Business-

Governmental TypeActivities Activities TotalASSETS

Cash and Investments 12,815,647$ 274,665$ 13,090,312$Taxes Receivable, Net 1,504,657 - 1,504,657Internal Balances 12,442 (12,442) -Intergovernmental Receivables 555,073 7,808 562,881Other Receivables 125,185 10 125,195Inventories - 26,389 26,389Prepaid Expenses 7,039 170 7,209Capital Assets Not Being Depreciated:

Land 4,202,324 - 4,202,324

Capital Assets, Net of Accumulated Depreciation:Site Improvements 167,237 - 167,237Building and Building Improvements 71,443,507 - 71,443,507Fixtures and Equipment 1,717,524 27,433 1,744,957

TOTAL ASSETS 92,550,635 324,033 92,874,668

DEFERRED OUTFLOWS OF RESOURCES

Deferred Charge on Bond Refunding 407,646 - 407,646

LIABILITIES

Accounts Payable 915,194 43 915,237Accrued Salaries and Benefits 1,552,345 103 1,552,448Payroll Deductions and Withholdings 661,007 - 661,007Unearned Revenues 58,037 12,885 70,922Other Current Liabilities 35,677 - 35,677Accrued Interest 437,343 - 437,343Noncurrent Liabilities

Long-Term Debt Due Within One Year 3,220,000 - 3,220,000Bonds Payable, Net 67,323,185 - 67,323,185Long-Term Portion of Compensated Absences 850,734 - 850,734Postemployment Benefit Obligation 943,042 - 943,042

TOTAL LIABILITIES 75,996,564 13,031 76,009,595

NET POSITIONNet Investment in Capital Assets 9,854,953 27,433 9,882,386Restricted for Capital Projects 358,212 - 358,212Unrestricted 6,748,552 283,569 7,032,121

TOTAL NET POSITION 16,961,717 311,002 17,272,719

June 30, 2013

STATEMENT OF NET POSITION

OCTORARA AREA SCHOOL DISTRICT

See accompanying notes. 3


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Operating CapitalCharges for Grants and Grants and Governmental Business-Type

Functions/Programs Expenses Services Contributions Contributions Activities Activities Total

Governmental Activities:

Instruction:

Regular 17,563,886$ 176,842$ 2,145,900$ -$ (15,241,144)$ -$ (15,241,144)$Special 6,962,778 - 2,053,464 - (4,909,314) - (4,909,314)Vocational 1,583,342 - 24,084 - (1,559,258) - (1,559,258)

Other Instructional Programs 549,928 - 50,302 - (499,626) - (499,626)Total Instructional Services 26,659,934 176,842 4,273,750 - (22,209,342) - (22,209,342)

Support Services:Pupil Personnel 1,309,649 - 91,842 - (1,217,807) - (1,217,807)Instructional Staff 507,616 - 99,804 - (407,812) - (407,812)Administration 2,524,178 - 143,227 - (2,380,951) - (2,380,951)Pupil Health 441,192 - 82,908 - (358,284) - (358,284)Business Services 523,748 - 33,426 - (490,322) - (490,322)Operation of Plant and Maintenance Services 4,108,887 60,126 58,585 - (3,990,176) - (3,990,176)Student Transportation Services 2,871,831 - 1,069,817 - (1,802,014) - (1,802,014)Central 644,917 - 21,446 - (623,471) - (623,471)Other Support Services 45,760 - - - (45,760) - (45,760)

Total Support Services 12,977,778 60,126 1,601,055 - (11,316,597) - (11,316,597)

Noninstructional Services:

Student Activities 562,811 45,004 119,800 - (398,007) - (398,007)Community Services 10,397 - 5,535 - (4,862) - (4,862)Interest on Long-Term Debt 2,899,257 - - 687,354 (2,211,903) - (2,211,903)

Total Noninstructional Services 3,472,465 45,004 125,335 687,354 (2,614,772) - (2,614,772)

Total Governmental Activities 43,110,177 281,972 6,000,140 687,354 (36,140,711) - (36,140,711)

Business-Type Activities:

Food Services 707,813 324,688 446,680 - - 63,555 63,555

Total Primary Government 43,817,990$ 606,660$ 6,446,820$ 687,354$ (36,140,711) 63,555 (36,077,156)

General Revenues:

Taxes: Property Taxes, Levied for General Purposes 30,022,180 - 30,022,180

Public Utility Realty, Earned Income, and Mercantile Taxes Levied for General Purposes, Net 2,225,332 - 2,225,332Grants, Subsidies, and Contributions Not Restricted 6,789,664 - 6,789,664Investment Earnings 143,882 688 144,570Miscellaneous 130,434 - 130,434

Total General Revenues 39,311,492 688 39,312,180

Change in Net Position 3,170,781 64,243 3,235,024

Net Position - Beginning - Restated 13,790,936 246,759 14,037,695

Net Position - Ending 16,961,717$ 311,002$ 17,272,719$

Program Revenue Changes in Net PositionNet (Expense) Revenue and

For the Year Ended June 30, 2013

STATEMENT OF ACTIVITIES




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Total

Capital Debt GovernmentalGeneral Projects Service Funds

ASSETS

Cash and Investments 10,355,782$ 2,459,865$ -$ 12,815,647$Taxes Receivable 1,535,554 - - 1,535,554Interfund Receivables 12,442 - - 12,442Intergovernmental Receivables 555,073 - - 555,073Other Receivables 125,185 - - 125,185Prepaid Expenditures 7,039 - - 7,039

