Good afternoon.
I'd like to call the January 28th,
2019 Finance Committee to order
and let everyone know that today's meeting
is being recorded.
I like to start with introductions.
If you could just give us your name and whether you are a board member
of citizens adviser or part of the administration.
I'll start.
Terry Singer, Board member.
Kathy Seger.
Board Member.
Joe Macfarlane.
Superintendent Lindsay Group Board Member.
Jeff King. Citizen
Todd Schaefer.
Citizen Mike France.
Business Manager.
And Mike, did you want to.
Introduce some folks?
Yeah.
With us this evening, we have Regis Barwin.
Regis is our new accountant and purchasing agent, took over for Kelly Martin,
who had served the district very well for over 15 years.
Regis just joined us at the end of November
and has very much hit the ground running.
So thank you, Regis.
But just wanted to introduce to everybody as you'll be seeing more of
Regis as well.
Welcome, Regis.
Good to have you.
Thanks. Glad to be here.
Kip Shore, board member.
Thank you, too.
Okay.
Next item on the agenda is the approval of the minutes.
I did see a couple of notes, Todd, from from you regarding the minutes
I haven't had a chance to go in and make any changes to the minutes.
If you want to know specifically
which changes you'd like, I could.
Maybe we could have a motion to pass them with the understanding that I would make
those changes. I'm not sure.
And they're not going to move the needle.
I just want to go over some points of clarification
there that then they're taken. Thank you.
So if I could, I have a motion to approve the ministry.
I'm going to abstain just because I wasn't.
I had an excuse, substance.
Motion from a board member to approve.
So moves second on favor.
I opposed.
And Lindsay Drew is abstaining.
Okay.
We're happy to welcome Matt Willison from Boyer and Ritter,
who's here to share with us the results of the 20 1718 audit.
And thank you very much for coming that.
Thanks for having me.
I think I so today.
I had prepared a PowerPoint that we're going to flip through.
I'm just to kind of give everybody an overview of the audit, the audit process,
and as well as the results and a couple
of other significant items that we can talk about at the end.
The so I think the you know.
Understanding that as in some of the board members are new kind of
want to take a step back and walk through, you know, kind of why we do what we do.
Oh man.
You know so when you when you look at the audit process, you know,
the one thing that kind of flip, that slide forward, you turn that to Mike.
Is that
okay?
Okay. That's for the audience.
For the audience. Okay. Enjoy that.
So but but the the audit.
Is a requirement for you know, it's several levels.
First of all, you have $33 million of bonds outstanding that.
The the the school district.
Okay.
The school district goes through annual.
Bond rating reviews, you know, and the certainly have investors.
That are looking at.
Your the financials of the school district.
They need to have you know, they need to have a financial statement audit for that.
You also have continuing disclosure requirements
that those bond rating agencies would also look at.
You've agreed to do that through your debt agreements that are outstanding.
Secondly, the school.
District receives approximately $1.6 million every year in federal wards.
So the threshold there is if you have over $750,000, you're required
to have a fall gap audit or generally accepted accounting principles audit,
as well as a what they call a single audit or a compliance audit.
So that's that's wrapped.
Up in the documents that you have here in front of you.
In addition, the the annual financial report which which.
Mike files is required to have a financial audit attached to it.
And then finally, we have, you know, the public trust.
You have a lot of responsibility in your volunteer roles as board members,
and it makes a lot of sense to have organizations come in and do
an external financial statement audit so you can make sure that your your,
your financial statements and your internal controls
around your financial reporting are all in good order.
The quickly about the
the audit process, what this what does what the process looks like?
Well, start the audit process and we'll do.
Audits for approximately 20 school districts throughout the Commonwealth.
But we'll usually start that process in there.
In the July timeframe, we'll have our audit team come out.
We kind of go through a planning process, but we come out.
And we really look at basically your significant.
Transaction cycles.
So the way you receive money.
Whether it be through property or earned income taxes,
you know, whether it be through state and federal money,
is how you receive that money, how you turn around and record
and then reported in your financial reporting processes.
Then on the disbursement.
Side, we'll look at your payroll, the processes
and controls and the board approvals that go through for you to. Set
an employee salary.
And then all the way through the.
Payroll process as to how you expend funds on
or on wages and benefits of your employees.
And then the third arm, I would probably be,
you know, other other payments that include.
Debt service or other just general expenditures of the school district.
So for all of those three processes we kind of go through and kind of
take everything out of the box and say, how do they make how do.
They start from the authorization of a transaction to the the final payment
going out the door and make sure that we have adequate segregation.
Of duties and adequate controls in place so that the money gets to.
Where, you know, the board and the school district intends it to go
is probably the best way to say it.
But from there we.
Then turn around after we get an understanding
and we do testing of those controls, we basically go through and we evaluate the.
Risk of misstatement, like what could. Go wrong?
Our job as your auditors is to put an opinion on your financial statements
as to whether or not they're free of what they would call material misstatement.
You know, we don't go through and look at.
Every single transaction.
We have to.
Go through and go through a risk profile and evaluate what can go wrong.
So then that kind of guides our audit process.
Then we finally come out after we've kind of done our planning.
We'll come back out and, you know, September or October timeframe.
And now we go through and we basically audit what we view as the.
Riskier areas or the important areas.
