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McKENZIE SPECIAL SCHOOL DISTRICT BOARD OF EDUCATION

FINANCIAL STATEMENTS AND

SUPPLEMENTARY INFORMATION

JUNE 30, 2016

McKENZIE SPECIAL SCHOOL DISTRICT BOARD OF EDUCATION TABLE OF CONTENTS

Introductory Section Directory Financial Section Independent Auditor’s Report ......................................................................................................................... 1 Management’s Discussion and Analysis ........................................................................................................ 4 Basic Financial Statements: District-wide Financial Statements District-wide Statement of Net Position .................................................................................................. 9 District-wide Statement of Activities ..................................................................................................... 10 Fund Financial Statements Balance Sheet-Governmental Funds ................................................................................................... 11 Reconciliation of Total Governmental Fund Balances to Net Position- Governmental Activities .................................................................................................................... 12 Statement of Revenues, Expenditures, and Changes in Fund Balances- Governmental Funds ........................................................................................................................ 13 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities ........................................... 14 Statement of Revenues, Expenditures, and Changes in Fund Balance- Budget and Actual-General Purpose Fund ...................................................................................... 15 Statement of Revenues, Expenditures, and Changes in Fund Balance- Budget and Actual-Cafeteria Fund .................................................................................................. 23 Statement of Revenues, Expenditures, and Changes in Fund Balance- Budget and Actual-Federal Projects Fund ..................................................................................... 24 Notes to Financial Statements ................................................................................................................. 26 Required Supplementary Information Section Schedule of Funding Progress ..................................................................................................................... 48 Pension Schedules ....................................................................................................................................... 49 Supplementary and Other Information Schedule of Expenditures of Federal Awards ............................................................................................. 53 Schedule of State Financial Assistance ....................................................................................................... 54 Schedule of Transfers ................................................................................................................................. 55 Schedule of Future Debt Service Requirements .......................................................................................... 56 Statement of Revenues, Expenditures, and Changes in Fund Balance- Budget and Actual-Debt Service Fund ............................................................................................ 57 Schedule of Salaries and Bonds .................................................................................................................. 58 Internal Control and Compliance Section 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 .......................................................................... 59 Independent Auditor’s Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance .......................................... 61 Schedule of Findings and Questioned Costs ............................................................................................... 63

INTRODUCTORY SECTION

MCKENZIE SPECIAL SCHOOL DISTRICT BOARD OF EDUCATION

DIRECTORY June 30, 2016

ELECTED OFFICIALS

John Austin, Chairperson Greg Barker, Member

Mary Elaine Brown, Member Jon Davis, Member

Norman French, Member Michelle Horton, Member

Lance Rider, Member

APPOINTED OFFICIALS Lynn Watkins, Director of Schools

Stan George, Finance Director

FINANCIAL SECTION

INDEPENDENT AUDITOR’S REPORT

Mr. Lynn Watkins, Director of Schools Members of the McKenzie Special School District Board of Education McKenzie, Tennessee Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities and each major fund, of McKenzie Special School District Board of Education as of and for the year ended June 30, 2016, and the related notes to the financial statements, as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the McKenzie Special School District Board of Education as of June 30, 2016, and the respective changes in financial position and the respective budgetary comparison for the general purpose fund, federal projects fund and cafeteria fund for the year then ended in accordance with accounting principles generally accepted in the United States of America.

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Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that Management’s Discussion and Analysis on pages 4 - 8, the schedules relating to pensions on pages 49 - 52 and the Schedule of Funding Progress – Post Employment Healthcare Plan on page 48 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 McKenzie Special School District Board of Education’s financial statements. The Introductory Section, Schedule of Expenditures of Federal Awards, Schedule of State Financial Assistance, Schedule of Transfers, Schedule of Future Debt Service Requirements, Statement of Revenues, Expenditures, and Changes in Fund Balance-Budget and Actual-Debt Service Fund, and Schedule of Salaries and Bonds, as required by Title 2 U. S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit requirements for Federal Awards are presented for purposes of additional analysis and are not a required part of the financial statements.

The Schedule of Expenditures of Federal Awards, Schedule of State Financial Assistance, Schedule of Transfers, Schedule of Future Debt Service Requirements, Statement of Revenues, Expenditures, and Changes in Fund Balance-Budget and Actual-Debt Service Fund, and Schedule of Salaries and Bonds are the responsibility of management and were derived from and relate 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 Expenditures of Federal Awards, Schedule of State Financial Assistance, Schedule of Transfers, Schedule of Future Debt Service Requirements, Statement of Revenues, Expenditures, and Changes in Fund Balance-Budget and Actual-Debt Service Fund, and Schedule of Salaries and Bonds are fairly stated in all material respects in relation to the financial statements as a whole.

The introductory section has not been subjected to the auditing procedures applied in the audit of the financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 25, 2017, on our consideration of McKenzie Special School District Board of Education'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

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results of that testing, and not to provide an opinion on the effectiveness of 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 McKenzie Special School District Board of Education’s internal control over financial reporting and compliance.

Alexander Thompson Arnold PLLC Dyersburg, Tennessee September 25, 2017

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Management’s Discussion and Analysis This section of the McKenzie Special School District (the District) annual financial report presents our discussion and analysis of the District’s financial performance during the year ended June 30, 2016 and a comparison of financial information between the 2016 and 2015 years. The analysis focuses on significant financial position, budget changes and variances from the budget, and specific issues related to funds and the economic factors affecting the McKenzie Special School District. Management’s Discussion and Analysis (MD&A) focuses on current year activities and resulting changes. Please consider the information presented here in conjunction with the District’s financial statements, which immediately follow this section. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements and notes to those statements. These statements are organized so the reader can understand McKenzie Special School District financially as a whole. The district-wide financial statements provide information about the activities of the whole School, presenting both an aggregate view of the District’s finances and a long-term view of those finances. The fund financial statements provide the next level of detail. For governmental activities, these statements tell how services were financed in the short-term as well as what remains for future spending. The fund financial statements look at the District’s operations in more detail than the district-wide financial statements by providing information about the District’s funds, which include the general purpose fund, federal projects fund, debt service fund and the cafeteria fund. District-wide Financial Statements. The statement of net position and the statement of activities, which appear first in the District’s financial statements, report information on the District as a whole and its activities in a way that provides readers with a broad overview of the District’s finances, in a manner similar to a private-sector business. These statements include all assets, liabilities, and deferred outflows/inflows of resources using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the District’s net position - the difference between assets, liabilities and deferred inflows of resources, as reported in the statement of net position - as one way to measure the District’s financial health or financial position. Over time, increases or decreases in the District’s net position - as reported in the statement of activities - are indicators of whether its financial health is improving or deteriorating. The relationship between revenues and expenses is the District’s operating results. However, the District’s goal is to provide services to our students, not to generate profits as commercial entities do. One must consider many other nonfinancial factors, such as the quality of the education provided and the safety of the schools, to assess the overall health of the District. The statement of net position and statement of activities report the governmental activities for the School, which encompass all of the District’s services, including instruction, support services, community services, athletics, child care, and food services. Property taxes and state and federal grants finance most of these activities. Fund Financial Statements. The District’s fund financial statements provide detailed information about the funds that are maintained by the District. Some funds are required to be established by State law and by bond covenants. However, the District may establish other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money.

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All of the District’s services are reported in governmental funds. Governmental fund reporting focuses on showing how money flows into and out of funds and the balances left at year end that are available for spending. They 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 operations of the District and the 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 the District’s programs. We describe the relationship (or differences) between governmental activities (reported in the statement of net position and the statement of activities) and governmental funds in reconciliation. FINANCIAL ANALYSIS OF THE SCHOOL AS A WHOLE Recall that the statement of net position provides the perspective of the District as a whole. The table below provides a summary of the District’s net position as of June 30, 2016 and June 30, 2015:

June 30, 2016 June 30, 2015 Assets Current and other assets $ 4,924,801 $ 5,014,946 Capital assets, net of accumulated depreciation 6,778,808 7,348,488 Total assets 11,703,609 12,363,434

Deferred outflows

1,678,640 605,430

Liabilities Current liabilities 713,370 986,375 Long term liabilities 4,474,751 4,726,221 Total liabilities 5,188,121 5,712,596

Deferred inflows

3,600,021 3,246,987

Net Position Net investment in capital assets 2,358,808 2,323,103 Restricted for debt service 806,800 840,482 Restricted for education 4,469 327,153 Restricted for food service 295,893 279,936 Restricted for pension 167,265 - Unrestricted 960,872 238,607 Total net position $ 4,594,107 $ 4,009,281

The above analysis focuses on the net position. The change in net position of the District’s governmental activities is discussed below. The District’s net position was $4,594,107 and $4,009,281 as of June 30, 2016 and 2015 respectively. An increase in net position of $584,826 is attributable to normal operations. The net investment in capital assets of $2,358,808 reports the original cost less depreciation of the District’s capital assets, and less debt owed on those assets. Restricted net position, when present, are reported separately and indicate enabling legislation or restrictions from outside sources that limits the District’s ability to use that net position for day-to-day operations. The remaining amount of net position, $960,872 was unrestricted.

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Long term debt consists of debt issued by the District relating to the purchase of school buildings. The $960,872 in unrestricted net position of governmental activities represents the accumulated results of all past years’ operations. The operating results of the general purpose fund will have a significant impact on the change in restricted net position from year to year. The results of this year’s operations for the District as a whole are reported in the statement of activities, which shows the changes in net position for fiscal year 2016. The following schedule also provides the changes in net position for fiscal year 2015 so that comparisons can be made between the two years.

CHANGES IN NET POSITION

Governmental Activities June 30, 2016 June 30, 2015

Revenues Program revenues: Charges for services $ 139,459 $ 247,977 Operating grants and contributions 1,368,568 1,420,277 General revenues Property taxes 1,308,099 1,316,446 Local option sales taxes 791,606 760,085 Other taxes 719 1,282 Intergovernmental 7,105,149 7,001,972 Interest 9,545 11,647 Other sources 130,345 27,318 Total revenues 10,853,490 9,118,750 Function/Program Expenses Instruction 5,558,719 6,120,329 Support services 3,637,953 2,868,757 Non-instructional services 1,072,992 1,211,817 Total expenses 10,268,664 10,200,903 Change in net position 584,826 586,101 Net position - beginning 4,009,281 5,068,096 Restatement – Pension Liability - (1,644,916) Net position - ending $ 4,594,107

$ 4,009,281

As reported in the statement of activities, the cost of all of our governmental activities this year was $10,268,664 which is an increase of $67,761 from the 2015 fiscal year. Certain activities were partially funded from those who benefited from the programs $139,459 or by other governments and organizations that subsidized certain programs with grants $1,368,568. We paid for the remaining “public benefit” portion of our governmental activities with $2,100,424 in taxes, and with our other revenues, such as interest and general entitlements. The District experienced an increase in net position of $584,826. The increase in net position differs from the change in fund balance. A reconciliation appears on page 12. As discussed above, the net cost shows the financial burden that was placed on the State and the District’s taxpayers by each of these functions. Since property taxes for operations and unrestricted State aid constitute the vast majority of the District’s operating revenue sources, the Board of Education must annually evaluate the needs of the District and balance those needs with State-prescribed available unrestricted resources.

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FINANCIAL ANALYSIS OF THE DISTRICT’S FUNDS As noted earlier, the District uses funds to help it control and manage money for particular purposes. Looking at funds helps the reader consider whether the District is being accountable for the resources taxpayers and others provide to it and may provide more insight into the District’s overall financial health.

