MINOT PUBLIC SCHOOL DISTRICT NO. 1 MINOT, NORTH DAKOTA AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2013

TABLE OF CONTENTS INDEPENDENT AUDITOR’S REPORT

1

MANAGEMENT’S DISCUSSION AND ANALYSIS

4

FINANCIAL STATEMENTS Statement of Net Position

13

Statement of Activities

14

Balance Sheet - Governmental Funds

16

Reconciliation of Governmental Funds Balance Sheet to the District Wide Statement of Net Position

17

Statement of Revenues, Expenditures and Changes in Fund Balance - Governmental Funds

18

Reconciliation of Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances with the District - Wide Statement of Activities

20

Statement of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual – General Fund

21

Statement of Net Position - Proprietary Funds

23

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

24

Statement of Cash Flows - Proprietary Fund

25

Statement of Net Position - Fiduciary Fund

26

Notes to the Basic Financial Statements

27

SUPPLEMENTARY INFORMATION Schedule of Expenditures of Federal Awards

47

Notes to the Schedule of Expenditures of Federal Awards

50

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

51

MINOT PUBLIC SCHOOL DISTRICT NO. 1 TABLE OF CONTENTS - CONTINUED

Independent Auditor's Report on Compliance for Each Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133

53

Schedule of Findings and Questioned Costs

55

Schedule of Prior Year Findings

57

INDEPENDENT AUDITOR'S REPORT

To the President and Board Members Minot Public School District No. 1 Minot, North Dakota

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 Minot Public School District No. 1 (the District) as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the 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 misstatements, 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 of 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. -1-

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Minot Public School District No. 1 as of June 30, 2013, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and pages 4 through 12 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 District’s basic financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Nonprofit Organizations, and is not a required part of the basic financial statements. The schedule of expenditures of federal awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of federal awards is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

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Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 1, 2013, on our consideration of the 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 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 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 District’s internal control over financial reporting and compliance.

BRADY, MARTZ & ASSOCIATES, P.C. Bismarck, North Dakota December 1, 2013

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) JUNE 30, 2013

In the Statement of Net Assets and the Statement of Activities, the District reports governmental activities. Governmental activities are the activities where most of the District's programs and services are reported. They include, but are not limited to the following: instruction, support services, operation and maintenance of plant, pupil transportation and extracurricular activities. These two statements report the District's net assets and changes in those assets. This change in net assets is important because it tells the reader that, for the District as a whole, the financial position of the District has improved or diminished. The causes of this change may be the result of many factors, some financial, and some not. Non-financial factors include the District's property tax base, current property tax laws in North Dakota, facility condition, required educational programs, changing enrollment, other factors and especially flood recovery costs.

Reporting the School District's Most Significant Funds Fund Financial Statements Fund financial statements provide detailed information about the District's major funds. The District uses many funds to account for a multitude of financial transactions. However, these fund financial statements focus on the District's most significant funds. The District's major governmental funds are the General Fund and the Minot Air Force Base District #160 General Fund. Governmental Funds 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 the future periods. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance educational programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds is reconciled in the financial statements.

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) - CONTINUED JUNE 30, 2013

Financial Analysis of the District as a Whole Recall that the Statement of Net Assets provides the perspective of the District as a whole. Table 1 provides a summary of the District's net assets as of June 30, 2013. As the table illustrates, net assets improved by 37.7% during the past fiscal year. As indicated in the financial highlights, the District’s net assets improved by $33,257,120 for the year ended June 30, 2013. Net assets may serve over time as a useful indicator of the District’s financial position. The District’s June 30, 2013 net assets of $121,464,608 are segregated into three separate categories. Net assets invested in Capital Assets (net of related debt) represents 75.3% of the District’s entire net assets. It should be noted that these assets are not available for future spending. Restricted net assets represent 6.5% of the District’s June 30, 2013 net assets. Restricted net assets represent resources that are subject to external restrictions on how they must be spent. The remaining unrestricted net assets represent 18.2% of the June 30, 2013 District’s net assets. The unrestricted net assets are available to meet the District’s ongoing obligations. Table 1 shows a comparison of assets, liabilities and net assets between fiscal year ended June 30, 2012 and fiscal year ended June 30, 2013. Table 1 Net Assets 2012 ASSETS Current Assets Capital Assets (net of Accumulated depreciation) Other noncurrent assets Total Assets

2013

% change 2012-2013

$53,312,971 $69,665,357

$46,940,280 $116,678,242

(12%) 67.5%

$223,112

$219,679

(1.5%)

$123,201,440

$163,838,201

33%

$19,803,952 $15,190,000 $34,993,952

$18,441,024 $23,932,569 $42,373,593

(6.9%) 57.6% 21.1%

$53,635,357 $8,212,541 $26,359,590 $88,207,488

$91,491,963 $7,862,060 $22,110,585 $121,464,608

70.6% (4.3%) (16.1%) 37.7%

LIABILITIES Current Liabilities Long-Term Liabilities Total liabilities

NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted Unrestricted

As noted in the comparison above the net assets for the District increased by approximately $33.26 million due primarily to two factors: 1.) An increase in total assets of 33% and 2.) An increase in total liabilities of 21.1%. -5-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) - CONTINUED JUNE 30, 2013

Table 2 shows the changes in net assets for fiscal year ended June 30, 2012 in comparison to the year ended June 30, 2013.

Table 2 Changes in Net Assets Revenues Program Revenues: Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Revenues: Taxes State Aid Impact Aid Other Federal Aid Other Total Revenues Expenses Instruction: Regular Special Education Career & Technical Education Federal Tuition Support Services: Pupils Services Instructional Staff Services General Administration Services School Administration Services Business Services Operations & Maintenance Pupil Transportation Head Start Adult Learning Center Interest Expense Non Education Services: Enterprise Services Food Services Community Services Extracurricular Activities Services provided another LEA

2012

2013

Variance 2012-2013

$ 4,103,186 12,488,556 21,717,604

$ 5,157,439 11,846,157 32,868,411

$ 1,054,253 (642,399) 11,150,807

17,353,235 41,245,592 6,378,420 351,254 887,813 $104,525,660

19,958,402 42,051,516 6,630,878 309,210 2,981,390 $121,803,403

2,605,167 805,924 252,458 (42,044) 2,093,577 $ 17,277,743

$ 33,680,087 9,958,379 2,231,523 3,814,790 1,610,655

$ 35,531,516 10,958,459 2,327,623 3,493,814 1,429,570

$ 1,851,429 1,000,080 96,100 (320,976) (181,085)

2,281,475 2,534,612 3,179,815 4,195,277 447,395 6,408,883 1,612,538 3,872,305 425,563 489,372

2,371,403 3,265,372 2,577,409 4,582,514 475,987 7,806,762 1,686,514 3,979,902 438,452 614,985

89,928 730,760 (602,406) 387,237 28,592 1,397,879 73,976 107,597 12,889 125,613

368,618 3,493,883 1,326,936 1,301,388 473,471

341,372 3,530,890 1,585,230 1,226,170 198,546

(27,246) 37,007 258,294 (75,218) (274,925)

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) - CONTINUED JUNE 30, 2013

Table 2 Changes in Net Assets (Continued)

Other Facilities Costs: Total Expenses

2012 14,854,354 $ 98,561,319

2013 123,793 $ 88,546,283

Variance 2012-2013 (14,730,561) ($10,015,036)

Increase in Net Assets

$ 5,964,341

$ 33,257,120

$ 27,292,779

As indicated in table 2, revenue for year ended June 30, 2013 was $121,803,403 compared to $104,525,660 for year ended June 30, 2012. The difference, $17,277,743 constituted an increase of approximately 16.5%. Property taxes constituted 16.4%, state aid 34.5%, federal aid 5.7%, program revenue 40.9% and other sources 2.5% of the total revenues of governmental activities of the District for fiscal year 2013. A comparison of the year ended June 30, 2013 and June 30, 2012 is shown below.

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) - CONTINUED JUNE 30, 2013

The Statement of Activities shows the cost of program services and the charges for services and grants offsetting those services. Table 3 shows the total cost of services and the net cost of services. That is, it identifies the cost of these services supported by tax revenue and other unrestricted revenues.

Table 3 Total Cost for Year Ended 6/30/13 Instruction Tuition Support Services Non Education Services Other Facilities Costs Total Expenses

$

52,311,412 1,429,570 27,799,300 6,882,208 123,793 $ 88,546,283

Net Cost for Year Ended 6/30/13 $ 45,366,457 1,429,570 22,851,764 2,070,105 (32,744,618) $ 38,973,278

The following chart shows a comparison of cost of services for years ended June 30, 2012 and 2013. Total expenses decreased to $88,546,283 for year ended June 30, 2013 from $98,561,319 for year ended June 30, 2012, a decrease of approximately 10.2%.

