MONTGOMERY COUNTY BOARD OF EDUCATION MOUNT VERNON, GEORGIA ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2017 (Including Independent Auditor's Reports) MONTGOMERY COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL INDEPENDENT AUDITOR'S REPORT REQUIRED SUPPLEMENTARY INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBITS BASIC FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS A STATEMENT OF NET POSITION B STATEMENT OF ACTIVITIES FUND FINANCIAL STATEMENTS C BALANCE SHEET GOVERNMENTAL FUNDS D RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION E STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS F RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES G STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS H NOTES TO THE BASIC FINANCIAL STATEMENTS SCHEDULES REQUIRED SUPPLEMENTARY INFORMATION 1 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY TEACHERS RETIREMENT SYSTEM OF GEORGIA 2 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY PUBLIC SCHOOL EMPLOYEES RETIREMENT SYSTEM OF GEORGIA 3 SCHEDULE OF CONTRIBUTIONS TEACHERS RETIREMENT SYSTEM OF GEORGIA 4 NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION 5 SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL GENERAL FUND Page i 1 2 4 5 6 7 8 10 27 28 29 30 31 MONTGOMERY COUNTY BOARD OF EDUCATION - TABLE OF CONTENTS - SECTION I FINANCIAL SCHEDULES SUPPLEMENTARY INFORMATION 6 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 7 SCHEDULE OF STATE REVENUE 8 SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS Page 32 33 35 SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS SUMMARY SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS SECTION IV FINDINGS AND QUESTIONED COSTS SCHEDULE OF FINDINGS AND QUESTIONED COSTS SECTION I FINANCIAL GREG S. GRIFFIN STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 June 27, 2018 The Honorable Nathan Deal, Governor of Georgia Members of the General Assembly of the State of Georgia Members of the State Board of Education and Superintendent and Members of the Montgomery County Board of Education INDEPENDENT AUDITOR'S REPORT Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Montgomery County Board of Education (School District), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the School District's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the of the governmental activities, each major fund, and the aggregate remaining fund information of the School District as of June 30, 2017, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As described in Note 2 to the financial statements, in 2017, the School District adopted new accounting guidance, Governmental Accounting Standards Board (GASB) Statement No. 77, Tax Abatement Disclosures, GASB Statement No. 80, Blending Requirements for Certain Component Units, and GASB Statement No. 82, Pension Issues. Our opinions are not modified with respect to these matters. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis, Schedules of Proportionate Share of the Net Pension Liability, Schedule of Contributions to Retirement Systems, Notes to the Required Supplementary Information and the Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual as presented on pages i through viii, and pages 27 through 31, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the School District's basic financial statements. The accompanying supplementary information, as listed in the table of contents, is presented for the purposes of additional analysis and is not a required part of the basic financial statements. The Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by Title 2 U. S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The accompanying supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 27, 2018 on our consideration of the School District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the School District's internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the School District's internal control over financial reporting and compliance. A copy of this report has been filed as a permanent record in the office of the State Auditor and made available to the press of the State, as provided for by Official Code of Georgia Annotated section 50-6-24. Respectfully submitted, Greg S. Griffin State Auditor (This page left intentionally blank) MONTGOMERY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 INTRODUCTION The intent of this discussion and analysis is to look at the Montgomery County Board of Education's (School District) financial performance as a whole. The reader should review the notes to the basic financial statements and the financial statements to enhance their understanding of the School District's financial performance. The School District's financial statements for the fiscal year ended June 30, 2017 include 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 short-term and long-term view of the School District's finances. The fund financial statements provide information about all of the School District's funds. FINANCIAL HIGHLIGHTS Key financial highlights for fiscal year 2017 are as follows: On the government-wide financial statements: Government-wide net position at June 30, 2017 was approximately $11.1 million. Net position reflects the difference between all assets of the School District (including capital assets, net of depreciation), all deferred outflows of resources, all liabilities, and all deferred inflows of resources. The net position at June 30, 2017 of $11.1 million represented an increase of approximately $1.6 m i l l i o n when compared to the prior year. The increase in net position resulted from an increase in assets and deferred outflows of resources of approximately $3.2 million reduced by an increase in liabilities and deferred inflows of resources of approximately $1.6 million. The School District had over $11.1 million in expenses relating to governmental activities; only $9.3 million of these expenses were offset by program specific charges for services, operating and capital grants and contributions. However, the general revenues (primarily property and sales taxes) of approximately $3.4 million provided additional funding of these expenses. As stated above, general revenues accounted for $3.4 million or about 27% of all revenues totaling approximately $12.7 million. Program specific revenues in the form of charges for services, operating and capital grants, and contributions accounted for the balance of these revenues. Among major funds, the general fund had approximately $10.3 million in revenues and $10.2 million in expenditures. The general fund balance of approximately $4.9 million at June 30, 2017 increased by approximately $95 thousand from the prior year. OVERVIEW OF THE FINANCIAL STATEMENTS These financial statements consist of four parts: management's discussion and analysis (this section), the basic financial statements, including notes to the financial statements, required supplementary information and 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. i MONTGOMERY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 The fund financial statements focus on individual parts of the School District, reporting the School District's operation in more detail. The governmental fund financial statements disclose how basic services are financed in the short-term as well as what remains for future spending. The fiduciary fund financial 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 Montgomery County School District, the general fund and capital projects fund are considered to be major funds. The School District has no non-major funds as defined by GASB Statement No. 34 for purposes of this report. 