TOTAL ASSETS 12,591,075 2,459,865 - 15,050,940

LIABILITIES, DEFERRED INFLOWS, AND

FUND BALANCES

LIABILITIES

Accounts Payable 874,142$ 41,052$ -$ 915,194$Accrued Salaries and Benefits 1,552,345 - - 1,552,345Payroll Deductions and Withholdings 661,007 - - 661,007Unearned Revenues 58,037 - - 58,037Other Current Liabilities 35,677 - - 35,677

TOTAL LIABILITIES 3,181,208 41,052 - 3,222,260

DEFERRED INFLOWS OF RESOURCES

Unavailable Revenue - Property Taxes 1,029,888 - - 1,029,888

FUND BALANCES

Nonspendable for Prepaid Expenditures 7,039 - - 7,039Restricted Fund Balance - 2,418,813 - 2,418,813Assigned Fund Balance 4,811,919 - - 4,811,919Unassigned Fund Balance 3,561,021 - - 3,561,021

TOTAL FUND BALANCES 8,379,979 2,418,813 - 10,798,792

TOTAL LIABILITIES, DEFERRED INFLOWS,AND FUND BALANCES 12,591,075$ 2,459,865$ -$ 15,050,940$

June 30, 2013

GOVERNMENTAL FUNDS

BALANCE SHEET




18/80

TOTAL FUND BALANCES - GOVERNMENTAL FUNDS 10,798,792$

Amounts reported for governmental activities in the statement

of net position are different because:

Capital assets used in governmental activities are notfinancial resources and therefore, are not reported as assetsin governmental funds. The cost of the assets is$101,702,765 and the accumulated depreciation is

$24,172,173. 77,530,592

roper y axes rece va e w e co ec e s year, u arenot available soon enough to pay for the current period'sexpenditures and, therefore, are reported as unavailablerevenue in the funds. 998,991

Long-term liabilities, including bonds payable, are not due andpayable in the current period and therefore, are not reportedas liabilities in the funds. Long-term liabilities at year-endconsist of:

Bonds Payable (69,645,000)$

Accrued Interest on Long-Term Debt (437,343)Unamortized Bond Premium (1,033,675)Unamortized Bond Discount 135,490

Deferred Charge on Bond Refunding 407,646Long-Term Portion of Compensated Absences (850,734)

Postemployment Benefits (943,042) (72,366,658)

TOTAL NET POSITION - GOVERNMENTAL ACTIVITIES 16,961,717$

June 30, 2013


GOVERNMENT-WIDE STATEMENT OF NET POSITION

RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE



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TotalCapital Debt Governmental

General Projects Service FundsREVENUES

Local Sources 33,258,094$ 11,501$ -$ 33,269,595$State Sources 11,744,866 - - 11,744,866Federal Sources 1,238,489 - - 1,238,489

TOTAL REVENUES 46,241,449 11,501 - 46,252,950

EXPENDITURES

Instructional Services 26,653,702 - - 26,653,702Support Services 11,262,466 - 97,740 11,360,206Operation of Noninstructional Services 516,618 - - 516,618Capital Outlay - 410,800 - 410,800Debt Service

Principal 3,100,000 - - 3,100,000Interest 2,854,673 - 114,958 2,969,631

Refund of Prior Year Revenues 23,361 - - 23,361

TOTAL EXPENDITURES 44,410,820 410,800 212,698 45,034,318

EXCESS (DEFICIENCY) OF REVENUES

OVER EXPENDITURES 1,830,629 (399,299) (212,698) 1,218,632

OTHER FINANCING SOURCES (USES)

Sale of Capital Assets 4,030 - - 4,030Proceeds from Refunding Bonds - - 6,850,000 6,850,000Payment to Escrow Agent, Refunding Bonds - - (6,935,000) (6,935,000)Bond Premium - - 297,698 297,698

TOTAL OTHER FINANCING SOURCES (USES) 4,030 - 212,698 216,728

NET CHANGE IN FUND BALANCES 1,834,659 (399,299) - 1,435,360

FUND BALANCES - BEGINNING 6,545,320 2,818,112 - 9,363,432

FUND BALANCES - ENDING 8,379,979$ 2,418,813$ -$ 10,798,792$


GOVERNMENTAL FUNDS

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES




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NET CHANGE IN FUND BALANCES - GOVERNMENTAL FUNDS 1,435,360$

Amounts reported for governmental activities in the statement

of activities are different because:

Governmental funds report capital outlays as expenditures.However, in the statement of activities, the cost of those assets isallocated over their estimated useful lives as depreciation expense.