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) - CONTINUED JUNE 30, 2013

Instruction expenses include activities dealing directly with the teaching of pupils and the interaction between teacher and pupil including regular education, special education, career and technical education and federal programs. Instruction comprised 59.1% of district expenses in 2013 compared to 50.4% in 2012. Tuition expenses are the costs to reimburse other educational agencies for instructional services to students residing in the Minot Public School District’s legal boundaries. Support Services includes pupil’s services, instructional staff services, general administration services, school administration services, business services, operation and maintenance of plant, pupil transportation services, Head Start, Adult Learning Center and interest expense. Non Education Services include Enterprise Services, Food Services, Community Services, Extracurricular activities and Services provided another LEA. Other facilities costs include costs associated with construction services provided by contractors hired by the district. Financial Analysis of the District’s Governmental Funds The focus of the District’s governmental funds is to provide information on the near-term inflows, outflows, and balances of available resources. Unassigned fund balance generally may be used as a measure of the District’s net resources available for spending at the end of the fiscal year. These funds are accounted for using the modified accrual basis of accounting. The District’s governmental funds had total revenues of $124,428,732 and expenditures of $143,275,221 for the year ended June 30, 2013 in comparison to year ended June 30, 2012 which had governmental revenue of $98,443,238 and governmental expenditures of $114,928,708. As of June 30, 2013, the unassigned fund balance of the District’s general fund was $16,868,276 and total unassigned fund balance for all of the District’s governmental funds was $2,999,822, compared to June 30, 2012 which had an unassigned fund balance of the District’s general fund of $18,289,770 and an unassigned fund balance for all District governmental funds of $12,730,238. There was a decrease in the District’s net assets and a decrease in the unassigned fund balance. This shows that the District total net assets decreased at the fund level while the net resources available for spending in the District’s General Fund also decreased. The most significant variance in any one individual fund took place in the Capital Projects Fund. For the 2012-2013 school year there was a projected deficit of $1,962,000 with anticipated Revenue of $77,638,000 and anticipated Expenditures of $79,600,000. In actuality the General Fund did experience a deficit (expenditures over revenue) totaling $723,211 for year ended June 30, 2013 due in most part to district’s efforts to reduce spending following the devastating flood of June, 2011.

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) - CONTINUED JUNE 30, 2013

General Fund Budgeting Highlights The most significant variation between the original and final budget was in the Other Sources category. The most significant variations between the final budget amounts and the actual budget amounts were in the following areas: REVENUE: Other Local Sources

Final Budget $9,626,963

Actual $8,770,803

Reason Lower than expected tuition payments from MAFB PSD# 160.

$34,046,800 $ 4,065,849

$33,553,630 $ 3,311,516

Lower than expected payroll costs. Lower than expected payroll costs.

EXPENDITURE: Regular Instruction Federal Instruction

With total variances, between budget and actual, of less than 3.3% in expenditures, it can be accurately stated that the district did a good job in their expenditure budget process. In regard to the revenue projections, the total variances between the revenue budget and actual was 1.8%. The actual revenue for the year ended June 30, 2013 was short of budget projections by approximately $1.4 million. The actual expenditures for the year ended June 30, 2013 were under budget by $2.6 million. The most significant revenue variance was in Other Local Sources Revenue and was due to the lower than expected tuition payments from MAFB PSD#160. The most significant expenditure variance was in Federal Instruction and was due to lower than expected payroll costs.

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) - CONTINUED JUNE 30, 2013

Capital Assets As of June 30, 2013, the District had $116,678,242 invested in capital assets. Table 4 shows balances as of June 30, 2012 and June 30, 2013. The third column shows the variances between those years. See note 8 to the financial statements. Table 4 Capital Assets (Net of Depreciation) at June 30th, 2012 2013 Variance Land $2,314,660 Construction in Progress 14,477,372 Land Improvements 12,974,652 Buildings and Improvements 34,864,858 Furniture and Equipment 4,131,705 Vehicles 902,110 Totals

$69,665,357

2,314,660 62,399,676 13,814,619 33,825,267 3,447,140 876,880

0 47,922,304 839,967 (1,039,591) (684,565) (25,230)

$116,678,242 $47,012,885

The District’s Net Capital Assets for Governmental Activities increased $47,012,885 with additions of $47,460,319 (the largest addition was in Construction in Progress) and deductions of $447,434 (the largest deduction was in Equipment & Furniture). As indicated in table 4, the School District’s capital assets net of depreciation increased $47,012,885 or in other words 67.5% as indicated on Table 1.

Debt Administration As of June 30, 2013, the District had $25,186,279 in outstanding long-term debt compared to $16,030,000 as of June 30, 2012. Of the $25,186,279 in outstanding debt, $1,253,710 is due within one year in comparison to $840,000 in the previous year. The district issued $10,000,000 in new debt in the fiscal year which ended June 30, 2013. The bond rates for the existing debt instruments range from 4.3% to 4.75% for the 2007 issuance, 1.75% to 2.85% for the 2011 Refunding issuance, 2.0% to 3.125% for the 2011 G.O. issuance 1.5% to 2% for the 2012 G.O. issuance and 2.57% for the 2012B issuance. See note 10 to the financial statements. Table 5 Outstanding Debt at June 30, 2013 2007 Lease Revenue Bonds 2011 Lease Revenue Refunding Bonds 2011 General Obligation Bonds 2012 General Obligation Bonds 2012B General Obligation Bonds

$4,055,000 $2,520,000 $7,000,000 $2,000,000 $9,611,279

Total

$25,186,279 -11-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) - CONTINUED JUNE 30, 2013

For the Future The district is currently in the middle of recovering from the June, 2011 Souris River flood which caused major damage to both District owned property as well as over 4,000 homes and businesses located in the Minot Public School District. Two school buildings were damaged beyond repair and have been ruled eligible for replacement funding from FEMA, Erik Ramstad Middle School and Lincoln Elementary School. In addition to the costs associated with the loss of those two buildings the District is facing substantial costs for repair and restoration to other buildings, loss of contents, and the costs of providing temporary facilities to house the students displaced at Ramstad, Lincoln and Longfellow. At present the district is finishing the construction of a new middle school to replace Erik Ramstad and additions to Longfellow and Lewis and Clark Elementary schools to compensate for the loss of Lincoln Elementary and the shift in population out of the valley. To date, the District has over $70 million dollars in FEMA Project Worksheets of which FEMA covers 90% of the costs, the State of N.D. covers an additional 7%, while the remaining 3% is the responsibility of the district. The 2013-2014 preliminary budget includes a projected balanced budget which is attributable to the following factors: an increase in the Average Daily Membership for 2012-2013 which is the basis for our 2013-2014 state aid and most importantly a significant increase in state aid. In addition, the School Board and Administration will need to keep a very close eye on what will be the increasing enrollment in the District. With an increase of approximately 1,200 students in the past six years, the District will have many challenges ahead including but not limited to building and staffing demands. Since many of the District’s major revenue sources, state aid and federal aid just to name two, are based on average daily membership, enrollment or average daily attendance, any substantial change in student numbers significantly impacts those major sources of revenue. The school board is taking a $125 million bond referendum to the voters on December 10, 2013 to address overcrowding in the schools.

Contacting the District’s Financial Management This financial report is designed to provide our citizens, taxpayers, investors and creditors with a general overview of the District's finances and to show the District's accountability for the money it receives. You may request a copy of this report and/or a copy of the Minot Air Force Base District No. 160 report by contacting Scott Moum, Business Manager, Minot Public School District, 215 2nd St SE, Minot ND 58701, or email at [email protected].

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 STATEMENT OF NET POSITION JUNE 30, 2013

Governmental Activities ASSETS Current assets: Cash and equivalents Taxes receivable Other receivables Due from other governmental agencies Inventories Other assets Total current assets

$

Non-current assets: Other assets Capital assets Less: accumulated depreciation Total non-current assets Total assets

16,383,674 1,170,955 3,214 28,762,582 299,002 320,853 46,940,280 219,679 160,361,140 (43,682,898) 116,897,921 163,838,201

LIABILITIES Current liabilities Accounts payable and accrued expenses Unavailable revenue Accrued interest Compensated absences Current portion of bonds and notes payable Total current liabilities

16,361,363 66,059 143,271 616,621 1,253,710 18,441,024

Non-current liabilities Non-current portion of bonds and notes payable Total non-current liabilities Total liabilities NET POSITION Net invested in capital assets Restricted for: Other activities Self funded health insurance Unrestricted Total net position

23,932,569 23,932,569 42,373,593 91,491,963

$

SEE NOTES TO THE FINANCIAL STATEMENTS -13-

3,943,991 3,918,069 22,110,585 121,464,608

MINOT PUBLIC SCHOOL DISTRICT NO. 1 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2013

Net (Expense) Revenue and Changes in Net Assets

Program Revenue Functions/Programs Governmental Activities Instruction: Regular Special education Vocational education Federal Total instruction Tuition: Support Services: Pupil services Instructional staff services General administration services School administration services Business services Operations and maintenance Pupil transportation services Head start Adult learning center Interest expense Total support services

Charges for Services

Expenses

$ 35,531,516 10,958,459 2,327,623 3,493,814 52,311,412 1,429,570 2,371,403 3,265,372 2,577,409 4,582,514 475,987 7,806,762 1,686,514 3,979,902 438,452 614,985 27,799,300

$

1,264,727 686,902 1,951,629 -

Operating Grants/ Contributions

Capital Grants/ Contributions

$

$

112,824 812,706 580,648 3,487,148 4,993,326 -

316,889 38,846 355,735

340,800 3,844,409 406,592 4,591,801

SEE NOTES TO THE FINANCIAL STATEMENTS -14-

-

Governmental Activities

$

(34,153,965) (9,458,851) (1,746,975) (6,666) (45,366,457)