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 the Montgomery County School District has no operations that have been classified as business-type activities, the government-wide financial statements are basically a consolidation of the entire 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 provide the basis for answering this question. These financial statements include all School District assets and liabilities and use the accrual basis of accounting similar to the accounting used by most private-sector companies. This basis of accounting takes into accounts all of the current year's revenues and expenses regardless of when cash is received or paid. 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: Capitalize current outlays for capital assets Depreciate capital assets Report long-term debt as a liability Calculate revenue and expense using the economic resources measurement focus and the accrual basis of accounting Allocate net position as follows: Net Investment in Capital Assets Restricted Net Position is that with constraints placed on the use by external sources such as creditors, grantors, contributors or laws and regulations. Unrestricted Net Position is net position that does not meet any of the above restrictions. ii MONTGOMERY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 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 non-major funds as defined by GASB Statement No. 34. 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 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 governmental 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. 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, can be 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 are to provide success for each child's education, not to generate profits as private corporations do. For this reason, many other non-financial factors should be considered in assessing the overall health of the School District. In the case of the Montgomery County School District, assets and deferred outflows exceeded liabilities and deferred inflows by approximately $11.1 million at June 30, 2017. 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 $11.1 million of net position, about $2.0 million was restricted for ongoing capital projects. Accordingly, these funds were not available to meet the School District's ongoing obligations to citizens and creditors. iii MONTGOMERY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 In addition, the School District had over $11.8 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. The deficit balance of unrestricted net position of approximately $2.8 million reflects the pension liability adjustments as required by GASB Statement No. 68 and GASB Statement No. 71. 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 Fiscal Fiscal Year 2017 Year 2016 Assets Current and Other Assets Capital Assets, Net $ 8,032,956 $ 8,318,462 12,074,250 10,093,032 Total Assets 20,107,206 18,411,494 Deferred Outflows of Resources Related to Defined Benefit Pension Plan 2,789,629 1,279,144 Liabilities Current and Other Liabilities Net Pension Liability 1,340,043 10,125,958 1,645,171 7,835,492 Total Liabilities 11,466,001 9,480,663 Deferred Inflows of Resources Related to Defined Benefit Pension Plan 370,926 729,849 Net Position Net Investment in Capital Assets Restricted Unrestricted (Deficit) 11,789,958 2,034,480 (2,764,530) 9,978,032 1,783,692 (2,281,598) Total Net Position $ 11,059,908 $ 9,480,126 Total net position increased by $1.6 million in fiscal year 2017 from the prior year. This increase is primarily due to the careful monitoring of expenses to keep them within or below budget. iv MONTGOMERY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Table 2 also shows the change in net position as compared to the prior year 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 General Revenues: Taxes Property Taxes For Maintenance and Operations Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Other Sales Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Total Revenues 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 Services Other Support Services Operations of Non-Instructional Services Enterprise Operations Food Services Governmental Activities Fiscal Year 2017 Fiscal Year 2016 $ 135,631 $ 117,044 7,310,659 11,264,175 1,818,681 115,000 9,264,971 11,496,219 2,561,791 13,300 568,625 26,052 66,255 25,848 183,298 3,445,169 12,710,140 6,398,760 301,968 807,262 166,923 313,647 782,767 120,470 709,418 572,253 420 39,785 133,373 783,312 2,487,761 12,884 495,311 28,136 196,370 12,499 216,488 3,449,449 14,945,668 7,506,137 322,925 333,642 165,806 569,973 854,664 128,770 790,543 574,708 231 33,410 163,797 698,784 Total Expenses 11,130,358 12,143,390 Increase in Net Position $ 1,579,782 $ 2,802,278 v MONTGOMERY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 Program revenues, in the form of charges for services, operating grants and contributions and capital grants and contributions decreased by approximately $2.2 million for governmental activities. This decrease is largely due to a decrease in funds earned through the State Quality Basic Education (QBE) Funding Formula. General revenues decreased by an insignificant amount during fiscal year 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. The net cost reflects the financial burden on the School District's taxpayers by each activity as compared to the prior fiscal year. Table 3 Governmental Activities Total Cost of Services Fiscal Fiscal Year 2017 Year 2016 Net Cost of Services Fiscal Fiscal Year 2017 Year 2016 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: Enterprise Operations Food Services 6,398,760 $ 301,968 807,262 166,923 313,647 782,767 120,470 709,418 572,253 420 39,785 133,373 783,312 7,506,137 $ 322,925 333,642 165,806 569,973 854,664 128,770 790,543 574,708 231 33,410 163,797 698,784 124,094 $ 231,839 331,359 56,875 (128,592) 405,653 120,470 391,743 349,337 420 2,194 42,788 (62,793) (1,166,377) 277,323 (7,341) 36,951 165,490 385,125 128,770 373,452 352,113 (224) (2,175) 99,433 4,631 Total Expenses $ 11,130,358 $ 12,143,390 $ 1,865,387 $ 647,171 Although program revenues make up a majority of the revenues, the School District is still dependent upon tax revenues for governmental activities. For