Capital Outlays 1,099,922$

Less: Depreciation Expense (2,436,963) (1,337,041)

Because some property taxes will not be collected for severalmonths after the District's year-end, they are not considered as"available" revenues in the governmental funds. Unavailablerevenues increased (decreased) by this amount during the year. 23,978

Issuance of long-term debt provides current financial resources togovernmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. However, neither transaction has any effecton net position. Also, governmental funds report the effect of

premiums, discounts, and similar items when debt is first issued,whereas these amounts are deferred and amortized in thestatement of activities. Repayment of bond principal is anexpenditure in the governmental funds, but the repayment reduceslong-term liabilities in the statement of net position. The effect ofthese transactions in the statement of activities is shown below:

Repayment of Bond Principal 3,100,000Proceeds from Refunding Bonds (6,850,000)Payment to Escrow Agent, Refunding Bonds 6,935,000Bond Premium (297,698)

Amortization of Bond Discount (15,296)

Amortization of Bond Premium 104,950Amortization of Deferred Charge (53,476) 2,923,480



EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES,

GOVERNMENT-WIDE STATEMENT OF ACTIVITIES



21/80

Interest on long-term debt in the statement of activities differs from theamount reported in the governmental funds because interest isrecognized as an expenditure in the funds when it is due, and thusrequires the use of current financial resources. In the statement of activities, interest expense is recognized as the interest accrues,regardless of when it is due. The adjustment for interest accrued in thestatement of activities compared to the amount paid is shown here. 34,196

In the statement of activities, certain operating expenses - compensatedabsences (vacations and sick days) are measured by the amounts

earned during the year. In the governmental funds; however,expenditures for these items are measured by the amount of financialresources used. This amount represents the difference between theamount earned versus the amount used. 240,739

Postemployment benefits are recognized when they are paid on the fundstatements. With the implementation of GASB #45, an estimated liabilityfor future benefits due will be phased in over several years. This amountrepresents the difference between the estimated annual cost and theamount paid. (149,931)

CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES 3,170,781$



GOVERNMENT-WIDE STATEMENT OF ACTIVITIES - CONTINUED

EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE

RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES,



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Enterprise FundFood Service

ASSETS

CURRENT ASSETS

Cash and Cash Equivalents 274,665$Intergovernmental Receivables 7,808Other Receivables 10Inventories 26,389Prepaid Expenses 170

TOTAL CURRENT ASSETS 309,042

NONCURRENT ASSETS

Fixtures and Equipment, Net 27,433

TOTAL ASSETS 336,475

LIABILITIES

CURRENT LIABILITIES

Accounts Payable 43

Interfund Payable 12,442Accrued Salaries and Benefits 103Unearned Revenues 12,885

TOTAL LIABILITIES 25,473

NET POSITION

Net Investment in Capital Assets 27,433Unrestricted 283,569

TOTAL NET POSITION 311,002$


June 30, 2013

PROPRIETARY FUND




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OPERATING REVENUESFood Service Revenue 324,688$

OPERATING EXPENSESSalaries 267,878Employee Benefits 89,334Purchased Services 5,270Supplies 313,257Depreciation 16,150

Repairs and Maintenance 15,924

TOTAL OPERATING EXPENSES 707,813

OPERATING LOSS (383,125)

NONOPERATING REVENUESLocal Sources - Earnings on Investments 688State Sources 26,188Federal Sources 420,492

TOTAL NONOPERATING REVENUES 447,368

CHANGE IN NET POSITION 64,243

NET POSITION - BEGINNING 246,759

NET POSITION - ENDING 311,002


PROPRIETARY FUND

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION




24/80


CASH FLOWS FROM OPERATING ACTIVITIES

Cash Received from Users 325,228$Cash Payments to Employees for Services (389,377)Cash Payments to Suppliers for Goods and Services (300,091)

NET CASH USED FOR OPERATING ACTIVITIES (364,240)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES

State Sources 26,184

Federal Sources 374,490

NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES 400,674

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES

Purchase of Capital Assets (21,729)

CASH FLOWS FROM INVESTING ACTIVITIES

Earnings on Investments 688

NET INCREASE IN CASH AND CASH EQUIVALENTS 15,393

CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 259,272

CASH AND CASH EQUIVALENTS - END OF YEAR 274,665$


PROPRIETARY FUND

STATEMENT OF CASH FLOWS




25/80


Reconciliation of Operating Loss to Net Cash Used For Operating Activities:

Operating Loss (383,125)$

Adjustments to Reconcile Operating Loss to Net Cash UsedFor Operating Activities:

Depreciation 16,150Donated Commodities Used 43,282

Changes in Assets and Liabilities:Other Receivables (10)Prepaid Expenses (170)Inventories (8,761)

Accounts Payable 9Unearned Revenues 550Interfund Payable (32,165)

Total Adjustments 18,885

NET CASH USED FOR OPERATING ACTIVITIES (364,240)$

NONCASH NONCAPITAL FINANCING ACTIVITIES

During the year, the District used $43,282 of commodities from the U.S. Department of Agriculture.


