Mountain Education Center, Inc., Cleveland, Georgia, annual financial report for the fiscal year ended 2017 June 30 (including independent auditor's reports)

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MOUNTAIN EDUCATION CENTER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017
INTRODUCTION
The Charter School's financial statements for the fiscal year ended June 30, 2017 include a series of basic financial statements that report financial information for the Charter School as a whole. The Statement of Net Position and the Statement of Activities provide financial information about all of the Charter School's activities. The fund financial statements provide information about all of the Charter School's funds. Information about these funds, such as the Charter School's general fund, is important in its own right, but will also give insight into the Charter School's overall soundness as reported in the Statement of Net Position and the Statement of Activities.
FINANCIAL HIGHLIGHTS
Key financial highlights for fiscal year 2017 are as follows:
On the government-wide financial statements:
The Charter School's net position at June 30, 2017 was $11.9 million. Net position reflects the difference between all assets and deferred outflows of resources of the Charter School (including capital assets, net of depreciation) and all liabilities, and deferred inflows of resources. The net position at June 30, 2017 of $11.9 million represented an increase of $2.2 million when compared to the prior year.
The Charter School had $16.4 million in expenses relating to governmental activities all of which were offset by program specific charges for services, grants and contributions.
General revenues accounted for $166,000 or less than 1% of all revenues totaling $18.6 million. Program specific revenues in the form of charges for services, grants, and contributions accounted for the balance of these revenues.
On the fund financial statements:
The general fund had $18.6 million in revenues and $16.3 million in expenditures. The general fund balance of $12.9 million at June 30, 2017 increased by $2.3 million from the prior year. This increase is due additional funds earned from the Charter School's expansion into other counties and student population growth.
OVERVIEW OF THE FINANCIAL STATEMENTS
These financial statements consist 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 Charter School. 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 Charter School presenting both short-term and long-term information about the Charter School's overall financial status.
i

MOUNTAIN EDUCATION CENTER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017
The fund financial statements focus on individual parts of the Charter School, reporting the Charter School's operation in more detail. The `Governmental Fund' statements disclose how basic services are financed in the short-term as well as what remains for future spending. The Charter Schools major fund is the general fund. The Charter School 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 Mountain Education Center, Inc. has no operations that have been classified as "Business Activities", the government-wide financial statements are basically a consolidation of all of the Charter School'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 Charter School'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.
These two statements report the Charter School's net position and any changes in net position. The change in net position is important because it tells the reader that, for the Charter School as a whole, the financial position of the Charter School has improved or diminished. The causes of this change may be the results of many factors, including those not under the Charter School's control, such as decreased funding, 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 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
ii

MOUNTAIN EDUCATION CENTER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017
Fund Financial Statements
The fund financial statements presented in this report provide detailed information about the Charter School's significant or major fund. As discussed previously, the Charter School has no nonmajor funds as defined by generally accepted accounting principles.
The Charter School has one kind of fund as discussed below:
Governmental Fund All of the Charter School's activities are reported in the general fund, which focuses on how money flows into and out of this fund and the balance left at year-end available for spending in future periods. This fund is 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 Charter School'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 fund is reconciled in the financial statements.
FINANCIAL ANALYSIS OF THE CHARTER SCHOOL 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 Charter School. 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 Charter School's operating results. The Charter School's net position, as measured in the Statement of Net Position is one way to measure the Charter School's financial health, or financial position. Over time, increases or decreases in the Charter School's net position, as measured in the Statement of Activities, are one indicator of whether its financial health is improving or deteriorating. However, the Charter School's goal and mission is to provide success for each student'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 Charter School.
In the case of the Mountain Education Center, Inc., assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $11.9 million at June 30, 2017. To better understand the Charter School'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 $11.9 million of net position, about $630,000 was Investment in Capital Assets (e.g., land improvements, buildings and improvements and equipment). The Charter School uses these capital assets to provide educational services to students. 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.
The remaining balance of unrestricted net position of $11.2 million may be used to meet the Charter School's ongoing obligations to citizens and creditors.
iii

MOUNTAIN EDUCATION CENTER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017

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

Assets Current and Other Assets Capital Assets, Net

Table 1 Net Position

Governmental Activities

Fiscal Year

Fiscal Year

2017

2016

$

13,757,655 $

626,845

11,443,814 503,744

Total Assets

14,384,500

11,947,558

Deferred Outflows of Resources

1,218,429

688,367

Liabilities Current and Other Liabilities Long-Term Liabilities

821,636 2,899,599

758,941 1,986,218

Total Liabilities

3,721,235

2,745,159

Deferred Inflows of Resources

16,645

191,388

Net Position Investment in Capital Assets Unrestricted

626,845 11,238,204

503,744 9,195,634

Total

$

11,865,049 $

9,699,378

Total net position increased by about $2.2 million in fiscal year 2017 from the prior year. This change in net position is detailed in Table 2 as presented below. Table 2 also shows the changes in net position as compared to the prior fiscal year.

iv

MOUNTAIN EDUCATION CENTER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017

Table 2 Change in Net Position

Revenues Program Revenues: Charges for Services Operating Grants and Contributions

Governmental Activities

Fiscal Year

Fiscal Year

2017

2016

$

52,584 $

49,048

18,334,484

15,887,954

Total Program Revenues

18,387,068

15,937,002

General Revenues Investment Earnings Miscellaneous
Total General Revenues

18,659 146,882
165,541

12,060 77,351
89,411

Total Revenues

18,552,609

16,026,413

Program Expenses Instruction Support Services Pupil Services Improvement of Instructional Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Operations of Non-Instructional Services Food Services

8,550,643
1,435,698 754,086 2,058
3,717,632 705,010 652,818 23,500 297,819
247,674

7,048,922
999,903 561,875
2,609,442
489,538 476,960
32,250 248,012
205,306

Total Expenses

16,386,938

12,672,208

Increase in Net Position

$

2,165,671 $

3,354,205

v

MOUNTAIN EDUCATION CENTER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017

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.