-

(1,429,570)

-

(2,371,403) (3,265,372) (2,577,409) (4,582,514) (475,987) (7,806,762) (1,345,714) 181,396 6,986 (614,985) (22,851,764)

MINOT PUBLIC SCHOOL DISTRICT NO. 1 STATEMENT OF ACTIVITIES - CONTINUED FOR THE YEAR ENDED JUNE 30, 2013

Non education services: Enterprise services Food services Community services Extracurricular Services provided another LEA Total support services

341,372 3,530,890 1,585,230 1,226,170 198,546 6,882,208

Other facilities costs Total governmental activities

2,075,946 587,902 186,227 2,850,075

123,793 $

88,546,283

1,458,421 802,609 2,261,030

$

5,157,439

-

$

11,846,157

$

(341,372) 3,477 (194,719) (1,039,943) (198,546) (1,771,103)

32,868,411

32,744,618

32,868,411

(38,674,276)

General revenues: Taxes: Property taxes, levied for general purposes Property taxes, other Other taxes State aid not restricted for specific purpose Per pupil aid and other state aid Federal aid not restricted for a specific purpose Impact aid Other federal aid Interest income and other revenues Total general revenues Change in net position Net position - beginning Net position - ending

SEE NOTES TO THE FINANCIAL STATEMENTS -15-

15,655,991 3,609,222 693,189 42,051,516 6,630,878 309,210 2,981,390 71,931,396

$

33,257,120 88,207,488 121,464,608

MINOT PUBLIC SCHOOL DISTRICT NO. 1 BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2013

General Fund

Other Capital Projects - Governmental MPSD Funds

Total Governmental Funds

ASSETS Cash and cash equivalents Taxes receivable, net Due from other funds Receivable from other governments Inventories Other assets Total assets

$ 21,439,288 1,051,220 2,980,287 320,853 $ 25,791,648

$

LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and accrued liabilities Due to other funds Unavailable revenue Total liabilities

$ 5,605,545 2,077,120 919,855 8,602,520

Fund balances: Nonspendable Inventory Other assets Restricted Debt service Minot Air Force Base District No. 160 Special revenue funds Capital projects funds Assigned Unassigned Total fund balances Total liabilities and fund balances

320,853 16,868,275 17,189,128 $ 25,791,648

$

44,123 24,898,210 24,942,333

$ 4,139,961 75,612 191,255 884,085 299,002 $ 5,589,915

$ 25,579,249 1,170,955 191,255 28,762,582 299,002 320,853 $ 56,323,896

$

21,785,066

$

722,485 66,059 788,544

$ 28,113,096 2,077,120 17,886,665 48,076,881

299,002 -

299,002 320,853

683,348 2,880,489 115,848 236,704 710,950 (124,970) 4,801,371 $ 5,589,915

683,348 2,880,489 115,848 236,704 710,950 2,999,821 8,247,015 $ 56,323,896

-

16,900,751 38,685,817

(13,743,484) (13,743,484) $ 24,942,333

SEE NOTES TO THE FINANCIAL STATEMENTS -16-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 RECONCILIATION OF GOVERNMENTAL FUNDS BALANCE SHEET TO THE DISTRICT-WIDE STATEMENT OF NET POSITION JUNE 30, 2013

Total fund balance, governmental funds

$

8,247,015

Amounts reported for governmental activities in the Statement of Net Position are different because:

Capital assets used in governmental activities are not current financial resources and therefore are not reported in this fund financial statement, but are reported in the governmental activities of the Statement of Net Position.

116,678,242

Bond issuance cost previously reported as an expenditure in the governmental fund financial statement but capitalized and amortized in the government-wide financial statements.

219,679

Certain assets are not available to pay current period expenditures and therefore are reported as unavailable revenue in the fund financial statement, but are reported in the governmental activities of the Statement of Net Position.

17,820,606

The assets and liabilities of certain internal service funds are not included in the fund financial statement, but are included in the governmental activities of the Statement of Net Position.

3,918,069

Some liabilities, (such as notes payable, capital lease contract payable, compensated absences, accrued interest payable, and bonds payable), are not due and payable in the current period and are not included in the fund financial statement, but are included in the governmental activities of the Statement of Net Position.

(25,419,003)

Net position of governmental activities in the Statement of Net Position

SEE NOTES TO THE FINANCIAL STATEMENTS -17-

$ 121,464,608

MINOT PUBLIC SCHOOL DISTRICT NO. 1 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE – GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2013

General Fund REVENUES Local sources Property taxes Other local sources County sources State sources Federal sources Other sources Total revenues

$ 18,814,939 8,849,613 42,995 43,385,277 3,976,835 1,037,925 76,107,584

EXPENDITURES Instruction: Regular Special education Vocational education Federal Total instruction Tuition: Support services: Pupil services Instructional staff services General administration services School administration services Business services Operations and maintenance Pupil transportation services Lease payments Head start Adult learning center Other Debt service: Principal Interest Total support services

Capital Projects - MPSD

$

769,752 29,383,217 30,152,969

Other Governmental Funds

Total Governmental Funds

$ 1,417,852 3,207,025 309,243 13,234,057 18,168,177

$ 21,002,543 12,056,638 42,995 43,694,520 46,594,109 1,037,925 124,428,730

33,440,532 10,893,612 2,224,643 3,310,823 49,869,610

-

568 182,991 183,559

33,441,100 10,893,612 2,224,643 3,493,814 50,053,169

1,429,570

-

5,689,749

7,119,319

2,367,170 2,798,837 3,074,810 4,591,104 475,027 6,819,256 1,464,195 709,888 -

-

43,581 17,100 942,009 158,961 3,980,655 438,452 1,344

2,367,170 2,798,837 3,118,391 4,591,104 492,127 7,761,265 1,623,156 709,888 3,980,655 438,452 1,344

-

843,721 596,954 7,022,777

843,721 596,954 29,323,064

22,300,287

SEE NOTES TO THE FINANCIAL STATEMENTS -18-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE – GOVERNMENTAL FUNDS - CONTINUED FOR THE YEAR ENDED JUNE 30, 2013

General Fund

Capital Projects - MPSD

Other Governmental Funds

Total Governmental Funds

3,493,572 969,757 4,463,329

341,372 3,493,572 1,583,979 1,271,437 300,146 6,990,506

Non education services: Enterprise services Food service Community services Extra curricular Services provided another LEA Total non education services

341,372 614,222 1,271,437 300,146 2,527,177

Capital outlays

1,278,073

48,462,941

48,149

49,789,163

77,404,717

48,462,941

17,407,563

143,275,221

(1,297,133)

(18,309,972)

Total expenditures Excess of revenues over (under) expenditures OTHER FINANCING SOURCES (USES) Proceeds from long-term debt Proceeds from sale of capital assets Total other financing sources and uses Net change in fund balances Fund balances - beginning Fund balances - ending

8,145 8,145 (1,288,988) 18,478,116 $ 17,189,128

-

10,000,000 10,000,000 (8,309,972) (5,433,512) $ (13,743,484)

SEE NOTES TO THE FINANCIAL STATEMENTS -19-

760,614

760,614 4,040,757 $ 4,801,371

(18,846,491)

10,000,000 8,145 10,008,145 (8,838,346) 17,085,361 $ 8,247,015

MINOT PUBLIC SCHOOL DISTRICT NO. 1 RECONCILIATION OF GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES WITH THE DISTRICT-WIDE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2013

Net change in fund balances - total governmental funds:

$

(8,838,346)

Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report outlays for capital assets as expenditures because such outlays use current financial resources. In contrast, the Statement of Activities reports only a portion of the outlay as expense. The outlay is allocated over the assets' estimated useful lives as depreciation expense for the period. This is the amount by which capital outlays $50,111,835 exceeded depreciation $3,088,105 in the current period.

47,023,730

Governmental funds report the entire net sales price (proceeds) from sale of an asset as revenue because it provides current financial resources. In contrast, the Statement of Activities reports only the gain or loss on the sale of the assets. Thus, the change in net assets differs from the change in fund balance by the cost of the asset sold.

(10,846)

Governmental funds do not present revenues that are not available to pay current obligations. In contrast, such revenues are reported in the Statement of Activities when earned. This amount is the net change in these items.

3,793,906

Governmental funds report bond proceeds as current financial resources. In contrast, the Statement of Activities treats such issuance of debt as a liability. Governmental funds report repayment of bond principal as an expenditure. In contrast, the Statement of Activities treats such repayments as a reduction in longterm liabilities. This is the amount by which proceeds exceeded repayments.

(9,156,279)

Some expenses reported in the Statement of Activities do not require the use of current financial resources and these are not reported as expenditures in governmental funds: Net change in accrued interest not reflected on governmental funds Net change in compensated absences and early retirement obligations

(5,754) 581,837

Internal service funds are used by the District to account for its self funded health insurance plan. The net revenue of the internal service fund is reported with governmental activities.