As the District completed this year, the governmental funds reported a combined fund balance of $3,045,847 which is a decrease of $8,333 from last year. In the general purpose fund, our principal operating fund, the fund balance decreased $67,893 from operations to $1,967,129 which differs from the final budgeted change in fund balance of $(174,723). GENERAL PURPOSE FUND BUDGETARY HIGHLIGHTS Over the course of the year, the District revises its budget as it attempts to deal with changes in revenues and expenditures. A schedule showing the District’s original and final budget amounts compared with amounts actually paid and received is provided in the basic financial statements section of these financial statements. Changes to the general purpose fund original budget were minimal.

* The most significant individual line item variances between the final budget and actual amounts relate to taxes revenue and other charges.

CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets. At June 30, 2016, the District had $6,778,808 invested in a broad range of capital assets, including buildings, furniture, equipment and land. Additional information on the District’s capital assets, including depreciation expense, can be found in Note 3 of the Notes to Financial Statements. Debt. At the end of the current fiscal year, the District had debt in the amount of $4,420,000 which was used to purchase school capital assets and is reported in the district-wide financial statements. ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The unemployment rate of Carroll County is currently 6.2%. This compares unfavorably to the state’s average unemployment rate of 4.1% and the national average of 3.4%. Inflationary trends in the region compare favorably to national indices. All of the above factors were considered in preparing the District’s budget for the 2016-2017 fiscal year.

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CONTACTING THE DISTRICT’S FINANCIAL MANAGEMENT This financial report is designed to provide a general overview of the District’s finances for all those interested parties and to show the District’s accountability for the money it receives. If you have questions about this report or need additional financial information, contact: MCKENZIE SPECIAL SCHOOL DISTRICT 114 West Bell Avenue McKenzie, TN 38201

Governmental Activites

ASSETSCash and cash equivalents 999,327$ Investments 1,808,503 Taxes receivable, net 1,443,412 Due from other governmental agencies 343,675 Other assets 3,318 Inventory 51,963 Capital assets not being depreciated:

Land 412,477 Capital assets net of accumulated depreciation:

Buildings and improvements 6,155,474 Other capital assets 210,857

Prepaid expense 107,338 Net pension asset 167,265

Total assets 11,703,609

DEFERRED OUTFLOWS OF RESOURCESDeferred outflows related to pensions 1,678,640

LIABILITIESAccounts payable 29,414 Accrued interest 44,563 Payroll liabilities 365,972 Other post employment benefits 273,421 Long-term liabilities:

Net pension liability 54,751 Bonds payable - due within one year 630,000 Bonds payable - noncurrent portion 3,790,000

Total liabilities 5,188,121

DEFERRED INFLOWS OF RESOURCESDeferred inflows related to pensions 2,355,859 Other deferred revenue 71,727 Deferred-revenue - property taxes 1,172,435

Total deferred inflows of resources 3,600,021

NET POSITIONNet investment in capital assets 2,358,808 Restricted for

Net pension asset 167,265 Education 4,469 Operation of cafeteria 295,893 Debt service 806,800

Unrestricted 960,872 Total net position 4,594,107

MCKENZIE SPECIAL SCHOOL DISTRICTDISTRICT-WIDE STATEMENT OF NET POSITION

June 30, 2016

The accompanying notes are an integral part of these financial statements.- 9 -

Net (Expense)Revenue

and Changesin Net Assets

OperatingCharges for Grants and Governmental

Functions/Programs Expenses Services Contributions ActivitiesGovernmental activities:

Instruction:Regular education 4,210,116$ $ -$ (4,210,116)$ Special education 901,786 586,866 (314,920) Vocational education 318,320 21,335 (296,985) Alternative education 22,330 (22,330) Early childhood education 105,167 103,518 (1,649)

Support Services: Health services 104,941 (104,941) Regular instruction support 650,899 (650,899) Special education support 50,532 (50,532) Other student support 720,761 (720,761) Board of Education 100,432 (100,432) Office of the Superintendent 152,348 (152,348) Office of the Principal 730,886 (730,886) Fiscal services 122,278 (122,278) Operation of plant 619,872 (619,872) Maintenance of plant 385,004 (385,004)

Non-Instructional Services: - - Interest and bond fee expense 212,037 (212,037)

Food service 860,955 139,459 656,849 (64,647) Total 10,268,664$ 139,459$ 1,368,568$ (8,760,637)

General Revenues: Local option sales tax 791,606 Property taxes 1,308,099 Other taxes 719 Intergovernmental:

Basic Education Program 6,932,968 Other 172,181

Interest 9,545 Other miscellaneous income 68,564

Pension income 61,781

Total general revenues and transfers 9,345,463

Change in net position 584,826

Net position, beginning 4,009,281

Net position, ending 4,594,107$

MCKENZIE SPECIAL SCHOOL DISTRICT STATEMENT OF ACTIVITIES

For the Year Ended June 30, 2016

Program Revenues

Transfers

The accompanying notes are an integral part of the financial statements.- 10 -

FederalDebt Projects Cafeteria

General Service Fund Fund Total

ASSETS Cash 837,194$ -$ -$ 162,132$ 999,326$ Investments 978,954 771,046 58,503 1,808,503 Taxes receivable, net 790,883 528,888 1,319,771 Due from other governments 178,400 10,152 130,760 24,362 343,674 Due from other funds 127,613 127,613 Accounts receivable - other 472 472 Prepaid expense 105,978 1,360 107,338 Inventory - - - 51,963 51,963

Total assets 3,019,022$ 1,310,086$ 130,760$ 298,792$ 4,758,660$

LIABILITIESAccounts payable 350,810$ -$ 1,520$ 2,899$ 355,229$ Due to other funds - - 127,613 - 127,613

Total liabilities 350,810 - 129,133 2,899 482,842

DEFERRED INFLOWS OF RESOURCES Unavailable revenue 701,083 528,888 - - 1,229,971

FUND BALANCESNonspendable Inventory 51,963 51,963 Prepaid expense 105,978 1,360 107,338 Restricted for:

Education - trophy 456 456 Operation of cafeteria 242,570 242,570 Debt service 781,198 781,198

Federal projects 1,627 1,627

Unassigned 1,860,695 - - - 1,860,695

Total fund balances 1,967,129 781,198 1,627 295,893 3,045,847

Total liabilities, deferred inflows ofresources, and fund balances 3,019,022$ 1,310,086$ 130,760$ 298,792$ 4,758,660$

McKENZIE SPECIAL SCHOOL DISTRICTBALANCE SHEET

GOVERNMENTAL FUNDS June 30, 2016


Total governmental fund balances 3,045,847$

Amounts reported for governmental activities on the statement of net position are differentbecause:

Capital assets used in governmental funds are not financial resources and, therefore,are not reported as assets in governmental funds. 6,778,808

Other long term assets are not available to pay for current period expenditures and therefore are deferred in the governmental funds 123,459

Pension assets, liability, deferred inflows and deferred outflows of resources do

not require the use of current financial resources and, therefore, are not reported in the funds.

Net pension asset 167,265 Net pension liability (54,571) Deferred outflows 1,678,640 Deferred inflows (2,355,859)

Long-term liabilities, including bonds, notes, and leases payable, are not due

in the current period and, therefore, are not reported in the funds.

Bonds payable (4,420,000)

Other post employment benefits (273,421)

Deferred refunding fees 2,847

Compensated absences payable (41,525)

Accrued interest on bonds (44,563)

Deferred revenue-premium on debt (12,820)

Net position of governmental activities 4,594,107$

June 30, 2016

McKENZIESPECIAL SCHOOL DISTRICTRECONCILIATION OF TOTAL GOVERNMENTAL FUND BALANCES TO

NET POSITION OF GOVERNMENTAL ACTIVITIES


DEBT FEDERAL TOTALGENERAL CAFETERIA SERVICE PROJECTS GOVERNMENTALPURPOSE FUND FUND FUND FUNDS

Revenues

Taxes 1,511,097$ $ 562,696$ $ 2,073,793$ Intergovernmental revenue 7,116,168 7,853 700,700 7,824,721 USDA reimbursements 601,245 601,245 Commodities-USDA 47,751 47,751 Lunch and breakfast payments 139,459 139,459 On Behalf payments 35,194 35,194 Miscellaneous revenue 26,912 76,768 103,680 Total revenues 8,689,371 873,076 562,696 700,700 10,825,843

ExpendituresCurrent

Regular instruction program 4,522,774 251,728 4,774,502 Vocational education program 304,851 13,469 318,320 Special education program 547,177 354,609 901,786 Early childhood education 105,167 105,167 Health services 104,941 104,941 Student support 255,464 6,615 262,079 Regular instruction support services 591,654 59,244 650,898 Special education support services 32,655 17,877 50,532 Vocational education support 6,159 6,159 Fiscal services 122,278 122,278 Operation of plant 584,681 584,681 Maintenance of plant 307,554 307,554 Board of Education 100,432 100,432 Alternative Education 22,330 22,330 Office of the Superintendent 152,348 152,348 Food 343,364 343,364 Cafeteria labor 265,497 265,497 Other expenditures 35,194 248,258 283,452 Office of the Principal 675,819 675,819 Debt service

Principal 590,000 590,000 Interest and fees 212,038 212,038

Capital outlay Total expenditures 8,471,478 857,119 802,038 703,542 10,834,177

Revenues over (under) expenditures 217,893 15,957 (239,342) (2,842) (8,334)

Other Financing Sources (uses)Transfer from general purpose fund-debt service 150,000 150,000 Transfers out (150,000) (150,000) Total other financing sources (uses) (150,000) 150,000

Net change in fund balance 67,893 15,957 (89,342) (2,842) (8,334)

Fund Balance - July 1, 2015 1,899,236 279,936 870,540 4,469 3,054,181

Fund Balance - June 30, 2016 1,967,129$ 295,893$ 781,198$ 1,627$ 3,045,847$

FUND BALANCES - GOVERNMENTAL FUNDS

MCKENZIE SPECIAL SCHOOL DISTRICTSTATEMENT OF REVENUES, EXPENDITURES, AND CHANGES


The accompanying notes are an integral part of the financial statements.- 13 -

AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS

Net change in fund balances - total governmental funds (8,334)$

Amounts reported for governmental activities on the statement of activities aredifferent because of the following:

The issuance of long-term debt provides current financial resources togovernmental funds, while the repayment of the principal of long-termdebt consumes the current financial resources of governmental funds.Neither transaction, however, has any effect on net position.

Debt principal payments 590,000 Change in deferred amount on refunding debt (878) Change in premium on debt issuance 2,564

Revenues in the statement of activities that do not provide current financialresources are not reported as revenues in the funds.

Less: deferred delinquent property taxes and other deferred revenues June 30, 2015 (95,678) Add:deferred delinquent property taxes and other deferred revenues June 30, 2016 123,641

Capital outlays are reported in the governmental funds as expenditures.However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense.