Instruction Support Services
Pupil Services Improvement of Instructional Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Operations of Non-Instructional Services Food Services
Total Expenses

Table 3 Governmental Activities

Total Cost of Services

Fiscal Year

Fiscal Year

2017

2016

Net Cost of Services

Fiscal Year

Fiscal Year

2017

2016

$

8,550,643 $

7,048,922 $ (7,755,825) $

(7,113,953)

1,435,698 754,086 2,058
3,717,632 705,010 652,818 23,500 297,819

999,903 561,875
2,609,442
489,538 476,960
32,250 248,012

1,354,338 652,603 1,855
2,598,627 562,320 124,521 23,500 292,502

999,903 502,830
1,710,252
365,489 (91,250) 32,250 209,053

247,674

205,306

145,429

120,632

$ 16,386,938 $ 12,672,208 $ (2,000,130) $ (3,264,794)

FINANCIAL ANALYSIS OF THE CHARTER SCHOOL'S FUNDS
Information about the Charter School's governmental fund is presented starting on Exhibit "C" of this report. Governmental funds are accounted for using the modified accrual basis of accounting. The governmental fund had total revenues of $18.6 million and total expenditures of $16.3 million in fiscal year 2017. The total governmental fund balance of $12.9 million at June 30, 2017, increased about $2.3 million from the prior year.
General Fund Budget Highlights
The Charter School's budget is prepared according to Georgia Law. The most significant budgeted fund is the general fund. During the course of fiscal year 2017, the Charter School amended its general fund budget as needed.
The Charter School 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.

vi

MOUNTAIN EDUCATION CENTER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017

For the general fund, the final actual revenues of almost $18.6 million exceeded the final budget by about $600 thousand. This variance was primarily attributable increased State funding. The Charter School traditionally estimates revenue on a conservative basis to avoid shortfalls in actual revenues. Additionally, the Charter School did not include revenues for school activity accounts (included in miscellaneous revenues) in the final budget.

The general fund's final actual expenditures of $16.3 million were less than the final budget amount of $19.8 million by roughly $3.5 million. This variance was primarily due to conservative spending at both the site and department level. Additionally, the Charter School did not include expenditures for school activity accounts in the final budget.

Capital Assets

At fiscal year ended June 30, 2017, the Charter School had $626,845 invested in capital assets, net of accumulated depreciation, all in governmental activities. These assets are made up of a broad range of items including buildings; land improvements; and technology items. 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

2017

2016

Land

$

53,750

$

53,750

Land Improvements

19,148

9,445

Buildings and Improvements

417,508

377,380

Equipment

136,439

63,169

Total

$

626,845

$

503,744

Additional information about the Charter School's Capital Assets can be found in the Notes to the Basic Financial Statements.
Long-Term Debt
At June 30, 2017 the Charter School reported a liability for its proportionate share of the net pension liability that reflected a reduction for support provided to the Charter School by the State of Georgia for certain public school support personnel. Reporting this liability was required by GASB No. 68.

vii

MOUNTAIN EDUCATION CENTER, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017
FACTORS BEARING ON THE CHARTER SCHOOL'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 Charter School anticipates steady growth in regard to student population and number of locations in the foreseeable future.
x The Charter School is in very sound financial condition. The general fund had an unassigned fund balance of $12.1 million at June 30, 2017, which is up about $1.7 million from the prior year. The Charter School will continue to be a good steward while providing a quality educational opportunity for students to earn a high school diploma.
x In fiscal year 2015, the Charter School adopted Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions. Implementation of this statement required the Charter School to record a charge (decrease) to the government-wide net position at July 1, 2014 for the Charter School's share of the liability for the unfunded portion of the pension plan administered through the Teachers Retirement System of Georgia (TRS). Readers should understand implementation of (GASB) Statement No. 68 will not affect the Charter School's governmental activities fund statements.
CONTACTING THE CHARTER SCHOOL'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, investors and creditors with a general overview of the Charter School's finances and to show the Charter School's accountability for the funding it receives. If you have questions about this report or need additional financial information, contact Mrs. Andrea Hulsey, Finance Director for Mountain Education Center, Inc., 65 Kenimer Street, Cleveland, Georgia 30528. You may also email your questions to Mrs. Hulsey at andrea.hulsey@mymec.org.
viii






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MOUNTAIN EDUCATION CENTER, INC. STATEMENT OF NET POSITION JUNE 30, 2017
ASSETS Cash and Cash Equivalents Receivables, Net
State Government Federal Government Other Prepaid Items Capital Assets, Non-Depreciable Capital Assets, Depreciable (Net of Accumulated Depreciation)
Total Assets DEFERRED OUTFLOWS OF RESOURCES Related to Defined Benefit Pension Plans LIABILITIES Accounts Payable Salaries and Benefits Payable Net Pension Liability Total Liabilities DEFERRED INFLOWS OF RESOURCES Related to Defined Benefit Pension Plans NET POSITION Investment in Capital Assets Unrestricted
Total Net Position

EXHIBIT "A"

GOVERNMENTAL ACTIVITIES

$

12,329,462.18

700,462.28 155,333.09
5,231.05 567,166.21
53,750.00 573,095.00

14,384,499.81

1,218,429.00

120,985.14 700,650.95 2,899,599.00
3,721,235.09

16,645.00

626,845.00 11,238,203.72

$

11,865,048.72

The notes to the basic financial statements are an integral part of this statement.