PROPRIETARY FUND

STATEMENT OF CASH FLOWS - CONTINUED




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AgencyPrivate Purpose Funds

Trust Fund StudentScholarship Activities

ASSETS

CURRENT ASSETS

Cash and Investments 197,674$ 112,540$

TOTAL ASSETS 197,674 112,540$

LIABILITIES

CURRENT LIABILITIES

Other Current Liabilities - 112,540$

TOTAL LIABILITIES 112,540$

NET POSITIONHeld in Trust for Scholarships 197,674$

June 30, 2013

FIDUCIARY FUNDS





27/80

Private PurposeTrust FundScholarship

ADDITIONS

Investment Income 5,953$Donations 21,601 Total Additions 27,554

DEDUCTIONS

Scholarships 23,607

CHANGE IN NET POSITION 3,947

NET POSITION - BEGINNING OF YEAR 193,727

NET POSITION - END OF YEAR 197,674$


FIDUCIARY FUNDS

STATEMENT OF CHANGES IN NET POSITION




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16


NOTES TO BASIC FINANCIAL STATEMENTS

June 30, 2013

The Octorara Area School District (the "District") is a unit established, organized, and empowered bythe Commonwealth of Pennsylvania for the express purpose of carrying out, on the local level, thecommonwealths obligation to public education, as established by the constitution of the commonwealthand by the School Law Code of the same (Article II; Act 150, July 8, 1968). The Octorara Area SchoolDistrict is a combination of three boroughs and five townships in Lancaster and Chester County.Lancaster County consists of Christiana Borough and Sadsbury Township, while Chester Countyconsists of the boroughs of Parkesburg and Atglen and the townships of West Sadsbury, WestFallowfield, Highland, and Londonberry.

As specified under the School Law Code of the Commonwealth of Pennsylvania, this and all otherschool districts of the state shall be and hereby are vested as, bodies corporate, with all necessarypowers to carry out the provisions of this act (Article II, Section 211).

The District is governed by a board of nine school directors who are residents of the School District andwho are elected every two years, on a staggered basis, for a four-year term. The board of schooldirectors has the power and duty to establish, equip, furnish, and maintain a sufficient number ofelementary, secondary and other schools necessary to educate every person residing in such district,between the ages of six and twenty-one years, who may attend.

The superintendent is the chief administrative officer and chief instructional officer of the board and theDistrict and is responsible for the execution of all actions of the board. Subject to the policies anddirection of the board, the superintendent is responsible for the administration and operation of thepublic school system and oversees all matters pertaining to instruction. The superintendent managesthe District with the assistance of the business administrator, director of operations, the director of

special education, as well as the building principals.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Repor ting Ent ity

As required by generally accepted accounting principles, the financial statements of the reportingentity include those of the District (the primary government) and its component units.

The District used guidance contained in generally accepted accounting principles to evaluate the

possible inclusion of related entities (authorities, boards, etc.) within its reporting entity. Thecriteria used by the District for inclusion are financial accountability and the nature and significanceof the relationships. In determining financial accountability in a given case, the District reviews theapplicability of the following criteria. The District is financially accountable for:

Organizations that make up the legal District entity.


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June 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES- CONTINUED

A. Repor ting Ent ity - cont inued

Legally separate organizations if District officials appoint a voting majority of theorganizations' governing body and the District is able to impose its will on the organization,or if there is a potential for the organization to provide specific financial benefits to, orimpose specific financial burdens on, the District as defined below.

Impose its will- If the District can significantly influence the programs, projects or activitiesof, or the level of services performed or provided by, the organization.

Financial benefit or burden - exists if the District (1) is entitled to the organization'sresources; (2) is legally obligated or has otherwise assumed the obligation to finance thedeficits of, or provide support to, the organization; or (3) is obligated in some manner for thedebt of the organization.

Organizations that are fiscally dependent on the District. Fiscal dependency is established ifthe organization is unable to adopt its budget, levy taxes, set rates or charges, or issuedbonded debt without approval by the District.

Based on the foregoing criteria, the District has determined it has no component units.

Governments commonly enter into special arrangements with each other to provide or obtainneeded services. A common type of such an arrangement is a joint venture. In addition to jointventures, governments also enter into contracts to plan for and address certain activities for theirmutual benefits; i.e., a jointly governed organization. The District has one of each of theserelationships:

Joint Venture: The District is a participating member of the Chester County Technical CollegeHigh School (formerly the Center for Arts and Technology). See Note 10 for details ofinvolvement and financial information of the joint venture.

Jointly Governed Organizations: The District is a participating member of the Chester CountyIntermediate Unit (CCIU). The CCIU is run by a joint committee consisting of members from

each participating district. No participating district appoints a majority of the joint committee.The board of school directors of each participating district must approve CCIUs annualoperating budget.

The CCIU is a self-sustaining organization that provides services for fees to participatingdistricts. As such, the District has no ongoing financial interest or responsibility in the CCIU.The CCIU contracts with participating districts to supply special education services, computerservices, and to act as a conduit for certain federal programs.


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June 30, 2013


B. Basis of Presentation - Government-Wide Financial Statements

Government-wide financial statements (i.e., the statement of net position and the statement ofactivities) display information about the reporting entity, except for its fiduciary activities. Allfiduciary activities are reported only in the fund financial statements. The government-widestatements include separate columns for the governmental and business-type activities of theprimary government, as well as any discretely presented component units. Governmentalactivities, which normally are supported by taxes, intergovernmental revenues, and othernonexchange transactions are reported separately from business-type activities which rely to asignificant extent, on fees and charges for support. Likewise, the primary government is reportedseparately from the legally separate component units for which the primary government isfinancially accountable.

