Floyd County Board of Education, Rome, Georgia, annual financial report for the fiscal year ended 2016 June 30 (including independent auditor's reports)

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FLOYD COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2016

INTRODUCTION
The School District's financial statements for the fiscal year ended June 30, 2016 includes a series of basic financial statements that report financial information for the School District as a whole, its funds, and its fiduciary responsibilities. The Statement of Net Position and the Statement of Activities provide financial information about all of the School District's activities and present both a shortterm and long-term view of the School District's finances on a global basis. The fund financial statements provide information about all of the School District's funds. Information about these funds, such as the School District's general fund, is important in its own right, but will also give insight into the School District's overall soundness as reported in the Statement of Net Position and the Statement of Activities.
FINANCIAL HIGHLIGHTS
Key financial highlights for 2016 fiscal year are as follows:
On the government-wide financial statements:
The School District's net position at June 30, 2016 was $72.1 million. Net position reflects the difference between all assets and deferred outflows of resources of the School District (including capital assets, net of depreciation) and all liabilities, both shortterm and long-term, and deferred inflows of resources. The net position at June 30, 2016 of $72.1 million represented an increase of almost $4.5 million when compared to the prior year. The increase in net position has been reduced by a restatement of capital assets as of July 1, 2015, due to correction of inflated capital assets balances in the amount of $6.8 million, which occurred in prior years due to an internal fraud.
The School District had $105.5 million in expenses relating to governmental activities; $69.6 million of these expenses were offset by program specific charges for services, grants and contributions. However, general revenues (primarily property and sales taxes) of $47.2 million were adequate to provide for these programs.
As stated above, general revenues accounted for $47.2 million or 40.4% of all revenues totaling almost $116.8 million. Program specific revenues in the form of charges for services, grants, and contributions accounted for the balance of these revenues. (Percentages in table below have been rounded to one decimal place.)

Source of Revenues
Program Revenues 59.6%

General Revenue Property Taxes 27.3%
General Revenue Sales Taxes 7.8%

General Revenue All Other 5.3%

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FLOYD COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2016
On the fund financial statements:
Among major funds, the general fund had $108.3 million in revenues and $104.5 million in expenditures. The general fund balance of $15.7 million at June 30, 2016 remained virtually unchanged as compared to prior year.
OVERVIEW OF THE FINANCIAL STATEMENTS
These financial statements consists of three parts; management's discussion and analysis (this section), the basic financial statements including notes to the financial statements and required supplementary information. The basic financial statements include two levels of statements that present different views of the School District. These include the government-wide and fund financial statements.
The government-wide financial statements include the `Statement of Net Position' and `Statement of Activities'. These statements provide information about the activities of the School District presenting both short-term and long-term information about the School District's overall financial status.
The fund financial statements focus on individual parts of the School District, reporting the School District's operation in more detail. The `Governmental Funds' statements disclose how basic services are financed in the short-term as well as what remains for future spending. The `Fiduciary Funds' statements provide information about the financial relationships in which the School District acts solely as a trustee or agent for the benefit of others. In the case of the Floyd County School District, the general fund, capital projects funds, and debt service funds are all considered to be major funds. The School District has no funds reported as nonmajor funds as defined by generally accepted accounting principles.
The financial statements also include notes that explain some of the information in the statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the financial statements. Additionally, other supplementary information (not required) is also presented that further supplements understanding of the financial statements.
Government-Wide Statements
Since Floyd County School District has no operations that have been classified as "Business Activities", the government-wide financial statements are basically a consolidation of all of the School District's operating funds into one column called governmental activities. In reviewing the government-wide financial statements, a reader might ask the question, are we in a better financial position now than last year? The `Statement of Net Position' and the `Statement of Activities' provides the basis for answering this question. These financial statements include all School District's assets and liabilities and uses the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into account all of the current year's revenues and expenses regardless of when cash is received or paid.
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FLOYD COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2016
These two statements report the School District's net position and any changes in net position. The change in net position is important because it tells the reader that, for the School District as a whole, the financial position of the School District has improved or diminished. The causes of this change may be the results of many factors, including those not under the School District's control, such as the property tax base, facility conditions, required educational programs, student-teacher ratios, and other factors.
When analyzing government-wide financial statements, it is important to remember these statements are prepared using an economic resources measurement focus (accrual accounting) and involve the following steps to format the Statement of Net Position:
x Capitalize current outlays for capital assets x Depreciate capital assets x Report long-term debt, including pension obligations, as a liability x Calculate revenue and expense using the economic resources measurement focus and the
accrual basis of accounting x Allocate net position as follows:
o Net Investment in capital assets o Restricted net position is amounts with constraints placed on the use by external
sources such as creditors, grantors, contributors or laws and regulations. o Unrestricted for no specific use
Fund Financial Statements
The School District uses many funds or sub-funds to account for a multitude of financial transactions during the fiscal year. The fund financial statements presented in this report provide detail information about the School District's significant or major funds. As discussed previously, the School District has no nonmajor funds as defined by generally accepted accounting principles.
The School District has two kinds of funds as discussed below:
Governmental Funds Most of the School District's activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using the modified accrual method of accounting which measures cash and all other financial assets that can be readily be converted to cash. The governmental fund statements provide a detailed short-term view of the School District's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The differences between government activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds are reconciled in the financial statements.
Fiduciary Funds The School District is the trustee, or fiduciary, for assets that belong to clubs, organizations and others within the principals' accounts. The School District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. The School District excludes these activities from the governmentwide financial statements because it cannot use these assets to finance its operations.
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FLOYD COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2016

FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT AS A WHOLE

Net position, which is the difference between total assets and deferred outflows of resources, and total liabilities and deferred inflows of resources, is one indicator of the financial condition of the School District. When revenues exceed expenses, the result is an increase in net position. When expenses exceed revenues, the result is a decrease in net position. The relationship between revenues and expenses can be thought of as the School District's operating results. The School District's net position, as measured in the Statement of Net Position is one way to measure the School District's financial health, or financial position. Over time, increases or decreases in the School District's net position, as measured in the Statement of Activities, are one indicator of whether its financial health is improving or deteriorating. However, the School District's goal and mission is to provide success for each child's education, not to generate profits as private corporations do. For this reason, many other nonfinancial factors should be considered in assessing the overall health of the School District.

In the case of the Floyd County School District, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $72.1 million at June 30, 2016. To better understand the School District's actual financial position and ability to deliver services in future periods, it is necessary to review the various components of the net position category. For example, of the $72.1 million of net position, $12.1 million was restricted for continuation of various State and Federal programs, debt service and ongoing capital projects. Accordingly, these funds were not available to meet the School District's ongoing obligations to citizens and creditors.

In addition, the School District had $131.0 million (net of related debt) invested in capital assets (e.g., land, buildings, and equipment). The School District uses these capital assets to provide educational services to students within geographic boundaries served by the School District. Because of the very nature and on-going use of the assets being reported in this component of net position, it must be recognized that this portion of the net position is not available for future spending.

Because of the restrictions on net position as discussed above and because of the implementation of GASB No. 68 in fiscal year 2015, the School District had a deficit of $71.0 million at June 30, 2016. However, the School District's overall net position can also be viewed in the following manner:

Pension related net position Non pension related net position

$

(88,402,323)

160,542,205

Net pension, June 30, 2016

$

72,139,882

The above analysis reflects, despite pension obligations, the School District's net position is a positive $72.1 million and management believes the School District's financial position is sound.

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FLOYD COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2016

Table 1 provides a summary of the School District's net position for this fiscal year as compared to the prior fiscal year.