Depreciation expense (569,680)

Some expenses reported in statement of activities do not require the use of

current financial resources and therefore are not reported as expenditures

in the governmental funds

Change in compensated absences 6,615

Change in accrued interest payable 5,536

Change in other post employment benefits (16,283)

Change in net pension asset (47,779)

Change in net pension liability (54,751)

Change in deferred outflows related to pensions 1,076,935

Change in deferred inflows related to pensions (427,083)

Change in net position of governmental activities 584,825$


McKENZIE SPECIAL SCHOOL DISTRICTRECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES

TO THE STATEMENT OF ACTIVITIES


VarianceOriginal Final OverBudget Budget Actual (Under)

REVENUESTaxes

Local option sales tax 729,936$ 729,936$ 791,606$ 61,670$ Interstate telecommunications tax 800 800 719 Special school district:

Current property tax 703,976 703,976 670,126 (33,850) Prior year's property tax 38,700 38,700 36,129 (2,571) Interest and penalty 4,700 4,700 3,601 (1,099) Payment in lieu of taxes 8,750 8,750 8,916 166

Total taxes 1,486,862 1,486,862 1,511,097 24,316

IntergovernmentalMarriage licenses 450 450 395 (55) State revenues

State education funds:Basic Education Program 6,932,968 6,932,968 6,932,968 - Early Childhood Education 103,518 103,518 103,518 - Other state education funds 3,977 3,977 13,962 9,985 Career Ladder 42,000 42,000 39,673 (2,327) Drivers Education 6,200 6,200 7,250 1,050

Total state education funds 7,088,663 7,088,663 7,097,371 8,708 Other state revenues

Mixed drink tax 500 500 240 (260) Other state revenues - 5,500 5,500 -

Total state revenues 7,089,163 7,094,663 7,103,111 8,448 Federal revenues

Federal funds received through state: Other federal through state 2,000 9,730 1,643 (8,087)

Special education grants to states 12,000 12,000 11,019 (981)

Total intergovernmental 7,103,613 7,116,843 7,116,168 (675)

Charges for servicesTuition - regular day students 1,500 1,500 1,885 385 Lease/rentals 1,500 1,500 1,332 (168)

Total charges for services 3,000 3,000 3,217 217

Other local revenuesInterest earned 10,000 10,000 9,197 (803) Miscellaneous 100 100 963 863 E-Rate funding 12,000 12,000 8,862 (3,138) Vending 5,500 5,500 4,673 (827)

Total other local revenues 27,600 27,600 23,695 (3,905)

Total revenues 8,621,075 8,634,305 8,654,177 19,872

McKENZIE SPECIAL SCHOOL DISTRICTSTATEMENT OF REVENUES, EXPENDITURES AND

CHANGES IN FUND BALANCES - BUDGET AND ACTUALGENERAL PURPOSE FUND




EXPENDITURESCurrent

InstructionRegular education

Teachers 3,336,047 3,331,047 3,329,152 (1,895) Career Ladder program 19,000 20,000 20,000 - Career Ladder - extended contract 13,700 12,413 11,800 (613) Homebound teachers 1,500 2,320 2,319 (1) Teacher assistants 14,000 14,459 14,459 - Substitute teachers 26,000 22,100 22,051 (49) Non-certified substitute teachers 42,000 48,806 48,161 (645) Social security 211,553 211,845 195,876 (15,969) State retirement 301,980 302,406 298,341 (4,065) Medical insurance 364,239 339,239 331,570 (7,669) Medicare 50,257 50,326 46,362 (3,964) Evaluation and testing 6,500 6,500 2,675 (3,825) Maintenance and repair - equipment 3,000 3,000 12 (2,988) Medical and dental 250 250 435 185 Instructional supplies/materials 83,750 83,750 76,568 (7,182) Textbooks 40,000 40,000 23,144 (16,856) Printing,stationery 1,200 1,200 895 (305) Fee waivers 7,500 7,500 6,899 (601) Other charges 25,000 25,000 26,755 1,755 Equipment 75,000 75,000 65,300 (9,700)

Total regular education 4,622,476 4,597,161 4,522,774 (74,387)

Alternate instruction programContracts with other schools 22,000 23,000 22,330 (670)

Special educationTeachers 249,646 249,646 247,975 (1,671) Career Ladder program 2,000 3,375 3,375 - Educational assistants 14,000 14,000 13,500 (500) Speech pathologist 37,009 37,009 36,309 (700) Social security 18,765 18,765 16,989 (1,776) State retirement 27,055 27,055 26,111 (944) Medical insurance 44,627 50,652 50,651 (1) Medicare 4,388 4,388 3,973 (415) Contracts with other school systems 90,000 104,200 104,181 (19) Other contracted services 15,000 43,000 44,113 1,113 Instructional supplies/materials 2,000 2,000 - (2,000)

Total special education 504,490 554,090 547,177 (6,913)

Vocational educationTeachers 234,107 234,107 234,107 -









Career ladder 3,000 3,000 3,000 - Social security 14,701 14,701 13,011 (1,690) State retirement 21,434 21,434 21,434 - Medical insurance 30,000 30,000 29,007 (993) Medicare 3,438 3,438 3,042 (396) Instructional supplies 1,500 1,500 1,250 (250) Equipment 1,500 1,500 - (1,500)

Total vocational education 309,680 309,680 304,851 (4,829)

Total instruction 5,458,646 5,483,931 5,397,132 (86,799)

Support servicesStudent support

Health services:Medical personnel 85,285 85,285 84,761 (524) Social security 5,288 5,288 5,126 (162) State retirement 5,697 5,697 5,662 (35) Medical insurance 4,895 4,895 4,737 (158) Medicare 1,237 1,237 1,199 (38) Drugs and medical supplies 1,000 1,000 783 (217) In service 1,500 1,500 2,673 1,173 Office supplies 250 250 (250) Health equipment 500 500 - (500)

Total health services 105,652 105,652 104,941 (711)

Other student support:Career Ladder program 2,000 2,000 2,000 - Guidance personnel 161,807 161,807 161,807 - Other salaries 15,000 15,383 13,220 (2,163) Social security 11,086 11,086 9,499 (1,587) State retirement 16,164 16,164 15,949 (215) Medical insurance 31,902 31,902 32,054 152 Medicare 2,593 2,593 2,222 (371) Communication 1,000 1,000 1,054 54 Contracts with government agencies 27,000 2,000 (2,000) Office supplies 1,000 1,000 990 (10) In service-staff development 2,000 2,000 2,494 494 Other contracted services 5,000 5,000 4,457 (543) Equipment 1,500 10,776 9,718 (1,058)

Total other student support 278,052 262,711 255,464 (7,247)

Instructional staffRegular education:

Director 69,614 69,614 69,614 -






Career Ladder Program 3,000 5,625 5,625 - Librarian(s) 146,951 146,951 146,951 - Educational assistants 29,000 29,000 29,000 - Other salaries and wages 67,614 67,614 67,614 - Social security 19,603 19,603 17,670 (1,933) State retirement 27,898 27,898 27,134 (764) Medical insurance 43,800 43,800 39,102 (4,698) Medicare 4,585 4,585 4,132 (453) Communication 1,200 1,200 859 (341) Data processing 183,000 161,715 153,804 (7,911) Travel 1,000 1,000 983 (17) Other supplies and materials 500 500 (500) Office supplies 750 750 134 (616) Other contracted services 150 150 112 (38) Dues and memberships 250 250 (250) License 7,400 7,400 5,928 (1,472) In-service/staff development 8,500 8,500 7,959 (541) Library books 12,000 12,000 11,646 (354) Equipment 1,500 3,416 3,387 (29)

Total regular education 628,315 611,571 591,654 (19,917)

Special educationSupervisor/Director 24,365 24,365 24,365 - Social security 1,511 1,511 1,405 (106) State retirement 2,203 2,203 2,203 - Medical insurance 2,337 2,337 1,658 (679) Medicare 353 353 329 (24) Travel 3,000 3,000 2,018 (982) In service-staff development 4,500 4,500 677 (3,823)

Total special education 38,269 38,269 32,655 (5,614)

Vocational education: Supervisor Director 5,278 5,278 5,278 - Social security 327 327 327 - Medicare 77 77 77 - State retirement 477 477 477 - In service staff development 300 300 - (300)

Total vocational education 6,459 6,459 6,159 (300)

General administrationBoard of Education services:

Election commission 500 500 280 (220) Unemployment compensation 4,300 4,300 4,833 533 Payments to retirees 4,375 4,375 4,285 (90)






Maintenance and repair-records 2,000 2,000 2,000 - Medicare 63 63 62 (1) Audit services 14,000 14,000 12,525 (1,475) Dues and memberships 4,908 4,908 4,908 - Postage 250 250 444 194 License 250 250 (250) Legal services 5,000 5,000 4,079 (921) Office supplies 700 700 556 (144) In-service/staff development 1,000 1,000 (1,000) Corporate surety bonds 1,000 1,000 (1,000) Liability insurance 24,661 24,661 25,019 358 Trustee commissions 23,500 23,500 22,628 (872) Workmen's compensation insurance 19,050 19,050 13,987 (5,063) Criminal investigation of applicant 400 400 684 284 Other charges 5,000 5,000 4,142 (858)

Total Board of Education services 110,957 110,957 100,432 (10,525)

Director of Schools County official/administrative officer 87,253 87,253 87,253 - Career Ladder program 2,000 2,000 1,000 (1,000) Secretary 16,030 16,030 16,030 - Social security 6,466 6,466 6,376 (90) State retirement 9,049 9,049 9,049 - Medical insurance 20,912 20,912 20,039 (873) Medicare 1,512 1,512 1,491 (21) Communication 5,000 5,000 3,850 (1,150) Dues and memberships 1,650 1,650 1,637 (13) Postal charges 1,000 1,000 1,241 241 Travel 300 300 121 (179) Office supplies 150 150 464 314 In-service staff development 1,000 1,000 1,818 818 Rentals 1,548 1,548 1,664 116 Advertising 850 850 203 (647) Other charges 1,450 1,450 112 (1,338) Equipment 1,000 1,000 - (1,000)

Total office of the superintendent 157,170 157,170 152,348 (4,822)

Office of the principal: Principals 228,506 228,506 227,175 (1,331) Assistant principals 178,236 178,312 178,311 (1) Accountants 67,095 67,095 67,095 - Career ladder 2,000 2,000 2,000 -






Secretary(s) 38,124 38,124 38,124 - Social security 31,866 31,866 29,961 (1,905) State retirement 43,979 43,979 43,865 (114) Medical insurance 68,153 68,153 65,283 (2,870) Medicare 7,452 7,452 7,007 (445) Communication 10,000 10,000 6,278 (3,722) Rentals 6,192 6,192 6,657 465 Maintenance and repair 500 500 (500) Periodicals 100 100 46 (54) In-service staff development 2,500 2,500 1,604 (896) Dues and memberships 750 750 775 25 Office supplies 700 700 870 170 Other charges 500 500 (500) Equipment 2,500 2,500 768 (1,732)

Total office of the principal 689,153 689,229 675,819 (13,410)

Fiscal services Supervisor/Director 67,637 67,637 67,637 - Purchasing personnel 16,030 16,030 16,029 (1) Social security 5,187 5,187 5,088 (99) State retirement 5,589 5,589 5,589 - Medical insurance 16,077 16,077 15,621 (456) Medicare 1,213 1,213 1,190 (23) Maintenance and repair 250 250 (250) Travel 135 135 135 - Other charges 350 350 (350) In-service staff development 2,000 2,000 1,169 (831) Data processing services 10,000 10,000 9,301 (699) Office supplies 500 500 519 19 Administration equipment 1,000 1,000 - (1,000)

Total fiscal services 125,968 125,968 122,278 (3,690)

Operation and maintenance of plantOperation of plant:

Janitorial services 276,337 276,337 276,336 (1) Disposal fees 6,500 6,500 5,601 (899)

Electricity 230,000 230,000 210,228 (19,772) Natural gas 45,000 45,000 28,457 (16,543) Water and sewer 26,000 26,000 24,531 (1,469) Building and contents insurance 37,341 37,341 37,471 130 Boiler insurance 2,050 2,050 2,057 7 Other charges 500 500 (500) Other supplies and materials 650 650 - (650)

Total operation of plant 624,378 624,378 584,681 (39,697)






Maintenance of plant: Maintenance personnel 99,401 99,401 94,783 (4,618) Social security 6,163 6,163 5,424 (739) State retirement 6,640 6,640 5,549 (1,091) Medical insurance 11,918 11,918 10,333 (1,585) Medicare 1,441 1,441 1,269 (172) Communication 1,200 1,200 938 (262) Maintenance and repair - building 112,000 130,000 115,679 (14,321) Maintenance and repair - equipment 1,000 1,000 (1,000) Maintenance and repair - vehicles 4,000 7,500 7,334 (166) Gasoline 5,000 5,000 3,513 (1,487) In service staff development 500 500 (500) Rentals 500 500 (500) Pest control 3,000 3,000 3,025 25 Other charges 500 500 20 (480) Equipment 61,000 61,000 59,687 (1,313)