fiscal year 2017, 16.8% of expenses were supplemented by taxes and other general revenues compared to 5.3% in fiscal year 2016. FINANCIAL ANALYSIS OF THE SCHOOL DISTRICT'S FUNDS Information about the School District's governmental funds is presented starting on Exhibit "E" of this report. Governmental funds are accounted for using the modified accrual basis of accounting. The governmental funds had total revenues and other financing sources of $12.8 million and total expenditures of $12.7 million in fiscal year 2017. Total governmental fund balances of approximately $6.6 million at June 30, 2017, increased approximately $145 thousand from the prior year. vi MONTGOMERY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 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 2017, the School District amended its general fund budget as needed. The School District budget is adopted at the aggregate fund 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 $10.3 million were less than the final budgeted amount of $10.4 million by approximately $43 thousand. This can be attributed to receiving less state funds and charges for services than originally anticipated. The general fund's final actual expenditures of $10.2 million were less than the final budget amount of $10.4 million by approximately $206 thousand. The School District believes it effectively managed its budget during the fiscal year. CAPITAL ASSETS At fiscal year ended June 30, 2017, the School District had $12.1 million 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; land improvements; and food service, transportation and maintenance equipment. Construction began on the new Montgomery Middle/High School in fiscal year 2017, resulting in a $2.3 million increase in construction in progress. Table 4 reflects a summary of these balances, net of accumulated depreciation, as compared to the prior fiscal year. Table 4 Capital Assets (Net of Depreciation) Governmental Activities Fiscal Fiscal Year 2017 Year 2016 Land Construction In Progress Building and Improvements Equipment Land Improvements $ 380,281 $ 2,479,096 8,487,126 613,002 114,745 380,281 131,970 8,711,227 717,934 151,620 Total $ 12,074,250 $ 10,093,032 vii MONTGOMERY COUNTY BOARD OF EDUCATION MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE FISCAL YEAR ENDED JUNE 30, 2017 FACTORS BEARING ON THE SCHOOL 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: The School District is financially stable. The School District's operating millage for Fiscal Year 2017 was 14.189, which produced approximately $170,031 per mill. In Fiscal Year 2017 Montgomery County School District saw a drastic decrease in state funds due to the passing of HB 100 during the 2016 legislative session, which prevented the School District from continuing to operate the Montgomery Academy Online School. The state continues to apply a reduction of revenue earned by the system through the Quality Basic Education funding formula. This reduction is referred to as the "Amended Formula Adjustment" and is applied in order to help maintain a balanced state budget. In fiscal year 2017 that reduction of earned funds was $60 thousand. In addition to state funding cuts, the School District, like most other school systems, is faced with increasing cost of retirement and health insurance for employees. The new Montgomery County Middle/High School is currently in the construction phase. This construction project will be a significant addition to Montgomery County School District's capital assets upon completion. 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 Mrs. Nesbeth Blaxton, Financial Director, Montgomery County School District, 703 Dobbins Street, Mount Vernon, Georgia 30445. You may also email your questions to Mrs. Blaxton at nblaxton@montgomery.k12.ga.us. viii MONTGOMERY COUNTY BOARD OF EDUCATION MONTGOMERY COUNTY BOARD OF EDUCATION STATEMENT OF NET POSITION JUNE 30, 2017 ASSETS Cash and Cash Equivalents Investments Receivables, Net Taxes State Government Federal Government Other Inventories Capital Assets, Non-Depreciable Capital Assets, Depreciable (Net of Accumulated Depreciation) Total Assets DEFERRED OUTFLOWS OF RESOURCES Related to Defined Benefit Pension Plan LIABILITIES Accounts Payable Salaries and Benefits Payable Payroll Withholdings Payable Contracts Payable Retainages Payable Net Pension Liability Total Liabilities DEFERRED INFLOWS OF RESOURCES Related to Defined Benefit Pension Plan NET POSITION Net Investment in Capital Assets Restricted for Continuation of Federal Programs Capital Projects Unrestricted (Deficit) Total Net Position EXHIBIT "A" GOVERNMENTAL ACTIVITIES $ 5,974,518.21 23,962.18 339,608.79 1,387,341.89 273,827.02 24,740.98 8,957.02 2,859,376.87 9,214,873.17 20,107,206.13 2,789,628.56 67,372.42 965,570.12 22,808.16 160,121.00 124,171.00 10,125,958.00 11,466,000.70 370,926.00 11,789,958.04 49,194.97 1,985,284.69 (2,764,529.71) $ 11,059,907.99 The notes to the basic financial statements are an integral part of this statement. - 1 - MONTGOMERY COUNTY BOARD OF EDUCATION STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2017 GOVERNMENTAL ACTIVITIES 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 Enterprise Operations Food Services Total Governmental Activities General Revenues Taxes Property Taxes For Maintenance and Operations Railroad Cars Sales Taxes Special Purpose Local Option Sales Tax For Capital Projects Other Sales Tax Grants and Contributions not Restricted to Specific Programs Investment Earnings Miscellaneous Total General Revenues Change in Net Position Net Position - Beginning of Year Net Position - End of Year EXPENSES CHARGES FOR SERVICES PROGRAM REVENUES $ 6,398,760.23 $ 301,968.49 807,262.13 166,922.66 313,647.56 782,767.37 120,469.69 709,418.59 572,252.84 420.00 39,784.68 133,373.02 783,311.56 $ 11,130,358.82 $ - 30,037.69 - 90,585.09 15,008.65 135,631.43 The notes to the basic financial statements are an integral part of this statement. - 2 - EXHIBIT "B" PROGRAM REVENUES OPERATING GRANTS AND CONTRIBUTIONS CAPITAL GRANTS AND CONTRIBUTIONS NET (EXPENSES) REVENUES AND CHANGES IN NET POSITION $ 4,537,786.24 $ 1,736,879.84 $ 70,129.83 475,903.24 110,048.00 433,621.17 371,345.00 269,738.43 222,915.56 37,590.68 8,618.26 5,768.98 17,899.08 - 781,580.44 49,515.26 $ 7,310,658.59 $ 1,818,681.42 (124,094.15) (231,838.66) (331,358.89) (56,874.66) 128,591.87 (405,653.39) (120,469.69) (391,743.39) (349,337.28) (420.00) (2,194.00) (42,787.93) 62,792.79 (1,865,387.38) 2,561,790.90 13,300.58 568,625.56 26,051.59 66,255.00 25,847.53 183,297.87 3,445,169.03 1,579,781.65 9,480,126.34 $ 11,059,907.99 - 3 - MONTGOMERY COUNTY BOARD OF EDUCATION BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2017 EXHIBIT "C" ASSETS Cash and Cash Equivalents Investments Receivables, Net Taxes State Government Federal Government Other Inventories GENERAL FUND CAPITAL PROJECTS FUND TOTAL $ 4,802,059.47 $ 1,172,458.74 $ 23,962.18 - 5,974,518.21 23,962.18 291,014.70 