- 1 -

MOUNTAIN EDUCATION CENTER, INC. STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2017

EXHIBIT "B"

GOVERNMENTAL ACTIVITIES
Instruction Support Services
Pupil Services Improvement of Instructional Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Operations of Non-Instructional Services Food Services
Total Governmental Activities
General Revenues Investment Earnings Miscellaneous
Total General Revenues
Change in Net Position
Net Position - Beginning of Year

EXPENSES

PROGRAM REVENUES

OPERATING

CHARGES FOR

GRANTS AND

SERVICES

CONTRIBUTIONS

NET (EXPENSES) REVENUES
AND CHANGES IN NET POSITION

$

8,550,643.22 $

1,435,697.99 754,086.14 2,058.37
3,717,632.14 705,009.59 652,817.84 23,500.00 297,818.86

247,674.45

$

16,386,938.60 $

52,525.87 $
-
58.50
52,584.37 $

16,253,942.18 $
81,359.96 101,482.73
203.32 1,119,005.29
142,689.83 528,297.00
5,316.35
102,187.38
18,334,484.04

7,755,824.83
(1,354,338.03) (652,603.41) (1,855.05)
(2,598,626.85) (562,319.76) (124,520.84) (23,500.00) (292,502.51)
(145,428.57)
2,000,129.81
18,659.02 146,882.04
165,541.06
2,165,670.87
9,699,377.85

Net Position - End of Year

$

11,865,048.72

The notes to the basic financial statements are an integral part of this statement.

- 2 -

MOUNTAIN EDUCATION CENTER, INC. BALANCE SHEET
GOVERNMENTAL FUNDS JUNE 30, 2017
ASSETS Cash and Cash Equivalents Receivables, Net
State Government Federal Government Other Prepaid Items
Total Assets LIABILITIES Accounts Payable Salaries and Benefits Payable Total Liabilities FUND BALANCES Nonspendable Assigned Unassigned Total Fund Balances
Total Liabilities and Fund Balances

EXHIBIT "C"

GENERAL FUND

$ 12,329,462.18 700,462.28 155,333.09 5,231.05 567,166.21
$ 13,757,654.81

$

120,985.14

700,650.95

821,636.09

567,166.21 246,436.64 12,122,415.87
12,936,018.72

$ 13,757,654.81

The notes to the basic financial statements are an integral part of this statement.

- 3 -

MOUNTAIN EDUCATION CENTER, INC. RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET POSITION JUNE 30, 2017

EXHIBIT "D"

Total fund balances - governmental funds (Exhibit "C")
Amounts reported for governmental activities in the Statement of Net Position are different because:
Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds.
Land Buildings and improvements Equipment Land improvements Accumulated depreciation
Some liabilities are not due and payable in the current period and, therefore, are not reported in the funds.
Net pension liability
Deferred outflows and inflows of resources related to pensions are applicable to future periods and, therefore, are not reported in the funds.

$ 12,936,018.72

$

53,750.00

503,970.69

231,724.34

20,912.00

(183,512.03)

626,845.00

(2,899,599.00) 1,201,784.00

Net position of governmental activities (Exhibit "A")

$ 11,865,048.72

The notes to the basic financial statements are an integral part of this statement.

- 4 -

MOUNTAIN EDUCATION CENTER, INC. STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2017
REVENUES
State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Food Services Operation
Total Expenditures
Net Change in Fund Balances
Fund Balances - Beginning
Fund Balances - Ending

EXHIBIT "E"

GENERAL FUND

$

17,438,137.35

896,346.69

52,584.37

18,659.02

146,882.04

18,552,609.47

8,480,980.64
1,435,167.91 751,923.43 2,058.37
3,717,049.42 693,833.52 657,817.84 23,500.00 297,818.86 241,313.56
16,301,463.55
2,251,145.92
10,684,872.80

$

12,936,018.72

The notes to the basic financial statements are an integral part of this statement.

- 5 -

MOUNTAIN EDUCATION CENTER, INC. RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES JUNE 30, 2017

EXHIBIT "F"

Net change in fund balances total governmental funds (Exhibit "E")
Amounts reported for governmental activities in the Statement of Activities are different because:
Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of capital assets is allocated over their estimated useful lives as depreciation expense.
Capital outlay Depreciation expense
District pension contributions are reported as expenditures in the governmental funds when made. However, they are reported as deferred outflows of resources in the Statement of Net Position because the reported net pension liability is measured a year before the District's report date. Pension expense, which is the change in the net pension liability adjusted for changes in deferred outflows and inflows of resources related to pensions, is reported in the Statement of Activities.
Pension expense
Change in net position of governmental activities (Exhibit "B")

$ 2,251,145.92

$ 162,829.64 (39,728.69)

123,100.95

(208,576.00) $ 2,165,670.87

The notes to the basic financial statements are an integral part of this statement.

- 6 -


-./012343435411671489

MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

NOTE 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY
REPORTING ENTITY
The Mountain Education Center, Inc. (Charter School) is incorporated as a non-profit corporation pursuant to Georgia law and operates under the guidance of a governing board. The Charter School operates Mountain Education Charter High School according to an agreement between Mountain Education Center, Inc. and the State Charter Schools Commission in accordance with the Official Code of Georgia Annotated (O.C.G.A.) 20-2-2060 et seq.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Charter School 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 Charter School's accounting policies are described below.
BASIS OF PRESENTATION
The Charter School'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 Charter School 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 Charter School. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through intergovernmental revenues, and other nonexchange transactions.
The Statement of Net Position presents the Charter School's non-fiduciary assets and liabilities, with the difference reported as net position. Net position is reported in two categories as follows:
1. Investment in capital assets consists of the Charter School's total investment in capital assets, net of accumulated depreciation.
2. Unrestricted net position consists of resources not meeting the definition of the two preceding categories. Unrestricted net positon often has constraints on resources imposed by management which can be removed or modified.
The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the Charter School'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 Charter School related to the administration and support of the Charter School'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 are presented as general revenues.