Total maintenance of plant 314,263 335,763 307,554 (28,209)

Total support services 3,078,636 3,068,127 2,933,985 (134,142)

Non-instructional services Early childhood education

Teachers 47,904 47,904 47,904 - Educational assistants 28,260 28,260 28,260 - Non-certified substitute teachers 600 600 600 - Social security 4,759 4,391 4,391 - State retirement 6,218 5,667 5,667 - Medical insurance 5,302 8,288 8,288 - Employer medicare 1,113 1,027 1,027 - Food supplies 1,300 1,349 1,349 - Other charges 100 351 351 - Instructional supplies 9,914 8,633 6,830 (1,803) In-service/staff development 1,500 500 500 -

Total early childhood education 106,970 106,970 105,167 (1,803)

Total expenditures 8,644,252 8,659,028 8,436,284 (222,744)

Revenues over (under) expenditures (23,177) (24,723) 217,893 95,280

Other financing sources (uses)Transfers out (150,000) (150,000) (150,000) -

Net change in fund balance (173,177)$ (174,723)$ 67,893 95,280$






Fund balance - July 1, 2015 1,899,236

Fund balance - June 30, 2016 1,967,129$

Reconciliation of budgetary basis to statement of revenues, expenditures andchanges in fund balances - governmental funds:

Revenues Expenditures Net ChangeBudgetary basis (above) 8,654,177$ 8,629,878$ 24,299$

On-behalf payments forpost-retirement benefits 35,194 35,194 -

GAAP basis - page 13 8,689,371$ 8,665,072$ 24,299$


Actual VarianceOriginal Final Budgetary OverBudget Budget Basis (Under)

REVENUESCharges for current services

Lunch payments - children 125,000$ 125,000$ 120,011$ (4,989)$ Lunch payments - adults 17,000 17,000 15,238 (1,762) Income from breakfast 4,300 4,300 4,210 (90) Other 7,100 7,100 6,942 (158) A la carte sales 70,000 70,000 69,468 (532)

Total charges for current services 223,400 223,400 215,869 (7,531)

Other local revenuesInterest earned 215 215 358 143

State education fundsSchool food services 8,600 8,600 7,853 (747)

Federal through stateUSDA - lunch 395,850 395,850 405,496 9,646 USDA - other 18,000 19,350 23,637 4,287 USDA -breakfast 170,000 170,000 172,112 2,112 Commodities 47,751 47,751 -

Total federal through state 583,850 632,951 648,996 16,045

Total revenues 816,065 865,166 873,076 7,910

EXPENDITURESCurrent

Director 36,193 36,193 36,193 - Cafeteria personnel 240,462 240,462 229,304 (11,158) Social Security 17,153 17,153 15,395 (1,758) State retirement 14,003 14,003 12,921 (1,082) Medical insurance 24,221 24,221 25,833 1,612 Unemployment compensation 750 750 217 (533) Medicare 4,012 4,012 3,600 (412) Worker's compensation insurance 5,000 5,000 6,487 1,487 Communication 3,264 3,264 1,982 (1,282) Maintenance and repair services - equipment 10,000 10,000 15,539 5,539 Travel 2,000 2,000 1,829 (171) Commodities 47,751 47,751 - Disposal 9,000 9,000 8,871 (129) Dues and memberships 3,500 3,500 3,079 (421) Custodial supplies 4,500 4,500 6,631 2,131 Food supplies 359,445 359,445 343,364 (16,081) Food preparation supplies 31,000 31,000 27,035 (3,965) Utilities 52,000 52,000 52,000 - Uniforms 2,000 2,000 1,895 (105) In service/staff development 1,200 1,200 157 (1,043) Audit 1,300 1,300 1,060 (240) Other charges 5,365 5,365 4,374 (991) Equipment 11,719 13,069 11,602 (1,467)

Total expenditures 838,087 887,188 857,119 (30,069)

Revenues over (under) expenditures (22,022) (22,022) 15,957 37,979

Fund balance July 1, 2015 279,936 279,936 279,936 - - - -

Fund balance June 30, 2016 257,914$ 257,914$ 295,893$ 37,979$


MCKENZIE SPECIAL SCHOOL DISTRICT

CAFETERIA FUND

SCHEDULE OF REVENUES, EXPENDITURES ANDCHANGES IN FUND BALANCES - BUDGET AND ACTUAL


VarianceOriginal Final Over

REVENUES Budget Budget Actual (Under)

Federal through StateCareer and Technical Education 16,335$ 21,335$ 21,335$ -$ Title I 255,869 272,775 249,025 (23,750) Education of the Handicapped - IDEA 268,843 334,376 351,945 17,569 Education of the Handicapped - Preschool 17,976 19,296 18,956 (340) Rural Education 55,973 54,955 19,434 (35,521) Other federal 1,651 1,651 1,649 (2) Eisenhower 38,638 38,360 38,356 (4)

Total revenues 655,285 742,748 700,700 (42,048)

EXPENDITURESCurrent

InstructionRegular instruction

Teachers 156,221 168,073 155,749 (12,324) Other salaries and wages 29,254 29,299 29,300 1 Social security 11,500 12,157 10,405 (1,752) State retirement 16,076 17,030 16,109 (921) Medical insurance 28,697 28,697 26,174 (2,523) Medicare 2,689 2,843 2,433 (410) Other contracted services 28,371 30,000 4,177 (25,823) Instructional supplies 6,151 7,103 7,083 (20) Other supplies and materials 300 300 298 (2)

Total regular instruction 279,259 295,502 251,728 (43,774)

Special education programTeachers 48,635 75,430 75,290 (140) Aides 118,164 118,780 118,779 (1) Other salaries and wages 15,861 16,395 16,394 (1) Social security 11,369 9,895 9,894 (1) State retirement 13,745 12,384 12,384 - Medical insurance 27,112 28,796 28,796 - Medicare 2,659 2,697 2,700 3 Contracts with other schools 30,158 30,036 30,036 - Other contracted services 26,297 25,593 25,253 (340) Other supplies 958 958 - Instructional supplies 1,000 18,775 18,774 (1) Equipment 15,351 15,351 -

Total special education 295,000 355,090 354,609 (481)

Vocational educationInstructional supplies and materials 500 3,605 3,605 - Other contracted services 2,450 2,450 Other charges 500 370 370 Equipment 7,618 8,295 7,044 (1,251)

Total vocational education 8,618 14,720 13,469 (1,251)

Total instruction 582,877 665,312 619,806 (45,506)



SCHOOL FEDERAL PROJECTS



VarianceOriginal Final Over

EXPENDITURES Budget Budget Actual (Under)

Support servicesOther student support

Bus drivers 1,950 848 848 - Travel 5,767 5,767 5,767 -

Total other student support 7,717 6,615 6,615 -

Regular instructionSupervisor/director 38,288 38,288 38,288 - Social security 2,374 2,374 2,107 (267) State retirement 3,461 3,461 3,461 - Medical insurance 3,673 3,673 3,528 (145) Medicare 555 555 493 (62) Inservice/staff development 24,521 23,889 11,367 (12,522)

Total regular instruction support 72,872 72,240 59,244 (12,996)

Special education programSupervisor/director 6,961 6,961 6,961 - Social security 432 402 402 - State retirement 629 629 629 - Medical insurance 672 474 474 - Medicare 101 94 94 - In Service -staff development 1,000 9,317 9,317 -

Total special education support 9,795 17,877 17,877 -

Total support services 90,384 96,732 83,736 (12,996)


Revenues over (under) expenditures (17,976) (19,296) (2,842) 16,454

Other financing sources (uses)Operating transfers out (48,351) (48,351) - 48,351

Net change in fund balance (66,327)$ (67,647)$ (2,842) 64,805$

Fund balance - July 1, 2015 4,469

Fund balance - June 30, 2016 1,627$

For the year ended June 30, 2016

McKENZIE SPECIAL SCHOOL DISTRICT

SCHOOL FEDERAL PROJECTS



MCKENZIE SPECIAL SCHOOL DISTRICT NOTES TO FINANCIAL STATEMENTS

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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity

The McKenzie Special School District Board of Education (the District) is a public municipal corporation governed by an elected seven-member board. The District has no component units. The district operates a public school system and receives funding from local, state and federal government sources. As required by generally accepted accounting principles, these financial statements present all funds, which comprise the District.

B. District-wide and Fund Financial Statements

The district-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the school board. For the most part, the effect of the interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. For the year ended June 30, 2016, the District had no business-type activities. The statement of activities demonstrates the degree to which the direct expenses of the given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues.

C. Measurement Focus, Basis of Accounting, and Financial Statements Presentation

The district-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned, and expenses are recorded when a liability is incurred regardless of timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within thirty days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due.


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Gross receipt taxes, sales taxes, grants, and interest associated with the current fiscal period are all considered to be susceptible to accrual and have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. The District consists of the general fund, two special revenue funds and one debt service fund. The general purpose fund, the cafeteria fund, the debt service fund and the federal projects fund are presented as major funds. The general purpose fund is the government’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.

The federal projects fund is used to account for the federal funding received and disbursed for educational purposes. The cafeteria fund is established to account for all funds received and disbursed relating to the operations of the cafeteria for each individual school.

The debt service fund accounts for the activities of collection of property taxes for debt service and payment of debt service requirements.. When both restricted and unrestricted resources are available for use, it is the District’s policy to use the restricted resources first, then unrestricted resources as they are needed.

D. Assets, Liabilities, and Net Position or Equity

Deposits and Investments The District’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with maturities of three months or less from the date of acquisition. State statutes authorize the District to invest in certificates of deposit, obligations of the U.S. Treasury, agencies and instrumentalities, obligations guaranteed by the U.S. government or its agencies, repurchase agreements and the state’s investment pool. Investments for the School are reported at fair value. Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to / from other funds” (i.e., the current portion of interfund loans) or “advances to / from other funds” (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as “due to / from other funds”. For the purpose of operating and maintaining the District, the private act creating the District authorized an annual property tax on every one hundred dollars ($100) assessment of real and personal property located within the District. The current property tax is $1.277 on every $100 of real and personal property located within the District. Property taxes attach as an enforceable lien on property as of January 1. Taxes are levied and tax bills mailed on October 1, and are collected through the end of February without penalty. Uncollected taxes become delinquent on March 1. The property taxes are collected by the Trustee


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of Carroll County and remitted to the District. District property tax revenues are recognized in the period in which the taxes are permitted to be used and only for amounts actually received. Property taxes receivable are recognized when an enforceable legal claim to the taxable property arises; however, due to the timing of the receipts, the receivable is reported as a deferred inflow. The receivable is reported net of an allowance for delinquent taxes, which was $36,899 in the General Fund and $27,836 in the Debt Service Fund as of June 30, 2016. Non-current portions of long-term receivables due to governmental funds are reported on their balance sheets, in spite of their spending measurement focus. Special reporting treatments are used to indicate, however, that they should not be considered "available spendable resources", since they do not represent net current assets. Recognition of governmental fund type revenues represented by non-current receivables is deferred in the governmental fund statements until they become current receivables. Inventories and Prepaid Items Inventories are valued at cost, using the first-in/first-out (FIFO) method. The costs of governmental fund-type inventories are recorded as expenditures when purchased rather than when consumed. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the financial statements. Capital Assets Capital assets, which include buildings and improvements, and other fixed assets, are reported in the applicable district-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of $15,000 (amount not rounded) or more and an estimated useful life in excess of three years. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset’s life are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Property, plant and equipment of the District is depreciated using the straight-line method over the following useful lives:

Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applied to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District has items related to pensions reported in this category. See Note 4A for details concerning these items. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position or fund balance that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The District has various items that qualify for reporting in this category. Property taxes reported as receivables in the statements of financial position before the period for which they were levied are deferred and recognized as an inflow of resources in the period that the amounts become available. This item is reported as deferred revenue in both

Building and improvements 15-30 years Other capital assets 5-15 years


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the governmental funds balance sheet and the statement of net position. The District also has items related to pensions reported in this category. See Note 4A for details concerning these items. Compensated Absences The general policy of the district does not allow for the accumulation of vacation days beyond year-end. The district permits the unlimited accumulation of unused sick leave days for all professional personnel. This sick leave is accrued when incurred in the government-wide financial statements of the district. A liability for sick leave is reported in the governmental funds only if amounts have matured, for example, as a result of employee retirements. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Public Employee Retirement Plan, Teacher Retirement Plan, and Teacher Legacy Pension Plan in the Tennessee Consolidated Retirement System (TCRS) and additions to/deductions from the plans’ fiduciary net position have been determined on the same basis as they are reported by the TCRS. For this purpose, benefits (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms of the Plans. Investments are reported at fair value. Long-term Liabilities In the district-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in governmental activities in the statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. With the adoption of GASB 65, bond issuance costs are expensed when incurred in both the district-wide and governmental fund statements.