Table 1 Net Position

Governmental Activities

Assets Current and Other Assets Capital Assets, Net

Fiscal Year 2016

Fiscal Year 2015 (1)

$ 42,252,108 $ 54,361,687

160,382,044

155,288,983

Total Assets

202,634,152

209,650,670

Deferred Outflows of Resources Total Assets and Deferred Outflows of Resources

8,215,751 210,849,903

7,436,753 217,087,423

Liabilities Current and Other Liabilities Long-Term Liabilities Net Pension Liability

14,398,490 27,693,457 81,509,221

14,430,282 34,037,877 69,046,663

Total Liabilities

123,601,168

117,514,822

Deferred Inflows of Resources

15,108,853

31,891,732

Total Liabilities and Deferred Inflows of Resources

138,710,021

149,406,554

Net Position Net Investment in Capital Assets Restricted Unrestricted (Deficit)
Total Net Position

131,033,566 12,088,744 (70,982,428)

132,917,597 12,031,265 (77,267,993)

$ 72,139,882 $ 67,680,869

(1) Fiscal year 2015 balances do not reflect the effect of the Restatement of Net Position. See Note 15 in the Notes to the Basic Financial Statements for additional information.
Total net position increased $4.5 million in fiscal year 2016 from the prior year. This increase is primarily attributable to revenues exceeding expenses by $11.2 million in fiscal year 2016 less a restatement of capital assets as of July 1, 2015, of $6.8 million. The $11.2 million revenues exceeding expenditures was comparable to the prior year. In connection with deficit shown above, management presents the following additional information:

Total unrestricted net pension (deficit) Less unrestricted deficit in net position
resulting from recognitiion of net pension obligations
Unrestricted net position, exclusive of the net pension liability effect

$ (72,660,056) 88,402,323
$ 15,742,267

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FLOYD COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2016

Table 2 provides a summary of the School District's net position for this fiscal year as compared to the prior fiscal year.
Table 2
Change in Net Position

Revenues Program Revenues: Charges for Services Operating Grants and Contributions Capital Grants and Contributions
Total Program Revenues

Governmental Activities

Fiscal Year 2016

Fiscal Year 2015 (1)

$ 2,247,998 66,470,363 858,377 69,576,738

$ 2,235,303 64,799,839 67,035,142

General Revenues: Property Taxes Sales Taxes Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous
Special Items Loss of Disposal of Capital Assets
Total General Revenues

31,894,405 9,150,334 3,236,149 104,099 3,449,991
(644,403) 47,190,575

31,856,465 8,562,488 4,674,525 94,924 3,337,235
(284,470) 48,241,167

Total Revenues and Special Items

116,767,313

115,276,309

Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Other Support Services Operations of Non-Instructional Services Community Services Food Services Interest on Short-Term and Long-Term Debt

65,876,783
3,939,402 2,456,773 1,297,814 1,956,251 6,973,852
648,546 8,517,447 4,890,085 1,798,720
584,706
317,235 5,684,834
584,597

63,579,400
3,711,457 2,767,193 1,369,443 1,708,732 6,740,896
652,939 8,897,028 4,951,899 1,337,647
534,496
292,980 5,755,845
793,112

Total Expenses

105,527,045

103,093,067

Increase in Net Position

$ 11,240,268

$ 12,183,242

(1) Fiscal year 2015 balances do not reflect the effect of the Restatement of Net Position. See Note 15 in the Notes to the Basic Financial Statements for additional information.

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FLOYD COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2016

Cost of Providing Services

The Statement of Activities shows the cost of program services and the charges for services and grants offsetting these services. Table 3 shows, for governmental activities, the total cost of services and the net cost of services. Net cost of services can be defined as the total cost less fees generated by the activities and intergovernmental revenue provided for specific programs. The net cost reflects the financial burden on the School District's taxpayers by each activity as compared to the prior fiscal year.

Overall School District expenses increased $2.4 million from the prior year, while the net costs of services remained essentially flat from the prior year. This situation occurred because the increase in program revenues essentially kept pace with the increase in expenditures.
Table 3 Cost of Services

Total Cost of Services

Fiscal Year 2016

Fiscal Year 2015 (1)

Net Cost of Services

Fiscal Year 2016

Fiscal Year 2015 (1)

Instruction Support Services
Pupil Services Improvement of Instructional Services Educational Media Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Central Support Services Other Support Services Operations of Non-Instructional Services Community Services Food Services Interest on Short-Term and Long-Term Debt
Total Expenses

$ 65,876,783 $ 63,579,400 $ 14,517,709 $ 14,917,883

3,939,402 2,456,773 1,297,814 1,956,251 6,973,852
648,546 8,517,447 4,890,085 1,798,720
584,706

3,711,457 2,767,193 1,369,443 1,708,732 6,740,896
652,939 8,897,028 4,951,899 1,337,647
534,496

3,370,343 918,263 4,978
1,635,636 3,233,519
569,627 4,715,833 4,227,980 1,691,351
372,944

3,084,280 873,798 95,257
1,401,213 3,008,848
576,660 4,991,029 4,384,360 1,211,440
336,117

317,235 5,684,834
584,597

292,980 5,755,845
793,112

315,452 (207,925) 584,597

291,218 92,710
793,112

$ 105,527,045 $ 103,093,067 $ 35,950,307 $ 36,057,925

(1) Fiscal year 2015 balances do not reflect the effect of the Restatement of Net Position. See Note 15 in the Notes to the Basic Financial Statements for additional information.

FINANCIAL ANALYSIS OF THE SCHOOL DISRICT'S FUNDS
Information about the School District's governmental funds is presented starting on Exhibit "C" of this report. Governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues of $117.7 million and total expenditures of $129.9 million in fiscal year 2016. Total governmental fund balances of $27.3 million at June 30, 2016, decreased $12.1 million from the prior year. This decrease occurred primarily because expenditures for capital outlay in fiscal year 2016 were made from reserves that accumulated in prior years.

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FLOYD COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2016

General Fund Budget Highlights

The School District's budget is prepared according to Georgia Law. The most significant budgeted fund is the general fund. During the course of fiscal year 2016, the School District amended its general fund budget as needed.

The School District budget is adopted at the aggregate level and maintained at the program, function, object, and site levels to facilitate budgetary control. The budgeting systems are designed to control the total budget but provide flexibility to meet the ongoing programmatic needs. The budgeting systems are also designed to control total site budgets but provide flexibility for site management as well.

For the general fund, the final actual revenues of $108.3 million exceeded the final budgeted revenues by $3.3 million. This variance was primarily due to revenues from state funds exceeding the final budgeted amount by $1.0 million and miscellaneous revenues exceeding the final budgeted amount by $2.7 million.

The general fund's final actual expenditures of $104.5 million exceeded the final budget amount by about $700,000. This small variance indicates the School District did a creditable job in forecasting its expenditures for fiscal year 2016.

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

At fiscal year ended June 30, 2016, the School District had $160.4 million invested in capital assets, net of accumulated depreciation. These assets are made up of a broad range of items including buildings; land; land improvements; and food service, transportation and maintenance equipment. Table 4 reflects a summary of these balances, net of accumulated depreciation, as compared to the prior fiscal year.
Table 4
Capital Assets at June 30
(Net of Depreciation)

Governmental Activities

Fiscal Year

Fiscal Year

2016

2015 (1)

Land Construction in Progress Buildings and Improvements Equipment Land Improvements

$ 2,810,285 9,783,687
143,336,548 3,713,136 738,388

$ 2,810,285 16,420,281
130,503,918 4,408,525 1,145,974

Total

$ 160,382,044 $ 155,288,983

(1) Fiscal year 2015 balances do not reflect the effect of the Restatement of Net Position. See Note 15 in the Note to the Basic Financial Statements for additional information.
Additional information about the School District's capital assets can be found in the Notes to the Basic Financial Statements.
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FLOYD COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2016

Long-Term Debt

At June 30, 2016, the School District had $27.7 million in total debt outstanding which consisted of almost $24.2 million in bond debt, $1.8 million in unamortized bond premiums and $1.7 million in capital lease debt. Table 5 summarizes the School District's debt as compared to the prior fiscal year.
Table 5
Change in Long-Term Debt

Governmental Activities

Fiscal Year

Fiscal Year

2016

2015

General Obligation Bonds Payable QZAB Bonds Payable Unamortized Bond Premiums Capital Lease Debt

$ 22,175,000 2,000,000 1,796,424 1,722,033

$ 27,205,000 2,000,000 2,379,049 2,453,828

Total

$ 27,693,457

$ 34,037,877

Additional information about the School District's debt can be found in the Notes to the Basic Financial Statements.
FACTORS BEARING ON THE DISTRICT'S FUTURE
Currently known circumstances that are expected to have a significant effect on financial position or results of operations in future years are as follows:
x The School District is financially stable. The School District's operating millage for fiscal year 2016 was 18.58 mills, which produced over $1.7 million per mill. The School District will construct additional facilities to accommodate the growth at various schools as needed. The School District plans to fund additional capital outlays, in part, with the one percent local sales tax revenue and state capital outlay grants.
x The School District has experienced very little revenue growth in fiscal year 2016 compared to the prior year. General fund revenues increased only about $0.5 million from the prior year, whereas expenditures increased about $1.5 million as compared with the prior year. The general fund had an unassigned fund balance of $12.7 million at June 30, 2016, which was a decrease of $650,000 from the prior year. The Board anticipates significant financial challenges going forward due to expected continued higher health insurance and benefit costs for employees. In spite of these challenges, the School District will continue to be a good steward of tax dollars while providing a quality educational opportunity.
x The School District is involved in an ongoing investigation by both state and local authorities associated with a situation where school personnel were allegedly involved in a fraudulent scheme where inflated invoices were submitted and paid by the School District in return for various types of kickbacks from the vendors involved. The School District intends to prosecute the parties involved and seek reimbursement in this matter. The School District does not believe the outcome of this situation will be detrimental to the School District's ability to continue to deliver quality educational services to the citizenry of Floyd County.