619,548.13 273,827.02 24,740.98 8,957.02 48,594.09 767,793.76 - 339,608.79 1,387,341.89 273,827.02 24,740.98 8,957.02 Total Assets LIABILITIES Accounts Payable Salaries and Benefits Payable Payroll Withholdings Payable Contracts Payable Retainages Payable Total Liabilities DEFERRED INFLOWS OF RESOURCES Unavailable Revenue - Property Taxes FUND BALANCES Nonspendable Restricted Committed Assigned Unassigned Total Fund Balances $ 6,044,109.50 $ 1,988,846.59 $ 8,032,956.09 $ 63,810.52 $ 965,570.12 22,808.16 - - 1,052,188.80 3,561.90 $ - 160,121.00 124,171.00 287,853.90 67,372.42 965,570.12 22,808.16 160,121.00 124,171.00 1,340,042.70 136,703.93 - 136,703.93 8,957.02 40,237.95 3,817,157.32 63,722.77 925,141.71 4,855,216.77 1,700,992.69 - 1,700,992.69 8,957.02 1,741,230.64 3,817,157.32 63,722.77 925,141.71 6,556,209.46 Total Liabilities, Deferred Inflows of Resources, and Fund Balances $ 6,044,109.50 $ 1,988,846.59 $ 8,032,956.09 The notes to the basic financial statements are an integral part of this statement. - 4 - MONTGOMERY COUNTY BOARD OF EDUCATION 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 Construction in progress 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. Taxes that are not available to pay for current period expenditures are deferred in the funds. Net position of governmental activities (Exhibit "A") $ 6,556,209.46 $ 380,281.37 2,479,095.50 13,790,291.03 2,139,117.10 633,008.02 (7,347,542.98) 12,074,250.04 (10,125,958.00) 2,418,702.56 136,703.93 $ 11,059,907.99 The notes to the basic financial statements are an integral part of this statement. - 5 - MONTGOMERY COUNTY BOARD OF EDUCATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2017 EXHIBIT "E" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current 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 Enterprise Operations Food Services Operation Capital Outlay Total Expenditures Revenues over (under) Expenditures OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balances - Beginning Fund Balances - Ending GENERAL FUND CAPITAL PROJECTS FUND TOTAL $ 2,585,509.13 $ 26,051.59 5,335,289.87 2,038,137.72 135,631.43 21,178.79 183,297.87 10,325,096.40 - $ 568,625.56 1,933,681.42 4,668.74 - 2,506,975.72 2,585,509.13 594,677.15 7,268,971.29 2,038,137.72 135,631.43 25,847.53 183,297.87 12,832,072.12 5,776,747.99 291,261.43 798,471.10 156,593.50 290,068.47 735,257.90 114,759.26 639,377.44 485,199.58 420.00 38,860.97 133,373.02 764,325.34 - 10,224,716.00 100,380.40 37,841.21 1,033.65 71,851.20 8,264.65 2,343,325.50 2,462,316.21 44,659.51 5,814,589.20 291,261.43 798,471.10 156,593.50 291,102.12 735,257.90 114,759.26 711,228.64 493,464.23 420.00 38,860.97 133,373.02 764,325.34 2,343,325.50 12,687,032.21 145,039.91 (5,160.00) (5,160.00) 95,220.40 4,759,996.37 5,160.00 - 5,160.00 49,819.51 1,651,173.18 5,160.00 (5,160.00) - 145,039.91 6,411,169.55 $ 4,855,216.77 $ 1,700,992.69 $ 6,556,209.46 The notes to the basic financial statements are an integral part of this statement. - 6 - MONTGOMERY COUNTY BOARD OF EDUCATION 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 Taxes and state funds reported in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. Property taxes Georgia State Financing and Investment Commission 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") $ 145,039.91 $ 2,374,015.50 (392,797.50) 1,981,218.00 $ (10,417.65) (115,000.00) (125,417.65) (421,058.61) $ 1,579,781.65 The notes to the basic financial statements are an integral part of this statement. - 7 - MONTGOMERY COUNTY BOARD OF EDUCATION STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS JUNE 30, 2017 ASSETS Cash and Cash Equivalents LIABILITIES Funds Held for Others EXHIBIT "G" AGENCY FUNDS $ 7,797.12 $ 7,797.12 The notes to the basic financial statements are an integral part of this statement. - 8 - (This page left intentionally blank) MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" NOTE 1: DESCRIPTION OF SCHOOL DISTRICT AND REPORTING ENTITY REPORTING ENTITY The Montgomery 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. 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 retainages and contracts payable related to those 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. 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. - 10 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" 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: 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. The capital projects fund accounts for and reports financial resources including Education Special Purpose Local Option Sales Tax (ESPLOST) 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. The School District reports the following fiduciary fund type: 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 and grants. 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 is recognized in the fiscal year in which all eligibility requirements have been satisfied. 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. Capital asset acquisitions are reported as expenditures in governmental funds. - 11 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" 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 2017, the School District adopted Governmental Accounting Standards Board (GASB) Statement No. 77, Tax Abatement Disclosures. This statement requires governments that enter into tax abatement 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, 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 a significant impact on the School District's financial statements. In fiscal year 2017, the School District 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 Organization Are Component Units. The adoption of this statement does not have a significant impact on the School District's financial statements. In fiscal year 2017, the School District 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 payroll-related 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 School District'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 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. - 12 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" Investments made by the School District in nonparticipating interest-earning contracts (such as certificates of deposit) and repurchase agreements are reported at cost. Participating interestearning 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. 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 the 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. 