Governmental activities are supported by taxes and intergovernmental revenues while business-type activities are supported by user charges and fees. The statement of activities demonstratesthe level to which the direct expenses of a given function to the District are offset by the programrevenues related to that function. Direct expenses are those that are directly related to and clearlyidentified with a function. Program revenues include charges to customers or others whopurchase, use or directly benefit from services or goods provided by a given function or grants andcontributions that are restricted to meet the operational or capital requirements of a function. Otheritems not includable in program revenues are reported as general revenues.

As a general rule, the effect of interfund activity has been eliminated from the government-widefinancial statements. Exceptions to this general rule are the contributions made to any componentunits from the Districts governmental funds and transfers between governmental funds andbusiness-type and fiduciary funds. Elimination of these contributions would distort the direct costsand program revenues reported for the various functions concerned.

C. Basis of Presentation - Fund Financial Statements

The fund financial statements provide information about the governments funds, including itsfiduciary funds. Separate financial statements are provided for governmental funds, proprietaryfunds, and fiduciary funds. The emphasis of fund financial statements is on major governmentaland enterprise funds, each displayed in a separate column. All remaining governmental funds are

aggregated and reported as nonmajor funds. Major individual governmental and enterprises fundsare reported as separate columns in the fund financial statements.

The District Reports the Following Major Governmental Funds:

General Fund: This fund is established to account for resources devoted to financing thegeneral services that the District performs. Intergovernmental revenues and other sources ofrevenue used to finance the fundamental operations of the District are included in this fund.The fund is charged with all costs of operating the District for which a separate fund has notbeen established.


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June 30, 2013


C. Basis of Presentation - Fund Financial Statements - cont inued

Capital Projects Fund: This fund is established to account for bond proceeds to be used forthe acquisition or construction of major capital equipment and facilities (other than thosefinanced by proprietary funds).

Debt Service Fund: This fund is established for the purpose of accumulating resources for thepayment of interest and principal on long-term general obligation debt.

The District has the Following Major Enterprise Fund:

Food Service Fund: This fund accounts for all revenues, food purchases, and costs andexpenses for the food service program. The food service fund is the Districts only majorenterprise fund where the intent of the governing body is that the costs of providing foodservices are covered by user charges and subsidies received.

Addi tionally, the Dist ri ct Reports the Following Fund Type:

Fiduciary Funds: The Districts fiduciary funds include trust funds and agency funds. Trustfunds are used to account for assets held by the district under a trust agreement for individuals,private organizations, or other governments and are therefore, not available to support the

Districts own programs. The Districts only trust funds are the private-purpose trust funds.Agency funds are custodial in nature (assets equal liabilities) and do not involve measurementof results of operations. The Districts student activity fund is an agency fund.

During the course of operations, the government has activity between funds for various purposes.Any residual balances outstanding at year-end are reported as interfund receivables and interfundpayables. While these balances are reported in fund financial statements, certain eliminations aremade in the preparation of the government-wide financial statements. Balances between thefunds included in governmental activities (i.e., the governmental and internal service funds) areeliminated so that only the net amount is included as internal balances in the governmentalactivities column. Similarly, balances between the funds included in business-type activities (i.e.,the enterprise funds) are eliminated so that only the net amount is included as internal balances in

the business-type activities column.

Further, certain activity occurs during the year involving transfers of resources between funds. Infund financial statements these amounts are reported at gross amounts as transfers in/out. Whilereported in fund financial statements, certain eliminations are made in the preparation of thegovernment-wide financial statements. Transfers between the funds included in governmentalactivities are eliminated so that only the net amount is included as transfers in the governmentalactivities column. Similarly, balances between the funds included in business-type activities areeliminated so that only the net amount is included as transfers in the business-type activitiescolumn.


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June 30, 2013


D. Measurement Focus and Basis of Account ing

The accounting and financial reporting treatment is determined by the applicable measurementfocus and basis of accounting. Measurement focus indicates the type of resources being measuredsuch as current financial resources or economic resources. The basis of accounting indicates thetiming of transactions or events for recognition in the financial statements.

The government-wide financial statements are reported using the economic resourcesmeasurement focus, and the accrual basis of accounting. Revenues are recorded when earned

and expenses are recorded when a liability is incurred, regardless of the timing of related cashflows. Property taxes are recognized as revenue in the year for which they are levied. Grants andsimilar items are recognized as revenue as soon as all eligibility requirements imposed by theprovider have been met.

The governmental fund financial statements are reported using the current financial resourcesmeasurement focus and the modified accrual basis of accounting. Revenues are recognized assoon as they are both measurable and available. Revenues are considered to be available whenthey are collectible within the current period or soon enough thereafter to pay liabilities of thecurrent period. For this purpose, the government considers revenues to be available if they arecollected within 60 days of the end of the current fiscal period. Expenditures generally are recordedwhen a liability is incurred, as under accrual accounting. However, debt service expenditures, aswell as expenditures related to compensated absences, and claims and judgments, are recordedonly when payment is due. General capital asset acquisitions are reported as expenditures ingovernmental funds. Issuance of long-term debt and acquisitions under capital leases are reportedas other financing sources.