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FLOYD COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2016 CONTACTING THE SCHOOL DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens taxpayers, investors and creditors with a general overview of the School District's finances and to show the School District's accountability for the money it receives. If you have questions about this report or need additional financial information, contact Mr. Chris Toles, Executive Director of Financial Services, Floyd County Board of Education, 600 Riverside Parkway, NE, Rome, Georgia. You may also email your questions to Mr. Toles at ctoles@floydboe.net.
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FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

NOTE 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The Floyd County Board of Education (School District) was established under the laws of the State of Georgia and operates under the guidance of a board elected by the voters and a Superintendent appointed by the Board. The School District is organized as a separate legal entity and has the power to levy taxes and issue bonds. Its budget is not subject to approval by any other entity. Accordingly, the School District is a primary government and consists of all the organizations that compose its legal entity.
BLENDED COMPONENT UNIT
The Floyd County Schools College and Career Academy, Inc. (Charter School) is responsible for the public education of all students attending its school. The Charter School was created through a contract between the School District and the Charter School whereby all State funding associated with the students attending the Charter School and certain specified local funds are used to cover the cost of its operations. The financial statements of the Charter School have been included with the School District's general fund.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the School District have been prepared in conformity with generally accepted accounting principles (GAAP) as prescribed by the Governmental Accounting Standards Board (GASB). GASB is the accepted standard-setting body for governmental accounting and financial reporting principles. The most significant of the School District's accounting policies are described below.
BASIS OF PRESENTATION
The School District's basic financial statements are collectively comprised of the government-wide financial statements, fund financial statements and notes to the basic financial statements. The government-wide statements focus on the School District as a whole, while the fund financial statements focus on major funds. Each presentation provides valuable information that can be analyzed and compared between years and between governments to enhance the information's usefulness.
GOVERNMENT-WIDE STATEMENTS:
The Statement of Net Position and the Statement of Activities display information about the financial activities of the overall School District, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions.
The Statement of Net Position presents the School District's non-fiduciary assets and liabilities, with the difference reported as net position. Net position is reported in three categories as follows:
1. Net investment in capital assets consists of the School District's total investment in capital assets, net of accumulated depreciation, and reduced by outstanding debt obligations related to those capital assets. To the extent debt has been incurred but not yet expended for capital assets, such amounts are not included as a component of net investment in capital assets.
2. Restricted net position consists of resources for which the School District is legally or contractually obligated to spend in accordance with restrictions imposed by external third parties or imposed by law through constitutional provisions or enabling legislation.
3. Unrestricted net position consists of resources not meeting the definition of the two preceding categories. Unrestricted net position often has constraints on resources imposed by management which can be removed or modified.

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FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the School District's governmental activities.
Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses (expenses of the School District related to the administration and support of the School District's programs, such as office and maintenance personnel and accounting) are not allocated to programs.
Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.
FUND FINANCIAL STATEMENTS:
The fund financial statements provide information about the School District's funds, including fiduciary funds. Eliminations have been made to minimize the double counting of internal activities. Separate financial statements are presented for governmental and fiduciary funds. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column.
The School District reports the following major governmental funds:
x The general fund is the School District's primary operating fund. It accounts for and reports all financial resources not accounted for and reported in another fund.
x The capital projects fund accounts for and reports financial resources including Education Special Purpose Local Option Sales Tax (ESPLOST), Bond Proceeds and grants from Georgia State Financing and Investment Commission that are restricted, committed or assigned for capital outlay expenditures, including the acquisition or construction of capital facilities and other capital assets.
x The debt service fund accounts for and reports financial resources that are restricted, committed, or assigned including taxes (sales) legally restricted for the payment of general long-term principal and interest.
The School District reports the following fiduciary fund type:
x Agency funds are used to report resources held by the School District in a purely custodial capacity (assets equal liabilities) and do not involve measurement of results of operations.
BASIS OF ACCOUNTING
The basis of accounting determines when transactions are reported on the financial statements. The government-wide and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the School District gives (or receives) value without directly receiving (or giving) equal value in exchange, include property taxes, sales taxes, grants and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from sales taxes is recognized in the fiscal year in which the underlying transaction (sale) takes place. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.

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FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

The School District uses funds to report on its financial position and the results of its operations. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain governmental functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts.
Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The School District considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. The School District considers all intergovernmental revenues to be available if they are collected within 120 days after year-end. Property taxes, sales taxes and interest are considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general longterm debt and claims and judgments, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term liabilities and acquisitions under capital leases are reported as other financing sources.
The School District funds certain programs by a combination of specific cost-reimbursement grants, categorical grants, and general revenues. Thus, when program costs are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the School District's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
NEW ACCOUNTING PRONOUNCEMENTS
In fiscal year 2016, the School District adopted Governmental Accounting Standards Board (GASB) Statement No. 72, Fair Value Measurement and Application. This statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This statement provides guidance for determining a fair value measurement for financial reporting purposes. This statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The School District did not have any items that required a reassessment of value for reporting purposes as a result of adoption of this statement.
In fiscal year 2016, the School District adopted Governmental Accounting Standards Board (GASB) Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets that are not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and 68. This statement establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for Pensions, as well as for the assets accumulated for purposes of providing those pensions. In addition, it establishes requirements for defined contribution pensions that are not within the scope of Statement No. 68. It also amends certain provisions of Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68 for pension plans and pensions that are within their respective scopes. The adoption of this statement does not have a significant impact on the School District's financial statements.
In fiscal year 2016, the School District adopted Governmental Accounting Standards Board (GASB) Statement No. 79, Certain External Investment Pools and Pool Participants. This statement addresses accounting and financial reporting for certain external investment pools and pool participants. If an external investment pool meets the criteria in this statement and measures all of its investments at amortized cost, the pool's participants also should measure their investments in that external investment pool at amortized cost for financial reporting purposes. The School District participates in an external investment pool, the State of Georgia local government investment pool (Georgia Fund 1), which does not meet the criteria of this statement. Therefore, the investment in this pool is measured at fair value as provided in paragraph 11 of GASB Statement No. 31, as amended.

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FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, demand deposits, investments in the State of Georgia local government investment pool (Georgia Fund 1) and short-term investments with original maturities of three months or less from the date of acquisition in authorized financial institutions. Official Code of Georgia Annotated (O.C.G.A.) 45-8-14 authorizes the School District to deposit its funds in one or more solvent banks, insured Federal savings and loan associations or insured chartered building and loan associations.
INVESTMENTS
The School District can invest its funds as permitted by O.C.G.A. 36-83-4. In selecting among options for investment or among institutional bids for deposits, the highest rate of return shall be the objective, given equivalent conditions of safety and liquidity.
Investments made by the School District in nonparticipating interest-earning contracts (such as certificates of deposit) and repurchase agreements are reported at cost. Participating interest-earning contracts and money market investments with a maturity at purchase of one year or less are reported at amortized cost. All other investments are reported at fair value.
For accounting purposes, certificates of deposit are classified as investments if they have an original maturity greater than three months when acquired.
RECEIVABLES
Receivables consist of amounts due from property and sales taxes, grant reimbursements due on Federal, State or other grants for expenditures made but not reimbursed and other receivables disclosed from information available. Receivables are recorded when either the asset or revenue recognition criteria has been met. Receivables recorded on the basic financial statements do not include any amounts which would necessitate the need for an allowance for uncollectible receivables.
INVENTORIES
Food Inventories
On the basic financial statements, inventories of donated food commodities used in the preparation of meals are reported at their Federally assigned value and purchased foods inventories are reported at cost (calculated on the first-in, first-out basis). The School District uses the consumption method to account for inventories whereby donated food commodities are recorded as an asset and as revenue when received, and expenses/expenditures are recorded as the inventory items are used. Purchased foods are recorded as an asset when purchased and expenses/expenditures are recorded as the inventory items are used.
RESTRICTED ASSETS
Certain resources set aside for repayment of debt are classified as restricted assets on the Statement of Net Position because their use is limited by applicable debt statutes, e.g. Qualified Zone Academy Bond sinking funds.
CAPITAL ASSETS
On the government-wide financial statements, capital assets are recorded at cost where historical records are available and at estimated historical cost based on appraisals or deflated current replacement cost where no historical records exist. Donated capital assets are recorded at acquisition value on the date donated. The cost of normal maintenance and repairs that do not add to the value of assets or materially extend the useful lives of the assets is not capitalized. The School District does not capitalize book collections or works of art.
Capital acquisition and construction are recorded as expenditures in the governmental fund financial statements at the time of purchase (including ancillary charges), and the related assets are reported as capital assets in the governmental activities column in the government-wide financial statements.
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FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