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MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

FUND FINANCIAL STATEMENTS:
The fund financial statements provide information about the Charter School's fund. Eliminations have been made to minimize the double counting of internal activities.
The Charter School reports the following major governmental fund:
x The general fund is the Charter School's primary operating fund. It accounts for and reports all financial resources not accounted for and reported in another fund.
BASIS OF ACCOUNTING
The basis of accounting determines when transactions are reported on the financial statements. The government-wide 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 Charter School gives (or receives) value without directly receiving (or giving) equal value in exchange, include grants and donations. Revenue from grants and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.
The Charter School 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 Charter School considers all revenues reported in the governmental funds to be available if they are collected within sixty days after year-end. The Charter School considers all intergovernmental revenues to be available if they are collected within 120 days after year-end. Interest is considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred. Capital asset acquisitions are reported as expenditures in governmental funds.
The Charter School 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 Charter School's policy to first apply grant resources to such programs, followed by cost-reimbursement grants, then general revenues.
NEW ACCOUNTING PRONOUNCEMENTS
In fiscal year 2017, the Charter School adopted Governmental Accounting Standards Board (GASB) Statement No. 82, Pension Issues an amendment of GASB Statements No. 67, No. 68 and No. 73. This statement addresses certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and 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 No. 68. Specifically, this statement addresses issues regarding (1) the presentation of payrollrelated measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. The adoption of this statement does not have a significant impact on the Charter School's financial statement.
In fiscal year 2017, the School District adopted Governmental Accounting Standards Board (GASB) Statement No. 77, Tax Abatement Disclosures. This statement requires governments that enter into tax abatements agreements to disclose the following information: (1) brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria,
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MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients; (2) the gross dollar amount of taxes abated during the period; and (3) commitments made by a government, other than to abate taxes, as part of a tax abatement agreement. The adoption of this statement does not have an impact on the Charter School's financial statements.
In fiscal year 2017, the School Districted adopted Governmental Accounting Standards Board (GASB) Statement No. 80, Blending Requirements for Certain Component Units an amendment of GASB Statement No. 14. This statement amends the blending requirements for the financial statement presentation of component units of all state and local governments. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member. The additional criterion does apply to component units included in the financial reporting entity pursuant to the provisions of Statement No. 39, Determining Whether Certain Organizations Are Component Units. The adoption of this statement does not have an impact on the Charter School's financial statements.
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 Charter School to deposit its funds in one or more solvent banks, insured Federal savings and loan associations or insured chartered building and loan associations.
RECEIVABLES
Receivables consist of amounts due from 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.
PREPAID ITEMS
Payments made to vendors for services that will benefit future accounting periods are recorded as prepaid items, in both the government-wide and governmental fund financial statements.
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 Charter School 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.
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.

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MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

Capitalization thresholds and estimated useful lives of capital assets reported in the government-wide statements are as follows:

Policy

Useful Life

Land

Land Improvements

$

Buildings and Improvements $

Equipment

$

Intangible Assets

$

All 5,000.00 5,000.00 5,000.00 50,000.00

N/A 10 to 60 years 10 to 60 years
8 to 25 years evaluated individually

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.

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.

The Charter School'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 Charter School'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 Charter School'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.

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MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

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.
NOTE 3: BUDGETARY DATA
The budget is a complete financial plan for the Charter School'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 fund. There is no statutory prohibition regarding over expenditure of the budget at any level. The budget for the governmental fund, except the various school activity (principal) accounts, is prepared and adopted by fund, function and object. The legal level of budgetary control was established by the Board at the aggregate function 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 Charter School'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 Charter School'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 the fiscal year under review.
NOTE 4: DEPOSITS
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,
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MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

(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
(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 Charter School's deposits may not be returned to it. The Charter School does not have a deposit policy for custodial credit risk. At June 30, 2017, the Charter School had deposits with a carrying amount of $12,329,462.18 and a bank balance of $12,605,795.84. The bank balances insured by Federal depository insurance were $307,776.49.

At June 30, 2017, $12,298,019.35 of the Charter School's bank balance was exposed to custodial credit risk as follows:

Collateral held by the pledging financial institution's trust department or agent but not in the Charter School's name

$ 12,298,019.35

NOTE 5: CAPITAL ASSETS
The following is a summary of changes in the capital assets for governmental during the fiscal year:

Balances July 1, 2016

Increases

Decreases

Transfers

Balances June 30, 2017

Governmental Activities Capital Assets, Not Being Depreciated:
Land

$ 53,750.00 $

- $

- $

- $ 53,750.00

Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements

444,727.69

59,243.00

-

138,612.70

93,111.64

-

10,437.00

10,475.00

-

-

503,970.69

-

231,724.34

-

20,912.00

Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements

67,347.70

19,115.70

-

75,443.41

19,841.46

-

992.23

771.53

-

-

86,463.40

-

95,284.87

-

1,763.76

Total Capital Assets, Being Depreciated, Net

449,994.05

123,100.95

-

-

573,095.00

Governmental Activity Capital Assets - Net $ 503,744.05 $ 123,100.95 $

- $

- $ 626,845.00

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MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

Current year depreciation expense by function is as follows:
Instruction Support Services
School Administration

$ 12,863.16 26,865.53

$ 39,728.69

NOTE 6: RISK MANAGEMENT
INSURANCE
Commercial Insurance
The Charter School 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. The Charter School 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.