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 governmentwide statements are as follows: Capitalization Policy Estimated Useful Life Land Land Improvements Buildings and Improvements Equipment Construction in Progress Intangible - Software All Other Intangibiles Any Amount $ 10,000.00 $ 10,000.00 $ 5,000.00 $ 10,000.00 $ 150,000.00 $ 100,000.00 N/A 15 to 80 years 50 to 80 years 5 to 50 years N/A 10 years 20 years - 13 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" 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 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. - 14 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" PROPERTY TAXES The Montgomery County Board of Commissioners adopted the property tax levy for the 2016 tax digest year (calendar year) on September 30, 2016 (levy date) based on property values as of January 1, 2016. Taxes were due on December 20, 2016 (lien date). Taxes collected within the current fiscal year or within 60 days after year-end on the 2016 tax digest are reported as revenue in the governmental funds for fiscal year 2017. The Montgomery County Board of Commissioners 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, 2017, for maintenance and operations amounted to $2,334,564.08. The tax millage rate levied for the 2016 tax year (calendar year) for the School District was as follows (a mill equals $1 per thousand dollars of assessed value): School Operations 14.189 mills Additionally, Title Ad Valorem Tax revenues, at the fund reporting level, amounted to $237,644.47 during fiscal year ended June 30, 2017. SALES TAXES Education Special Purpose Local Option Sales Tax (ESPLOST), at the fund reporting level, during the year amounted to $568,625.56 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. 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 fund and capital projects fund. There is no statutory prohibition regarding over expenditure of the budget at any level. The budget for all governmental funds is prepared and adopted by fund. 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 the fiscal year under review. - 15 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" NOTE 4: DEPOSITS 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 (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, 2017, the School District had deposits with a carrying amount of $5,982,315.33, and a bank balance of $6,230,596.93. The bank balances insured by Federal depository insurance were $500,000.00 and the bank balances collateralized with securities held by the pledging financial institution in the School District's name were $5,730,596.93. CATEGORIZATION OF INVESTMENTS At June 30, 2017, the fair value of the School District's total investment was $23,962.18, and this entire amount consisted of common stock, which was held by the School District. - 16 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" 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, 2017: Common Stock of $23,962.18 are valued using quoted market prices. (Level 1 inputs) NOTE 5: CAPITAL ASSETS The following is a summary of changes in the capital assets for governmental activities during the fiscal year: Balances July 1, 2016 Increases Decreases Balances June 30, 2017 Governmental Activities Capital Assets, Not Being Depreciated: Land Construction in Progress $ 380,281.37 $ - $ 131,970.00 2,347,125.50 - $ - 380,281.37 2,479,095.50 Total Capital Assets Not Being Depreciated 512,251.37 2,347,125.50 - 2,859,376.87 Capital Assets Being Depreciated Buildings and Improvements Equipment Land Improvements Less Accumulated Depreciation for: Buildings and Improvements Equipment Land Improvements Total Capital Assets, Being Depreciated, Net 13,790,291.03 2,112,227.10 633,008.02 5,079,065.13 1,394,292.82 481,387.53 9,580,780.67 26,890.00 - 224,099.81 131,822.58 36,875.11 (365,907.50) - 13,790,291.03 - 2,139,117.10 - 633,008.02 - - - 5,303,164.94 - 1,526,115.40 - 518,262.64 - - 9,214,873.17 Governmental Activity Capital Assets - Net $ 10,093,032.04 $ 1,981,218.00 $ Current year depreciation expense by function is as follows: Instruction Support Services General Administration School Administration Maintenance and Operation of Plant Student Transportation Services Food Services $ $ 3,007.92 2,013.48 6,247.09 82,046.09 - $ 12,074,250.04 282,201.24 93,314.58 17,281.68 $ 392,797.50 - 17 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" NOTE 6: INTERFUND TRANSFERS Interfund transfers for the year ended June 30, 2017, consisted of the following: Transfers to Transfers From General Fund Capital projects fund $ 5,160.00 Transfers are used to move property tax revenues collected by the general fund to the capital projects fund as required matching funds or to provide supplemental funding for capital construction projects. NOTE 7: 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 exceed commercial insurance coverage in any of the past three fiscal years. The School District has elected to self-insure for losses related to natural disasters. The School District has not experienced any losses related to this risk in the past three years. UNEMPLOYMENT COMPENSATION The School District is self-insured with regard to unemployment compensation claims. 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. 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 2016 $ - $ - $ - $ - 2017 $ - $ 2,604.00 $ 2,604.00 $ - SURETY BOND The School District purchased a surety bond to provide additional insurance coverage as follows: Position Covered Amount Superintendent $ 100,000.00 - 18 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" NOTE 8: FUND BALANCE CLASSIFICATION DETAILS The School District's financial statements include the following amounts presented in the aggregate at June 30, 2017: Nonspendable Inventories Restricted Continuation of federal programs Capital projects Committed New Montgomery Middle/High School Project Assigned School activity accounts Unassigned $ $ 40,237.95 1,700,992.69 8,957.02 1,741,230.64 3,817,157.32 63,722.77 925,141.71 Fund Balance, June 30, 2017 $ 6,556,209.46 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. It is the goal of the School District to achieve and maintain a committed, assigned, and unassigned fund balance in the general fund at fiscal year-end of not less than 1% of expenditures, not to exceed 15% of the total budget of the subsequent fiscal year. If the unassigned fund balance at fiscal year-end falls below the goal, the School District shall develop a restoration plan to achieve and maintain the minimum fund balance. NOTE 9: 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, 2017, together with funding available: Project Unearned Executed Contracts (1) Payments through June 30, 2017 (2) Funding Available From State (1) New Montgomery Middle/High School $ 13,199,711.45 $ 2,415,600.15 $ 7,409,869.58 (1) The amounts described are not reflected in the basic financial statements. (2) Payments include Contracts and Retainages Payable at year-end. NOTE 10: 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. - 19 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" NOTE 11: POST-EMPLOYMENT BENEFITS GEORGIA SCHOOL PERSONNEL POST-EMPLOYMENT HEALTH BENEFIT FUND P lan 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 P olicy. 