(127,695)

Governmental funds report the effect of issuance cost, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. This is the amount by which net issuance costs, premiums, and discounts exceed current year amortization:

(3,433)

Change in net position of governmental activities

$

SEE NOTES TO THE FINANCIAL STATEMENTS -20-

33,257,120

MINOT PUBLIC SCHOOL DISTRICT NO. 1 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE – BUDGET TO ACTUAL – GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2013

REVENUES Local sources Property taxes Other local sources County sources State sources Federal sources Other sources Total revenues

Budgeted Amounts, Original and Final

Actual Amounts, Budgetary Basis

$

$

EXPENDITURES Instruction: Regular Special education Vocational education Federal instruction Total instruction Tuition: Support services: Pupil services Instructional staff services General administration services School administration services Business services Operations and maintenance Pupil transportation services Lease payments Total support services

19,015,000 9,626,963 37,000 43,128,000 4,676,037 1,155,000 77,638,000

$

(114,031) (856,160) 5,995 34,094 (465,187) (16,680) (1,411,969)

34,046,800 10,787,350 2,300,693 4,065,849 51,200,692

33,553,630 10,904,567 2,214,848 3,311,516 49,984,561

493,170 (117,217) 85,845 754,333 1,216,131

1,600,000

1,464,933

135,067

2,485,012 3,194,080 2,634,683 4,710,845 497,447 7,137,000 1,543,600 720,000 22,922,667

2,367,588 2,810,421 2,551,549 4,595,504 476,903 6,840,011 1,467,936 709,888 21,819,800

117,424 383,659 83,134 115,341 20,544 296,989 75,664 10,112 1,102,867

SEE NOTES TO THE FINANCIAL STATEMENTS -21-

18,900,969 8,770,803 42,995 43,162,094 4,210,850 1,138,320 76,226,031

Variance with Final Budget Positive (Negative)

MINOT PUBLIC SCHOOL DISTRICT NO. 1 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE – BUDGET TO ACTUAL – GENERAL FUND - CONTINUED FOR THE YEAR ENDED JUNE 30, 2013

Budgeted Amounts, Original and Final

Actual Amounts, Budgetary Basis

425,720 412,750 1,388,000 345,171 2,571,641

341,592 614,365 1,282,792 299,975 2,538,724

84,128 (201,615) 105,208 45,196 32,917

1,305,000

1,149,369

155,631

79,600,000

76,957,387

2,642,613

Non education services: Enterprise services Community services Student activities Services provided another LEA Total non education services Other facilities costs Total expenditures Excess (deficiency) of revenues over expenditures

(1,962,000)

OTHER FINANCING SOURCES (USES) Proceeds from sale of capital assets Total other financing sources and uses Net change in fund balances Fund balances - beginning Fund balances - ending

Variance with Final Budget Positive (Negative)

(731,356)

12,000 12,000

$

(1,950,000) 15,403,815 13,453,815

8,145 8,145

$

SEE NOTES TO THE FINANCIAL STATEMENTS -22-

1,230,644

(723,211) 15,403,815 14,680,604

(3,855) (3,855)

$

1,226,789 1,226,789

MINOT PUBLIC SCHOOL DISTRICT NO. 1 STATEMENT OF NET POSITION – PROPRIETARY FUND AS OF JUNE 30, 2013

Internal Service Fund ASSETS Current assets: Cash and cash equivalents Interest receivable Due from other funds Total assets

$

LIABILITIES Current liabilities: Accounts payable Unearned health insurance premiums Total liabilities

4,553,129 3,214 1,885,865 6,442,208

638,274 1,885,865 2,524,139

NET POSITION Restricted - self funded health insurance

SEE NOTES TO THE FINANCIAL STATEMENTS -23-

$

3,918,069

MINOT PUBLIC SCHOOL DISTRICT NO. 1 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2013

Internal Service Fund REVENUES Premium revenue Total operating revenues

$

OPERATING EXPENSES Stop loss premiums and administrative fees Insurance claims Total operating expenses

8,203,929 8,203,929 2,161,174 6,263,343 8,424,517

Operating loss

(220,588)

NON-OPERATING REVENUES Interest and investment revenue Total non-operating revenue

92,893 92,893

Change in net position

(127,695)

Total net position - beginning of year

4,045,764

Total net position - end of year

$

SEE NOTES TO THE FINANCIAL STATEMENTS -24-

3,918,069

MINOT PUBLIC SCHOOL DISTRICT NO. 1 STATEMENT OF CASH FLOWS PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30, 2013

Internal Service Fund Cash flows from operating activities Cash received from charges to other funds Cash paid to insurance claims and stop loss premiums Net cash provided (used) by operating activities

$

Cash flows from investing activities Interest on investments Net cash provided (used) by investing activities

8,203,929 (8,416,050) (212,121)

95,626 95,626

Net change in cash and cash equivalents

(116,495)

Cash and cash equivalents - beginning of year Cash and cash equivalents - end of year

4,669,624 $

4,553,129

Reconciliation of operating loss to net cash by operating activities: Operating loss Adjustments to reconcile operating income to net cash provided by operating activities: Change in assets and liabilities: Accounts payable and accrued liabilities Net cash used by operating activities

SEE NOTES TO THE FINANCIAL STATEMENTS -25-

$

(220,588)

$

8,467 (212,121)

MINOT PUBLIC SCHOOL DISTRICT NO. 1 STATEMENT OF NET POSITION FIDUCIARY FUND AS OF JUNE 30, 2013

Agency Fund ASSETS Cash and cash equivalents Due from other governments Total assets

$

1,008,473 130,841 1,139,314

LIABILITIES Due to student activity groups/starbase/cooperative Total liabilities

$ $

1,139,314 1,139,314

$

SEE NOTES TO THE FINANCIAL STATEMENTS -26-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2013

NOTE 1

DESCRIPTION OF THE SCHOOL DISTRICT AND REPORTING ENTITY

Principal Activity The Minot Public School District operates the public schools in the City of Minot, North Dakota. There are thirteen elementary schools, three middle schools and two high schools. Two elementary schools and one middle school are located on the Minot Air Force Base, a U.S. Air Force installation. Reporting Entity Component units are legally separate organizations for which the District is financially accountable. The District is financially accountable for an organization if the District appoints a voting majority of an organization’s governing body and (1) the District is able to significantly influence the programs or services performed or provided by the organization; or (2) the District is legally entitled to or can otherwise access the organization’s resources. Component units may also include organizations that are fiscally dependent on the District. Fiscal dependence can include the District's approval of the budget, issuance of debt, and/or levying of taxes for the organization. Based on the above criteria, the Minot Air Force Base District No. 160 and the Minot School District Building Authority are included in the District’s reporting entity as blended component units. The Minot Air Force Base School District No. 160 contracts with the Minot Public School District to provide educational services for the pupils that reside in the Minot Air Force Base District. A copy of the Minot Air Base District No. 160 financial statements may be obtained through a request of the District's management. The Minot School District Building Authority leases various facilities and capital improvements to the Minot Public School District. The Building Authority does not prepare external financial statements. NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The District’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The Governmental Accounting Standards Board (GASB) is the standard-setting body for establishing governmental accounting and financial reporting principles. Minot Public School District No. 1’s significant accounting policies are described below.

-27-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

Basis of Presentation The District's basic financial statements consist of government-wide statements, including a statement of net position and a statement of activities, and fund financial statements. Government-wide Financial Statements The government-wide financial statements consist of a Statement of Net Position and a Statement of Activities. These statements display information about the District as a whole. The Statement of Net Position presents the financial condition of the governmental activities of the District at year-end. The Statement of Activities presents a comparison between direct expenses and program revenues for each program or function of the District’s governmental activities. The statement identifies the extent to which each governmental function is self-financing or drawing from the general revenues of the District. Direct expenses are expenses that are specifically associated with a service, program or department. The direct expenses are clearly identifiable to a particular function. Program revenues include charges to recipients for goods or services offered by the program, grants, and contributions that are restricted to meet the operational or capital requirements of a particular program. Revenues which are not classified as program revenues are presented as general revenues of the District. The government-wide financial statements do not include fiduciary funds or component units that are fiduciary in nature. Fund Financial Statements In order to aid financial management and to demonstrate legal compliance, the District segregates transactions related to certain functions or activities in separate funds. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts. The focus of the governmental fund financial statements is on major funds. Each major fund is presented as a separate column in the fund financial statements. Nonmajor funds are aggregated and presented in a single column. The fiduciary fund is reported by type. Fund accounting – The District’s funds consist of the following: Governmental Funds – Governmental funds are utilized to account for most of the Districts’ governmental functions. The reporting focuses on the sources, uses and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purpose for which they may or must be used. Current liabilities are assigned to the fund from which the obligation will be paid. Fund balance represents the difference between the governmental fund assets and liabilities. The District’s major governmental funds are as follows: General fund – This fund is the general operating fund of the District. It accounts for all financial resources except those required to be accounted for in another fund.