Depreciation is computed using the straight-line for all assets, except land, and is used to allocate the actual or estimated historical cost of capital assets over estimated useful lives.
Capitalization thresholds and estimated useful lives of capital assets reported in the government-wide statements are as follows:

Capitalization Policy

Estimated Useful Life

Land

Land Improvements

$

Buildings and Improvements $

Equipment

$

Intangible Assets

$

All 5,000.00 10,000.00 5,000.00 200,000.00

N/A 20 to 80 years 10 to 80 years
3 to 20 years 10 to 20 years

DEFERRED OUTFLOWS/INFLOWS OF RESOURCES
In addition to assets, the statement of financial position will report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of resources that applies to a future period(s) and therefore will not be recognized as an outflow of resources (expense/expenditure) until then.
In addition to liabilities, the statement of financial position will report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of resources that applies to a future period(s) and therefore will not be recognized as an inflow of resources (revenue) until that time.
LONG-TERM LIABILITIES AND BOND DISCOUNTS/PREMIUMS
In the School District's government-wide financial statements, outstanding debt is reported as liabilities. Bond premiums and discounts and the difference between the reacquisition price and the net carrying value of refunded debt are deferred and amortized over the life of the bonds using the straight-line method. To conform to generally accepted accounting principles, bond premiums and discounts should be amortized using the effective interest method. The effect of this deviation is deemed to be immaterial to the fair presentation of the basic financial statements. Bond issuance costs are recognized as an outflow of resources in the fiscal year in which the bonds are issued.
In the governmental fund financial statements, the School District recognizes the proceeds of debt and premiums as other financing sources of the current period. Bond issuance costs are reported as debt service expenditures.
PENSIONS
For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the pension plan's fiduciary net position and additions to/deductions from the plan's fiduciary net position have been determined on the same basis as they are reported by the plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.
FUND BALANCES
Fund balance for governmental funds is reported in classifications that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent.

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FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

The School District's fund balances are classified as follows:

Nonspendable consists of resources that cannot be spent either because they are in a nonspendable form or because they are legally or contractually required to be maintained intact.

Restricted consists of resources that can be used only for specific purposes pursuant constraints either (1) externally imposed by creditors, grantors, contributors, or laws and regulations of other governments or (2) imposed by law through constitutional provisions or enabling legislation.

Committed consists of resources that can be used only for specific purposes pursuant to constraints imposed by formal action of the Board. The Board is the School District's highest level of decisionmaking authority, and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the Board. Committed fund balance also should incorporate contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements.

Assigned consists of resources constrained by the School District's intent to be used for specific purposes, but are neither restricted nor committed. The intent should be expressed by (1) the Board or (2) the budget or finance committee, or the Superintendent, or designee, to assign amounts to be used for specific purposes.

Unassigned consists of resources within the general fund not meeting the definition of any aforementioned category. The general fund should be the only fund that reports a positive unassigned fund balance amount. In other governmental funds, it may be necessary to report a negative unassigned fund balance.

USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

PROPERTY TAXES
The Floyd County Board of Commissioners adopted the property tax levy for the 2015 tax digest year (calendar year) on August 4, 2015 (levy date) based on property values as of January 1, 2015. Taxes were due on November 16, 2015 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2015 tax digest are reported as revenue in the governmental funds for fiscal year 2016. The Floyd County Tax Commissioner bills and collects the property taxes for the School District, withholds 2.5% of taxes collected as a fee for tax collection and remits the balance of taxes collected to the School District. Property tax revenues, at the fund reporting level, during the fiscal year ended June 30, 2016, for maintenance and operations amounted to $30,195,224.24.

The tax millage rate levied for the 2015 tax year (calendar year) for the School District was as follows (a mill equals $1 per thousand dollars of assessed value):

School Operations

18.58 mills

Additionally, Title Ad Valorem Tax revenues, at the fund reporting level, amounted to $1,823,926.40 during fiscal year ended June 30, 2016.
SALES TAXES
Education Special Purpose Local Option Sales Tax (ESPLOST), at the fund reporting level, during the year amounted to $8,693,916.66 and is to be used for capital outlay for educational purposes or debt service. This sales tax was authorized by local referendum and the sales tax must be re-authorized at least every five years. The most recent authorization expires on March 31, 2019.

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FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

NOTE 3: BUDGETARY DATA
The budget is a complete financial plan for the School District's fiscal year, and is based upon careful estimates of expenditures together with probable funding sources. The budget is legally adopted each year for the general, debt service, and capital projects funds. There is no statutory prohibition regarding over expenditure of the budget at any level. The budget for all governmental funds, except the various school activity (principal) accounts and after school program, is prepared and adopted by fund and function. The legal level of budgetary control was established by the Board at the aggregate fund level. The budget for the general fund was prepared in accordance with accounting principles generally accepted in the United States of America.
The budgetary process begins with the School District's administration presenting an initial budget for the Board's review. The administration makes revisions as necessary based on the Board's guidelines, and a tentative budget is approved. After approval of this tentative budget by the Board, such budget is advertised at least once in a newspaper of general circulation in the locality, as well as the School District's website. At the next regularly scheduled meeting of the Board after advertisement, the Board receives comments on the tentative budget, makes revisions as necessary and adopts a final budget. The approved budget is then submitted, in accordance with provisions of O.C.G.A. 20-2-167(c), to the Georgia Department of Education. The Board may increase or decrease the budget at any time during the year. All unexpended budget authority lapses at fiscal year-end.
See the General Fund Schedule of Revenues, Expenditures and Changes in Fund Balances Budget to Actual in the Supplementary Information Section for a detail of any over/under expenditures during fiscal year under review.
NOTE 4: DEPOSITS, CASH EQUIVALENTS AND INVESTMENTS
COLLATERALIZATION OF DEPOSITS
O.C.G.A. 45-8-12 provides that there shall not be on deposit at any time in any depository for a time longer than ten days a sum of money which has not been secured by surety bond, by guarantee of insurance, or by collateral. The aggregate of the face value of such surety bond and the market value of securities pledged shall be equal to not less than 110% of the public funds being secured after the deduction of the amount of deposit insurance. If a depository elects the pooled method (O.C.G.A. 45-8-13.1) the aggregate of the market value of the securities pledged to secure a pool of public funds shall be not less than 110% of the daily pool balance.
Acceptable security for deposits consists of any one of or any combination of the following:
(1) Surety bond signed by a surety company duly qualified and authorized to transact business within the State of Georgia,
(2) Insurance on accounts provided by the Federal Deposit Insurance Corporation,
(3) Bonds, bills, notes, certificates of indebtedness or other direct obligations of the United States or of the State of Georgia,
(4) Bonds, bills, notes, certificates of indebtedness or other obligations of the counties or municipalities of the State of Georgia,
(5) Bonds of any public authority created by the laws of the State of Georgia, providing that the statute that created the authority authorized the use of the bonds for this purpose,
(6) Industrial revenue bonds and bonds of development authorities created by the laws of the State of Georgia, and

- 15 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

(7) Bonds, bills, notes, certificates of indebtedness, or other obligations of a subsidiary corporation of the United States government, which are fully guaranteed by the United States government both as to principal and interest or debt obligations issued by or securities guaranteed by the Federal Land Bank, the Federal Home Loan Bank, the Federal Intermediate Credit Bank, the Central Bank for Cooperatives, the Farm Credit Banks, the Federal Home Loan Mortgage Association, and the Federal National Mortgage Association.