You know, a lot of them you're going to see
in the note disclosures of the financial statements.
But truth be told, you know, when we look at.
Your financial statements and.
The financial statements of school districts, you know, your focus
as a board.
Is is largely, you know, the general fund as well as the other government
type funds that you have would be, you know, any kind of cap or reserve,
you know, your cafeteria and any kind of trust in agency funds.
That you have.
But we're going to go through and we're going to audit the entire balance sheet.
I'm your school district, so we're going to start.
Off at the top with.
You know, cash and investments.
We're going to verify
we're going to send letters
to the parties that are holding your cash and investments
and make sure, for example, I think you guys are with FMB, right?
Like, so we'll confirm the balances. Michael, Provide.
Us all the reconciliations for all of your cash accounts.
And then we'll.
Go through and verify with the banks.
Hey, Mike said you have $100.
Do you have $100
all the way through,
through every single cash account that the school district has?
And then we'll go through and then we'll say, well, they're also with the fab.
They have a lot of money with them.
There's a there's an act out there called Act 72.
So to the extent that you're you have funds there in excess of $250,000
and access to the FDIC limits, you know, are they putting up.
Collateral like they're supposed.
To in accordance with the Pennsylvania law?
And we verify that as well.
So that's.
More of a regulation, like a compliance or.
Regulation issue that we. Go through and verify.
But then we turn around and walk. Right down through your balance sheet,
you know, whether it be your taxes receivable, state subsidy
receivable, federal receivables all the way down through
and we'll go through and perform an audit of each one of those categories
through that, also go through and verify your, you know, your real estate taxes.
We we we do confirmations on those, you know, with third parties.
And then also confirmations for all your state and federal subsidies
when you test it on your payroll transactions.
But so that's that's kind of how we follow through.
And then the.
Last step is the reporting, you know, what we have here today?
Well,
a little carried away
the scope of the audit, as I mentioned.
You know, we're primarily focused,
first of all, on the fund level, financial statements
are for those who are for those who are new to the to the audit to to.
Government financial statements.
There are a little bit unique
and very different than, say, private sector reporting.
Because the focus of the school district on an annual basis is your.
General fund. Budget.
Well, the general fund budget is, you know, and these and the the general fund.
Cap reserve fund, debt service.
Fund, these are primarily focused on the reporting is focused on
what do you have available to pay your bills.
So what they would exclude
and they call that the like a cash resources focus.
Cash resources. Focus.
So what they're focusing on there is what you have available.
What they're not looking at is
you have you have buildings and you have a lot of capital assets.
You have long term
debts and debts and liabilities that you're going to pay down the road.
Your focus is on what we.
Have now and how we're using the resources available to us today.
So these are all included.
One set of statements.
And what's unique about the government financial reporting model
is that we do this whole thing twice.
We do the second section that you largely care about,
and then we turn around and we do it again and what we call the government
wide financial statements.
And that is where.
You know, you start looking.
At capital assets, long term liabilities in bonds, other notes payable,
and you have pension liabilities and OPEB liabilities.
So we do this kind of.
Two different ways and then.
We put in a.
Lot of nice reconciliations in there at the accountant's love to make sure
it all kind of ties together and shows you what the differences are between.
Each.
But you're focused on, on an on a monthly basis,
weekly basis is largely that you know current resources focus the general fund
and that's where we spend a lot of our time and effort.
But this is also part of your statement.
So that's also included, you know, in the scope of the audit.
Any questions?
How many
people are on your team who actually come into our building?
I would say this year we had five different people.
Yeah,
we usually will usually staff. It with a, you know, we
you staff it with a manager, a a supervisor
and then like an in-charge and a staff, and then I'll be out here as well.
Okay?
Thank you.
So there's, there's, there's, there's two.
Documents that I would have provided you this afternoon.
One is the required communication letter, and then the other is the
is the full audit.
Talk a little bit there about.
You know, significant matters related to the audit.
We talk about,
you know, from our professional standards, hey, well,
what's the responsibility of management, the board?
Hey, your responsibility is to.
You know, put this put this.
Fine audit document together.
We have ownership of about six pages in this thing,
which have to do with, you know, with with regard to our opinion.
So, you know.
You're responsible for maintaining the internal controls over
over financial reporting, over compliance during the year.
Our job is to come in and say, hey, is there anything wrong from a from a.
Structure standpoint and anything that.
We have an exception take exception to from a financial reporting standpoint.
So the second bullet point here
is, in my mind, a pretty significant disclosure.
And what we what we communicate here is that there are some adjustments
that are made through the audit process as Mike is closing his books.
But none of the adjustments that we made through the audit.
Process had a significant impact on the monthly and routine financial reporting.
That that that.
You guys go through in terms of what Mike is providing you on a routine basis.
So while there are some adjustments that are.
Made through the audit process, first of all, I'll say that
the audit adjustments decreased dramatically this past this past year
and that
none of them had a significant impact on what you're looking at on a routine basis.
A lot of it had to do with just year end kind of true and up,
you know, maybe real estate tax numbers or other small items
that Michael fired as he was kind of going through the audit.
The letter would also disclose any kind.
Of disagreements during the audit process of which there were there were no
or no disagreements were, you know, very well as as a team on this thing.
Are you talking about the first five pages of this book that's there?