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 "pay-as-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 $945.00 per member per month For non-certificated school personnel: July 1, 2016 December 31, 2016 $746.20 per member per month January 1, 2017 June 30, 2017 $846.20 per member per month - 20 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" 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 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 2017 2016 2015 100% 100% 100% $ 1,186,155.60 $ 1,101,987.60 $ 1,029,181.20 NOTE 12: 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) P lan 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 P rovided: 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. 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 School District's contractually required contribution rate for the year ended June 30, 2017 was 14.27% of annual School District payroll. For the current fiscal year, employer contributions to the pension plan were $709,003.56 from the School District. PUBLIC SCHOOL EMPLOYEES RETIREMENT SYSTEM (PSERS) P lan 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 - 21 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" 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. 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 $16,015.00. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2017, the School District reported a liability of $10,125,958.00 for its proportionate share of the net pension liability for TRS. The net pension liability for TRS 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 School District's proportion of the net pension liability was based on contributions to TRS during the fiscal year ended June 30, 2016. At June 30, 2016, the School District's TRS proportion was 0.049081%, which was a decrease of 0.002387% from its proportion measured as of June 30, 2015. At June 30, 2017, 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 $118,952.00. The PSERS net pension liability 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 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, 2016. - 22 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" For the year ended June 30, 2017, the School District recognized pension expense of $1,128,888.00 for TRS and $19,501.00 for PSERS and revenue of $19,501.00 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. At June 30, 2017, the School District 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 Differences between expected and actual experience $ 150,849.00 $ 50,073.00 Changes of assumptions 262,451.00 - Net difference between projected and actual earnings on pension plan investments 1,280,975.00 - Changes in proportion and differences between School District contributions and proportionate share of contributions 386,350.00 320,853.00 School District contributions subsequent to the measurement date 709,003.56 - Total $ 2,789,628.56 $ 370,926.00 The School District contributions subsequent to the measurement date of $709,003.56 for TRS 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 2018 2019 2020 2021 2022 $ 241,695.00 $ 241,694.00 $ 775,813.00 $ 446,098.00 $ 4,399.00 - 23 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" Actuarial assum ptions: 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 Salary increases Investment rate of return 2.75% 3.25% 7.00%, average, including inflation 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. Public School Employees Retirement System: Inflation 2.75% Salary increases N/A Investment rate of return 7.50%, net of pension plan investment expense, including inflation Post-retirement mortality rates were based on the RP-2000 Blue-Collar Mortality Table projected to 2025 with projection scale BB (set forward 3 years for males and 2 years for females) for the period after service retirements and for dependent beneficiaries. The RP-2000 Disabled Mortality projected to 2025 with projection scale BB (set forward 5 years for both males and 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 9-11% less than the actual number of deaths that occurred during the study period for healthy retirees and 9-11% less than expected under the selected table for disabled retirees. 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. The long-term expected rate of return on TRS 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 - 24 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE BASIC FINANCIAL STATEMENTS JUNE 30, 2017 EXHIBIT "H" 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 Alternative Total * Rates shown are net of the 2.75% assumed rate of inflation TRS Target allocation 30.00% 39.80% 3.70% 1.50% 19.40% 5.60% - 100.00% PSERS Target allocation 30.00% 37.20% 3.40% 1.40% 17.80% 5.20% 5.00% 100.00% Long-term expected real rate of return* (0.50)% 9.00% 12.00% 13.50% 8.00% 12.00% 10.50% Discount rate: The discount rate used to measure the total TRS 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 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: School District's proportionate share of the net pension liability 1% Decrease (6.50%) Current Discount Rate (7.50%) 1% Increase (8.50%) $ 15,761,178.00 $ 10,125,958.00 $ 5,486,283.00 P ension plan fiduciary net position: Detailed information about the pension plan's fiduciary net position is available in the separately issued TRS and PSERS financial report which is publically available at www.trsga.com/publications and http://www.ers.ga.gov/formspubs/formspubs.html. - 25 - (This page left intentionally blank) MONTGOMERY COUNTY BOARD OF EDUCATION REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY TEACHERS RETIREMENT SYSTEM OF GEORGIA FOR THE YEAR ENDED JUNE 30 SCHEDULE "1" Year Ended School District's proportion of the net pension liability 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 School District's covered payroll School District's proportionate share of the net pension liability as a percentage of its covered payroll Plan fiduciary net position as a percentage of the total pension liability 2017 2016 2015 0.049081% $ 10,125,958.00 $ 0.051468% $ 7,835,492.00 $ 0.048024% $ 6,067,199.00 $ - $ 10,125,958.00 $ 5,391,949.44 - $ 7,835,492.00 $ 5,440,677.57 - $ 6,067,199.00 $ 4,914,298.13 187.80% 144.02% 123.46% 76.06% 81.44% 84.03% The schedule is intended to show information for 10 years. Additional years will be displayed as they become available - 27 - MONTGOMERY COUNTY BOARD OF EDUCATION REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY PUBLIC SCHOOLS EMPLOYEES RETIREMENT SYSTEM OF GEORGIA FOR THE YEAR ENDED JUNE 30 SCHEDULE "2" Year Ended School District's proportion of the net pension liability School District's proportionate share of the net pension liability State of Georgia's proprotionate share of the net pension liaibility associated with the School District 2017 2016 2015 0.00% $ 0.00% $ 0.00% $ - $ - $ - $ 118,952.00 $ 72,821.00 $ 71,888.00 $ Total 118,952.00 72,821.00 71,888.00 School District's covered payroll $ 252,550.85 $ 236,754.10 $ 203,399.18 School District's proportionate share of the net pension liability as a percentage of its covered payroll Plan fiduciary net position as a percentage