UNEMPLOYMENT COMPENSATION
The Charter School is self-insured with regard to unemployment compensation claims. The Charter School 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. The Charter School has not experienced any unemployment claims in the last two fiscal years.

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

Position Covered

Amount

Superintendent

$ 100,000.00

NOTE 7: FUND BALANCE CLASSIFICATION DETAILS
The Charter School's financial statements include the following amounts presented in the aggregate at June 30, 2017:

Nonspendable Prepaid assets
Assigned School activity accounts
Unassigned

$

567,166.21

246,436.64 12,122,415.87

Fund Balance, June 30, 2017

$ 12,936,018.72

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

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MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

NOTE 8: OPERATING LEASES
The Charter School leases copiers under the provisions of one or more long-term lease agreements classified as operating leases for accounting purposes. Rental expenditures under the terms of the operating leases totaled $51,112.80 for governmental activities for the year ended June 30, 2017. The following future minimum lease payments were required under operating leases at June 30, 2017:

Year Ending

Governmental Funds

2018 2019
Total

$

56,902.41

19,631.16

$

76,533.57

NOTE 9: 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 Charter School. However, the Charter School believes that such disallowances, if any, will be immaterial to its overall financial position.
NOTE 10: 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.
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.

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MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

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, 2017:

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

July 1, 2016 June 30, 2017 For non-certificated school personnel:

$945.00 per member per month

July 1, 2016 December 31, 2016 $746.20 per member per month

January 1, 2017 June 30, 2017 $846.20 per member per month

No additional contribution was required by the Board for fiscal year 2017 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 Charter School'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

2017 2016 2015

100% 100% 100%

$

308,610.60

$

249,049.38

$

227,811.70

NOTE 11: RETIREMENT PLANS
The Charter School 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 Charter School as defined in O.C.G.A 47360 and certain other support personnel as defined by O.C.G.A. 47363 are provided a pension through the Teachers Retirement System of Georgia (TRS). TRS, a costsharing multipleemployer 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

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MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

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. 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 2017. The Charter School's contractually required contribution rate for the year ended June 30, 2017 was 14.27%. For the current fiscal year, employer contributions to the pension plan were $236,953.00.
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.
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 Charter School's contractually required contribution rate, actuarially determined annually, for the year ended June 30, 2017 was 24.81% 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 $22,156.00 for the current fiscal year.

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MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

At June 30, 2017, the Charter School reported a liability of $2,899,599.00 for its proportionate share of the net pension liability for TRS ($2,726,608.00) and ERS ($172,991.00).
The net pension liability for TRS and ERS was measured as of June 30, 2016. The total pension liability used to calculate the net pension liability was based on an actuarial valuation as of June 30, 2015. An expected total pension liability as of June 30, 2016 was determined using standard roll-forward techniques. The Charter School's proportion of the net pension liability was based on contributions to TRS and ERS during the fiscal year ended June 30, 2016.
At June 30, 2016, the Charter School's TRS proportion was 0.013216%, which was an increase of 0.001133% from its proportion measured as of June 30, 2015. At June 30, 2016, the Charter School's ERS proportion was 0.003657%, which was an increase of 0.000036% from its proportion measured as of June 30, 2015.
For the year ended June 30, 2017, the Charter School recognized pension expense of $449,143.00 for TRS and $18,702.00 for ERS.
At June 30, 2017, the Charter School reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

TRS Deferred Outflows of Resources

Deferred Inflows of Resources

ERS

Deferred

Deferred

Outflows of

Inflows of

Resources

Resources

Differences between expected and actual experience $

40,619.00 $ 13,483.00 $

- $ 400.00

Changes of assumptions

70,670.00

-

1,465.00

-

Net difference between projected and actual earnings

on pension plan investments

344,927.00

-

17,588.00

-

Changes in proportion and differences between Charter School contributions and proportionate share of contributions

483,160.00

-

891.00

2,762.00

Charter School contributions subsequent to the measurement date

236,953.00

-

22,156.00

-

Total

$ 1,176,329.00 $ 13,483.00 $ 42,100.00 $ 3,162.00

The Charter School's contributions subsequent to the measurement date of $236,953.00 for TRS and $22,156.00 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, 2018. 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

2018 2019 2020 2021 2022

$ 210,249.00 $ $ 210,249.00 $ $ 312,188.00 $ $ 180,657.00 $ $ 12,550.00 $

(235.00) 1,657.00 9,483.00 5,877.00
-

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MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

Actuarial assumptions: The total pension liability as of June 30, 2016 was determined by an actuarial valuation as of June 30, 2015, using the following actuarial assumptions, applied to all periods included in the measurement:

Teachers Retirement System:

Inflation

2.75%

Salary increases

3.25% 9.00%, average, including inflation

Investment rate of return

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

Post-retirement mortality rates were based on the RP-2000 White Collar Mortality Table with future mortality improvement projected to 2025 with the Society of Actuaries' projection scale BB (set forward one year for males) for service requirements and dependent beneficiaries. The RP-2000 Disabled Mortality table with future mortality improvement projected to 2025 with Society of Actuaries' projection scale BB (set forward two years for males and four years for females) was used for the death after disability retirement. Rates of mortality in active service were based on the RP-2000 Employee Mortality Table projected to 2025 with projection scale BB.

The actuarial assumptions used in the June 30, 2015 valuation were based on the results of an actuarial experience study for the period July 1, 2009 June 30, 2014.