There should be a separate letter.
That would have been very funny.
Okay, here it is. Yeah.
I'm just trying to go through and pull out some of the things
that I find, as you know, fine that I find interesting.
And I try to put myself on the other side of the table.
What I would. Want to know.
The so the one area that we have in here as well is
whether you knew it or not, you implemented for government
accounting standards Board statements called Gatsby's.
In this year. So
the the big
one that you implemented in the current year was Gatsby statement number 75.
And I'll talk a little bit about that in more detail.
Gatsby statement number 81, 85 and 86 really did not affect any of the.
Disclosures for the school district.
Probably because they were not applicable.
But Gatsby Statement.
75 changed some of the reporting disclosures
for basically all local governments.
So Gatsby statement number 75.
Basically when we get.
To your your opinion, you'll see there there's an emphasis on matter
paragraph and really.
That's meant to call to.
The attention of any kind of financial statement users.
The fact that, hey, there was a big change last year to this year.
I think everybody's familiar with Gatsby statement number 68,
and you may not know the.
Number, but what it's the pension liability standard.
And this came out probably three or four years ago.
And what that and what that had to do with was the Peters liability.
That was sitting out there for a very long time.
Is now being reported on the books of all state and local governments.
So what Peters had to do was they had to.
Go through and determine.
Well, what's what's dairy township's share of the liability.
And so at that point.
School districts had to put it on.
In a similar way.
They implemented get you also.
To implement 75.
Now 75 is other post-employment benefits,
which is basically non retirement promises that you've made.
To your employees.
You've done it two different ways.
One way is actually through the Peters program.
So there's a element of the Peters liability that actually has to do
with hundred dollar monthly subsidies that go to retirees.
And the Peters actually allocated a piece of that out to you.
And then the second piece has to do with the promises that you made to your.
Employees that retire from here up until generally a time when they're ready
to get onto.
Medicare and you're covering pay.
You know, they had they have a
they have a continued share that they had to contribute.
Might be anywhere from, you know, 8 to 12% of the monthly contract.
Other other credible cross cost.
So what you guys had to do is you had to go have a valuation done of that.
And the an actuary went through and determined hey well.
What's what's.
Very township's 46 liability that needs to be reflected
on their government wide financial statements.
Not the fund not the general fund stuff that you're used to looking at.
So the end result of this was that
there was a $8.2 million adjustment.
Downward adjustment of your equity as of July one, 2017, and.
There's an additional liability of approximately 13 point.
$7 million on your books as of the end of 18.
And that's all.
Kind of disclosed in these financial statements.
Now, you say, well, wait a minute, how do we go from 8.2 to 13.7?
And and the reason is because
they already the GASB already took an initial swing at the open
reporting under Gatsby statement number 45.
And the approach that they decided to take was that we're going to come up with a
the liability is we're going to disclose it and then we're going to slowly
bleed it onto the financial statements of local governments.
So that tells you here that there was some of that there's
already a liability put on your books from prior years.
And then when they went through Gatsby 68 and they made you put 100% on
and they realized that, you know, Rome didn't
you know, everything's still operate operational
and the financial markets didn't shut down.
They said, let's get this one right, too.
So I believe 75 was effects.
From what they had done in 45.
But at the end of the day, at the end of S.Y.
18, you have 13.
Point $7 million of OPEB liabilities.
You have that written in here somewhere.
Sure. If you want to.
And see if I can find there's a page.
Actually that pieces the two.
There's a lot of note.
There's there's there's a no disclosure in there for both the
notes.
There's no disclosure in there
for both the district plan as well as a no disclosure in.
There for the.
Peters plan.
But if you go to page 39
of the Financial Audit,
you'll see the breakdown between
the Peters plan
and the district plan.
Okay.
Thank you.
The the one
so going down and continuing through the letter,
we kind of give you a little bit of a preview of things to come
you to take a minute and look at that.
I can walk you guys through that. Or not. Anybody else.
Yeah, I just had a
I had one question here is
what's the
the impact of it on our operations year in and year out?
I mean, how do we account for this other than on paper?
Honestly, it's it's
to me, truthfully, it's like the it's like the Peters liability
in that you pay, you know, what you've contractually obligated.
Yourself to pay whether it be through you know for Peters,
when that first came in a lot of the boards started getting
they were pretty excited about you know you guys your liabilities $99 Million.
So the boards got pretty excited about it.
I said, look, you know, honestly, this is not.
Necessarily a control bill from your standpoint.
I can.
You paid everything you've been asked to pay.
You're not allowed to pay more.
And you know the
issue people, depending on who you talk to, they're going to point.
To different directions as to why you kind of got your set.
Why not you why the commonwealth got.
Theirself in this situation.
You know.
It's it's political.
It's you know, it's market, it's a lot of different things.
But again, I go back to, you know, you
you're making you know, especially for the Peters liability, that's.
About $4 million of the 13.
You know you don't have any control over that.
You they they tell you what the rate. Is to pay in and.
You pay it the the other the other.
Side is the is the. District side.
And those are the promises that you made your employees.
That you're going to help them cover
their health care costs after they retire up until a certain age.
So the only honest and the only way to modify that is modifying contracts.
You know, that's.
But and those are those are promises that you're made you've made.
But the.