CATEGORIZATION OF DEPOSITS
Custodial credit risk is the risk that in the event of a bank failure, the School District's deposits may not be returned to it. The School District does not have a deposit policy for custodial credit risk. At June 30, 2016, School District had deposits with a carrying amount of $7,281,903.99 and a bank balance of $13,894,972.31. The bank balances insured by Federal depository insurance were $635,557.98.
At June 30, 2016, $13,259,414.33 of the School District's bank balance was exposed to custodial credit risk as follows:

Uninsured and Uncollateralized Uninsured with collateral held by the pledging
financial institution Uninsured with collateral held by the pledging
financial institution's trust department or agent but not in the School District's name

$

-

-

13,259,414.33

Total

$ 13,259,414.33

Reconciliation of cash and cash equivalents balances to carrying value of deposits:

Statement of Net Position Cash and cash equivalents
Statement of Fiduciary Net Position Cash and cash equivalents
Total cash and cash equivalents
Add: Deposits with original maturity of three months or more
reported as investments Less: Investment pools reported as cash and cash equivalents
Georgia Fund 1
Total carrying value of deposits - June 30, 2016

$ 20,955,594.19 292,011.76
21,247,605.95
60,743.64
14,026,445.60 $ 7,281,903.99

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FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

CATEGORIZATION OF CASH EQUIVALENTS
The School District reported cash equivalents of $14,026,445.60 in Georgia Fund 1, a local government investment pool. Georgia Fund 1 is not registered with the SEC as an investment company and does not operate in a manner consistent with the SEC's Rule 2a-7 of the Investment Company Act of 1940. The investment is valued at the pool's share price, $1.00 per share, which approximates fair value. The pool is an AAAf rated investment pool by Standard and Poor's. The weighted average maturity of Georgia Fund 1 may not exceed 60 days. The weighted average maturity for Georgia Fund 1 on June 30, 2016, was 42 days.
Georgia Fund 1, administered by the State of Georgia, Office of the State Treasurer, is not required to be categorized since the School District did not own any specific identifiable securities in the pool. The investment policy of the State of Georgia, Office of the State Treasurer for the Georgia Fund 1, does not provide for investment in derivatives or similar investments. Additional information on the Georgia Fund 1 is disclosed in the State of Georgia Comprehensive Annual Financial Report. This audit can be obtained from the Georgia Department of Audits and Accounts at www.audits.ga.gov/SGD/CAFR.html.
CATEGORIZATION OF INVESTMENTS
At June 30, 2016, the School District had the following investments:

Investment Type

Fair Value

Investment Maturity Less Than 1 Year

Debt Securities

U.S. Agencies

Implicitly Guaranteed

$

1,860,943.17 $

1,860,943.17

Other Investments Bond Mutual Funds

7,147,427.92

Total Investments

$

9,008,371.09

Fair Value of Investments
The School District measures and records its investments using fair value measurement guidelines established by generally accepted accounting principles. These guidelines recognize a three-tiered fair value hierarchy, as follows:
Level 1: Quoted prices for identical measurements in active markets; Level 2: Observable inputs other than quoted market prices; and, Level 3: Unobservable inputs.
The School District has the following recurring fair value measurements as of June 30, 2016:
Bond Mutual Funds of $7,147,427.92 are valued using quoted prices for identical measurements in active markets (Level 1 inputs). U.S. Agencies Debt Securities of $1,860,943.17 are valued using market observable information for identical or similar instruments in the market (Level 2 inputs).
Interest Rate Risk
Interest rate risk is the risk that changes in interest rates of debt investment will adversely affect the fair value of an investment. The School District does not have a formal policy for managing interest rate risk.

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FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

Custodial Credit Risk
Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, the School District will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The School District does not have a formal policy for managing custodial credit risk.
At June 30, 2016, $9,008,371.09 of the School District's applicable investments were held by the investment's counterparty, not in the School District's name.
Credit Quality Risk
Credit quality risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. State law limits investments to those prescribed O.C.G.A. 36-83-4. The School District does not have a formal policy that would further limit its investment choices or one that addresses credit risk.
The investments subject to credit quality risk are reflected below:

Rated Debt Investments

Fair Value

Quality Ratings Unrated

Debt Securities U. S. Agencies Implicitly Guaranteed $

1,860,943.17$

1,860,943.17

Concentration of Credit Risk
Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. The School District does not have a formal policy for managing concentration of credit risk. More than 5% of the School District's investments are in Federal National Mortgage Association Discount Notes. This investment is 20.7% of the School District's total investments.
NOTE 5: RESTRICTED ASSETS
The restricted assets represent the investment balance, totaling $1,860,943.17, for the QZAB Bond Sinking Fund.

- 18 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

NOTE 6: CAPITAL ASSETS
The following is a summary of changes in the capital assets for governmental activities during fiscal year 2016:

Balances July 1, 2015 (Restated)

Increases

Decreases

Transfers

Balances June 30, 2016

Governmental Activities Capital Assets, Not Being Depreciated:
Land Construction in Progress

$ 2,810,285.00 $

- $

16,540,353.00 16,161,448.00

- $

- $

- (22,918,114.00)

2,810,285.00 9,783,687.00

Total Capital Assets Not Being Depreciated

19,350,638.00 16,161,448.00

- (22,918,114.00)

12,593,972.00

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements
Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

164,442,074.00 18,816,565.00 4,138,735.00

100,555.00 523,051.00
-

2,377,132.00 248,736.00 -

22,918,114.00 -

185,083,611.00 19,090,880.00 4,138,735.00

40,516,939.00 14,408,040.00 3,315,305.00

2,938,072.00 1,202,470.00
85,042.00

1,707,948.00 232,766.00 -

-

41,747,063.00

-

15,377,744.00

-

3,400,347.00

Total Capital Assets, Being Depreciated, Net

129,157,090.00

(3,601,978.00)

685,154.00 22,918,114.00 147,788,072.00

Governmental Activity Capital Assets - Net $ 148,507,728.00 $ 12,559,470.00 $ 685,154.00 $

- $ 160,382,044.00

Current year depreciation expense by function is as follows:

Instruction Support Services
Educational Media Services General Administration School Administration Maintenance and Operation of Plant Student Transportation Services Food Services

$ 34,319.00 24,114.00
255,743.00 114,305.00 634,685.00

$ 3,014,588.00
1,063,166.00 147,830.00

$ 4,225,584.00
NOTE 7: INTERFUND TRANSFERS INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2016, consisted of the following:

Transfers to Capital Projects Fund

Transfers From

General Fund

Debt Service Fund

$ 3,828,718.92 $ 5,662,757.72

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FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

Transfers were made during the fiscal year for the following purposes:
(1) Transfers were made from the general fund to the capital projects fund as a supplemental funding source for capital construction projects.
(2) Transfers were made from the debt service fund to the capital projects fund to move sales tax proceeds to the capital projects fund as funding for various capital projects as approved by a local voter referendum.

NOTE 8: LONG-TERM LIABILITIES The changes in long-term liabilities during the fiscal year for governmental activities were as follows:

Balance July 1, 2015

$GGLWLRQV

Governmental Activities

Deductions

Balance June 30, 2016

Due Within One Year

General Obligation Bonds

$

Unamortized Bond Premuims

Qualified Zone Academy Bonds

Capital Leases

27,205,000.00 $ 2,379,048.74 2,000,000.00 2,453,828.13

- $ 5,030,000.00 $

-

582,624.18

-

-

-

731,795.22

22,175,000.00 $ 1,796,424.56 2,000,000.00 1,722,032.91

5,185,000.00 582,624.18 770,768.74

$ 34,037,876.87 $

- $ 6,344,419.40 $ 27,693,457.47 $ 6,538,392.92

GENERAL OBLIGATION DEBT OUTSTANDING
The School District's bonded debt consists of general obligation bonds that are generally noncallable with interest payable semiannually. Bond proceeds primarily pay for acquiring or constructing capital facilities. The School District repays general obligation bonds from voter-approved sales taxes. General obligation bonds are direct obligations and pledge the full faith and credit of the School District.
General obligation bonds currently outstanding are as follows:

Description

Interest Rates

Issue Date

Maturity Date

Amount Issued

Amount Outstanding

General Government - Series 2014

3.00 - 5.00% 5/28/2014

7/1/2019 $ 27,205,000.00 $ 22,175,000.00

The following schedule details debt service requirements to maturity for the School District's total general obligation bonds payable:

Fiscal Year Ended June 30:

General Obligation Debt

Principal

Interest

Unamortized Bond Premium

2017

$

2018

2019

2020

Total Principal and Interest $

5,185,000.00 $ 5,390,000.00 5,660,000.00 5,940,000.00
22,175,000.00 $

953,200.00 $ 714,750.00 438,500.00 148,500.00
2,254,950.00 $

582,624.18 582,624.18 582,624.18
48,552.02
1,796,424.56

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FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

QUALIFIED ZONE ACADEMY BONDS (QZAB)
Section 226 of the Taxpayer Relief Act of 1997 (Public Law 105-34) provides for a source of capital at no or at nominal interest rates for costs incurred by School Districts in connection with the establishment of special academic programs, in partnership with the business community. The School District, in agreement with Bank of America, has entered into such an arrangement.
This agreement establishes a method of repayment for qualified interest-free debt instrument. The agreement requires the School District to deposit funds annually into a sinking fund account on or before August 1, 2005 to August 1, 2009, in the amount of $264,922.11, for five annual installments. The amount on deposit at June 30, 2016 was $1,860,943.17.
Debt currently outstanding under Qualified Zone Academy Bonds is as follows:

Purpose

Interest Rate

Issue Date

Maturity Date

Amount Issued

Amount Outstanding

General Government - QZAB - Series 2004 0.00% 6/29/2004

6/29/2018 $ 2,000,000.00 $ 2,000,000.00

The following schedule reports the annual Qualified Zone Academy Bond payments:

Fiscal Year Ended June 30:

Principal

2018

$

2,000,000.00

CAPITAL LEASES
The School District has acquired an energy management system under the provisions of a long-term lease agreement classified as capital leases for accounting purposes because they provide a transfer of ownership by the end of the lease term.
The following assets were acquired through capital leases and are reflected in the capital asset note at fiscal year-end:
Governmental Funds

Buildings and Improvements Less: Accumulated Depreciation

$ 1,708,467.00 1,272,140.00

$ 436,327.00

Capital leases currently outstanding is as follows:

Purpose

Interest Rate

Issue Date

Maturity Date

Amount Issued

Amount Outstanding

Energy Management System

5.20%

2/28/2002

8/15/2018 $ 9,335,586.32 $ 1,722,032.91

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FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

The following is a schedule of total capital lease payments:

Fiscal Year Ended June 30:

Principal

2017

$

2018

2019

Total Principal and Interest $

770,768.74 $ 811,817.89 139,446.28
1,722,032.91 $

Interest
71,347.82 30,298.67
907.06 102,553.55

NOTE 9: RISK MANAGEMENT
INSURANCE
Commercial Insurance
The School District is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors or omissions; job related illness or injuries to employees; and natural disasters. Except as described below, the School District carries commercial insurance for these risks. Settled claims resulting from these insured risks have not exceeded commercial insurance coverage in any of the past three fiscal years.
WORKERS' COMPENSATION
The School District has established a limited risk management program for workers' compensation claims. In connection with this program, a self-insurance reserve has been established within the general fund by the School District. The School District accounts for claims within the general fund with expenses/expenditures and liability is reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. An excess coverage insurance policy covers individual claims in excess of $400,000.00 loss per occurrence, up to the statutory limit.

Changes in the workers' compensation claims liability during the last two fiscal years are as follows:

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End of Year Liability

2015 2016

$ 164,731.33 $ 260,164.92

$ 451,442.92 $ 54,421.29

$ 356,009.33 $ 200,019.11

$ 260,164.92 $ 114,567.10

UNEMPLOYMENT COMPENSATION
The School District is self-insured with regard to unemployment compensation claims. In connection with this program, a self-insurance reserve has been established within the general fund by the School District. The School District accounts for claims within the general fund with expenses/expenditures and liability being reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated.

- 22 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

Changes in the unemployment compensation claims liability during the last two fiscal years are as follows:

Beginning of Year Liability

Claims and Changes in Estimates

Claims Paid

End of Year Liability

2015 $

-

$ 17,031.00 $ 17,031.00 $

-

2016 $

-

$

620.00 $

620.00 $

-

SURETY BOND The School District purchased a surety bond to provide additional insurance coverage as follows:

Position Covered

Amount

Superintendent

$ 100,000.00

NOTE 10: FUND BALANCE CLASSIFICATION DETAILS
The School District's financial statements include the following amounts presented in the aggregate at June 30, 2016:

Nonspendable Inventories
Restricted Continuation of state programs Continuation of federal programs Capital projects Debt service
Committed School activity accounts
Assigned After school program Record retention Unemployment compensation Workers' compensation
Unassigned

$

210,217.20

$

12,404.83

807,307.40

3,276,047.08

8,311,217.59

12,406,976.90

1,601,791.82

$

20,819.24

176,112.69

125,000.00

4,319.46

326,251.39 12,741,549.64

Fund Balance, June 30, 2016

$ 27,286,786.95

When multiple categories of fund balance are available for expenditure, the School District will start with the most restricted category and spend those funds first before moving down to the next category with available funds.

- 23 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

NOTE 11: SIGNIFICANT COMMITMENTS
COMMITMENTS UNDER CONSTRUCTION CONTRACTS The following is an analysis of significant outstanding construction or renovation contracts executed by the School District as of June 30, 2016, together with funding available:

Project

Unearned Executed Contracts (1)

Payments through June 30, 2016 (2)

Funding Available From State (1)

New Coosa High School Armuchee Middle School Coosa Middle School Model Middle School Johnson Elementary School

$

6,355,092.76 $ 28,208,333.31 $

125,932.89

231,032.17

179,062.83

165,466.39

185,968.55

174,757.02

778,885.47

668,014.53

$

7,624,942.50 $ 29,447,603.42 $

11,389.90 38,096.60 28,546.83 48,172.80
126,206.13

(1) The amounts described are not reflected in the basic financial statements. (2) Payments include retainages payable at year-end.

NOTE 12: SIGNIFICANT CONTINGENT LIABILITIES
FEDERAL GRANTS
Amounts received or receivable principally from the Federal government are subject to audit and review by grantor agencies. This could result in requests for reimbursement to the grantor agency for any costs which are disallowed under grant terms. Any disallowances resulting from the grantor audit may become a liability of the School District. However, the School District believes that such disallowances, if any, will be immaterial to its overall financial position.
LITIGATION
The School District is a defendant in various legal proceedings pertaining to matters incidental to the performance of routine School District operations. The ultimate disposition of these proceedings is not presently determinable, but is not believed to have a material adverse effect on the financial condition of the School District.

NOTE 13: POST-EMPLOYMENT BENEFITS
GEORGIA SCHOOL PERSONNEL POST-EMPLOYMENT HEALTH BENEFIT FUND
Plan Description. The Georgia School Personnel Post-Employment Health Benefit Fund (School OPEB Fund) is a cost-sharing multiple-employer defined benefit post-employment healthcare plan that covers eligible former employees of public school systems, libraries and regional educational service agencies. The School OPEB Fund provides health insurance benefits to eligible former employees and their qualified beneficiaries through the State Employees Health Benefit Plan administered by the Department of Community Health. The Official Code of Georgia Annotated (O.C.G.A.) assigns the authority to establish and amend the benefit provisions of the group health plans, including benefits for retirees, to the Board of Community Health (Board). Additional information about the School OPEB Fund is disclosed in the State of Georgia Comprehensive Annual Financial Report. This report can be obtained from the Georgia Department of Audits and Accounts at www.audits.ga.gov/SGD/CAFR.html.

- 24 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

Funding Policy. The contribution requirements of plan members and participating employers are established by the Board in accordance with the current Appropriations Act and may be amended by the Board. Contributions of plan members or beneficiaries receiving benefits vary based on plan election, dependent coverage, and Medicare eligibility and election. For members with fewer than five years of service as of January 1, 2012, contributions also vary based on years of service. On average, members with five years or more of service as of January 1, 2012 pay approximately 25% of the cost of the health insurance coverage. In accordance with the Board resolution dated December 8, 2011, for members with fewer than five years of service as of January 1, 2012, the State provides a premium subsidy in retirement that ranges from 0% for fewer than 10 years of service to 75% (but no greater than the subsidy percentage offered to active employees) for 30 or more years of service. The subsidy for eligible dependents ranges from 0% to 55% (but no greater than the subsidy percentage offered to dependents of active employees minus 20%). No subsidy is available to Medicare eligible members not enrolled in a Medicare Advantage Option. The Board of Community Health sets all member premiums by resolution and in accordance with the law and applicable revenue and expense projections. Any subsidy policy adopted by the Board may be changed at any time by Board resolution and does not constitute a contract or promise of any amount of subsidy.

Participating employers are statutorily required to contribute in accordance with the employer contribution rates established by the Board. The contribution rates are established to fund all benefits due under the health insurance plans for both active and retired employees based on projected "payas-you-go" financing requirements. Contributions are not based on the actuarially calculated annual required contribution (ARC) which represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years.

The combined active and retiree contribution rates established by the Board for employers participating in the School OPEB Fund were as follows for the fiscal year ended June 30, 2016:

For certificated teachers, librarians and regional educational service agencies and certain other eligible participants:

July 1, 2015 June 30, 2016

$945.00 per member per month

For non-certificated school personnel:

July 1, 2015 December 31, 2015 $596.20 per member per month

January 1, 2016 June 30, 2016 $746.20 per member per month

No additional contribution was required by the Board for fiscal year 2016 nor contributed to the School OPEB Fund to prefund retiree benefits. Such additional contribution amounts are determined annually by the Board in accordance with the School plan for other post-employment benefits and are subject to appropriation.