-28-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

Capital projects fund – This fund accounts for the acquisition and construction of the District’s major capital facilities. Internal Service – The reporting focus of internal service funds is on services provided by one fund of the District to another fund on a cost reimbursement basis. The District’s only internal service fund consists of the following: Self-funded Health Insurance Fund – The fund accounts for the financial transactions related to the District’s self-funded health insurance plan. Fiduciary Funds – The reporting focus of fiduciary funds is on net position and changes in net position. The District’s only fiduciary fund is an agency fund. The agency fund is custodial in nature (assets equal liabilities) and does not involve measurement of results of operations. The District’s agency funds consist of the following: Student Activity Fund – The fund accounts for the financial transactions related to the District’s student activity programs. Starbase Fund – The fund accounts for the financial transactions related to the Starbase programs. Mid-Dakota Education Cooperative – The fund accounts for the financial transactions related to the Mid-Dakota Education Cooperative. Measurement Focus and Basis of Accounting Government-wide Financial Statements The government-wide financial statements are prepared using the economic resources measurement focus. All assets and liabilities associated with the operation of the District are included in the Statement of Net Position. Fund Financial Statements The governmental funds are accounted for using a flow of current financial resources measurement focus. Under this measurement focus, only current assets and current liabilities are generally included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balance reports on the sources and uses of current financial resources. The current financial resources measurement focus differs from the manner in which the governmental activities of the government-wide financial statements are prepared. Due to the difference, the District’s financial statements include reconciliations with brief explanations to better identify the relationship between the government-wide statements and the statements for government funds. Fiduciary funds also use the economic resources measurement focus.

-29-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

Basis of Accounting The basis of accounting determines when transactions are recorded in the financial records and reported on the financial statements. Government-wide financial statements are prepared on the accrual basis of accounting. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. The District’s internal service fund also uses the accrual basis of accounting. The District’s governmental funds use the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when they become measurable and available. Available means collectible within the current period or soon enough thereafter to pay current liabilities. The District considers revenues to be available if they are collected within 60 days of the end of its fiscal year. Expenditures are generally recorded as the related fund liability is incurred. Revenues-Exchange and Non-Exchange Transactions Exchange transactions are transactions in which each party gives and receives essentially equal value. Under the accrual basis of accounting, revenue for exchange transactions is recorded when the exchange takes place. Under the modified accrual basis of accounting, revenue for exchange transactions is recorded when the resources are measurable and available. Non-exchange transactions include transactions in which the District receives value without directly providing value in return. Non-exchange transactions include property taxes, grants, entitlements, and donations. Under the accrual basis of accounting, property taxes are recorded as revenue in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recorded in the fiscal year in which all eligibility requirements have been satisfied. Under the modified accrual basis of accounting, revenue from non-exchange transactions must also be available before it is recorded in the financial records of the District. Major revenue sources susceptible to accrual include: revenues and investment income.

property taxes, intergovernmental

Unearned Grant Revenue/Unavailable Revenues Unearned grant revenue/unavailable revenue arises when assets are recognized in the financial statements before the revenue recognition criteria have been satisfied. Grants and entitlements received before the eligibility requirements are met are recorded as unearned grant revenue/unavailable revenue. On the governmental fund financial statements, receivables that will also not be collected during the availability period have been reported as unearned grant revenue/unavailable revenue.

-30-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

Expenses and Expenditures Governmental funds accounting measurement focus is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recorded in the fiscal year in which the related fund liability is incurred. Under the accrual basis of accounting, expenses are recorded when incurred. Budgets and budgetary accounting The District’s Board follows the procedures established by North Dakota law for the budgetary process. The operating budget includes proposed expenditures and the means of financing them for the upcoming year, along with estimates for the current year and actual data for the preceding year. Formal budgetary integration is employed as a management control device during the year for the general fund. The School Board must adopt the final budget on or before August 15. The final budget must be filed with the county auditor by August 15. The budget may be amended during the year by the Board; however, no amendment changing the taxes levied can be made after October 10. All appropriations lapse at the close of the Districts’ fiscal year. The balance of the appropriation reverts back to each respective fund and is available for future appropriation. Cash and Cash Equivalents The District considers highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Investments Investments are recorded at fair value. North Dakota state statute authorizes school districts to invest their surplus funds in: a) Bonds, treasury bills and notes, or other securities that are a direct obligation of, or an obligation insured or guaranteed by, the treasury of the United States, or its agencies, instrumentality's, or organizations created by an act of Congress, b) Securities sold under agreements to repurchase written by a financial institution in which the underlying securities for the agreement to repurchase are of the type listed above, c) Certificates of Deposit fully insured by the Federal Deposit Insurance Corporation of the state, d) Obligations of the state. Inventories and Prepaids Inventories in governmental funds consist of expendable supplies held for consumption. They are stated at cost determined on a first-in, first-out basis. They are recorded as expenditures at the time individual inventory items are used. Prepaids represent payments made to vendors that benefit future reporting periods. The prepaid items are recognized as expenses/expenditures in the year the services are consumed.

-31-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

Capital Assets General capital assets result from expenditures in the governmental funds. These assets are reported in the governmental activities column of the government-wide statement of net position but are not reported as assets in the fund financial statements. All capital assets are recorded at cost (or estimated historical cost). The assets are updated for additions and retirements during the District’s fiscal year. The District has established a capitalization threshold of $5,000. Donated fixed assets are recorded at their fair market values at the date received. The District does not have any infrastructure assets. Improvements that significantly extend the useful life of the asset are also capitalized. The District’s land and construction in progress costs are capitalized but are not depreciated. Interest associated with construction in progress is capitalized as part of the asset’s original cost. All the remaining capital assets are depreciated over their estimated useful lives on a straight-line basis. The District has established the following useful lives: Land Improvements Buildings and Improvements Equipment and Fixtures Vehicles

20 years 50 years 5 to 20 years 8 years

Compensated Absences Vacation benefits are accrued as a liability as the benefits are earned if the employees' rights to receive compensation are attributable to services already rendered and it is probable that the District will compensate the employees for the benefits through paid time off or some other means. Sick leave benefits are accrued as a liability using the vesting method. Although employees accrue sick leave on an annual basis, this accrual vests only if the employee is eligible for and elects to take advantage of the District's early retirement policy. The liability includes the employees who are currently eligible to receive termination benefits. The amount is based on accumulated sick leave and employees wage rates at fiscal year end, taking into consideration any limits specified in the District's termination policy. The District records a liability for accumulated unused sick leave upon notification of the employee's election for early retirement. Accrued Liabilities and Long-term Obligations All payables, accrued liabilities and long-term obligations are reported in the District’s government wide financial statements. The District’s governmental fund financials report only those obligations that will be paid from current financial resources.

-32-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

Long-Term Debt In the District-wide financial statements, long-term debt and other long-term debt obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type Statement of Net Position. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight line method. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Net Position For the year ended June 30, 2013, the District implemented GASB Statement No. 63 “Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position”. This statement provides guidance for reporting deferred outflows of resources, deferred inflows of resources and net position in accordance with Concepts Statement No. 4, Elements of Financial Statements. Net position represents the difference between (a) assets and deferred outflows of resources and (b) liabilities and deferred inflows of resources in the District’s financial statements. Net investment in capital assets, consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any long-term debt attributable to the acquisition, construction, or improvement of those assets. Restricted Net Position consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. Unrestricted Net Position is the net amount of assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position. Net Position Flow Assumption Sometimes the government will fund outlays for particular purpose for both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the governmentwide financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the government’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied.

-33-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

Fund Balance Classifications In the fund financial statements, governmental funds report fund balance in classifications that disclose constraints for which amounts in those funds can be spent. These classifications are as follows: Nonspendable - consists of amounts that are not in spendable form, such as inventory and prepaid items. Restricted - consists of amounts related to externally imposed constraints established by creditors, grantors or contributors; or constraints imposed by state statutory provisions and administered by the North Dakota Department of Public Instruction. Committed - consists of internally imposed constraints. These constraints are established by Resolution of the School Board. Assigned - consists of internally imposed constraints. These constraints reflect the specific purpose for which it is the District's intended use. These constraints are established by the School Board and/or management. Unassigned - is the residual classification for the general fund and also reflects negative residual amounts in other funds. When both restricted and unrestricted resources are available for use, it is the District's policy to first use restricted resources, and then use unrestricted resources as they are needed. When committed, assigned or unassigned resources are available for use, it is the District's policy to use resources in the following order; 1) committed, 2) assigned and 3) unassigned. Interfund Activity Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented on the financial statements. Interfund activities within the District’s governmental activities and its business–type activities are eliminated in the Statement of Activities. Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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. As discussed in note 14, the District has established a self-funded health insurance plan. Because of the inherent uncertainties associated with estimating the accrued liability for claims, it is at least reasonably possible that the estimate used will change within the near term. -34-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

Revenue Recognition Taxes receivable consists of current and delinquent uncollected taxes at June 30, 2013. Property taxes attach as an enforceable lien on property January 1. A five percent reduction is allowed if paid by February 15. Penalty and interest are added March 15 if the first half of the taxes has not been paid. Additional penalties are added October 15, if not paid. Taxes are collected by the county and usually remitted monthly to the school district. Property tax revenue in the governmental funds is recognized in compliance with National Council of Government Accounting (NCGA) Interpretation 3, "Revenue Recognition - Property Taxes". This interpretation states that property tax revenue is recorded when it becomes available. Available means when due, or past due and receivable within the current period and collected within the current period or expected to be collected soon enough thereafter to be used to pay liabilities of the current period. Such time thereafter shall not exceed 60 days. Property tax revenue is recorded as revenue in the year the tax is levied in the government wide financial statements. Property taxes are limited by state laws. All school district tax levies are in compliance with state laws. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenue of the District's internal service fund is charges to other funds for health insurance premiums. Operating expenses for the internal service fund include the cost of claims and related administrative expenses. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expense. NOTE 3

BUDGETARY BASIS OF ACCOUNTING

To provide a meaningful comparison of the District’s actual results compared to the budgeted results, the Statements of Revenues, Expenditures, and Changes in Fund Balances-Budget and Actual are prepared on the District’s budgetary basis. Under the District's budgetary basis of accounting, revenues are budgeted on the cash basis of accounting. Expenditures are also budgeted on the cash basis except for teacher salaries and benefits. The District allows teachers to take their compensation in nineteen or twenty four payments. The budget is prepared estimating the entire contract cost regardless of when the actual payment is made. Budgeted Inflows and Outflows Listed below is reconciliation between the revenues and expenditures as presented in the District’s Statement of Revenues, Expenditures, and Changes in Fund Balance and the budgetary inflows and outflows presented in the District’s general fund budget.