of the total pension liability N/A 81.00% N/A 87.00% N/A 88.29% The schedule is intended to show information for 10 years. Additional years will be displayed as they become available - 28 - MONTGOMERY COUNTY BOARD OF EDUCATION REQUIRED SUPPLMENTARY INFORMATION SCHEDULE OF CONTRIBUTIONS TEACHERS RETIRMENT SYSTEM OF GEORGIA FOR THE YEAR ENDED JUNE 30 SCHEDULE "3" Year Ended Contractually required contribution Contributions in relation to the contractually required contribution Contribution deficiency (excess) 2017 $ 709,003.56 $ 709,003.56 $ - 2016 $ 769,431.17 $ 769,431.17 $ - 2015 $ 715,449.10 $ 715,449.10 $ - 2014 $ 603,475.81 $ 603,475.81 $ - 2013 $ 560,715.53 $ 560,715.53 $ - 2012 $ 566,278.13 $ 566,278.13 $ - 2011 $ 649,493.66 $ 649,493.66 $ - 2010 $ 652,964.47 $ 652,964.47 $ - 2009 $ 643,565.51 $ 643,565.51 $ - 2008 $ 663,830.00 $ 663,830.00 $ - School District's covered payroll $ 4,968,490.26 $ 5,391,949.44 $ 5,440,677.57 $ 4,914,298.13 $ 4,914,246.54 $ 5,508,542.12 $ 6,318,031.71 $ 6,703,947.33 $ 6,934,973.17 $ 7,153,340.52 Contribution as a percentage of covered payroll 14.27% 14.27% 13.15% 12.28% 11.41% 10.28% 10.28% 9.74% 9.28% 9.28% - 29 - MONTGOMERY COUNTY BOARD OF EDUCATION NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION FOR YEAR ENDED JUNE 30, 2017 SCHEDULE "4" Teachers Retirement System Changes of assumptions: In 2010 and later, the expectation of retired life mortality was changed to the RP2000 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 RP2000 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). Public School Employees Retirement System Changes of assumptions: In 2010 and later, the expectation of retired life mortality was changed to the RP2000 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. On December 17, 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 and withdrawal. The expectation of retired life mortality was changed to the RP2000 Blue Collar Mortality Table projected to 2025 with projection scale BB (set forward 3 years for males and 2 years for females). - 30 - MONTGOMERY COUNTY BOARD OF EDUCATION GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL YEAR ENDED JUNE 30, 2017 SCHEDULE "5" REVENUES Property Taxes Sales Taxes State Funds Federal Funds Charges for Services Investment Earnings Miscellaneous Total Revenues EXPENDITURES Current 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 Enterprise Operations Food Services Operation Total Expenditures Excess of Revenues over (under) Expenditures OTHER FINANCING USES Other Uses Net Change in Fund Balances Fund Balances - Beginning Adjustments Fund Balances - Ending NONAPPROPRIATED BUDGETS ORIGINAL FINAL ACTUAL AMOUNTS VARIANCE OVER/UNDER $ 2,421,866.45 $ 2,590,052.82 $ 2,585,509.13 $ (4,543.69) 22,000.00 22,000.00 26,051.59 4,051.59 5,473,494.32 5,491,193.24 5,335,289.87 (155,903.37) 1,644,891.00 1,893,271.00 2,038,137.72 144,866.72 287,950.00 290,976.17 135,631.43 (155,344.74) 10,110.00 10,103.14 21,178.79 11,075.65 64,100.00 70,177.69 183,297.87 113,120.18 9,924,411.77 10,367,774.06 10,325,096.40 (42,677.66) 6,603,916.97 343,318.48 164,866.53 178,669.27 458,047.12 708,617.11 112,401.31 706,932.25 474,885.59 15,218.02 680,037.34 10,446,909.99 (522,498.22) 5,977,478.07 295,579.04 756,864.41 162,672.28 340,701.52 751,019.44 114,186.95 710,438.83 519,536.23 36,471.94 765,442.72 10,430,391.43 (62,617.37) 5,776,747.99 291,261.43 798,471.10 156,593.50 290,068.47 735,257.90 114,759.26 639,377.44 485,199.58 420.00 38,860.97 133,373.02 764,325.34 10,224,716.00 100,380.40 200,730.08 4,317.61 (41,606.69) 6,078.78 50,633.05 15,761.54 (572.31) 71,061.39 34,336.65 (420.00) (2,389.03) (133,373.02) 1,117.38 205,675.43 162,997.77 (522,498.22) 5,038,031.72 - (62,617.37) 5,038,031.72 (8,561.63) (5,160.00) 95,220.40 4,759,996.37 - (5,160.00) 157,837.77 (278,035.35) 8,561.63 $ 4,515,533.50 $ 4,966,852.72 $ 4,855,216.77 $ (111,635.95) Notes to the Schedule of Revenues, Expenditures and Changes in Fund Balances Budget and Actual 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. - 31 - MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF EXPENDITURES FOR FEDERAL AWARDS YEAR ENDED JUNE 30, 2017 SCHEDULE "6" FUNDING AGENCY PROGRAM/GRANT Agriculture, U. S. Department of Child Nutrition Cluster Pass-Through From Georgia Department of Education Food Services School Breakfast Program National School Lunch Program Total U. S. Department of Agriculture Education, U. S. Department of Special Education Cluster Pass-Through From Georgia Department of Education Special Education Grants to States Grants to States Preschool Grants Preschool Grants Total Special Education Cluster Other Programs Pass-Through From Georgia Department of Education Career and Technical Education - Basic Grants to States Improving Teacher Quality State Grants Improving Teacher Quality State Grants Migrant Education - State Grant Program Migrant Education - State Grant Program Rural Education Rural Education Title I Grants to Local Educational Agencies 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 10.553 10.555 17175GA324N1099 $ 17175GA324N1100 237,188.76 502,763.46 739,952.22 84.027 84.027 84.173 84.173 H027A150073 H027A160073 H173A150081 H173A160081 104,611.51 235,423.73 832.00 7,921.60 348,788.84 84.048 84.367 84.367 84.011 84.011 84.358 84.358 84.010 84.010 V048A150010 S367A150001 S367A160001 S011A150011 S011A160011 S358B150010 S358B160010 S010A150010 S010A160010 12,016.00 44,470.75 77,559.34 2,612.11 12,636.80 34,483.59 26,345.88 127,092.62 587,696.55 924,913.64 1,273,702.48 Total Expenditures of Federal Awards $ 2,013,654.70 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 Montgomery County Board of Education (the "Board") 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 Board, it is not intended to and does not present the financial position or changes in net position of the Board. 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 Board 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 - 32 - MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF STATE REVENUE JUNE 30, 2017 SCHEDULE "7" AGENCY/FUNDING GRANTS Bright From the Start: Georgia Department of Early Care and Learning Pre-Kindergarten Program Education, Georgia Department of Quality Basic Education Direct Instructional Cost Kindergarten Program Kindergarten Program - Early Intervention Program Primary Grades (1-3) Program Primary Grades - Early Intervention (1-3) Program Upper Elementary Grades (4-5) Program Upper Elementary Grades - Early Intervention (4-5) Program Middle School (6-8) Program High School General Education (9-12) Program Vocational Laboratory (9-12) Program Students with Disabilities Gifted Student - Category VI Remedial Education Program 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 Mid-term Adjustment Hold-Harmless Amended Formula Adjustment Categorical Grants Pupil Transportation Regular Nursing Services Sparsity Education Equalization Funding Grant Other State Programs Food Services Math and