The School District's combined active and retiree contributions to the health insurance plans, which equaled the required contribution, for the current fiscal year and the preceding two fiscal years were as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2016 2015 2014

100% 100% 100%

$

10,277,461.41

$

9,956,541.86

$

9,841,742.04

- 25 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

NOTE 14: RETIREMENT PLANS
The School District participates in various retirement plans administered by the State of Georgia, as further explained below.
TEACHERS RETIREMENT SYSTEM OF GEORGIA (TRS)
Plan Description: All teachers of the School District as defined in O.C.G.A 47-3-60 and certain other support personnel as defined by 47-3-63 are provided a pension through the Teachers Retirement System of Georgia (TRS). TRS, a cost-sharing multiple-employer defined benefit pension plan, is administered by the TRS Board of Trustees (TRS Board). Title 47 of the O.C.G.A. assigns the authority to establish and amend the benefit provisions to the State Legislature. The Teachers Retirement System of Georgia issues a publicly available separate financial audit report that can be obtained at www.trsga.com/publications.
Benefits Provided: TRS provides service retirement, disability retirement, and death benefits. Normal retirement benefits are determined as 2% of the average of the employee's two highest paid consecutive years of service, multiplied by the number of years of creditable service up to 40 years. An employee is eligible for normal service retirement after 30 years of creditable service, regardless of age, or after 10 years of service and attainment of age 60. Ten years of service is required for disability and death benefits eligibility. Disability benefits are based on the employee's creditable service and compensation up to the time of disability. Death benefits equal the amount that would be payable to the employee's beneficiary had the employee retired on the date of death. Death benefits are based on the employee's creditable service and compensation up to the date of death.
Contributions: Per Title 47 of the O.C.G.A., contribution requirements of active employees and participating employers, as actuarially determined, are established and may be amended by the TRS Board. Pursuant to O.C.G.A. 47-3-63, the employer contributions for certain full-time public school support personnel are funded on behalf of the employer by the State of Georgia. Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employees were required to contribute 6% of their annual pay during fiscal year 2016. The School District's contractually required contribution rate for the year ended June 30, 2016 was 14.27% of annual School District Payroll, of which 14.23% of payroll was required from the School District and 0.04% of payroll was required from the State. For the current fiscal year, employer contributions to the pension plan were $8,174,247.00 and $20,043.93 from the School District and the State, respectively.
EMPLOYEES' RETIREMENT SYSTEM
Plan description: The Employees' Retirement System of Georgia (ERS) is a cost-sharing multiple-employer defined benefit pension plan established by the Georgia General Assembly during the 1949 Legislative Session for the purpose of providing retirement allowances for employees of the State of Georgia and its political subdivisions. ERS is directed by a Board of Trustees. Title 47 of the O.C.G.A. assigns the authority to establish and amend the benefit provisions to the State Legislature. ERS issues a publicly available financial report that can be obtained at www.ers.ga.gov/formspubs/formspubs.
Benefits provided: The ERS Plan supports three benefit tiers: Old Plan, New Plan, and Georgia State Employees' Pension and Savings Plan (GSEPS). Employees under the old plan started membership prior to July 1, 1982 and are subject to plan provisions in effect prior to July 1, 1982. Members hired on or after July 1, 1982 but prior to January 1, 2009 are new plan members subject to modified plan provisions. Effective January 1, 2009, new state employees and rehired state employees who did not retain membership rights under the Old or New Plans are members of GSEPS. ERS members hired prior to January 1, 2009 also have the option to irrevocably change their membership to GSEPS.

- 26 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

Under the old plan, the new plan, and GSEPS, a member may retire and receive normal retirement benefits after completion of 10 years of creditable service and attainment of age 60 or 30 years of creditable service regardless of age. Additionally, there are some provisions allowing for early retirement after 25 years of creditable service for members under age 60.
Retirement benefits paid to members are based upon the monthly average of the member's highest 24 consecutive calendar months, multiplied by the number of years of creditable service, multiplied by the applicable benefit factor. Annually, postretirement cost-of-living adjustments may also be made to members' benefits provided the members were hired prior to July 1, 2009. The normal retirement pension is payable monthly for life; however, options are available for distribution of the member's monthly pension, at reduced rates, to a designated beneficiary upon the member's death. Death and disability benefits are also available through ERS.
Contributions: Member contributions under the old plan are 4% of annual compensation, up to $4,200.00, plus 6% of annual compensation in excess of $4,200.00. Under the old plan, the state pays member contributions in excess of 1.25% of annual compensation. Under the old plan, these state contributions are included in the members' accounts for refund purposes and are used in the computation of the members' earnable compensation for the purpose of computing retirement benefits. Member contributions under the new plan and GSEPS are 1.25% of annual compensation. The School District's contractually required contribution rate, actuarially determined annually, for the year ended June 30, 2016 was 24.72% of annual covered payroll for old and new plan members and 21.69% for GSEPS members. Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employer contributions to the pension plan were $41,504.00 for the current fiscal year.
PUBLIC SCHOOL EMPLOYEES RETIREMENT SYSTEM (PSERS)
Plan description: PSERS is a cost-sharing multiple-employer defined benefit pension plan established by the Georgia General Assembly in 1969 for the purpose of providing retirement allowances for public school employees who are not eligible for membership in the Teachers Retirement System of Georgia. The ERS Board of Trustees, plus two additional trustees, administers PSERS. Title 47 of the O.C.G.A. assigns the authority to establish and amend the benefit provisions to the State Legislature. PSERS issues a publicly available financial report that can be obtained at www.ers.ga.gov/formspubs/formspubs.
Benefits provided: A member may retire and elect to receive normal monthly retirement benefits after completion of ten years of creditable service and attainment of age 65. A member may choose to receive reduced benefits after age 60 and upon completion of ten years of service.
Upon retirement, the member will receive a monthly benefit of $14.75, multiplied by the number of years of creditable service. Death and disability benefits are also available through PSERS. Additionally, PSERS may make periodic cost-of-living adjustments to the monthly benefits. Upon termination of employment, member contributions with accumulated interest are refundable upon request by the member. However, if an otherwise vested member terminates and withdraws his/her member contribution, the member forfeits all rights to retirement benefits.
Contributions: The general assembly makes an annual appropriation to cover the employer contribution to PSERS on behalf of local school employees (bus drivers, cafeteria workers, and maintenance staff). The annual employer contribution required by statute is actuarially determined and paid directly to PSERS by the State Treasurer in accordance with O.C.G.A. 47-4-29(a) and 60(b). Contributions are expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability.

- 27 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

Individuals who became members prior to July 1, 2012 contribute $4 per month for nine months each fiscal year. Individuals who became members on or after July 1, 2012 contribute $10 per month for nine months each fiscal year. The State of Georgia, although not the employer of PSERS members, is required by statute to make employer contributions actuarially determined and approved and certified by the PSERS Board of Trustees. The current fiscal year contribution was $168,293.00.
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions
At June 30, 2016, the School District reported a liability of $81,509,221.00 for its proportionate share of the net pension liability for TRS $(81,193,131.00) and ERS $(316,090.00).
The TRS net pension liability reflected a reduction for support provided to the School District by the State of Georgia for certain public school support personnel. The amount recognized by the School District as its proportionate share of the net pension liability, the related State of Georgia support, and the total portion of the net pension liability that was associated with the School District were as follows:

School District's proportionate share of the net pension liability State of Georgia's proportionate share of the net pension liability associated with the School District
Total

$ 81,193,131.00
248,913.00 $ 81,442,044.00

The net pension liability for TRS and ERS was measured as of June 30, 2015. The total pension liability used to calculate the net pension liability was based on an actuarial valuation as of June 30, 2014. An expected total pension liability as of June 30, 2015 was determined using standard roll-forward techniques. The School District's proportion of the net pension liability was based on contributions to TRS and ERS during the fiscal year ended June 30, 2015.
At June 30, 2015, the School District's TRS proportion was 0.533323%, which was a decrease of 0.010704% from its proportion measured as of June 30, 2014. At June 30, 2015, the School District's ERS proportion was 0.007802%, which was a decrease of 0.000624% from its proportion measured as of June 30, 2014.
At June 30, 2016, the School District did not have a PSERS liability for a proportionate share of the net pension liability because of a Special Funding Situation with the State of Georgia, which is responsible for the net pension liability of the plan. The amount of the State's proportionate share of the net pension liability associated with the School District is $648,453.00.
The PSERS net pension liability was measured as of June 30, 2015. The total pension liability used to calculate the net pension liability was based on an actuarial valuation as of June 30, 2014. An expected total pension liability as of June 30, 2015 was determined using standard roll-forward techniques. The State's proportion of the net pension liability associated with the School District was based on actuarially determined contributions paid by the State during the fiscal year ended June 30, 2015.
For the year ended June 30, 2016, the School District recognized pension expense of $3,192,114.00 for TRS, $(55,698.00) for ERS and $38,670.00 for PSERS and revenue of $14,719.00 for TRS and $38,670.00 for PSERS. The revenue is support provided by the State of Georgia. For TRS, the State of Georgia support is provided only for certain support personnel.