In the fund financial statements, governmental fund types recognize bond premiums and discounts during the current period. The face amount of debt issued is reported as other financing sources along with bond premiums, 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. Fund Balances In the governmental fund financial statements, fund balances are classified as follows: Nonspendable fund balance This classification includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The “not in spendable form” criterion includes items that are not expected to be converted to cash, for example: inventories, prepaid amounts, and long term notes receivable. Restricted fund balance This classification includes amounts that are restricted for specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted with consent of resource providers.


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Committed fund balance This classification includes amounts that can only be used for the specific purposes determined by a formal action of the School System’s highest level of decision-making authority, the Board. Commitments may be changed or lifted only by the Board taking the same formal action that imposed the constraint originally (for example: resolution). Assigned fund balance This classification includes amounts intended to be used by the School Board for specific purposes that are neither restricted nor committed. The Board and its designees (of which there are none) have the authority to assign amounts to be used for specific purposes. Assigned amounts also include all residual amounts in governmental funds (except negative amounts) that are not classified as nonspendable, restricted, or committed. Unassigned fund balance This fund balance is the residual classification for all funds. In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance classifications, fund balance is depleted in the order of restricted, committed, assigned, and unassigned. In governmental funds, the District’s policy is to first apply the expenditure toward restricted fund balance and then to other, less-restrictive classifications – committed and then assigned fund balances before using unassigned fund balances. Net Position Flow Assumption Sometimes the District will fund outlays for a particular purpose from 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 financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the District’s policy to consider restricted net position to have been depleted before unrestricted net position is applied. On-Behalf Payments for Fringe Benefits The District receives on-behalf payments from the State of Tennessee to be used for postemployment health insurance benefits for employees not yet eligible for Medicare. Such payments are recorded as intergovernmental revenue and instruction expenses/expenditures in the GAAP-basis statements. For the year ended June 30, 2016, the State made contributions of $35,194.

E. Contingent Liabilities and Losses

Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal and state governments. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantors cannot be determined at this time although the District’s management expects such amounts, if any, to be immaterial.


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NOTE 2 – STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY Budgetary Information Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds, with the exception of items that do not involve the receipt or expenditure of cash, such as on-behalf payments made by the State for the District’s employees and commodities received and used in the cafeteria. A reconciliation to the statement of revenues, expenditures and changes in fund balance – governmental funds has been provided in the budgetary comparison statements. The Board of Education approves and appropriates the budgets annually. All annual appropriations lapse at fiscal year-end. As an extension of the formal budgetary process, the Board of Education may transfer or appropriate additional funds for expenditures not anticipated at the time of budget adoption. The District’s policy is to not allow expenditures to exceed budgetary amounts at the total function level without obtaining additional appropriation approval from the Board of Education. Line-item transfers within major categories are made upon recommendation of the Director of Schools and approval by the board.

NOTE 3 - DETAILED NOTES ON ALL FUNDS A. Deposits and Investments

Custodial credit risk-deposits. In the case of deposits, this is the risk that in the event of a bank failure, the school board’s deposits may not be returned to it. The school board has a policy of maintaining deposits only in institutions that either insure the deposits with FDIC insurance or pledge securities to secure the deposits. As of June 30, 2016, McKenzie Special School District had no deposits that were not insured or collateralized.

B. Receivables

Debt Service General Cafeteria Federal Projects TotalTaxes 528,888$ 790,883$ $ - $ - 1,319,771$ Due from other governments 10,152 178,400 24,362 130,760 343,674 Accounts - other 472 472

539,040$ 969,283$ 24,834$ 130,760$ 1,663,917$


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C. Capital Assets Capital assets as reported in the district-wide statement of net position consisted of the following: July 1, 2015 Additions Retirements June 30, 2016 Assets not being depreciated:

Land $ 412,477 $ $ $ 412,477 Construction in progress -

-

- -

Total assets not being depreciated 412,477 - - 412,477 Assets being depreciated: Buildings and improvements 17,485,287 - - 17,485,287

Other 1,094,503 - - 1,094,503

18,579,790 18,579,790

Accumulated depreciation: Buildings and improvements (10,797,053) (532,760) - (11,329,813) Other ( 846,726) ( 36,920) - (883,646) Total accumulated depreciation (11,643,779) (569,680) - (12,213,459) Total assets being depreciated 6,936,011 (569,680)

- 6,366,331

Total capital assets, net of Accumulated depreciation $ 7,348,488 $ (569,680) $ - $ 6,778,808

D. Long-term Debt

The McKenzie Special School District has executed notes payable for the construction or acquisition of School capital assets. It has been reported in the District’s district-wide financial statements as debt related to the capital assets reported. Debt outstanding at June 30, 2016, is as follows:

G.O. Bonds-Refunding 3.5 to 4% , maturity 4-1-2022 $4,420,000

Depreciation expense was charged to the following funds: Cafeteria Fund

Regular education Support Non instructional

$ 3,806 460,821 69,862 35,191

$ 569,680


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Activity related to long-term debt for the year ended June 30, 2016, is as follows:

Outstanding Outstanding Balance Balance Due Within July 1, 2015 Additions Retirements June 30, 2016 One Year General Obligation Refunding Bonds $ 5,010,000 $ $ (590,000) $ 4,420,000 $ 630,000

Debt service requirements on the above debt are as follows:

Year Ending June 30 Principal Interest

2017 $ 630,000 $ 176,800 2018 665,000 151,600

2019 715,000 125,000 2020 2021

760,000 800,000

96,400 66,000

2022 850,000 34,000 $4,420,000 $ 649,800

E. Interfund transfers

A transfer was made from the general purpose fund to the debt service fund for $150,000 for debt service.

NOTE 4 – OTHER INFORMATION

A. Pensions

General Information about the Public Employee Retirement Plan

Plan description. Employees of McKenzie Special School District are provided a defined benefit pension plan through the Public Employee Retirement Plan, an agent multiple-employer pension plan administered by the TCRS. The TCRS was created by state statute under Tennessee Code Annotated Title 8, Chapters 34-37. The TCRS Board of Trustees is responsible for the proper operation and administration of the TCRS. The Tennessee Treasury District, an agency in the legislative branch of state government, administers the plans of the TCRS. The TCRS issues a publically available financial report that can be obtained at www.treasury.tn.gov/tcrs.

Benefits provided. Tennessee Code Annotated Title 8, Chapters 34-37, establishes the benefit terms and can be amended only by the Tennessee General Assembly. The chief legislative body may adopt the benefit terms permitted by statute. Members are eligible to retire with an unreduced benefit at age 60 with 5 years of service credit or after 30 years of service credit regardless of age. Benefits are determined by a formula using the member’s highest five consecutive year average compensation and the member’s years of service credit. Reduced benefits for early retirement are available at age 55 and vested. Members vest with five years of service credit. Service related disability benefits are provided regardless of length of service. Five years of service is required for non-service related disability eligibility. The service related and non-service related disability benefits are determined in the same manner as a service retirement benefit but are reduced 10


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percent and include projected service credits. A variety of death benefits are available under various eligibility criteria.

Member and beneficiary annuitants are entitled to automatic cost of living adjustments (COLAs) after retirement. A COLA is granted each July for annuitants retired prior to the 2nd of July of the previous year. The COLA is based on the change in the consumer price index (CPI) during the prior calendar year, capped at 3 percent, and applied to the current benefit. No COLA is granted if the change in the CPI is less than one-half percent. A one percent COLA is granted if the CPI change is between one-half percent and one percent. A member who leaves employment may withdraw their employee contributions, plus any accumulated interest.

Employees covered by benefit terms. At the measurement date of June 30, 2015, the following employees were covered by the benefit terms:

Inactive employees or beneficiaries currently receiving benefits 16Inactive employees entitled to but not yet receiving benefits 32Active employees 33 81

Contributions. Contributions for employees are established in the statutes governing the TCRS and may only be changed by the Tennessee General Assembly. Employees contribute 5 percent of salary. McKenzie Special School District makes employer contributions at the rate set by the Board of Trustees as determined by an actuarial valuation. For the year ended June 30, 2015, employer contributions for McKenzie Special School District were $50,713 based on a rate of 6.68 percent of covered payroll. By law, employer contributions are required to be paid. The TCRS may intercept McKenzie Special School District’s state shared taxes if required employer contributions are not remitted. The employer’s actuarially determined contribution (ADC) and member contributions are expected to finance the costs of benefits earned by members during the year, the cost of administration, as well as an amortized portion of any unfunded liability.

Net Pension Liability (Asset)

McKenzie Special School District’s net pension liability (asset) was measured as of June 30, 2015, and the total pension liability (asset) used to calculate net pension liability (asset) was determined by an actuarial valuation as of that date.

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

Inflation 3.0 percent

Salary increases Graded salary ranges from 8.97 to 3.71 percent based on age, including inflation, averaging 4.25 percent

Investment rate of return 7.5 percent, net of pension plan investment expenses, including inflation

Cost-of-living adjustment 2.5 percent

Mortality rates were based on actual experience from the June 30, 2012, actuarial experience study adjusted for some of the expected future improvement in life expectancy.


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The actuarial assumptions used in the June 30, 2015, actuarial valuation were based on the results of an actuarial experience study performed for the period July 1, 2008, through June 30, 2012. The demographic assumptions were adjusted to more closely reflect actual and expected future experience.

The long-term expected rate of return on pension plan investments was established by the TCRS Board of Trustees in conjunction with the June 30, 2012, actuarial experience study by considering the following three techniques: (1) the 25-year historical return of the TCRS at June 30, 2012, (2) the historical market returns of asset classes from 1926 to 2012 using the TCRS investment policy asset allocation, and (3) capital market projections that were utilized as a building-block method, in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. Four sources of capital market projections were blended and utilized in the third technique. The blended capital market projection established the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding inflation of 3 percent. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Asset Class Long-Term Expected Real Rate of Return

Target Allocation

U.S. equity 6.46% 33% Developed market international equity 6.26% 17% Emerging market international equity 6.40% 5% Private equity and strategic lending 4.61% 8% U.S. fixed income 0.98% 29% Real estate 4.73% 7% Short-term securities 0.00% 1%

100%

The long-term expected rate of return on pension plan investments was established by the TCRS Board of Trustees as 7.5 percent based on a blending of the three factors described above.