Actuaries are now going through and saying.
This is the total cost of that promise.
Does that make sense?
Yeah, but it's not in terms of you can't really manage it except.
Through your changes. That way.
But thanks, Matt.
So upcoming Gatsby pronouncements.
Are everybody's on the edge of their seat on this one here.
More and more, more, more to do so the big
the big two in my mind are, you know, 84 and 87, 84 as.
Fiduciary activities that you guys.
Hold like scholarship funds.
You also hold student agency funds.
For, for example, you know, like.
The class of 2020.
Is, you know, you guys have a have a have an account.
For that.
So we go through and that's included in the scope of our audit.
There'll be a little bit of a change in the way,
you know, the way that's reported.
If you look at it now in your financial statements, we show assets and liabilities
going down the
road that that that the way that's present is going to change a little bit.
We have a little bit of time to think about that, but
we have the tools to show.
Up income statement type presentation.
So that's not going to be a real challenge.
The the the lease standard
is following suit after some private sector standards.
And what's the what that's doing is that's taken basically
any kind of operating lease that you have that you're engaged in
and try and basically put it in putting it on your books right now,
if you have a an operating lease for.
Let's say, if you would rent additional building space or.
You would have modular classrooms, you would
and you would be basically giving that back to.
Them after a year's worth of time.
You would basically. Have to turn around.
And right now you just show the expanse on your records.
And if it's a multi-year contract,
you have to disclose it in the back as a as kind of a commitment.
What the Gatsby is requiring here is that those leases
ultimately get capitalized and shown as a liability.
And that would stack up along with your along with your other debt.
But that's that's something that's coming down the pike.
We have a little bit of time.
And then this this
direct, direct borrowings, direct placements,
that's just some enhanced disclosures.
If you would not go through the general obligation bond issue
where you would go to a bank, a private bank, and say, hey, can we.
Borrow money from you?
And sometimes the what you would agree to with a private institution
would be different than.
What you would do with. Bondholders.
So I. Think the.
Guys be willing to beef up what they were doing there.
Okay.
So just one question, of course, for the
the leases that would have to be included then in the disclosures,
would that include I see where we have computers.
What about like technology such as iPads, you know, significant lease contracts.
So largely what has been.
Happening is that.
You have like most schools will have it.
So, yes, the answer. Is it would be included and.
A lot of it.
Is already included through technology purchases that.
Essentially
there's two different kinds of leases, essentially in the accounting world.
One's a capital lease.
Where it's basically you're you're basically financing a purchase.
So the school at that.
Point would be recording the asset.
And then would also be.
Recording a liability. And so but.
And what they're saying.
Now is that operating lease capital lease is going away.
You're just going to have leases
and you're going to basically capitalize at all.
That's what's going to happen.
So, yes, any kind of.
You know, material or material leases that would be for
iPads would be, you know, if you have a significant, you know,
office equipment, leases, those kind of things, a lot of times,
you know,
like the copiers and those kind of things kind of fall fall between the cracks
or from a materiality standpoint, they're not that significant.
But certainly when you're buying iPads for all the second grade,
that falls into that category.
So that would basically be shown,
you know, as a liability in your long term obligations.
In a couple of years.
And would this be a change from like I know in the business world in general,
it's often been stated
that you should lease things like that because they're off balance sheet.
MM Yeah.
This kind of brings it back to well everything's on, the.
Private sector is going through the same. Thing.
So you know, my observation.
Of being in this plant, in this space for a number of years is that.
The Gatsby generally kind of follows what the father's was doing.
And they got a lot of smart.
People, but they kind of wait till the factory puts it.
And so this lease standard is coming on, I think, a year ahead of the Gatsby.
Okay. So there's a lot of models.
That are already going to be created.
So it should not be too big of a leap for organizations.
Okay. Thank you.
Jared.
So and I'm just going to go through and kind.
Of point out some of these notes here through the PowerPoint.
But as I shared earlier, you know, what we.
Look at from a note disclosure standpoint is that, hey, they.
Need to be, you know, clear, consistent and objective.
You can't be caught trying to, you know, sway the.
Readers one way or the other.
So we go through and we audit these just like we're auditing.
Your your balance sheet and income.
Statement, you know, to your deposited investments.
We go through and describe basically all the money that the school
district has, you know, how you know, where they're invested.
And various categorizations capital assets is.
Note eight We kind of walk you through,
you know, any kind of additions that you have the year.
And then, you know, we're.
Showing depreciation for the year, even though that doesn't really again,
these areas down here, they.
Don't really affect your general fund per se because that's more,
you know, just focused on the cash outflow and long term debt.
And then to the fight, the Keyser's plan is a note one.
And. We'll talk about that again here in a little bit.
And then notes 13 and 14 walk through.
The two different plans that you have for OPEB,
whether it be the whether it be the
the Peters plan or the district plan.
So those look like they're starting on page 40,
the notes.
Yes. Yes.
Okay.
Yeah.
The notes of statement start with page.
Starts in the way beginning
it's pages and it's actually weighted for.
That.
20 where the note one begins.
Thank thank you.
Thank you.
A couple of things that I would point out if we're going to look at that.
That first note, I thought that the.
On page.
35 you go through and actually.
Show and walk through.
The fund balances that you have as a district and.