-35-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

Sources/Inflows of resources Actual revenues (budgetary basis) presented on the budgetary comparison schedule

General Fund $ 76,226,031

Difference - budget to GAAP Net effect of June 30, 2012 and 2013 revenue recorded when measurable and available on the revenue statement but not recorded as revenue on the budget statement until collected.

(118,447)

Total revenue as reported on the Statement of Revenue, Expenditures, and Changes in Fund Balances - Government Funds.

$ 76,107,584

Uses/outflows of resources Actual expenditures and transfers (budgetary basis) presented on the budgetary comparison schedule

$ 76,957,387

Difference - budget to GAAP Net effect of June 30, 2012 and 2013 liabilities that are paid from "available resources" and are recognized as an expenditure when the obligation is incurred on the revenue statement but not recorded on the budget statement until paid. Total expenditures as reported on the Statement of Revenue, Expenditure, and Changes in Fund Balances - Governmental Funds.

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447,330 $ 77,404,717

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013 NOTE 4

CASH AND CASH EQUIVALENTS

Custodial Credit Risk State law generally requires that all state funds be deposited in the Bank of North Dakota. NDCC 21-04-01 provides that public funds belonging to or in the custody of the state shall be deposited in the Bank of North Dakota. Also, NDCC 6-09-07 states, “all state funds must be deposited in the Bank of North Dakota” or must be deposited in accordance with constitutional and statutory provisions. The District does have a deposit policy. The policy requires all cash accounts to be kept at local banks. The District maintains interest bearing and non-interest bearing cash on deposit at various financial institutions. The amounts on deposit were insured by the FDIC up to $250,000 per financial institutions. At June 30, 2013, the District bank balance totaled approximately $18,515,000. Of the bank balance, approximately $1,640,500 is covered by federal depository insurance and the remainder is covered by pledged collateral. State statute requires the market value of collateral pledged to equal 110% of the deposits not covered by federal depository insurance. NOTE 5

TAXES RECEIVABLE AND DUE FROM OTHER GOVERNMENTS

Property Tax Receivable: General fund Other governmental funds

$ 1,051,220 119,735 $ 1,170,955

Due from Other Governments General fund Souris Valley Special Services In State Lea's Department of Public Instruction Department of Career and Tech Other Total general fund Capital projects fund FEMA

$ 1,293,286 324,931 1,096,843 208,326 56,901 2,980,287 24,898,210

Other governmental funds Department of Public Instruction Department of Defense Department of Health and Human Services Total other governmental funds Total due from other governments

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376,294 374,203 133,588 884,085 $ 28,762,582

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

NOTE 6

INTERFUND RECEIVABLES/PAYABLES

The District's interfund receivables and payables consisted of the following as of June 30, 2013:

General Fund Other Fund Self Funded Health

Due From $ 191,255 1,885,865 $ 2,077,120

Due To $ 2,077,120 $ 2,077,120

(2) (1)

(1) (2)

(1) The General Fund has recorded a due to the Self Funded Health Fund for $1,885,865 for its share of health insurance premiums. (2) The General Fund has recorded a due to the Head Start Fund for $191,255 for its share of unreimbursed expenses to date. NOTE 7

OTHER ASSETS

Other Assets Other current assets Driver Education vehicles Construction house and lots

$

Non-current other assets Bond discount and premiums less accumulated amortization of $73,522

$

123,741 197,112 320,853

$

219,679

In the governmental activities section of the Statement of Activities, amortization of $10,933 was charged to interest expense.

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

NOTE 8

CAPITAL ASSETS

Capital asset activity for the fiscal year ended June 30, 2013 was as follows:

Capital assets not being depreciated: Land Construction in Progress Total capital assets not being depreciated

Balance Beginning of Year $ 2,314,660 14,477,372 16,792,032

Additions $

48,358,891 48,358,891

436,587 436,587

Balance End of Year $ 2,314,660 62,399,676 64,714,336

Deductions $

Capital assets being depreciated Land improvements Building and improvements Equipment and furniture Vehicles Total capital assets at historical cost

16,506,316 59,598,763 14,500,386 3,487,377 94,092,842

1,624,041 67,683 319,794 178,015 2,189,533

635,570 635,570

18,130,357 59,666,446 14,184,610 3,665,392 95,646,805

Less accumulated depreciation Land improvements Building and improvements Equipment and furniture Vehicles Total accumulated depreciation

3,531,664 24,733,905 10,368,681 2,585,267 41,219,517

784,074 1,107,274 993,512 203,245 3,088,105

624,723 624,723

4,315,738 25,841,179 10,737,470 2,788,512 43,682,899

Total capital assets being depreciated, net

52,873,325

10,847

51,963,906

447,434

$ 116,678,242

Net capital assets for governmental activities

$ 69,665,357

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(898,572) $ 47,460,319

$

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

In the governmental activities section of the Statement of Activities, depreciation was charged to expense in the following governmental functions:

Instruction: Regular Special education Vocational Support Services Pupil services Instruction staff services General administrative services Head Start Operations and maintenance Pupil transportation Non education services Extracurricular Food service Total NOTE 9

$ 2,040,640 48,454 104,951 142 489,465 33,468 9,815 95,298 198,821 29,943 37,108 $ 3,088,105

ACCOUNTS PAYABLE

The following amounts were recorded as payables as of June 30, 2013:

Trade Payables General fund Capital projects fund Other funds Total trade payables

$

Accrued Salaries & Benefits General fund Other funds Total accrued salaries & benefits

253,676 8,036,370 84,781 8,374,827 5,351,869 637,704 5,989,573

Total Governmental Fund Payable

$ 14,364,400

Internal Service Fund Claims payable, stop loss & fees

$

-40-

638,274

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

NOTE 10 LONG TERM DEBT OBLIGATIONS Lease Revenue Bonds of 2003 - The bonds were issued to finance the construction of a new technology center. The bonds carry interest rates of 3.5% to 4.8% and were scheduled to mature through May 2023. These bonds were refinanced by the Lease Revenue Refunding Bonds of 2011 described below. Lease Revenue Bonds of 2007 - The bonds were issued to finance the construction of the new Washington Elementary School. The bonds carry interest rates of 4.3% to 4.75% and are scheduled to mature through November 2026. Lease Revenue Refunding Bonds of 2011 – The bonds were issued to refinance the Lease Revenue Bonds of 2003 described above. The bonds carry interest rates of 1.75% to 2.85% and are scheduled to mature in May 2023. General Obligation School Building Bonds, Series 2011 – The District issued $7,000,000 of general obligation bonds for the purpose of financing the purchase of land and constructing a new middle school, new additions to Lewis and Clark and Longfellow elementary schools, and to repair, renovate and improve school buildings and property. The bonds carry interest rates of 2.000% to 3.125% and are scheduled to mature in 2032. General Obligation School Building Bonds, Series 2012 – The District issued $2,000,000 of general obligation bonds for the purpose of financing the purchase of land and constructing a new middle school, new additions to Lewis and Clark and Longfellow elementary schools, and to repair, renovate and improve school buildings and property. The bonds carry interest rates of 1.5% to 2.0% and are scheduled to mature in 2017. General Obligation School Building Bonds, Series 2012B – The District issued $10,000,000 of general obligation bonds for the purpose of financing the purchase of land and constructing a new middle school, new additions to Lewis and Clark and Longfellow elementary schools, and to repair, renovate and improve school buildings and property. The bond carries an interest rate of 2.57% and is scheduled to mature in 2032. A summary of long-term liability transactions for the year ended June 30, 2013 follows:

Balance, July 1, 2012 Additions Reductions Balance, June 30, 2013 Due within one year

Bonds Payable $ 16,030,000 10,000,000 (843,721) $ 25,186,279 $ 1,253,710

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Compensated Absences and Early Retirement Obligations $ 671,276 616,621 (671,276) $ 616,621 $ 616,621

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

Following is a schedule of the future expected principal and interest requirements to retire the long-term debt obligations (excluding compensated absence and early retirement obligations which are generally liquidated by the general fund) as of June 30, 2013:

Fiscal Year Ending June 30, 2014 2015 2016 2017 2018 2019 - 2023 2024 - 2028 2029 - 2033 Total