Discount rate. The discount rate used to measure the total pension liability was 7.5 percent. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current rate and that contributions from McKenzie Special School District will be made at the actuarially determined contribution rate pursuant to an actuarial valuation in accordance with the funding policy of the TCRS Board of Trustees and as required to be paid by state statute. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make projected future benefit payments of current active and inactive members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.


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Changes in the Net Pension Liability (Asset) Increase (Decrease)

Total Pension Liability

Plan Fiduciary Net Position

Net Pension Liability (Asset)

(a) (b) (a) – (b)

Balance at 6/30/14 $ 1,907,184 $ 2,101,015 $ ($193,831)

Changes for the year:

Service cost 66,103 - 66,103

Interest 146,045 - 146,045

Differences between expected and actual experience (31,431) - (31,431)

Contributions-employer

50,713 (50,713)

Contributions-employees

- 37,959 (37,959)

Net investment income

- 65,245 (65,245)

Benefit payments, including refunds of employee contributions (52,035) (52,035) -

Administrative expense - (1,929) 1,929

Net changes 128,682 99,953 28,729

Balance at 6/30/15 $ 2,035,866 $ 2,200,968 $ (165,102)

Sensitivity of the net pension liability (asset) to changes in the discount rate. The following presents the net pension liability (asset) of McKenzie Special School District calculated using the discount rate of 7.5 percent, as well as what the net pension liability (asset) would be if it were calculated using a discount rate that is 1-percentage-point lower (6.5 percent) or 1-percentage-point higher (8.5 percent) than the current rate:

1% Decrease

(6.5%)

Current Discount Rate

(7.5%) 1% Increase

(8.5%) McKenzie Special School District’s net pension liability (asset) $ 111,020 $ (165,102) $ (393,209)


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Negative Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions

Negative pension expense. For the year ended June 30, 2016, McKenzie Special School District recognized negative pension expense of $15,558.

Deferred outflows of resources and deferred inflows of resources. For the year ended June 30, 2016, McKenzie Special School District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred

Outflows of Resources

Deferred Inflows of

Resources

Differences between expected and actual experience $ - $ 62,265

Net difference between projected and actual earnings on pension plan investments 74,906 98,596

Contributions subsequent to the measurement date of June 30, 2015 49,854 (not applicable)

Total $ 124,760 $ 160,861

The amount shown above for “Contributions subsequent to the measurement date of June 30, 2015” will be recognized as a reduction (increase) to net pension liability (asset) in the following measurement period.

Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Year Ending June 30: 2017 $(32,798) 2018 (32,798) 2019 (32,798) 2020 12,441 2021 -

In the table shown above, positive amounts will increase pension expense, while negative amounts will decrease pension expense. Payable to the Pension Plan

At June 30, 2016, McKenzie Special School District reported a payable of $12,448 for the outstanding amount of contributions to the pension plan required at the year ended June 30, 2016.


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General Information about the Teacher Legacy Pension Plan

Plan description. Teachers with membership in the Tennessee Consolidated Retirement System (TCRS) before July 1, 2014 of McKenzie City Schools are provided with pensions through the Teacher Legacy Pension Plan, a cost sharing multiple-employer pension plan administered by the TCRS. The Teacher Legacy Pension Plan closed to new membership on June 30, 2014, but will continue providing benefits to existing members and retirees. Beginning July 1, 2014, the Teacher Retirement Plan became effective for teachers employed by Local Education Agencies (LEAs) after June 30, 2014. The Teacher Retirement Plan is a separate cost-sharing, multiple-employer defined benefit plan. The TCRS was created by state statute under Tennessee Code Annotated Title 8, Chapters 34-37. The TCRS Board of Trustees is responsible for the proper operation and administration of all employer pension plans in the TCRS. The Tennessee Treasury District, an agency in the legislative branch of state government, administers the plans of the TCRS. The TCRS issues a publically available financial report that can be obtained at www.treasury.tn.gov/tcrs. Benefits provided. Tennessee Code Annotated Title 8, Chapters 34-37 establishes the benefit terms and can be amended only by the Tennessee General Assembly. Members of the Teacher Legacy Pension Plan are eligible to retire with an unreduced benefit at age 60 with 5 years of service credit or after 30 years of service credit regardless of age. Benefits are determined by a formula using the member’s highest five consecutive year average compensation and the member’s years of service credit. A reduced early retirement benefit is available at age 55 and vested. Members are vested with five years of service credit. Service related disability benefits are provided regardless of length of service. Five years of service is required for non-service related disability eligibility. The service related and non-service related disability benefits are determined in the same manner as a service retirement benefit but are reduced 10 percent and include projected service credits. A variety of death benefits are available under various eligibility criteria. Member and beneficiary annuitants are entitled to automatic cost of living adjustments (COLAs) after retirement. A COLA is granted each July for annuitants retired prior to the 2nd of July of the previous year. The COLA is based on the change in the consumer price index (CPI) during the prior calendar year, capped at 3 percent, and applied to the current benefit. No COLA is granted if the change in the CPI is less than one-half percent. A one percent COLA is granted if the CPI change is between one-half percent and one percent. A member who leaves employment may withdraw their employee contributions, plus any accumulated interest. Under the Teacher Legacy Pension Plan, benefit terms and conditions, including COLAs, can be adjusted on a prospective basis. Moreover, there are defined cost controls and unfunded liability controls that provide for the adjustment of benefit terms and conditions on an automatic basis. Contributions. Contributions for teachers are established in the statutes governing the TCRS and may only be changed by the Tennessee General Assembly. Teachers contribute 5 percent of salary. The Local Education Agencies (LEAs) make employer contributions at the rate set by the Board of Trustees as determined by an actuarial valuation. By law, employer contributions for the Teacher Legacy Pension Plan are required to be paid. The TCRS may intercept the state shared taxes of the sponsoring governmental entity of the LEA if the required employer contributions are not remitted. Employer contributions by McKenzie City Schools for the year ended June 30, 2016 to the Teacher Legacy Pension Plan were $431,772 which is 9.04 percent of covered payroll. The employer rate, when combined with member contributions, is expected to finance the costs of benefits earned by members during the year, the cost of administration, as well as an amortized portion of any unfunded liability.


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Pension Liabilities (Assets), Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions Pension liabilities (assets). At June 30, 2016, the McKenzie City Schools reported a liability of $54,750 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. McKenzie City Schools’ proportion of the net pension liability was based on McKenzie City Schools’ share of contributions to the pension plan relative to the contributions of all participating LEAs. At the measurement date of June 30, 2015, McKenzie City Schools’ proportion was 0.133656 percent. The proportion measured as of June 30, 2014 was 0.130546 percent.

Negative pension expense. For the year ended June 30, 2016, McKenzie City Schools recognized negative pension expense of $32,504.

Deferred outflows of resources and deferred inflows of resources. For the year ended June 30, 2016, McKenzie City Schools reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred

Outflows of Resources

Deferred Inflows of

Resources

Differences between expected and actual experience $ 43,939 $ 852,194

Net difference between projected and actual earnings on pension plan investments 988,616 1,342,100

Changes in proportion of net pension liability (asset) 68,594 -

LEA’s contributions subsequent to the measurement date of June 30, 2015 431,772 (not applicable)

Total $ 1,532,921 $ 2,194,294

McKenzie City Schools employer contributions of $431,772, reported as pension related deferred outflows of resources subsequent to the measurement date, will be recognized as an increase in net pension liability (asset) in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Year Ending June 30: 2017 $(348,145) 2018 (348,145) 2019 (348,145) 2020 99,222 2021 (147,932) Thereafter -


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In the table shown above, positive amounts will increase pension expense, while negative amounts will decrease pension expense.

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




Cost-of-living adjustment 2.5 percent Mortality rates were based on actual experience from the June 30, 2012, actuarial experience study adjusted for some of the expected future improvement in life expectancy.


The long-term expected rate of return on pension plan investments was established by the TCRS Board of Trustees in conjunction with the June 30, 2012, actuarial experience study by considering the following three techniques: (1) the 25-year historical return of the TCRS at June 30, 2012, (2) the historical market returns of asset classes from 1926 to 2012 using the TCRS investment policy asset allocation, and (3) capital market projections that were utilized as a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. Four sources of capital market projections were blended and utilized in the third technique. The blended capital market projection established the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding inflation of 3 percent. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:


Target Allocation


100%


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Discount rate. The discount rate used to measure the total pension liability was 7.5 percent. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current rate and that contributions from all LEA’s will be made at the actuarially determined contribution rate pursuant to an actuarial valuation in accordance with the funding policy of the TCRS Board of Trustees and as required to be paid by state statute. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make projected future benefit payments of current active and inactive members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

Sensitivity of the proportionate share of net pension liability (asset) to changes in the discount rate. The following presents McKenzie City Schools’ proportionate share of the net pension liability (asset) calculated using the discount rate of 7.5 percent, as well as what McKenzie City Schools’ proportionate share of the net pension liability (asset) would be if it were calculated using a discount rate that is 1-percentage-point lower (6.5 percent) or 1-percentage-point higher (8.5 percent) than the current rate:

1% Decrease

(6.5%)


(7.5%) 1% Increase

(8.5%) McKenzie City Schools’ proportionate share of the net pension liability (asset) $ 3,732,681 $ 54,750 $ (2,990,143)

Plan Fiduciary Net Position. Detailed information about the Plan's fiduciary net position is available in a separately issued TCRS financial report. Payable to the Pension Plan

At June 30, 2016, McKenzie City Schools reported a payable of $107,808 for the outstanding amount of contributions to the pension plan required at the year ended June 30, 2016. General Information about the Teacher Retirement Plan Plan description. Teachers with membership in the TCRS before July 1, 2014 of McKenzie City Schools are provided with pensions through the Teacher Retirement Plan, a cost sharing multiple-employer pension plan administered by the TCRS. The Teacher Legacy Pension Plan closed to new membership on June 30, 2014, but will continue providing benefits to existing members and retirees. Beginning July 1, 2014, the teacher Retirement Plan became effective for teachers employed by LEAs after June 30, 2014. The Teacher Retirement Plan is a separate cost-sharing, multiple-employer defined benefit plan. The TCRS was created by state statute under Tennessee Code Annotated Title 8, Chapters 34-37. The TCRS Board of Trustees is responsible for the proper operation and administration of all employer pension plans in the TCRS. The Tennessee Treasury District, an agency in the legislative branch of state government, administers the plans of the TCRS. The TCRS issues a publically available financial report that can be obtained at www.treasury.tn.gov/tcrs. Benefits provided. Tennessee Code Annotated Title 8, Chapters 34-37 establishes the benefit terms and can be amended only by the Tennessee General Assembly. Members of the Teacher


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Retirement Plan are eligible to retire with an unreduced benefit at age 65 with 5 years of service credit or pursuant to the rule of 90 in which the member’s age and service credit total 90. Benefits are determined by a formula using the member’s highest five consecutive year average compensation and the member’s years of service credit. A reduced early retirement benefit is available at age 60 and vested or pursuant to the rule of 80. Members are vested with five years of service credit. Service related disability benefits are provided regardless of length of service. Five years of service is required for non-service related disability eligibility. The service related and non-service related disability benefits are determined in the same manner as a service retirement benefit but are reduced 10 percent and include projected service credits. A variety of death benefits are available under various eligibility criteria. Member and beneficiary annuitants are entitled to automatic cost of living adjustments (COLAs) after retirement. A COLA is granted each July for annuitants retired prior to the 2nd of July of the previous year. The COLA is based on the change in the consumer price index (CPI) during the prior calendar year, capped at 3 percent, and applied to the current benefit. No COLA is granted if the change in the CPI is less than one-half percent. A one percent COLA is granted if the CPI change is between one-half percent and one percent. A member who leaves employment may withdraw their employee contributions, plus any accumulated interest. Under the Teacher Retirement Plan, benefit terms and conditions, including COLAs, can be adjusted on a prospective basis. Moreover, there are defined cost controls and unfunded liability controls that provide for the adjustment of benefit terms and conditions on an automatic basis. Contributions. Contributions for teachers are established in the statutes governing the TCRS and may only be changed by the Tennessee General Assembly or by automatic cost controls set out in law. Teachers contribute 5 percent of salary. The Local Education Agencies (LEAs) make employer contributions at the rate set by the Board of Trustees as determined by an actuarial valuation. Per the statutory provisions governing the TCRS, the employer contributions rate cannot be less than 4 percent, except in years when the maximum funded level, as established by the TCRS Board of Trustees, is reached. By law, employer contributions for the Teacher Retirement Plan are required to be paid. The TCRS may intercept the state shared taxes of the sponsoring governmental entity of the LEA if the required employer contributions are not remitted. Employer contributions by McKenzie City Schools for the year ended June 30, 2016 to the Teacher Retirement Plan were $20,786 which is 4.00 percent of covered payroll. The employer rate, when combined with member contributions, is expected to finance the costs of benefits earned by members during the year, the cost of administration, as well as an amortized portion of any unfunded liability. Pension Liabilities (Assets), Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions Pension liabilities (assets). At June 30, 2016, the McKenzie City Schools reported an asset of $2,163 for its proportionate share of the net pension asset. The net pension asset was measured as of June 30, 2015, and the total pension asset used to calculate the net pension asset was determined by an actuarial valuation as of that date. McKenzie City Schools’ proportion of the net pension asset was based on McKenzie City Schools’ share of contributions to the pension plan relative to the contributions of all participating LEAs. At the measurement date of June 30, 2015, McKenzie City Schools’ proportion was 0.053763 percent.