Where the school.
Board has, you know, committed and set some of the reserves aside.
You know, so.
You look at the general fund and there are some elements that.
Are, you know, related inventory and prepaid expenses. And
but then at the at the very bottom, you have some money
committed to health benefits and retirement obligations.
So as and this is very common that we've seen in schools.
As the Peters rate has continued.
To climb.
And we know we saw this back ten years ago when they said this is the.
This. Is the curve is what's going to look like.
And you have an up to uphill climb to about 36%
over the next ten, 12 years.
A lot of schools, whenever they had any kind of excess reserves,
they kind of set that money aside for, I would say, a rainy day
or when they're going to get in a jam with other expenses that they have,
that they have some excess reserves set aside for for the Peters
expenses.
And I think you know where you're at this year, I'm.
Looking down to like in terms of your overall rate and we can talk about this
a little bit, but that rate goes up to 36%.
So back to the PowerPoint here.
The the final other other.
Point and I kind of mentioned this earlier,
you know, there are no disagreements with management through this process.
You know, there's no significant
issues discussed with management.
You know, otherwise, we've been talking to you guys in advance
as well as no difficulties encountered during the performance of the audit.
I can say with,
you know, Mike here, I felt like you had, you know, very transparent,
very cooperative all the way, all the way through the process,
are very willing to help with anything that we needed.
So thanks, Mike.
So the the the big news for today.
Moving over to the moving over to the actual financial report
is that Boyer and Ritter is issuing a clean opinion
or an unqualified opinion on your financial statements and.
What that means is that, you know, we believe.
In our opinion, from all the testing that we did, that your financial statements
are in accordance with generally accepted accounting principles.
So all the work all the time
that we've put into this ultimately leads to this opinion right here.
So congratulations to you as the board and to the school
district.
In addition, there's a report on.
Compliance that I mentioned for your for your federal programs.
And there is where we turn around and we on an annual basis, we have to audit
federal
awards that basically exceed basically,
you know, a certain thresholds of your total federal awards this year.
And we look at this
kind of on a rotating basis, you'll see your schedule of expenditure.
A federal award is on page 82.
So what we do on an annual basis as we go through and we pick one of.
Your.
Federal programs and we audit it
and we look at it in relation to what Uncle Sam, the federal government.
Pretty much tells us he cares about.
There's 14 compliance.
Requirements that we're required to evaluate for,
you know, four for compliance.
And the first thing.
That we do is we say, well, how did they get there?
We look at the internal controls
over compliance that the processes and systems that you.
Have in place to interact with regard to the federal agencies,
the Department of Education, with regard to these grants.
And then we turn around and we say, well, are they compliant with the requirements
or not?
This year we looked at the Title one program.
That program, I believe, had a pretty significant uptick
in funding this past year in the year under audit.
So we looked at that.
I personally came down and did the idea that
that program and the audit went smooth.
So we point out here that we issued a clean opinion with regard to
with regard to that audit as we audit basically the major programs.
In addition, while we evaluate if we when we.
Evaluate the internal controls,
if there's any kind of significant deficiencies or material.
Weaknesses.
In the internal processes
and the internal controls that you have, we would have to point that out here
as well. And there are none.
Finally, the last area
that we kind of look at has to do with the internal controls.
Over the financial. Reporting process.
And here is where we.
Disclose that there were no material weaknesses or basically
significant deficiencies in the internal controls over financial reporting.
You'll note that.
In in last year, and this is different than what was issued in the past,
I think the
last year there was a there was a significant deficiency
or material weakness communicated with regard to
some of the entries that had to be posted through the audit process.
And as I shared earlier, there, a number of journal entries went down
significantly and to a point that we felt that
it was time to remove that piece.
So that's more good news.
So for a couple other significant points of interest,
I would point out to you on page 72,
if you could,
I wanted to show you the there is a schedule in.
Here of pension.
Contributions
from 2009 until 2018,
and you'll see there that in 2000 and.
Nine, that contribution rate was approximately 4%
and you're contributing about $1,000,000.
You know, fast forward that to 2018
when.
You're when your rate is about 32% and you're contributing
almost $8.8 million.
The one thing I would point out as I
as I try to do with the boards
is if you flip with me to page 55,
two things I want to point out to you here
that the if you look at the the.
Last paragraph, it references that $99 million liability.
That's your share of the of the pension liability.
But if you look there, if you look at a paragraph above that, we talk about.
That $8.8 million that you contributed.
But there's a sentence underneath.
There that talks about there's a retirement subsidy that.
You do.
Receive from the Commonwealth of Pennsylvania in the tune of $4.5 million.
So, you know, and you might say, well,
you know, Matt, why do you have if you have one.
Hundred million dollars liability in the states kicking in half,
why why do we have the full freight of our liability.
On our books?
Right.
Well, the answer is that the Commonwealth is.
Not required by law to give you that subsidy,
and they have to reappropriate for it every.
Year.
If it was under law that they had to pay it,
you could take.
That $99 million liability and basically cut it in half.
But because it's an annual thing for them you got to take the full brunt of it.
So honestly, when I look at, you know, school districts balance sheets.
And if you want to turn them with me to.
Page, this is the fourth for all balance sheet.
You turn to me with page 15 and 16.
You'll see under the non-current liabilities
top the top line.