Employees' Retirement System:

Inflation

2.75%

Salary increases

3.25% 7.00%, average, including inflation

Investment rate of return

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

Postretirement mortality rates were based on the RP2000 Combined Mortality Table with future mortality improvement projected to 2025 with the Society of Actuaries' projection scale BB and set forward 2 years for both males and females for service retirements and dependent beneficiaries. The RP 2000 Disabled Mortality Table with future mortality improvement projected to 2025 with Society of Actuaries' projection scale BB and set back 7 years for males and set forward 3 years for females was used for death after disability retirement. There is a margin for future mortality improvement in the tables used by the System. Based on the results of the most recent experience study adopted by the Board on December 17, 2015, the numbers of expected future deaths are 912% less than the actual number of deaths that occurred during the study period for service retirements and beneficiaries and for disability retirements. Rates of mortality in active service were based on the RP2000 Employee Mortality Table projected to 2025 with projection scale BB.
The actuarial assumptions used in the June 30, 2015 valuation were based on the results of an actuarial experience study for the period July 1, 2009 June 30, 2014.

- 19 -

MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

The long-term expected rate of return on TRS and ERS 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 allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Asset class

Target allocation

Long-term expected real rate of return*

Fixed income Domestic large stocks Domestic mid stocks Domestic small stocks International developed market stocks International emerging market stocks Alternative

30.00% 37.20%
3.40% 1.40% 17.80% 5.20% 5.00%

(0.50%) 9.00% 12.00% 13.50% 8.00% 12.00% 10.50%

Total

100.00%

* Rates shown are net of the 2.75% assumed rate of inflation

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

Teachers Retirement System:

1% Discount (6.50%)

Current Discount Rate (7.50%)

1% Increase (8.50%)

Charter School's proportionate Share

of the net pension liability

$ 4,743,999.00 $

2,726,608.00 $ 1,477,287.00

Employees' Retirement System

1% Discount (6.50%)

Current Discount Rate (7.50%)

1% Increase (8.50%)

Charter School's proportionate Share

of the net pension liability

$ 234,435.00 $

172,991.00 $ 120,629.00

- 20 -

MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE BASIC FINANCIAL STATEMENTS
JUNE 30, 2017

EXHIBIT "G"

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

- 21 -


-./012343435411671489

MOUNTAIN EDUCATION CENTER, INC. REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITIES TEACHERS RETIREMENT SYSTEM OF GEORGIA
FOR THE YEAR ENDED JUNE 30

SCHEDULE "1"

Year Ended

Charter School's proportion of the
net pension liability

Charter School's proportionate share of the net pension liability

Charter School's covered-employee
payroll

Charter School's proportionate share of the net pension
liability as a percentage of its covered employee payroll

Plan fiduciary net position as a
percentage of the total pension liability

2017 2016 2015

0.013216% $ 0.012083% $ 0.010590% $

2,726,608.00 $ 1,839,517.00 $ 1,337,907.00 $

1,448,549.40 1,275,922.59 1,080,391.83

188.23% 144.17% 123.84%

76.06% 81.44% 84.03%

This schedule is intended to show information for 10 years. Additional years will be displayed as they become available.

- 23 -

MOUNTAIN EDUCATION CENTER, INC. REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITIES EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
FOR THE YEAR ENDED JUNE 30

SCHEDULE "2"

Year Ended
2017 2016 2015

Charter School's proportion of the
net pension liability

Charter School's proportionate share of the net pension liability

Charter School's covered-employee
payroll

Charter School's proportionate share of the net pension liability
as a percentage of covered payroll

Plan fiduciary net position as a
percentage of total net pension liability

0.003657% $ 172,991.00 $ 0.003621% $ 146,701.00 $ 0.003917% $ 146,912.00 $

85,028.88 82,782.48 82,782.48

203.45% 177.21% 177.47%

72.34% 76.20% 77.99%

This schedule is intended to show information for 10 years. Additional years will be displayed as they become available.

- 24 -

MOUNTAIN EDUCATION CENTER, INC. REQUIRED SUPPLEMENTARY INFORMATION
SCHEDULE OF CONTRIBUTIONS TEACHERS RETIREMENT SYSTEM OF GEORGIA
FOR THE YEAR ENDED JUNE 30

SCHEDULE "3"

Year Ended
2017 2016 2015 2014 2013 2012 2011 2010 2009 2008

Contractually required contribution

Contributions in relation to the contractually required
contribution

Contribution deficiency (excess)

Charter School's covered-employee
payroll

$

236,953.00 $

236,953.00 $

$

206,708.00 $

206,708.00 $

$

167,783.82 $

167,783.82 $

$

132,672.12 $

132,672.12 $

$

101,765.35 $

101,765.35 $

$

78,635.92 $

78,635.92 $

$

67,118.84 $

67,118.84 $

$

39,862.76 $

39,862.76 $

$

43,415.17 $

43,415.17 $

$

48,163.11 $

48,163.11 $

-

$ 1,660,497.55

-

$ 1,448,549.40

-

$ 1,275,922.59

-

$ 1,080,391.83

-

$ 891,896.14

-

$ 764,940.86

-

$ 652,910.28

-

$ 409,268.58

-

$ 467,935.88

-

$ 518,999.03

Contribution as a percentage of covered-
employee payroll
14.27% 14.27% 13.15% 12.28% 11.41% 10.28% 10.28%
9.74% 9.28% 9.28%

- 25 -

MOUNTAIN EDUCATION CENTER, INC. REQUIRED SUPPLEMENTARY INFORMATION
SCHEDULE OF CONTRIBUTIONS EMPLOYEES' RETIREMENT SYSTEM OF GEORGIA
FOR THE YEAR ENDED JUNE 30