Pension expense. For the year ended June 30, 2016, McKenzie City Schools recognized pension expense of $2,835.


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Deferred outflows of resources and deferred inflows of resources. For the year ended June 30, 2016, McKenzie City Schools reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows of Resources

Deferred Inflows of

Resources

Differences between expected and actual experience $ - $ 704

Net difference between projected and actual earnings on pension plan investments 175 -

LEA’s contributions subsequent to the measurement date of June 30, 2015 20,786 (not applicable)

Total $ 20,961 $ 704

McKenzie City Schools employer contributions of $20,786, reported as pension related deferred outflows of resources subsequent to the measurement date, will be recognized as an increase in net pension liability (asset) in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Year Ending June 30: 2017 $(15) 2018 (15) 2019 (15) 2020 (15) 2021 (59) Thereafter (411)

In the table shown above, positive amounts will increase pension expense, while negative amounts will decrease pension expense.

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




Cost-of-living adjustment 2.5 percent


June 30, 2016

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Mortality rates were based on actual experience from the June 30, 2012, actuarial experience study adjusted for some of the expected future improvement in life expectancy.


The long-term expected rate of return on pension plan investments was established by the TCRS Board of Trustees in conjunction with the June 30, 2012, actuarial experience study by considering the following three techniques: (1) the 25-year historical return of the TCRS at June 30, 2012, (2) the historical market returns of asset classes from 1926 to 2012 using the TCRS investment policy asset allocation, and (3) capital market projections that were utilized as a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. Four sources of capital market projections were blended and utilized in the third technique. The blended capital market projection established the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding inflation of 3 percent. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:


Target Allocation


100%


Discount rate. The discount rate used to measure the total pension liability was 7.5 percent. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current rate and that contributions from all LEA’s will be made at the actuarially determined contribution rate pursuant to an actuarial valuation in accordance with the funding policy of the TCRS Board of Trustees and as required to be paid by state statute. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make projected future benefit payments of current active and inactive members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

Sensitivity of the proportionate share of net pension liability (asset) to changes in the discount rate. The following presents McKenzie City Schools’ proportionate share of the net pension liability (asset) calculated using the discount rate of 7.5 percent, as well as what McKenzie City Schools’ proportionate share of the net pension liability (asset) would be if it were calculated using a discount


June 30, 2016

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rate that is 1-percentage-point lower (6.5 percent) or 1-percentage-point higher (8.5 percent) than the current rate:

1% Decrease

(6.5%)


(7.5%) 1% Increase

(8.5%) McKenzie City Schools’ proportionate share of the net pension liability (asset) $ 384 $ (2,163) $ (4,030)

Plan Fiduciary Net Position. Detailed information about the Plan's fiduciary net position is available in a separately issued TCRS financial report. Payable to the Pension Plan

At June 30, 2016, McKenzie City Schools reported a payable of $5,190 for the outstanding amount of contributions to the pension plan required at the year ended June 30, 2016.

B. Other Postemployment Benefits (OPEB)

Plan Description

The district participates in the state-administered Local Education Group Insurance Plan for health care benefits. For accounting purposes, the plan is an agent multiple-employer defined benefit OPEB plan. Benefits are established and amended by an insurance committee created by Section 8-27-302, Tennessee Code Annotated, for local education employees. Prior to reaching age 65, all members have the option of choosing between the standard or partnership preferred provider organization plan for health care benefits. Subsequent to age 65, members who are also in the state’s retirement system may participate in a state administered Medicare Supplement Plan that does not include pharmacy. The plans are reported in the State of Tennessee Comprehensive Annual Financial Report (CAFR). The CAFR is available on the state’s website at http://tn.gov/finance/act/cafr.html.

Funding Policy

The premium requirements of plan members are established and may be amended by the insurance committee. The plan is self-insured and financed on a pay-as-you-go basis with the risk shared equally among the participants. Claims liabilities of the plan are periodically computed using actuarial and statistical techniques to establish premium rates. The employer in the plan develops its own contribution policy in terms of subsidizing active employees or retired employees’ premiums since the committee is not prescriptive on that issue. The state does provide a partial subsidy to Local Education Agency pre-65 teachers and a full subsidy based on years of service for post-65 teachers in the Medicare Supplement Plan. During the year ended June 30, 2016, the district contributed $57,678 for postemployment benefits.


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Annual OPEB Cost and Net OPEM Obligation

Local Education Group Plan ARC $ 74,000 Interest on the NOPEBO 9,643 Adjustment to the ARC (9,682) Annual OPEB cost $ 73,961 Less: Amount of contribution (57,678) Increase/decrease in NOPEBO $ 16,283 Net OPEB obligation, 7-1-15 257,138 Net OPEB obligation, 6-30-2016 $ 273,421

Percentage Fiscal Annual of Annual Net OPEB Year OPEB OPEB Cost Obligation

Ended Plan Cost Contributed at Year End 6-30-2013 Local Education Group $ 105,528 46% $ 248,189 6-30-2014 Local Education Group 57,256 98% 249,425 6-30-2015 Local Education Group 59,257 87% 257,138 6-30-2016 Local Education Group 73,961 78% 273,421

Funded Status and Funding Progress The funded status of the plan as of July 1, 2015, was as follows: Local Education Group Plan Actuarial valuation date 7-1-2015 Actuarial accrued liability (AAL) $ 708,000 Actuarial value of plan assets - Unfunded actuarial accrued liability (UAAL) $ 708,000 Actuarial value of assets as a % of the AAL 0% Covered payroll (active plan members) $ 6,792,719 UAAL as a % of covered payroll 10.42%

Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future, and actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The Schedule of Funding Progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether


June 30, 2016

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the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Actuarial Methods and Assumptions Calculations are based on the types of benefits provided under the terms of the substantive plan at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point. Actuarial calculations reflect a long-term perspective. Consistent with that perspective, actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. In the July 1, 2015, actuarial valuation for the Local Education Group Plan, the projected unit credit actuarial cost method was used and the actuarial assumptions included a 3.75 percent investment rate of return (net of administrative expenses) and an annual healthcare cost trend rate of 6 percent for fiscal year 2016. The trend will decrease to 5.75 percent in fiscal year 2017 and then be reduced by decrements to an ultimate rate of 4.675 percent by fiscal year 2044. The rate includes a 2.5 percent inflation assumption. The unfunded actuarial accrued liability is being amortized as a level percentage of payroll on a closed basis over a 30-year period beginning with July 1, 2007.

C. Contingencies The District participates in various federal and state grant programs, which are subject to program compliance audits pursuant to the Single Audit Act as amended. Accordingly, the District’s compliance with applicable grant requirements will be established at a future date. The amount of expenditures which may be disallowed by the grantors cannot be determined at this time, although the District’s management expects such amounts, if any, will be immaterial.

D. Risk Management

Employees of the district participate in the Local Education Group Insurance Fund (LEGIF), a public entity risk pool established to provide a program of health insurance coverage for employees of local education agencies. The LEGIF is included in the Comprehensive Annual Financial Report of the State of Tennessee, but the state does not retain any risk for losses by this fund. The creation of the LEGIF provides for it to be self-sustaining through member premiums.

The district participates in the Tennessee Risk Management Trust (TN-RMT), which is a public entity risk pool created under the auspices of the Tennessee Governmental Tort Liability Act to provide governmental insurance coverage. The district pays annual premiums to the TN-RMT for its general liability, property, casualty, and workers’ compensation insurance coverage. The creation of the TN-RMT provides for it to be self-sustaining through member premiums.

The District continues to carry commercial insurance for all other risks of loss. Settled claims from these losses have not exceeded commercial insurance coverage in any of the past three fiscal years.

E. On-Behalf Payments for Postretirement Insurance Benefits

The District recognizes as revenues and expenses contributions made by the State of Tennessee to the Teacher Group Plan and Medicare Plan on behalf of the District’s employees. For the year ended June 30, 2016, the State made contributions to the Teacher Group Plan of approximately $15,294 and to the Medicare Plan of approximately $19,900.

REQUIRED SUPPLEMENTARY INFORMATION SECTION

MCKENZIE SPECIAL SCHOOL DISTRICT REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF FUNDING PROGRESS For the Year Ended June 30, 2016

- 48 - See independent auditor’s report

Schedule of Funding Progress-Post Employment Healthcare Plan

(Dollar amount in thousands)

Actuarial Accrued Actuarial Liability (AAL) Unfunded UAAL as a Actuarial Value of Projected AAL Funded Covered Percentage of Valuation Assets Unit Credit (UAAL) Ratio Payroll Covered Payroll

Plan Date (a) (b) (b – a) (a/b) (c) ((b – a)/c) Local Education Group 7-1-10 $ 0 $ 763 $ 763 0% $ 3,572 21% Local Education Group 7-1-11 0 869 869 0% 5,665 15% Local Education Group 7-1-13 0 561 561 0% 5,712 10% Local Education Group 7-1-15 0 708 708 0% 6,793 10% The above schedule is designed to show the extent to which a post employment healthcare plan has been successful over time in setting aside assets sufficient to cover its actuarial accrued liability.

MCKENZIE SPECIAL SCHOOL DISTRICT BOARD OF EDUCATION REQUIRED SUPPLEMENTARY INFORMATION

PENSION SCHEDULES For the Year Ended June 30, 2016


Schedule of Changes in McKenzie Special School District’s Net Pension Liability (Asset) and Related Ratios Based on Participation in the Public Employee Pension Plan of TCRS

Fiscal Years Ending June 30 2014 2015 Total pension liability Service cost $ 62,743 $ 66,103 Interest 141,576 146,045 Changes in benefit terms - - Difference between actual and expected experience (61,868) (31,431) Change of assumptions - - Benefit payments, including refunds of employee contributions (120,400) (52,035) Net change in total pension liability (asset) 22,051 128,682 Total pension liability (asset) – beginning 1,885,133 1,907,184 Total pension liability (asset) – ending (a) 1,907,184 2,035,866 Plan fiduciary net position Contributions – employer 52,827 50,713 Contributions – employee 38,226 37,959 Net investment income 300,516 65,245 Benefit payments, including refunds of employee contributions (120,400) (52,035) Administrative expense (1,380) (1,929) Net change in plan fiduciary net position 269,789 99,953 Plan fiduciary net position – beginning 1,831,226 2,101,015 Plan fiduciary net position – ending (b) 2,101,015 2,200,968 Net pension liability (asset) – ending (a – b) $ (193,831) $ (165,102) Plan fiduciary net position as a percentage of total pension liability 110.16% 108.11% Covered payroll $ 764,510 $ 759,181 Net pension liability (asset) as a percentage of covered-employee payroll (25.35)% (21.75)% This is a 10-year schedule; however, the information in this schedule is not required to be presented retroactively. Years will added to this schedule in future fiscal years until 10 years of information is available.