- 28 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

At June 30, 2016, the School District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows of Resources

TRS Deferred Inflows of Resources

ERS

Deferred Outflows of Resources

Deferred Inflows of Resources

Differences between expected and actual experience $

- $ 714,135.00 $

- $ 2,526.00

Net difference between projected and actual earnings on pension plan investments

-

6,848,726.00

-

22,806.00

Changes in proportion and differences between School District contributions and proportionate share of contributions
School District contributions subsequent to the measurement date
Total

-

7,466,829.00

-

53,831.00

8,174,247.00

-

41,504.00

-

$ 8,174,247.00 $ 15,029,690.00 $ 41,504.00 $ 79,163.00

The School District contributions subsequent to the measurement date of $8,174,247.00 for TRS and $41,504.00 for ERS are reported as deferred outflows of resources and will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Year Ended June 30:

TRS

ERS

2017 2018 2019 2020 2021

$ (5,463,911.00) $

$ (5,463,911.00) $

$ (5,463,917.00) $

$

1,466,191.00 $

$

(104,142.00) $

(59,856.00) (16,831.00) (10,165.00)
7,689.00 -

Actuarial assum ptions: The total pension liability as of June 30, 2015 was determined by an actuarial valuation as of June 30, 2014, using the following actuarial assumptions, applied to all periods included in the measurement:

Teachers Retirement System: Inflation Salary increases Investment rate of return

3.00%
3.75% 7.00%, average, including inflation
7.50%, net of pension plan investment expense, including inflation

Mortality rates were based on the RP-2000 Combined Mortality Table for Males or Females set back two years for males and set back three years for females.
The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period July 1, 2004 June 30, 2009.

- 29 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

Employees' Retirement System: Inflation Salary increases Investment rate of return

3.00%
5.45% 9.25%, average, including inflation 7.50%, net of pension plan investment expense, including inflation

Mortality rates were based on the RP-2000 Combined Mortality Table for the periods after service retirement, for dependent beneficiaries, and for deaths in active service, and the RP-2000 Disabled Mortality Table set back eleven years for males for the period after disability retirement.

The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period July 1, 2004 June 30, 2009.

Public School Employees Retirement System:

Inflation

3.00%

Salary increases

N/A

Investment rate of return

7.50%, net of pension plan investment expense, including inflation

Mortality rates were based on the RP-2000 Combined Mortality Table set forward one year for males for the period after service retirement, for dependent beneficiaries, and for deaths in active service, and the RP-2000 Disabled Mortality Table set back two years for males and set forward one year for females for the period after disability retirement.
The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period July 1, 2004 June 30, 2009.
The long-term expected rate of return on TRS, ERS and PSERS pension plan investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target asset allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Asset class
Fixed income Domestic large stocks Domestic mid stocks Domestic small stocks International developed market stocks International emerging market stocks
Total
* Rates shown are net of the 3.00% assumed rate of inflation

Target allocation
30.00% 39.70%
3.70% 1.60% 18.90% 6.10%
100.00%

Long-term expected real rate of return*
3.00% 6.50% 10.00% 13.00% 6.50% 11.00%

- 30 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

Discount rate: The discount rate used to measure the total TRS, ERS and PSERS pension liability was 7.50%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that employer and nonemployer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the TRS, ERS and PSERS pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

Sensitivity of the School District's proportionate share of the net pension liability to changes in the discount rate: The following presents the School District's proportionate share of the net pension liability calculated using the discount rate of 7.50%, as well as what the School District's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50%) or 1-percentage-point higher (8.50%) than the current rate:

Teachers Retirement System:

1% Decrease (6.50%)

Current Discount Rate (7.50%)

1% Increase (8.50%)

School District's proportionate share of the net pension liability

$ 139,524,257.00 $

81,193,131.00 $ 33,114,404.00

Employees' Retirement System:
School District's proportionate share of the net pension liability

1% Decrease (6.50%)

Current Discount Rate (7.50%)

$

448,069.00 $

316,090.00 $

1% Increase (8.50%)
203,573.00

Pension plan fiduciary net position: Detailed information about the pension plan's fiduciary net position is available in the separately issued TRS, ERS and PSERS financial report which is publically available at www.trsga.com/publications and http://www.ers.ga.gov/formspubs/formspubs.html.

DEFINED CONTRIBUTION PLAN
The Floyd County Board of Education provides two defined contribution plans for the group of employees covered by the Public School Employees Retirement System (PSERS). The Board adopted these plans because the Board believed that PSERS did not provide an adequate retirement income for this group of employees.
The first plan is an employer matching 403(b) annuity plan. The Board selected VALIC as the 3rd party plan administrator. All contributions to the plan are paid to VALIC and then VALIC distributes funds to other companies as required. For each employee covered under the plan, the Board contributes to the plan an amount matching up to 4% of the employee's base pay.
The employee becomes vested in the plan with 5 years of experience. Employees who had already achieved 5 years of experience at the time the plan was implemented were vested upon enrollment. Funds accumulated in the employer paid accounts are only available to the employee upon termination of employment and 5 years of continuous employment to Floyd County Board of Education. If an employee terminates employment prior to achieving 5 years of continuous employment, funds paid on behalf of the non-vested employee are credited back to the Board.

- 31 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2016 2015 2014

100%

$

30,908.75

100%

$

34,693.04

100%

$

43,104.36

Under the second plan, the Board operates an employer only paid contribution to TIAA-CREF annuity plan. The Board pays $25.00 per month for 12 months for employees covered under PSERS. This plan was in place prior to the above mentioned matching plan that was added an additional retirement savings incentive that began in 2003.

The employee becomes vested in the plan with 5 years of experience. Employees who had already achieved 5 years of experience at the time the plan was implemented were vested upon enrollment. Funds accumulated in the employer paid accounts are only available to the employee after termination and at no early than 59 and one-half years of age. If an employee terminates employment prior to achieving 5 years of continuous employment, funds paid on behalf of the non-vested employee are credited back to the Board.

Employer contributions for the current fiscal year and the preceding two fiscal years are as follows:

Fiscal Year

Percentage Contributed

Required Contribution

2016 2015 2014

100%

$

100%

$

100%

$

53,950.00 35,084.78 46,475.00

NOTE 15: RESTATEMENT OF PRIOR YEAR NET POSITION
In fiscal year 2015, the School District became aware of a situation where capital assets acquired were caused to be recorded at an inflated amount on the financial statements because of an internal fraud. As a result of this matter, net position as of July 1, 2015, has been restated as described below:

Net position, July 1, 2015 as previously reported

$ 67,680,868.89

Adjustment of overstatement of capital assets associated with an internal fraud

(6,781,255.00)

Net position, July 1, 2015, as restated

$ 60,899,613.89

This change is in accordance with generally accepted accounting principles.

- 32 -

FLOYD COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2016

EXHIBIT "H"

MISAPPROPRIATED FUNDS
During fiscal year 2015, the School District became aware of a situation where school personnel were allegedly involved in a fraudulent scheme where inflated and altered invoices were submitted by various vendors and paid by the School District. It is believed kickbacks were obtained from the vendors involved and funds were received by school personnel. This matter continues to be under investigation by law enforcement officials from both the State and local governments. The School District has determined that $6.8 million was misappropriated prior to June 30, 2016 and covers multiple years.
NOTE 16: SPECIAL ITEM
During the year under review, the School District demolished the old Coosa High School buildings and sold various equipment items for amounts totaling $40,751.41, as noted on Exhibit E of this report. The equipment items had a book value of $15,970.00 at the time of their sale, therefore, the School District realized a net gain totaling $24,781.41 for the equipment items. The Coosa High School had a book value of $669,184.00 at the time of the demolition, which resulted in a net loss of $669,184.00 for the building. Overall, there is a loss on the disposal of capital assets totaling $644,402.59 shown on the Statement of Activities.

- 33 -


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