Of the non-current liabilities on page six of.
That for pension liability.
99 million to 71.
And then you look down to all the way down to your.
Net position, which is $9.3 million.
So in my mind, you know, when you look at this and you understand
what the state's doing, unless something changes, you're in a lot better position
than the nine point million dollars.
By the way, Derry Township is
maybe the only school that we do that has positive net position.
So and that's primarily because of the trust
or it is because of.
The trust matter.
Just want to take another minute for that, if you don't mind.
I think that's a great example.
Was a page 7372 in the back to show
how that increase has has occurred.
And that's that's the answer to why we need to raise taxes the way we do.
And I mean, when you look at that over a ten year period going from $1 million
to $8 million, hopefully that really resounds.
That being noted, as Matt said, we're looking at the pieces rate
topping out at 36%.
We're already at a little above or little.
Yeah, a little above 32% or 30 at 33.
So the increases will why
they will keep going up or not as drastic as
you know, the going from 16 to 20% to 25%.
The increments will be much smaller moving forward.
So in that note and we've talked about this a couple of times,
we have noted that we have about $2.3 million
set aside for Peter's increase, and that was set aside
during that time period when it was going like crazy
and really not knowing how that was going to affect our yearly budget.
Fortunately, we've been able to figure out how to pay for that on a yearly
and ongoing basis that we haven't needed to touch those dollars
because they've been committed to Peter's.
All it requires is an act of the board to commit it to something else.
And I know we're talking a lot about our Safe Schools initiatives
and doing that part of the process.
Some of that money might be available to that.
Some of it also
notes in here that we have about $500,000 set aside for our health care increases.
That is nowhere near enough to be the rainy day that we want it to be.
Last year would have wiped that out for us
if we had not had a positive year on our revenues as well.
So one of the things as we talk about in our committee,
what we're going to do with those funds, just want to put that on your radar
that some of it probably, you know, I think everything I described,
little bits of that, that Peter's can be split up
in some way too to be provided back to there.
But just so you that that's all it takes
is the act of the board to commit it to something else.
And then the funds can be spent on that commitment.
So it is fairly easy in terms of that mechanism, but I'm sure
we'll have a lot of discussions on what that finally means when we move forward.
How long have you had it committed at that?
2.3 for many years. Yes.
There's another
item on here.
It's been that way since, at least
because it hasn't changed in the five years.
There's a five year in.
One of the examples in the audit report,
it shows what we've committed over that period of time,
and we're to the point now where that has not changed because of the five
or the four or five years it's been shown in the audit report.
What drove the increase over ten years from.
4% to 32%?
That's what Matt was noting before between there's a lot of in my opinion,
the our legislature took some dollars
out of there as well as at one point in time.
I mean, it shows 4% there.
When I started my career in 2005 as a business manager, we were around 1%.
And a large portion of that problem, as we were saying, as school districts,
one percent's way too low.
We know we should have a floor.
There was a law that said that that Peter's total fund could not be overfunded.
So they got to a place of kind of a perfect storm
where we were all cutting back on what we were doing, the market tanks.
And so a large portion of that investment goes away.
It was just a lot of different things.
Like I said, I have an opinion that I think
one of our governors took some money and labeled as education
out of there and did some funny things that.
But that's probably more my opinion than actual fact.
And Mike.
If I can add around 2000 ish there, they also changed the multiplier
and increased the multiplier for retirees
without getting any more money to come into the fund.
So that was
that was a significant 14.
It was the 20 1213 year that the reserves
was 14.
So, Matt, just a question on the net position. Yes.
So you're saying that the $9 million
is without the subsidy or with the subsidy?
$9 million is without the subsidy.
Okay. So, you know, in my mind.
As I'm looking at this, as long as everything yeah, you know,
you want to add, you know, basically 50 million to that.
But you can't under the accounting rules because.
Yeah. Okay.
Thank you.
Just to reiterate one more item, as Matt noted,
our net position is still to the positive with adding
essentially $100 million worth of liabilities
that goes back to, you know, the huge reason that the decision
was made to pull the trust into our books and account for it.
That happened around the same time we got the triple-A bond rating.
So all of that decision, which happened around 2012, was
was the impetus of why we're at where we're at today.
And as Matt noted,
probably one of the few school districts that still show a positive net position.
So we once again should be proud of
where we're at with where we put ourselves in our finances.
Thank you, Milton Hershey,
for giving us the trust.
So are there any other questions
on the pension topic?
No, I will look at page. 45.
And there is a there's a a tax.
Disclosure here for taxes receivable under note No note five there.
And it says a summary of the taxes in related accounts are as follows.
So what you're.
Seeing there, you know, in a large part
is when you start off with a $3 million number
and then you back off basically $2.4 million as.
Uncollectible taxes.
That $2.4 million is basically your occupational taxes
that you guys still have on on basically on your books that go back
probably about as far as you've been collecting them.
And, you know, so I know there's between you have.
Two people trying to collect these is.
Birkhimer and I believe J.P. Harris.
And I think that
about one point is with J.P.
Harris and another million is with Birkhimer.
And I think. That J.P.
Harris.
Has the more recent staff, and that's from 2006 to 2017.
But that almost the.
Entire $2.4 million balance is just it's all occupation taxes.