Property taxes, licenses, and interest associated with the current fiscal period is considered to besusceptible to accrual and so has been recognized as revenue of the current fiscal period.Expenditure-driven grants are recognized as revenue when the qualifying expenditures have beenincurred and all other eligibility requirements have been met, and the amount is received during theperiod or within the availability period for this revenue source (within 60 days of year-end). All otherrevenue items are considered to be measurable and available only when cash is received by thegovernment.

The proprietary fund is reported using the economic resources measurement focusand the accrualbasis of accounting. The agency fund has no measurement focus but utilizes the accrual basis ofaccounting for reporting its assets and liabilities.


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June 30, 2013

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

E. Budgetary Information

1. Budgetary Basis of Accoun ting

Annual budgets are adopted on a basis consistent with generally accepted accounting principlesfor the general fund in accordance with the PA School Code of 1949, as amended. Budgetarycontrol is legally maintained at the function level within the General Fund. The PA School Codeallows the District board to make budgetary transfers between major function and major objectcodes only within the last nine months of the fiscal year, unless there is a two-thirds majority of

the school directors approving the transfer.

All budget amounts presented in the accompanying financial statements have been adjusted forlegally authorized revisions of the annual budget during the year. Appropriations, exceptunexpended grant appropriations and encumbrances, lapse at the end of each fiscal year.

No budget has been adopted for the capital projects fund.

F. Assets, Liabili ties, Deferred Inflows/Outflows of Resources, and Net Posit ion/Fund Balance

1. Cash and Cash Equivalents

The Districts reporting entity considers all highly-liquid investments with a maturity of threemonths or less when purchased to be cash equivalents.

2. Investments

Investments are reported at fair value (generally based on quoted market prices).

3. Receivables/Payables

Activity between funds that is representative of lending/borrowing arrangements outstandingat the end of the year are referred to as interfund receivables/payables. Any residualbalances outstanding between the governmental and business-type activities are reported inthe government-wide financial statements as internal balances.


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June 30, 2013


F. Assets, Liabili ties, Deferred Inflows/Outflows of Resources, and Net Posi tion/Fund Balance -continued

4. Inventories

On government-wide financial statements, inventories are presented at the lower of cost ormarket on a first-in, first-out basis and are expensed when used.

Inventories of the governmental funds, consisting principally of textbooks and instructional

supplies, are not valued since it is the policy of the District to charge these items to expenseupon acquisition.

Inventories of the Enterprise Fund consisting of food and paper supplies are carried at cost,using the first-in, first-out method. Federal donated commodities are valued at their fairmarket value as determined by the U.S. Department of Agriculture at the date of donation.The inventories on hand at June 30, 2013, consist of the following:

Purchased food and supplies $ 18,175Donated commodities 8,214

$ 26,389

5. Capital Assets, Depreciation, and Amor tization

The Districts property, plant, and equipment, with useful lives of more than one year arestated at historical cost and comprehensively reported in the government-wide financialstatements. Proprietary capital assets are also reported in their respective financialstatements. The reported value excludes normal maintenance and repairs which areessentially amounts spent in relation to capital assets that do not increase the capacity orefficiency of the item or extend its useful life beyond the original estimate. In the case ofdonations, the government values these capital assets at the estimated fair value of the itemat the date of its donation.

The District generally capitalizes assets with a cost of $1,500 or more as purchase andconstruction outlays occur. Management has elected to include certain homogeneous assetcategories with individual assets less than $1,500 as composite groups for financial reportingpurposes. Assets purchased or constructed with long-term debt may be capitalizedregardless of the threshold established. The costs of normal maintenance and repairs that donot add to the asset value or materially extend useful lives are not capitalized. Capital assets,including those of component units, are depreciated using the straight-line method. Whencapital assets are disposed, the cost and applicable accumulated depreciation are removedfrom the respective accounts, and the resulting gain or loss is recorded in operations.


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June 30, 2013


F. Assets, Liabili ties, Deferred Inflows/Outflows of Resources, and Net Posi tion/Fund Balance -continued

5. Capital Assets, Depreciation, and Amor tization - cont inued

Estimated useful lives, in years, for depreciable assets are as follows:

Assets Years

Site Improvements 10 - 20Building and Building Improvements 20 - 50Fixtures and Equipment 5 - 10

Interest costs incurred during the construction phase of capital assets are capitalized whenincurred by proprietary funds and similar component units on debt where proceeds were usedto finance the construction of assets.

6. Deferred Outflows/Inflows of Resources

In addition to assets, the statement of net position will sometimes report a separate section fordeferred outflows of resources. This separate financial statement element, deferred outflows

of resources, represents a consumption of net position that applies to a future period(s) andso will not be recognized as an outflow of resources (expense/expenditure) until then. TheDistrict has one item that qualifies for reporting in this category, which is a deferred charge onbond refunding reported in the government-wide statement of net position. A deferred chargeon bond refunding results from the difference in the carrying value of refunded debt and itsreacquisition price. This amount is deferred and amortized over the shorter of the life of therefunded or refunding debt.