SCHEDULE "4"

Year Ended

Contractually required contribution

Contributions in relation to the contractually required
contribution

Contribution deficiency (excess)

2017

$

22,156.00 $

22,156.00 $

-

2016

$

21,018.00 $

21,018.00 $

-

2015

$

18,179.04 $

18,179.04 $

-

2014

$

15,281.64 $

15,281.64 $

-

2013

$

12,106.08 $

12,106.08 $

-

2012

$

7,807.32 $

7,807.32 $

-

2011

$

7,807.32 $

7,807.32 $

-

2010

$

7,807.32 $

7,807.32 $

-

2009

$

5,118.48 $

5,118.48 $

-

Charter School's covered-employee
payroll

Contribution as a percentage of covered-
employee payroll

$

89,302.70

$

85,028.88

$

82,782.48

$

82,782.48

$

81,248.86

$

67,130.87

$

74,998.68

$

74,998.68

$

49,168.80

24.81% 24.72% 21.96% 18.46% 14.90% 11.63% 10.41% 10.41% 10.41%

This schedule is intended to show information for 10 years. Due to the Charter School's retention policy, the Charter School is only able to display 9 years of information.

- 26 -

MOUNTAIN EDUCATION CENTER, INC. NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION
FOR THE YEAR ENDED JUNE 30, 2017

SCHEDULE "5"

Teachers Retirement System
Changes of assumptions: In 2010 and later, the expectation of retired life mortality was changed to the RP 2000 Mortality Tables rather than the 1994 Group Annuity Mortality Table, which was used prior to 2010. In 2010, rates of withdrawal, retirement, disability and mortality were adjusted to more closely reflect actual experience. In 2010, assumed rates of salary increase were adjusted to more closely reflect actual and anticipated experience.
On November 18, -2015, the Board adopted recommended changes to the economic and demographic assumptions utilized by the System. Primary among the changes were the updates to rates of mortality, retirement, disability, withdrawal and salary increases. The expectation of retired life mortality was changed to RP 2000 White Collar Mortality Table with future mortality improvement projected to 2025 with the Society of Actuaries' projection scale BB (set forward one year for males).
Employees' Retirement System
Changes of assumptions: On December 17, 2015, the Board adopted recommended changes to the economic and demographic assumptions utilized E\WKH6\VWHP3ULPDU\DPRQJWKHFKDQJHVZHUHWKHXSGDWHVWRUDWHVRIPRUWDOLW\UHWLUHPHQWGLVDELOLW\ZLWKGUDZDODQGVDODU\LQFUHDVHV

- 27 -

MOUNTAIN EDUCATION CENTER, INC. GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL
YEAR ENDED JUNE 30, 2017

SCHEDULE "6"

REVENUES
State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous
Total Revenues
EXPENDITURES
Current Instruction Support Services Pupil Services Improvement of Instructional Services General Administration School Administration Business Administration Maintenance and Operation of Plant Student Transportation Services Other Support Services Food Services Operation
Total Expenditures
Net Change in Fund Balances
Fund Balances - Beginning
Adjustments

NONAPPROPRIATED BUDGETS

ORIGINAL (1)

FINAL (1)

ACTUAL AMOUNTS

VARIANCE OVER/UNDER

$

15,105,890.00 $

17,115,082.00 $

17,438,137.35 $

-

836,003.00

896,346.69

-

-

52,584.37

10,000.00

10,000.00

18,659.02

-

146,882.04

15,115,890.00

17,961,085.00

18,552,609.47

323,055.35 60,343.69 52,584.37 8,659.02
146,882.04
591,524.47

9,843,236.92
1,687,628.08 660,117.16 10,850.00
2,823,536.62 913,532.75 479,330.00 20,000.00 829,367.89 277,846.72
17,545,446.14
(2,429,556.14)
10,684,872.80
-

11,338,115.80
1,958,894.32 851,217.49 22,350.00
3,570,314.59 869,457.75 535,850.00 30,000.00 286,059.36 291,146.72
19,753,406.03
(1,792,321.03)
10,684,872.80
(12,950.39)

8,480,980.64
1,435,167.91 751,923.43 2,058.37
3,717,049.42 693,833.52 657,817.84 23,500.00 297,818.86 241,313.56
16,301,463.55
2,251,145.92
10,684,872.80
-

2,857,135.16
523,726.41 99,294.06 20,291.63
(146,734.83) 175,624.23 (121,967.84)
6,500.00 (11,759.50) 49,833.16
3,451,942.48
4,043,466.95
-
12,950.39

Fund Balances - Ending

$

8,255,316.66 $

8,879,601.38 $

12,936,018.72 $

4,056,417.34

Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual
(1) Original and Final Budget amounts do not include budgeted revenues or expenditures of the various principal accounts. The actual revenues and expenditures of the various principal accounts are $140,588.09 and $63,147.02, respectively.
The accompanying schedule of revenues, expenditures and changes in fund balances budget and actual is presented on the modified accrual basis of accounting which is the basis of accounting used in the presentation of the fund financial statements.

See notes to the basic financial statements.