Schedule of Changes in McKenzie Special School District’s Contributions Based on Participation in the

Public Employee Pension Plan of TCRS Fiscal Years Ending June 30

2014 2015 2016

Actuarially determined contributions $ 52,827 $ 50,713 $ 49,854 Contributions in relation to the actuarially determined contribution 52,827 50,713 49,854 Contribution deficiency (excess) $ - $ - $ -

Covered payroll $ 764,510 $ 759,181 $ 746,317

Contributions as a percentage of covered payroll 6.91% 6.68% 6.68%

This is a 10-year schedule; however, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10 years of information is available. Notes to Schedule Valuation date: Actuarially determined contribution rates for 2016 were calculated based on the July 1, 2013 actuarial valuation.

Methods and assumptions used to determine contribution rates:

Actuarial cost method Frozen initial liability

Amortization method Level dollar, closed (not to exceed 20 years)

Remaining amortization period 2 years

Asset valuation 10-year smoothed within a 20 percent corridor to market value


Salary increases Graded salary ranges from 8.97 to 3.71 percent based on age, including inflation

Investment Rate of Return 7.5 percent, net of investment expense, including inflation

Retirement age Pattern of retirement determined by experience study

Mortality Customized table based on actual experience including an adjustment for some anticipated improvement

Cost of Living Adjustments 2.5 percent




Schedule of McKenzie City Schools’ Proportionate Share of the Net Pension Liability (Asset)

Teacher Legacy Pension Plan of TCRS Fiscal Years Ending June 30*

2015 2016

McKenzie City Schools’ proportion of the net pension liability (asset) 0.130546% 0.133656% McKenzie City Schools’ proportionate share of the net pension liability (asset) $ (21,213) $ 54,750 McKenzie City Schools’ covered payroll $ 5,123,907 $ 5,003,424 McKenzie City Schools’ proportionate share of the net pension liability (asset) as a percentage of its covered payroll (0.414002)% 1.094254% Plan fiduciary net position as a percentage of the total pension liability 100.08% 99.81%

*The amounts presented were determined as of June 30 of the prior fiscal year. This is a 10-year schedule. However, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10 years of information is available.

Schedule of McKenzie City Schools’ Contributions

Teacher Legacy Pension Plan of TCRS Fiscal Year Ending June 30

2014 2015 2016

Contractually required $ 455,003 $ 452,309 $ 431,772

Contribution in relation to the contractually required contribution 455,003 452,309 431,772 Contribution deficiency (excess) $ - $ - $ -

McKenzie City Schools’ covered payroll $ 5,123,907 $ 5,003,424 $ 4,776,239

Contributions as a percentage of McKenzie Special School District’s covered-employee payroll 8.88% 9.04% 9.04% This is a 10-year schedule. However, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10 years of information is available.




Schedule of McKenzie City Schools’ Proportionate Share of the Net Pension Liability (Asset)

Teacher Retirement Plan of TCRS Fiscal Years Ending June 30*

2016 McKenzie City Schools’ proportion of the net pension liability (asset) 0.053763%

McKenzie City Schools’ proportionate share of the net pension liability (asset)

$ (2,163)

McKenzie City Schools’ covered payroll $ 111,706

McKenzie City Schools’ proportionate share of the net pension liability (asset) as a percentage of its covered payroll (1.94)%

Plan fiduciary net position as a percentage of the total pension liability 127.46%

*The amounts presented were determined as of June 30 of the prior fiscal year. This is a 10-year schedule. However, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10 years of information is available.

Schedule of McKenzie City Schools’ Contributions

Teacher Retirement Plan of TCRS Fiscal Year Ending June 30,

2015 2016

Contractually required $ 2,793 $ 20,786

Contribution in relation to the contractually required contribution 4,468 20,786

Contribution deficiency (excess) $ (1,676) $ -

McKenzie City Schools’ covered payroll $ 111,706 $ 519,650

Contributions as a percentage of McKenzie Special School District’s covered-employee payroll 4.00% 4.00%

This is a 10-year schedule. However, the information in this schedule is not required to be presented retroactively. Years will be added to this schedule in future fiscal years until 10 years of information is available.

SUPPLEMENTARY AND OTHER INFORMATION SECTION

Federal Grantor/Pass-through Grantor CFDAFederal Awards Number Expenditures

U.S. Department of AgriculturePass-through Tennessee Department of Agriculture

National School Breakfast Program 10.553 * 172,112

National School Lunch Program 10.555 * 405,496

AtRisk Snacks (supplements) 10.555 * 19,858

National School Lunch Program - Commodities Rebate 10.555 * 2,428

National School Lunch Program - Commodities 10.555 * 47,751

(Note: Noncash Assistance)

Total Child Nutrition Cluster 647,645

State Administrative Expenses for Child Nutrition 10.560 1,350

Total Pass-through Tennessee Department of Agriculture 648,995

Total U.S. Department of Agriculture 648,995

U.S. Department of EducationPass-through Tennessee Department of Education

Title I, Grants to Local Education Agencies 84.010 249,026$

Special Education Grants to StatesIDEA Part B 84.027 351,944 IDEA High Cost 84.027 11,019 IDEA Preschool 84.173 18,956

Total Special Education Grants to States (IDEA) Cluster 381,919

Career Basic and Technical Education Grants to States and 84.048 21,335 Communities (Carl Perkins)

Title VI, Rural and Low Income Schools 84.358 19,434

Title II, Part A, Training - Improving Teacher Quality 84.367 38,356 Total Pass-through Tennessee Department of Education 710,070

Total U.S. Department of Education 710,070

Total Federal Awards 1,359,065$

* indicates major program

Basis of Presentation:The accompanying Schedule of Expenditures of Federal Awards summarizes the expenditures ofMcKenzie Special School District under programs of the federal and state governments for the yearended June 30, 2016. The schedule is presented using the modified accrual basis of accounting.

MCKENZIE SPECIAL SCHOOL DISTRICTSCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


See independent auditor's report- 53 -

MCKENZIE SPECIAL SCHOOL DISTRICTSCHEDULE OF STATE FINANCIAL ASSISTANCE


ExpendituresBasic Education Program (BEP) State of Tennessee

Department of Education 6,932,968$ Early Childhood - Pre K State of Tennessee

Department of Education 103,518

Driver Education State of TennesseeDepartment of Education 7,250

ACT/Explore Testing State of Tennessee Department of Education 4,796

Internet ConnectTN State of Tennessee


Career Ladder/CEO Supplement State of Tennessee


Total state financial assistance 7,091,762$

Basis of Presentation:

The accompanying Schedule of State Financial Assistance summarizes the expenditures of

McKenzie Special School District under programs of the state government for the year ended

June 30, 2016. The schedule is presented using the modified accrual basis of accounting.


Transfer from General Purpose Fund 150,000$

MCKENZIE SPECIAL SCHOOL DISTRICTSCHEDULE OF TRANSFERS


Debt Service Fund


Year Ended Bonds - Series 2013

June 30, Principal Interest

2017 630,000$ 176,800$

2018 665,000 151,600

2019 715,000 125,000

2020 760,000 96,400

2021 800,000 66,000

2022 850,000 34,000

4,420,000$ 649,800$

MCKENZIE SPECIAL SCHOOL DISTRICTSCHEDULE OF FUTURE DEBT SERVICE REQUIREMENTS




REVENUESTaxes

Property taxes 574,652$ 565,016$ 562,696$ (2,320)$

EXPENDITURESEducation debt service: Principal on bonds 590,000 590,000 590,000 - Interest on bonds 200,400 200,400 200,400 - Trustee's commission 12,818 12,818 11,137 (1,681) Other charges 1,000 1,000 501 (499)


Revenue over ( under) expenditures (229,566) (239,202) (239,342) (140)

Other financing sources (uses)

Transfers in 150,000 150,000 150,000 -

Net change in fund balance (79,566) (89,202) (89,342) (140)

Fund balance - July 1, 2015 870,540 870,540 870,540 -

Fund balance - June 30, 2016 790,974$ 781,338$ 781,198$ (140)$



DEBT SERVICE FUND



Salary Bond

Director of Schools 88,253$ 283,150$

All other employees of the school district are covered by a fidelity bond

of $150,000 for each occurrence.

MCKENZIE SPECIAL SCHOOL DISTRICTSCHEDULE OF SALARIES AND BONDS OF PRINCIPAL OFFICIALS

June 30, 2016


INTERNAL CONTROL AND COMPLIANCE SECTION

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

Board of Education McKenzie Special School District Dyersburg, Tennessee We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities and each major fund of the McKenzie Special School District Board of Education as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the McKenzie Special School District Board of Education’s district-wide financial statements, and have issued our report thereon dated September 25, 2017. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered McKenzie Special School District Board of Education’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Board’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Board’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 a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies, and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether the McKenzie Special School District Board of Education’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements,

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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.

Alexander Thompson Arnold PLLC

Dyersburg, Tennessee September 25, 2017

Independent Auditor’s Report on Compliance for Each Major

Federal Program and Report on Internal Control over Compliance Required By the Uniform Guidance

Board of Education McKenzie Special School District McKenzie, Tennessee Report on Compliance for Each Major Federal Program We have audited the McKenzie Special School District Board of Education’s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Board’s major federal programs for the year ended June 30, 2016. The McKenzie Special School District of Education's major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility

Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor’s Responsibility

Our responsibility is to express an opinion on compliance for each of McKenzie Special School District Board of Education’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U. S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about McKenzie Special School District Board of Education's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination on the Board's compliance. Opinion on Each Major Federal Program

In our opinion, McKenzie Special School District Board of Education complied, in all material respects, with the 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, 2016. Report on Internal Control over Compliance Management of McKenzie Special School District Board of Education is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements

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referred to above. In planning and performing our audit of compliance, we considered McKenzie Special School District Board of Education’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of McKenzie Special School District Board of Education’s internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

Alexander Thompson Arnold PLLC

Dyersburg, Tennessee September 25, 2017

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SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended June 30, 2016

Section I – Summary of Auditor’s Results Financial Statements Type of auditor’s report issued: unmodified Internal control over financial reporting: material weakness(es) identified? yes X no significant deficiency(ies) identified? yes X none reported noncompliance material to financial statements noted? yes X no

Federal Awards Internal control over major programs: material weakness(es) identified? yes X no significant deficiency(ies) identified? yes X none reported 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 section 510(a) of OMB Circular A-133? yes X no Identification of major programs: Program Name CFDA No. Title I, Grants to Local Education Agencies 84.010 Special Education Grants to States Cluster: IDEA Program 84.027 Preschool Program 84.173 Dollar threshold used to distinguish between type A and type B programs: $300,000 Auditee qualified as low-risk auditee? X yes no

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MCKENZIE SPECIAL SCHOOL DISTRICT SCHEDULE OF FINDINGS AND QUESTIONED COSTS


Section II – Financial Statement Findings

There were no findings reported in the current or prior year.

Section III – Federal Award Findings and Questioned Costs There were no findings required to be reported by Uniform Guidance in the current or prior year.

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