In addition to liabilities, the statement of net position will sometimes report a separate sectionfor deferred inflows of resources. This separate financial statement element, deferred inflowsof resources,represents an acquisition of net position that applies to a future period(s) and sowill not be recognized as an inflow of resources (revenue) until that time. The government

has only one type of item, which arises only under a modified accrual basis of accounting, thatqualifies for reporting in this category. Accordingly, the item, unavailable revenue, is reportedonly in the governmental funds balance sheet. The governmental funds report unavailablerevenues from one source - property taxes. These amounts are deferred and recognized asan inflow of resources in the period that the amounts become available.


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F. Assets, Liabili ties, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance -continued

7. Unearned Revenues

Revenues that are received but not earned are reported as unearned revenues in thegovernment-wide and fund financial statements. Unearned revenues arise when resourcesare received prior to the incurrence of qualifying expenditures. In subsequent periods, whenboth revenue recognition criteria are met, or when the District has legal claim to the resources,

the liability for unearned revenue is removed from the respective financial statements andrevenue is recognized.

8. Net Position Flow Assumptions

Sometimes the government will fund outlays for a particular purpose from both restricted (e.g.,restricted bond or grant proceeds) and unrestricted resources. In order to calculate theamounts to report as restricted - net position and unrestricted - net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about theorder in which the resources are considered to be applied.

It is the governments policy to consider restricted - net position to have been depleted beforeunrestricted - net position is applied.

9. Fund Balance Flow Assumptions

Sometimes the government will fund outlays for a particular purpose from both restricted andunrestricted resources (the total of committed, assigned, and unassigned fund balance). Inorder to calculate the amounts to report as restricted, committed, assigned, and unassignedfund balance in the governmental fund financial statements a flow assumption must be madeabout the order in which the resources are considered to be applied. It is the Districts policyto consider restricted fund balance to have been depleted before using any of the componentsof unrestricted fund balance. The Districts policy places no restrictions on the order of theunrestricted fund balances used. The order of the unrestricted fund balances used fordisbursements is at the discretion of the business manager.

10. Fund Balance Policies

Fund balance of governmental funds is reported in various categories based on the nature ofany limitations requiring the use of resources for specific purposes. The government itself canestablish limitations on the use of resources through either a commitment (committed fundbalance) or an assignment (assigned fund balance).


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F. Assets, Liabili ties, Deferred Inflows/Outflows of Resources, and Net Position/Fund Balance -continued

10. Fund Balance Policies - continued

The committed fund balance classification includes amounts that can be used only for thespecific purposes determined by a formal action of the governments highest level of decision-making authority. The board of school directors is the highest level of decision-makingauthority for the government that can, by adoption of a resolution prior to the end of the fiscal

year, commit fund balance. Once adopted, the limitation imposed by the resolution remains inplace until a similar action is taken (the adoption of another resolution) to remove or revise thelimitation.

Amounts in the assigned fund balance classification are intended to be used by thegovernment for specific purposes but do not meet the criteria to be classified as committed.The finance committee may assign fund balance. Unlike commitments, assignmentsgenerally only exist temporarily. In other words, an additional action does not normally haveto be taken for the removal of an assignment. Conversely, as discussed above, an additionalaction is essential to either remove or review a commitment.

The unassigned fund balance of the general fund at the end of each fiscal year-end shall notbe less than six percent of the following years projected budgeted expenditures. In any fiscalyear where the District is unable to maintain this minimum reservation of fund balance asrequired in this section, the District shall not budget any amount of unassigned fund balancefor the purpose of balancing the general fund budget until this level is achieved.

G. Revenues and Expendi tures/Expense

1. Program Revenues

Amounts reported as program revenues include 1) charges to customers or applicants whopurchase, use, or directly benefit from goods, services, or privileges provided by a givenfunction or segment and 2) grants and contributions (including special assessments) that arerestricted to meeting the operations or capital requirements of a particular function orsegment. All taxes and other internally dedicated resources are reported as general revenuesrather than as program revenues.


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G. Revenues and Expenditures/Expense - cont inued

2. Compensated Absences

Vacation LeaveVacation days are earned at various rates and are required to be utilized annually, except thattwo times your allotment may be carried forward. The District maintains records of allemployees accumulated vacation days.

Sick PaySick pay is accumulated with a 250 day limit per employee at the rate of one day for eachmonth worked. Leave with pay is provided when employees are absent for health reasons.Personal days are earned during the year and are carried over with no limit. Eligibleemployees are vested at the completion of 10 to 15 years of service to the District and arethen eligible for payment for each sick day accumulated. Payment amount ranges from $20 to$75 per day based on position. Eligible employees must retire from service to receive thisbenefit.

Longevity BonusA longevity bonus is earned when an administrator completes ten consecutive years ofservice as an administrator in the school district or a teacher completes 15 consecutive years

with the district. The bonus is calculated on the salary of the last completed school year times3/10 of one percent (.003) times the number of year of service. Teachers are limited to$2,500 while there is no limit for administrators. The District accrues for any administrator orteacher who qualifies for the bonus.