- 28 -

MOUNTAIN EDUCATION CENTER, INC. SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED JUNE 30, 2017

SCHEDULE "7"

FUNDING AGENCY PROGRAM/GRANT
Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services National School Lunch Program
Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States
Other Programs Pass-Through From Georgia Department of Education Career and Technical Education - Basic Grants to States English Language Acquisition Grants Improving Teacher Quality State Grants Title I Grants to Local Educational Agencies
Total Other Programs
Total U. S. Department of Education

CFDA NUMBER

PASSTHROUGH
ENTITY ID
NUMBER

EXPENDITURES IN PERIOD

10.555

16165GA324N1099 $

241,313.56

84.027

H027A150073

84.048 84.365 84.367 84.010

V048A150010 S365A150010 S367A150001 S010A150010

229,245.66
1,810.00 1,439.85 82,097.16 479,228.14 564,575.15 793,820.81

Total Expenditures of Federal Awards

$

1,035,134.37

Notes to the Schedule of Expenditures of Federal Awards
Note 1. Basis of Presentation
The accompanying schedule of expenditures of federal awards (the "Schedule") includes the federal award activity of the Mountain Education Center, Inc. (the "School") under programs of the federal government for the year ended June 30, 2017. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the School, it is not intended to and does not present the financial position or changes in net assets of the School.
Note 2. Summary of Significant Accounting Policies
Expenditures reported on the Schedule are reported on the modified accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. The School has elected not to use the 10-percent de minimis indirect cost rate as allowed under the Uniform Guidance.

See notes to the basic financial statements.

- 29 -


-./012343435411671489

MOUNTAIN EDUCATION CENTER, INC. SCHEDULE OF STATE REVENUE YEAR ENDED JUNE 30, 2017
AGENCY/FUNDING
GRANTS Education, Georgia Department of Quality Basic Education Direct Instructional Cost Vocational Laboratory (9-12) Program Students with Disabilities Alternative Education Program English Speakers of Other Languages (ESOL) Media Center Program 20 Days Additional Instruction Staff and Professional Development Principal Staff and Professional Development Indirect Cost Central Administration School Administration Facility Maintenance and Operations Amended Formula Adjustment Categorical Grants Nursing Services State Special Charter Supplement State Charter Commission Administration Other State Programs Math and Science Supplements Vocational Education
Governor's Office of Student Achievement Connections for Classrooms Grant

SCHEDULE "8"

GOVERNMENTAL FUND TYPE GENERAL FUND

$

125,062.99

1,683,118.98

6,288,344.83

165,316.42

184,930.20

1,506.07

49,442.00

285.00

135,864.17 1,066,482.93
498,442.00 (187,839.38)

20,000.00 7,548,391.00
(178,420.39)

(11,250.60) 6,653.00

41,808.13

$

17,438,137.35

See notes to the basic financial statements.

- 31 -


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MOUNTAIN EDUCATION CENTER, INC. AUDITEE'S RESPONSE
SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2017
PRIOR YEAR FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS
No matters were reported.
PRIOR YEAR FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
No matters were reported.


-./012343435411671489

-./012343435411671489

MOUNTAIN EDUCATION CENTER, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2017

I SUMMARY OF AUDITOR'S RESULTS

Financial Statements

Type of auditor's report issue: Governmental Activities; General Fund:

Unmodified

Internal control over financial reporting:

Material weakness identified?

No

Significant deficiency identified?

Yes

Noncompliance material to financial statements noted:

No

Federal Awards

Internal Control over major programs: Material weakness identified? Significant deficiency identified?

No None Reported

Type of auditor's report issued on compliance for major programs: All major programs

Unmodified

Any audit findings disclosed that are required to be reported in

accordance with 2 CFR 200.516(a)?

No

Identification of major program:

CFDA Number

Name of Federal Program or Cluster

84.010

Title I Grants to Local Education Agencies

Dollar threshold used to distinguish between Type A and Type B programs:

$750,000.00

Auditee qualified as low-risk auditee?

Yes

- 1 -

MOUNTAIN EDUCATION CENTER, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2017

II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS

FS 2017-001 Control Category: Internal Control Impact: Compliance Impact:

Internal Controls over Cash and Cash Equivalents Cash and Cash Equivalents Significant Deficiency N/A

Description: The cash reconciliation procedures of the Charter School were insufficient to provide for adequate internal controls over cash and cash equivalents.

Criteria: The Charter School's management is responsible for designing and maintaining an adequate system of internal controls that ensures that all cash accounts are accurate and adequately supported by reliable bank reconciliations or other appropriate documentation. The cash reconciliation process should be designed to detect and identify errors, irregularities and misstatements to cash.

Condition: An inaccurate, incomplete outstanding check list was utilized for the June 2017 operating account bank reconciliation performed by the Charter School. The Charter School utilized a data analytic tool to generate an outstanding check list that would equal or come close to the difference between the bank statement amount and the per book amount. The outstanding check list generated failed to include eleven outstanding checks resulting in a $4,425.29 likely overstatement of cash at June 30, 2017. This procedure was utilized for the April, May and June 2017 operating bank reconciliations. These bank reconciliations were not performed timely, reviewed for accuracy or approved.

Cause: These deficiencies were a result of not ensuring that internal control policies and procedures were implemented properly and functioning as intended with regard to cash and cash equivalents. The procedure performed utilized a data analytic tool which circumvented the purpose of the bank reconciliation.

Effect or Potential Effect: The lack of adequate controls over cash increases the risk of inaccurate balances being reported, theft, fraud, and/or misuse of Charter School resources that could result in errors and/or irregularities which would not be detected in a timely manner.

Recommendation: Management should establish policies to ensure that all bank reconciliations are completed in a timely manner using appropriate procedures designed to detect errors, irregularities and misstatements to cash. Administrative reviews should be performed to ensure the accuracy of these procedures including the identification and correction of variances that are detected. The Charter School should maintain documentation of the bank reconciliation and administrative review.

Views of Responsible Official: We concur with this finding.

- 2 -

MOUNTAIN EDUCATION CENTER, INC. SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED JUNE 30, 2017 III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.
- 3 -


-./012343435411671489



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