Principal $ 1,253,710 1,283,959 1,319,468 1,350,248 1,806,305 7,587,593 6,429,903 4,155,093 $ 25,186,279

$

$

Interest 689,377 660,698 630,574 597,914 562,797 2,215,028 1,127,287 297,568 6,781,243

$

$

Total 1,943,087 1,944,657 1,950,042 1,948,162 2,369,102 9,802,621 7,557,190 4,452,661 31,967,522

NOTE 11 NORTH DAKOTA TEACHERS’ FUND FOR RETIREMENT The District contributes to the North Dakota Teachers’ Fund for Retirement (TFFR); a costsharing multiple-employer defined benefit pension plan administered by the State of North Dakota. TFFR provides for retirement, disability and survivor benefits to plan members and beneficiaries. Benefit and contribution provisions are administered in accordance with Chapter 15-39.1 of the North Dakota Century Code (NDCC). TFFR issues a publicly available financial report that includes financial statements and required supplementary information for TFFR. The report is located on the following website, www.nd.gov/rio, or may be obtained by writing to Teacher’s Fund for Retirement, PO Box 7100, Bismarck, North Dakota, 58507-71003. Plan members are required to contribute 9.75% of their annual covered salary and the District is required to contribute 10.75% of the teacher’s salary. The contribution requirements of plan members and the District are established and may be amended by the State legislature. The District’s required and actual contributions to TFFR for the fiscal years ended June 30, 2013, 2012, and 2011 were $5,123,880, $5,943,770, and $5,660,620, respectively. NOTE 12 NORTH DAKOTA PUBLIC REMPLOYEES RETIREMENT SYSTEM Minot Public School District No. 1 participates in the North Dakota Public Employees’ Retirement System (NDPERS) administered by the State of North Dakota. The following is a brief description of the plan. NDPERS is a cost-sharing multiple-employer defined benefit pension plan covering substantially all classified employees of Minot Public School District No. 1. The plan provides retirement, disability and death benefits. If an active employee dies with less than three years of credited service, a death benefit equal to the value of the employee’s accumulated contributions, plus interest, is paid to the employee’s beneficiary.

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

If the employee has earned more than three years of credited service, the surviving spouse will be entitled to a single payment refund, lifetime monthly payments in an amount equal to 50% of the employee’s accrued normal retirement benefit, 60 monthly payments equal to the employee’s accrued normal retirement benefit calculated as if the employee were age 65 the day before death occurred or monthly payments in an amount equal to the employees’ accrued 100% joint survivor retirement benefit if the member had reached normal retirement age prior to date of death. If the surviving spouse dies before the employee’s accumulated pension benefits are paid, the balance will be payable to the surviving spouse’s designated beneficiary. Eligible employees, who become totally disabled after a minimum of 180 days of service, require monthly disability benefits that are equal to 25% of their final average salary with a minimum benefit of $100. To qualify under this section, the employee must meet the criteria established by the Retirement Board for being considered totally disabled. Employees are entitled to unreduced monthly pension benefits equal to 2.0% of their final average salary for each year of service beginning when the sum of age and years of credited service equal or exceed 85, or at normal retirement age (65). The plan permits early retirement at ages 55-64, with three or more years of service. Benefit and contribution provisions are administered in accordance with Chapter 54-52 of the North Dakota Century Code. This state statute requires that 6% of the participant’s salary be contributed to the plan by either the employee or by the employer under a “salary reduction” agreement. Minot Public School District No. 1 is required to contribute 6.12% of each participant’s salary as the employer’s share. In addition to the 6.12% employer contribution the employer is required to contribute 1.14% of each participating employee’s gross wage to a prefunded retiree health insurance program. The required contributions are determined using an entry age normal actuarial funding method. The North Dakota Retirement Board was created by the State Legislature and is the governing authority of NDPERS. Minot Public School District No. 1’s required and actual contributions to NDPERS for the fiscal years ended June 30, 2013, 2012 and 2011 were $1,527,023, $1,175,232, and $1,016,199, respectively. NDPERS issues a publicly available financial report that includes financial statements and the required supplementary information for NDPERS. That report may be obtained by writing to NDPERS; 400 East Broadway, Suite 505; P.O. Box 1214; Bismarck, ND 58502-1214. NOTE 13 NONMONETARY TRANSACTIONS The District receives food commodities from the federal government to subsidize its hot lunch program. The market value of commodities received for the year ended June 30, 2013 was $123,834.

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013 NOTE 14 RISK MANAGEMENT The District is exposed to various risks related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. During the mid1980's, the District was not able to obtain general liability insurance at a cost it considered to be economically justifiable. In 1986, the state and other political subdivisions joined together to form the North Dakota Insurance Reserve Fund (NDIRF), a public entity risk pool currently operating as a common risk management and insurance program for the state and over 2,000 political subdivisions. All members paid an additional charge the first year they joined to help capitalize the NDIRF. In each of the years from 1991 through 1994, the NDIRF returned 20% of the capitalized amount with a premium reduction or cash payment to the District. The District pays an annual premium to NDIRF for its general, business and auto insurance coverage. The coverage by NDIRF is limited to losses of $2,000,000 per occurrence. In the past three years, no settled claims have exceeded insurance coverage. In October of 1996, the District entered into a self-funding health insurance plan with Blue Cross Blue Shield. Under the plan, the District is liable for individual claims up to $40,000 stop loss limit per participant. As of June 30, 2013, the District has accrued an estimated claims liability of $638,274. The estimated liability is based upon information provided by insurance carrier, which the District believes is a reasonable basis for determining unpaid claims as of June 30, 2013. The following is a recap of the District’s claims: Claim liability as of July 1, 2012 Claims incurred Claims paid Claim liability as of June 30, 2013

$

$

629,807 6,271,810 (6,263,343) 638,274

The District continues to carry commercial insurance for all other risks of loss. Settled claims resulting from these risks have not exceeded insurance coverage in any of the past three fiscal years. NOTE 15 COMMITMENTS As of June 30, 2013, Minot Public School District No. 1 had entered into a three year service contract for sports medicine and strength and conditioning activities beginning in 2012. The total cost of the contract was approximately $192,000. As of June 30, 2013, the District had recognized costs of approximately $114,000 related to this project. As of June 30, 2013, Minot Public School District No. 1 had entered into contracts for various flood-related construction and improvements to existing facilities. The estimated cost to complete these contracts is approximately $22,000,000.

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013 NOTE 16 CONTINGENCIES The District received financial assistance from federal and state agencies in the form of grants. The expenditure of funds received under these programs generally requires compliance with items and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the general fund or other applicable funds. The District's management believes it has complied with all applicable grant provisions. In the opinion of management, any possible disallowed claim would not have a material adverse effect on the overall financial position of the District as of June 30, 2013. NOTE 17 – NEW ACCOUNTING PRONOUNCEMENTS GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. This Statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. The provisions of this Statement are effective for financial statements for periods beginning after December 15, 2012. Earlier application is encouraged. GASB Statement No. 66, Technical Corrections- 2012- an amendment of GASB Statements No. 10 and No. 62. The objective of this Statement is to improve accounting and financial reporting for a governmental financial reporting entity by resolving conflicting guidance that resulted from the issuance of two pronouncements, Statements No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The provisions of this Statement are effective for financial statements for periods beginning after December 15, 2012. Earlier application is encouraged. GASB Statement No. 68, Accounting and Financial Reporting for Pensions, establishes accounting and financial reporting requirements related to pensions for governments whose employees are provided with pensions through pension plans that are covered by the scope of this Statement, as well as for nonemployer governments that have a legal obligation to contribute to those plans. This Statement establishes a definition of a pension plan that reflect the primary activities associated with the pension arrangement- determining pensions, accumulating and managing assets dedicated for pensions, and paying benefits to plan members as they come due. GASB 68 is effective for periods beginning after June 15, 2014. Management has not yet determined what effect these statements will have on the entity’s financial statements.

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE FINANCIAL STATEMENTS - CONTINUED JUNE 30, 2013

NOTE 18 DEFICITS The District has incurred losses in the following major funds that have resulted in the funds having a deficit balance as of June 30, 2013.

2013 Governmental Funds: Capital Projects - MPSD

$ $

13,743,484 13,743,484

The Capital Projects fund deficit will be funded by the receipt of federal grants. NOTE 19 ECONOMIC DEPENDENCY Minot Public School District No 1 receives a substantial amount of its support from federal and state governments. A significant reduction in the level of this support, if this were to occur, may have a material effect on the District’s programs and therefore on its continued operations. NOTE 20 SUBSEQUENT EVENTS The following events occurred subsequent to the District’s year end: The District entered into a service agreement with First District Health Unit for various health activities. The total cost of the agreement was $115,000. Subsequent events noted above have been evaluated through December 1, 2013, which is the date these financial statements were available to be issued.