3. Proprietary Funds Operating and Nonoperating Revenues and Expenses

Proprietary funds distinguish operating revenues and expenses from nonoperating items.Operating revenues and expenses generally result from providing services and producing anddelivering goods in connection with a proprietary funds principal ongoing operations. Theprincipal operating revenues of the food service fund are charges to customers for meals andservices provided. Operating expenses for proprietary funds include the cost of sales andservices, administrative expenses, and depreciation on capital assets. All revenues andexpenses not meeting this definition are reported as nonoperating revenues and expenses.


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H. Other Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect certain reported amountsand disclosures. Accordingly, actual results could differ from those estimates.

NOTE 2 - CASH AND CASH EQUIVALENTS AND INVESTMENTS

CashCustodial Credit Risk - DepositCustodial credit risk is the risk that in the event of a bank failure, the governments deposits may not bereturned. The District does have a policy for custodial credit risk on deposits. At June 30, 2013, thecarrying amount of the Districts deposits was $2,183,323 and the bank balance was $2,288,659. Ofthe bank balance, $250,000 was covered by federal depository insurance, and $2,038,659 wasexposed to custodial credit risk because it was uninsured and the collateral held by the depositorysagent was not in the Districts name.

A portion of the Districts deposits are in the Pennsylvania School District Liquid Asset Fund (PSDLAF)and are disclosed under investments below.

InvestmentsUnder Section 440.1 of the Public School Code of 1949, as amended, the District is permitted to investfunds in the following types of investments:

Obligations of (a) the United States of America or any of its agencies or instrumentalities backed bythe full faith and credit of the United States of America, (b) the Commonwealth of Pennsylvania orany of its agencies or instrumentalities backed by the full faith and credit of the commonwealth, or(c) any political subdivision of the Commonwealth of Pennsylvania or any of its agencies orinstrumentalities backed by the full faith and credit of the political subdivision.

Deposits in savings accounts, time deposits or share accounts of institutions insured by the FederalDeposit Insurance Corporation to the extent that such accounts are so insured and, for anyamounts above the insured maximum, provided that approval collateral as provided by lawtherefore, shall be pledged by the depository.


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NOTE 2 - CASH AND CASH EQUIVALENTS AND INVESTMENTS - CONTINUED

As of June 30, 2013, the District had the following investments:

Maturities Fair Value

PA School District Liquid Asset Fund (PSDLAF) 6,908,974$GS Financial Square Federal Money Market Fund 441,166Certificates of Deposit 6 to 12 months 3,746,925Client Interest Program 2,250Oppenheimer Global Strategic Income Fund 6,529Oppenheimer Global Allocation Fund Class A 22,431

US Government Securities Class B - American Funds 21,160Eaton Vance Floating Rate Advantage Fund 19,714Fidelity Advisor Government Income Fund Class A 25,106MFS Utilities Fund Class A 14,546Money Market Account 9,405

11,218,206$Total Investments

A portion of the Districts deposits are in the Pennsylvania School District Liquid Asset Fund (PSDLAF).Although not registered with the Securities and Exchange Commission and not subject to regulatoryoversight, the funds act like money market mutual funds in that their objective is to maintain a stable netasset value of $1 per share, is rated by a nationally recognized statistical rating organization, and is

subject to an independent annual audit.

Interest Rate RiskThe District does have a formal investment policy that limits investment maturities as a means ofmanaging its exposure to fair value losses arising from increasing interest rates.

Credit RiskThe District has an investment policy that would limit its investment choices to certain credit ratings. Asof June 30, 2013, the Districts investments were rated as:

Standard

Investments & Poor's

PA School District Liquid Asset Fund AAAGS Financial Square Federal Money Market Fund AAA

Oppenheimer Global Strategic Income Fund *

Oppenheimer Global Allocation Fund Class A *

US Government Securities Class B - American Funds *

Eaton Vance Floating Rate Advantage Fund *

Fidelity Advisor Government Income Fund Class A *

MFS Utilities Fund Class A *

* Mutual funds not subject to credit rating


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NOTE 2 - CASH AND CASH EQUIVALENTS AND INVESTMENTS - CONTINUED

Concentration of Credit RiskThe District does have a policy that would limit the amount they may invest in any one issue. All of theDistricts investments are issued or guaranteed by the U.S. Government and investments in mutualpools are excluded from this risk.

Custodial Credit RiskFor an investment, custodial credit is the risk that, in the event of the failure of the counterparty, theDistrict will not be able to recover the value of its investments or collateral security that are in thepossession of an outside party. The District has no investment subject to custodial credit risk.

NOTE 3 - TAXES RECEIVABLE AND UNAVAILABLE REVENUE

Assessed values for real estate tax are established by the County Board of Assessment. All taxablereal property was assessed at $237,120,300 and $669,820,059 for Lancaster and Chester County,respectively. The District tax rate for the year ended June 30, 2013 was 27.49 and 36.66 per $1,000 ofassessed valuation for Lancaster and Chester County, respectively. The schedule for real estate taxeslevied for each fiscal year is as follows:

July 1 Levy date

July 1 - August 31 2% discount periodSeptember 1 - Octob

Documents

Octorara Area School District - Financial and Compliance Report