Science Supplements Preschool Disability Services Teacher of the Year Vocational Education Vocational Supervisors Georgia State Financing and Investment Commission Reimbursement on Construction Projects Governor's Office of Student Achievement Innovation Fund - Tiny Grant Office of the State Treasurer Public School Employees Retirement GOVERNMENTAL FUND TYPES CAPITAL GENERAL PROJECTS FUND FUND TOTAL $ 299,732.90 $ - $ 299,732.90 155,902.00 153,977.00 530,287.00 216,678.00 302,571.00 98,451.00 461,351.00 396,409.00 177,457.00 545,183.00 135,651.00 197,956.00 33,284.00 34,525.00 92,876.00 28,685.00 16,253.00 773.00 319,255.00 316,779.00 219,767.00 183,886.00 (59,230.00) 197,820.00 45,000.00 90,027.00 66,255.00 17,198.00 5,277.99 9,884.41 507.25 13,093.00 6,653.00 - 155,902.00 - 153,977.00 - 530,287.00 - 216,678.00 - 302,571.00 - 98,451.00 - 461,351.00 - 396,409.00 - 177,457.00 - 545,183.00 - 135,651.00 - 197,956.00 - 33,284.00 - 34,525.00 - 92,876.00 - 28,685.00 - 16,253.00 - 773.00 - 319,255.00 - 316,779.00 - 219,767.00 - 183,886.00 - (59,230.00) - 197,820.00 - 45,000.00 - 90,027.00 - 66,255.00 - 17,198.00 - 5,277.99 - 9,884.41 - 507.25 - 13,093.00 - 6,653.00 - 1,933,681.42 1,933,681.42 9,100.32 - 9,100.32 16,015.00 - 16,015.00 $ 5,335,289.87 $ 1,933,681.42 $ 7,268,971.29 See notes to the basic financial statements. - 33 - (This page left intentionally blank) MONTGOMERY COUNTY BOARD OF EDUCATION SCHEDULE OF APPROVED LOCAL OPTION SALES TAX PROJECTS YEAR ENDED JUNE 30, 2017 SCHEDULE "8" PROJECT 2011 Referendum: (i) for the purpose of making improvements and repairs to new and existing school system facilities. (ii) for equipment purchases ORIGINAL ESTIMATED COST (1) CURRENT ESTIMATED COSTS (2) AMOUNT EXPENDED IN CURRENT YEAR (3) AMOUNT EXPENDED IN PRIOR YEARS (3) TOTAL COMPLETION COST EXCESS PROCEEDS NOT EXPENDED ESTIMATED COMPLETION DATE $ 4,500,000.00 $ 3,500,000.00 $ - 1,000,000.00 4,500,000.00 4,500,000.00 47,284.74 $ 200,779.05 $ 71,705.97 518,687.58 118,990.71 719,466.63 - $ - - 6/30/2018 - 6/30/2018 - 2016 Referendum: (i) for the purpose of making improvements and repairs to new and existing school system facilities. 4,500,000.00 2,156,674.50 - - - 118,800.00 - (ii) for equipment purchases and repairs for use by students and school system staff - - - - - (iii) purchase of textbooks and other curricular items that are eligible to be purchased by Georgia law through sales tax proceeds - - - - - (iv) acquisition, construction, and otherwise provision of school buildings and facilities and furnishings - - 2.343.325.50 2,343,325.50 - - 4,500,000.00 4,500,000.00 2,343,325.50 118,800.00 - - - 6/30/2021 - 6/30/2021 - 6/30/2021 - 6/30/2021 - 6/30/2021 - $ 9,000,000.00 $ 9,000,000.00 $ 2,462,316.21 $ 838,266.63 $ - $ - (1) The School District's original cost estimate as specified in the resolution calling for the imposition of the Local Option Sales Tax. (2) The School District's current estimate of total cost for the projects. Includes all cost from project inception to completion. (3) The voters of Montgomery County approved the imposition of a 1% sales tax to fund the above projects and retire associated debt. Amounts expended for these projects may include sales tax proceeds, state, local property taxes and/or other funds over the life of the projects. See notes to the basic financial statements. - 35 - SECTION II COMPLIANCE AND INTERNAL CONTROL REPORTS Greg S. Griffin STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 June 27, 2018 The Honorable Nathan Deal, Governor of Georgia Members of the General Assembly of the State of Georgia Members of the State Board of Education and Superintendent and Members of the Montgomery County Board of Education INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Montgomery County Board of Education (School District), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the School District's basic financial statements, and have issued our report thereon dated June 27, 2018. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the School District's internal control. Accordingly, we do not express an opinion on the effectiveness of the School District's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the School District's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the School District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the School District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Respectfully submitted, Greg S. Griffin State Auditor Greg S. Griffin STATE AUDITOR (404) 656-2174 DEPARTMENT OF AUDITS AND ACCOUNTS 270 Washington Street, S.W., Suite 1-156 Atlanta, Georgia 30334-8400 June 27, 2018 The Honorable Nathan Deal, Governor of Georgia Members of the General Assembly of the State of Georgia Members of the State Board of Education and Superintendent and Members of the Montgomery County Board of Education INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Report on Compliance for Each Major Federal Program We have audited the Montgomery County Board of Education's (School District) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2017. The School District's major federal programs are identified in the Summary of Auditor's Results section of the accompanying Schedule of Findings and Questioned Costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of the School District's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit 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). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the School District's compliance. Opinion on Each Major Federal Program In our opinion, the School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2017. Report on Internal Control over Compliance Management of the School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the School District's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the School District's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Respectfully submitted, Greg S. Griffin State Auditor SECTION III AUDITEE'S RESPONSE TO PRIOR YEAR FINDINGS AND QUESTIONED COSTS MONTGOMERY COUNTY BOARD OF EDUCATION 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. SECTION IV FINDINGS AND QUESTIONED COSTS MONTGOMERY COUNTY BOARD OF EDUCATION 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; Capital Projects Fund; Aggregate Remaining Fund Information Internal control over financial reporting: Material weakness identified? Significant deficiency identified? Noncompliance material to financial statements noted: Unmodified No None Reported 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 programs: CFDA Numbers Name of Federal Program or Cluster 10.553, 10.555 84.027, 84.173 Child Nutrition Cluster Special Education Cluster Dollar threshold used to distinguish between Type A and Type B programs: $750,000.00 Auditee qualified as low-risk auditee? No II FINANCIAL STATEMENT FINDINGS AND QUESTIONED COSTS No matters were reported. III FEDERAL AWARD FINDINGS AND QUESTIONED COSTS No matters were reported.