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2013

Federal Grantor/Pass-through Grantor/Program Title

Federal CFDA Number

Expenditures

U.S. Department of Education: Direct programs: Indian Education Total direct programs

84.060

Passed through State Department of Public Instruction: Early Reading First Adult Education – Basic Grants to State Education Consolidation and Improvement Act of 1981 Title I Title I – Neglected and Delinquent Children Title I – Program Improvement ARRA Title II – A – Improving Teacher Quality NDSPDG – Contract #3054 21st Century Community Learning Center Education of Homeless Children and Youth Special Education Grants Total passed through State Department of Public Instruction Passed through State Department of Vocational Education: Career and Technical Education – Basic Grants to States

$

55,715 55,715

84.359 84.002

212,207 34,869

84.010 84.013 84.388 84.367 84.323 84.287 84.196 84.027

1,956,855 192,679 398,721 711,575 13,278 645,807 13,322 198,627 4,377,940

84.048

TOTAL DEPARTMENT OF EDUCATION

580,648 $

-47-

5,014,303

MINOT PUBLIC SCHOOL DISTRICT NO. 1 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS - CONTINUED FOR THE YEAR ENDED JUNE 30, 2013

Federal Grantor/Pass-through Grantor/Program Title

Federal CFDA Number

U.S. Department of Agriculture: Passed through State Department of Public Instruction: National School Lunch Program Special Milk Program for Children School Breakfast MCLC Food Program Food Commodities Fresh Fruit and Vegetable Program Child Care Food Program - Head Start

10.555 (1)(2) 10.556 (1)(2) 10.553 (1)(2) 10.559 (1)(2) 10.550 10.582 10.558

TOTAL DEPARTMENT OF AGRICULTURE U.S. Department of Health and Human Services: Direct Programs: Headstart

93.600 (1)

Expenditures

$

1,160,095 1,067 259,369 6,147 123,834 215,775 216,863

$

1,983,150

$

3,422,440

$

69,714

US Department of Defense Direct Programs: Reserve officer training course

12.UNK

Starbase North Dakota Grant

12.404

345,978

Competitive Grants: Promoting K-12 Student Achievement at Military-Connected Schools

12.556

172,888

TOTAL DEPARTMENT OF DEFENSE

$

-48-

588,580

MINOT PUBLIC SCHOOL DISTRICT NO. 1 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS - CONTINUED FOR THE YEAR ENDED JUNE 30, 2013

Federal Grantor/Pass-through Grantor/Program Title

Federal CFDA Number

U.S. Department of Energy: Passed through the City of Minot: Energy Efficiency and Conservation Block Grant Program

Expenditures

81.128

$

43,100

97.036 (1)

$

41,816,966

U.S. Department of Homeland Security: Passed through the State Department of Emergency Services: Disaster Grants – Public Assistance TOTAL FEDERAL FINANCIAL ASSISTANCE

$ 52,868,539

(1) Major Program (2) Cluster Program as noted under Part 5 of OMB Circular A-133 Supplement 2013

-49-

MINOT PUBLIC SCHOOL DISTRICT NO. 1 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS JUNE 30, 2013

1. Purpose of the Schedule The Schedule of Expenditures of Federal Awards (schedule) is a supplementary schedule to the basic financial statements and is presented for purposes of additional analysis. The schedule is required by the U.S. Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. 2. Summary of Significant Accounting Policies A. Basis of Presentation Federal Financial Assistance - Pursuant to the Single Audit Act Amendment of 1996 and OMB Circular A-133, federal financial assistance is defined as assistance that nonfederal entities receive or administer in the form of grants, cooperative agreements, loans, loan guarantees, property (including donated surplus property), interest subsidies, insurance, food commodities, direct appropriations and other assistance, but does not include amounts received as reimbursements for services rendered to individuals. Accordingly, nonmonetary federal assistance may be included in federal financial assistance and therefore, may be reported on the schedule. The District received $123,834 in nonmonetary federal assistance during the year. Federal financial assistance does not include direct federal cash assistance to individuals. Catalog of Federal Domestic Assistance - OMB Circular A-133 requires the schedule to show the total expenditures for each of the federal financial assistance programs as identified in the Catalog of Federal Domestic Assistance (CFDA). The CFDA is a government wide compendium of individual federal programs. Federal financial assistance programs which have not been assigned a CFDA number are indicated with an “UNK.” B. Major Programs - The Single Audit Act Amendment of 1996 and OMB Circular A-133 established the levels of expenditures to be used in defining major federal financial assistance programs. The dollar threshold to distinguish type A and type B programs was $1,791,937. C. Reporting Entity - The schedule includes all federal financial assistance programs administered by the District including its blended component units. D. Basis of Accounting - Federal financial assistance expenditures included in the schedule are reported using the same basis of accounting as disclosed in Note 1 of the basic financial statements. E. Matching Costs - The schedule does not include matching expenditures. 3. Funds to Subrecipients - Funds passed through to subrecipients are included on the schedule.

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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

To The President and Board Members Minot Public School District No. 1 Minot, North Dakota We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits in Government Audit Standards issued by the Comptroller General of the United States, the financial statements of the government activities, each major fund, and the aggregate remaining fund information of Minot Public School District No. 1 as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise Minot Public School District No. 1’s basic financial statements, and have issued our report thereon dated December 1, 2013. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Minot Public School District No. 1’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 Minot Public School District No. 1’s internal control. Accordingly, we do not express an opinion on the effectiveness of Minot Public School District No. 1’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 the 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 a material weakness. However, material weaknesses may exist that have not been identified.

-51-

Compliance and Other Matters As part of obtaining reasonable assurance about whether Minot Public School District No. 1’s financial statements are free of 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 entity’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 entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

BRADY, MARTZ & ASSOCIATES, P.C. Bismarck, North Dakota

December 1, 2013

-52-

INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

To the President and Board Members Minot Public School District No. 1 Minot, North Dakota Report on Compliance for Each Major Federal Program We have audited Minot Public School District No. 1’s (the District) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the District’s major federal programs for the year ended June 30, 2013. The District’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. The Minot Public School District No. 1’s basic financial statements include the operations of the Minot Air Force Base which spent $6,862,685 in federal awards. These awards are not included in the District’s schedule of expenditures of federal awards for the year ending June 30, 2013. Our audit described below did not include the operations of the above-mentioned component unit because a separate audit was performed in accordance with OMB Circular A133. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the 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 OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 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 District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the District’s compliance. -53-

Opinion on Each Major Federal Program In our opinion, the 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, 2013. Report on Internal Control Over Compliance Management of Minot Public School District No. 1 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 District’s internal control over compliance with 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 OMB Circular A-133, 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 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 OMB Circular A-133. Accordingly, this report is not suitable for any other purpose.

BRADY, MARTZ & ASSOCIATES, P.C. Bismarck, North Dakota

December 1, 2013

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED JUNE 30, 2013

Section I-Summary of Auditor’s Results Financial Statements Type of auditor’s report issued: Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) identified?

Unmodified

Noncompliance material to financial statements noted?

yes yes

x x

no none reported

yes

x

no

yes yes

x x

no none reported

x

no

x

no

Federal Awards Internal control over major programs: Material weakness(es) identified? Significant deficiency(ies) identified? Type of auditor’s report issued on compliance for major programs:

Unmodified

Any audit findings disclosed that are Required to be reported in accordance with Circular A-133, Section .510(a)?

yes

CFDA Number(s)

Name of Federal Program or Cluster

10.555 10.556 10.553 10.559 93.600 97.036

National School Lunch Program Special Milk Program for Children School Breakfast MCLC Food Program Headstart Disaster Grants – Public Assistance

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

$ 1,586,065

Auditee qualified as a low-risk auditee?

yes

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 SCHEDULE OF FINDINGS AND QUESTIONED COSTS – CONTINUED FOR THE YEAR ENDED JUNE 30, 2013

Section II - Financial Statement Findings There are no findings which are required to be reported under this section. Section III – Federal Award Findings and Questioned Costs There are no findings which are required to be reported under this section.

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MINOT PUBLIC SCHOOL DISTRICT NO. 1 SCHEDULE OF PRIOR YEAR FINDINGS FOR THE YEAR ENDED JUNE 30, 2013

Prior Year Federal Award Findings 2012.001: Time and Effort Documentation CFDA #84.027 Special Education Grants and 84.391 – Special Education Grants, ARRA Criteria:

Allowable Costs – OMB Circular No. A-87, Attachment B, Section 8.(h.) requires support of salaries and wages regarding time distribution, in addition to the standards for payroll documentation. Where employees are expected to work solely on a single Federal award or cost objective, charges for their salaries and wages will be supported by periodic certifications that the employees worked solely on that program for a period covered by the certification. These certifications will be prepared at least semi-annually and will be signed by the employee or supervisory official having firsthand knowledge of the work performed by the employee. Where employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be supported by personnel activity reports or equivalent documentary support.

Condition:

We noted no documentary evidence of time distribution to support payroll of approximately $166,000 charged to the federal award program.

Effect:

There is a potential for someone not providing services under the specific grant requirements to be paid using the federal program funds.

Cause:

The District does not have a system in place to monitor the payroll allocations charged to the federal program and to provide documentary support of the time spend working under this program.

Recommendation: The District should require employees whose payroll is being charged to the program to sign semi-annual certification of time sheets in accordance with their time spent on that program. These should be signed by a supervisor. Views of responsible officials and planned corrective action: The District has implemented a system to monitor the payroll allocations charged to federal programs and time certifications are being prepared and signed by employees and their supervisors. Current Status: The Major Federal Award Program finding was resolved in the current year.

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