You know, they do their best to try to go out there and collect it.
I mean, there's probably
a couple thousand dollars a year rolling in from Birkhimer.
It's not much.
And that's like $250 to 75 by.
Commission, Correct.
One of the things that this audit has brought to the forefront
for me is that number and as Matt noted,
Birkhimer has not collected occupational or delinquent
occupational taxes for us since 2006, yet they still hold
some information or hold about $1,000,000 worth of that.
That number is just way too high to be that old.
So I'm
we're going to get in touch with both of the tax collectors
to find out what exoneration process we haven't provided.
So essentially they get to a point where it could be someone passes away
if the taxes have not been exonerated, even though that person is gone,
they're still kept on the books as being owed.
And we've just never gone through a process to clean that up.
So that's what I'm going to start just identifying those accounts
that cannot be collected, you know, for very obvious reasons,
not touching the ones that are old, but they may still be collecting
$5 a year or $10 a year or something like that,
because we're incurring no direct cost for our delinquent tax collection.
But the cost is attached to the delinquent tax.
And essentially the tax collector or the taxpayer is paying those costs.
But we also don't want to be inefficient
and have things on our books that just aren't able to be collected.
So we're going to go through a process
this summer to try to get a lot of this cleaned up
from the standpoint of just those that
we said either passed away or we have no information whatsoever
on where those people actually live or how to get in touch with them.
So this chap who is Jp Harris and who is Burke Heimer.
There.
There are two tax collectors.
Like Derry Township, tax collectors who didn't collect.
Notes there.
This would be turned over to JP Chris Birkhimer
was for a long period of time the delinquent tax collector.
There was a point in time where
the decision was made and I've worked with Jp Harris before.
Very good tax collection agency to turn everything over to them moving forward.
And as you can see by
Burke Palmer, you know, having something open 12 years
after it was issued is not what our
our delinquent tax collector is for.
The information is turned over to them of everyone who didn't pay.
They will then go through the process of collecting,
setting up payment plans, those types of things,
whatever they can do to get the individuals to pay those taxes
through their work.
Sometimes they will also find out, well, this person never paid
because maybe they passed away or something.
And so they need we should have been going
through a process in which we exonerate those taxpayers.
That means J.p Harris can take them off the books.
We're saying, no, no, this person does not owe this tax anymore.
We don't have to keep tracking of it.
Absent us doing that, jp harris always has to collect
or keep on their books whatever has been turned over to them until they collect it.
But obviously there's some taxpayers that that pay
little bits of the time and that's fine to go through that process.
But we just want to try to identify those people that we would never have been
collecting from to begin with to clean that up.
Those tax collectors, Kathy, were appointed by the Derry Township
Tax Association,
so they work on behalf of the school district and Derry Township as well.
They collect their delinquent occupation taxes.
The township has the same $250 tax that we have.
And that is where there's the separation, because with like the township collects
the occupation and the school occupation and occupation tax
and then the Derry Township tax collector collects the real estate,
but then they use a different tax collection agency for income tax.
So this isn't
including any more, obviously, because we don't receive, you know that.
But that's.
But at what point is it just termine to be uncollectable?
Like how much is added on?
So that's uncollectable at that point.
Is it just made based on a decision of a calculation?
So we look at once and once we turn everything over,
there is an expectation or realization
that about 60% of what's out there actually gets collected, 40% of it won't.
So what's noted on there is uncollectable has just been done through calculation,
not necessarily it is uncollectable.
It's just been it's fit in to that that after three years, if you haven't
collected
as a rule of thumb, if you haven't collected these dollars,
it's less likely year after year that you'll get 100% of those dollars back.
So in the first year, we might say at 65, in the next year
and say, well, maybe 40 of this, but it's done by each year's taxes
that it's that is calculated based on.
So if this number is for
if the audit is for year end June 30, 2018, it's not necessarily taking
into account things that as of December 31st, 2017, were not collected.
So so if you if you would have.
Received it as of December 31st, it wouldn't be in these books anymore.
And I'll point.
Out that the the estimated uncollectible taxes is just an accounting.
Estimate. Okay.
So again, just because I call it because he calls it uncollectable.
Doesn't mean that you guys aren't still pursuing it.
You know, but I look at the
there's $1,000,000 that Birkhimer had and they collected, I think, $6,000.
So as an auditor, I would say Mike has a value on $1,000,000.
At $100,000.
I'm like, Mike, he collected six grand last year like that.
That that balance, that value that you put on that is way too high.
So for the for this very small amount that you have rolling in,
you know we we write that down from a just from a conservatism standpoint.
I was just curious how much of that, you know, are we seeing an increase
in uncollectible over time on that to 50 because that's a little bit antiquated
measure of taxing, right? Yes.
Yes, it is.
And so, no, that that is something that remains
extremely constant throughout the people that pay it on time.
We we collect about $1.7 million and those are the people that pay it on time.
The rest of it are people that pay it over time.
And that comes back in as kind of a regular, steady
revenue number that's just being collected from those.
Okay. And that one's on all residents.
Regardless of real estate ownership.
They have to make above at this point.
Well, it's 12 now, but yes,
it was ten during the years we're discussing.
Thank you.
We have about 7 minutes left
and we're running up against another meeting.
So if anybody has any other questions, we should probably try to get them out.
And if you want to wrap up, are you close to wrapping up that?
I have page 44 and 82, but okay, go ahead.
If there's burning issues anybody wants to talk about, I'd.
Rather have us bring that up.
The only thing I would point out on page
44 is a there's a there's there's a that's a note.
The beneficial interest in the trust.
And we point out there that you had
approximately $3.3 million of net.
Fees.
Between the $3.5 million and the trustee fees of one. 78.
3.3 million of income.
And then you had a transfer over to the general fund,
as you'll see in your statements of $1.9 million.
So but we go through and include that in the scope of our audit.
I just want to kind of point that out and understanding
that the transfer process to general fund
is a separate process than the how much money do we make in this process?
This past year?
And the final thing that I would point out to you is on page 82
and 83, and this is very simply
the the listing of your schedule of expenditure of federal awards.
And what that shows is kind of for the federal money that you've.
Got from the federal Government
and through the Commonwealth of Pay.
You know this you basically shows you the.
Composition big picture.
It's title one program.
$675,000 on a page. 82.
And in terms of the other big players.
Your special education dollars that flow through the capital.
Area. Intermediate.
Unit is at $398,000.
And the final big program.
That you have is your school lunch program
at 353,000.
Dollars.
So but those are the programs we General, generally rotate through from.
A compliance audit standpoint.
Don't go in there and kind of beat the same program up each year.
We kind of try to rotate it through,
make sure we're looking at all the significant dollars.
Are there any questions,
Matt?
I forget what page it's on, but maybe it maybe it was the
position position where it indicates, I guess the
the value of our buildings.
Yes. Any construction in progress?
Yeah, the value of buildings that's based upon historical cost.
Okay.
Not replacement cost, you know, which would be more of an insurable value.
Its historical cost.
And is that just a rule of thumb formula that.
Yeah. Yeah. It's honestly it's probably the.
Most objective criteria that we can use as as the bean counters
because normally what you're doing is you're
you're borrowing $100 and you're spending $100 right.
So you have these two things in from the double entry accounting, we get jammed up.
And if we're changing
the values of these buildings and how much are they really worth.
Outside of the use of a school.
Or another organization, another big organization, if that makes any.
Sense. Yeah.
So we don't actually have somebody come in and an appraiser.
Well, I not as part of the audit, right?
Not as part of the audit. A lot of times
it makes good sense to have, you know, from an insurance standpoint.
And we do that for insurance purposes every year.
Every four years, someone will come in and look at our
what we
have and go through that process every off year that they're not doing that.
It's just the paper process, Any changes or anything like that.
Okay.
Thank you. Yes.
So if you look at page 104.
Page 47, you'll see that you have.
Total.
Assets being depreciated from governmental activities,
$154 million.
Okay.
These are page 47
and so.
And then, you know, from that we take depreciation and those are
those are accounting estimates based on, hey, what's a building is useful life and.
So I believe we are voting
to approve this at our meeting in February.
Okay.
So the sheet only for board members here at the committee level,
I think at each board member seat in that
envelope is the audit that had the wrong numbers in it.
So do we want to collect that and then put the new one?
I would like that.
Because they'll be here at 7:00 to collect that on the.
Course. Yeah.
I think if you can open it and just double check I'll open mine and.
Yeah. Yeah.
So I'm glad it. Looks like it's the wrong.
Answer and I apologize if things go through
and review. Is this set?
Should we keep these in this room?
Mike, There's some citizen advisors before we approve it.
Or is it public record already?
It's public record already because we had to release this to Emma
for our bond disclosures.
So it is already out there in a public document.
Yeah.
Are there any other questions or.
I don't
talk about.
What we normally do is we give the full board
committee report and we'll ask them to listen to the audio.
So if they have any questions, I mean, we've already sent it to them.
So they we'll see if we do before the next meeting in February.
They also invited, if they have any questions, they could submit them to me.
So I could we could ask them so they could hear them on the recorded.
But honestly, I think the board members
who are going to dive deep into finance are on this committee already. So
yeah.
And certainly share the PowerPoint with them too.
I think that's something that would be useful there.
Anything I other thing I would.
Say for especially for the newer board members
and people who haven't been around the school finance
a lot is to take some time and look through the management
discussion and analysis that Mike and his team wrote.
You know.
The odd thing.
About government accounting standards, government.
Statements is that when you look through it, there's not really.
Comparative information in there.
But but the management discussion and analysis card it
into a comparative format for when you're looking at your your cost
of services, your revenues compares and looks at budget actual information.
So it should be pretty useful to their to
the people who are going through this for maybe the first time.
So I appreciate the opportunity to serve the district.
And so thank you.
We know you're going to do a good job because you're a taxpayer, right?
Yeah. Absolutely. I have absolutely.
Hope that.
Helps you pay your occupational tax. I did.
I did.
All right.
Well, thank you very much, Matt.
Thanks for delivering the very positive news.
And and thank you, Mike and your staff for for getting us to that positive news.
So thank you all very much, folks, that is all the time we have for today.
So we'll have to discuss the other agenda items at our next meeting.
And if I could have a
a motion to adjourn.
So moved second.
All in favor I post.
Okay.
Meeting is
adjourned at 5:01 p.m..
Thank you. Pretty.