DETROIT PUBLIC SCHOOLS DETROIT, MICHIGAN Comprehensive Annual Financial Report June 30, 2007 (With Independent Auditors’ Report Thereon) DETROIT PUBLIC SCHOOLS DETROIT, MICHIGAN Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2007 Prepared by: Detroit Public Schools Division of Financial Services Published November 20, 2007 DETROIT PUBLIC SCHOOLS Table of Contents Page(s) Introductory Section Letter of Transmittal i Organizational Chart xvii List of Appointed Officials xviii ASBO Certificate of Excellence in Financial Reporting xix Certificate of Achievement for Excellence in Financial Reporting xx Financial Section Independent Auditors’ Report 1 – 2 Management’s Discussion and Analysis 3 – 16 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets 17 Statement of Activities 18 Fund Financial Statements: Governmental Funds: Balance Sheet 19 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets 20 Statement of Revenue, Expenditures, and Changes in Fund Balances 21 Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances (Deficit) of Governmental Funds to the Statement of Activities 22 Fiduciary Funds: Statement of Fiduciary Net Assets 23 Statement of Changes in Fiduciary Net Assets 24 DETROIT PUBLIC SCHOOLS Table of Contents (Continued) Page(s) Notes to Basic Financial Statements 25 – 47 Required Supplementary Information Budgetary Comparison Schedule – General Fund 49 – 52 Notes to Required Supplementary Information 53 Other Supplemental Information Nonmajor Governmental Funds: Combining Balance Sheet 55 – 56 Combining Statement of Revenue, Expenditures, and Changes in Fund Balances 57 – 58 Agency Funds: Statement of Changes in Assets and Liabilities – Agency Fund 59 Budgetary Comparison Schedule General Fund: General Purpose 60 – 63 Designated Special Purpose Grants 64 – 67 Athletics Fund 68 Food Service Fund 69 Bond Redemption Fund 70 Judgment Levy Fund 71 Durant Bond 72 1986 Site Improvement Bond 73 Capital Assets Information Schedule of General Capital Assets by Function and Activity 75 – 76 Schedule of Changes in General Capital Assets by Function and Activity 77 – 78 DETROIT PUBLIC SCHOOLS Table of Contents (Continued) Page(s) Debt Information Schedule of Bonded Indebtedness 79 – 82 Schedule of Bond Principal and Interest 84 – 93 Statistical and Other Information Section (Unaudited) Financial Trends: Net Assets by Component 95 Statement of Activities 96 General Revenues and Total Changes in Net Assets 97 Fund Balances, Governmental Funds 98 – 99 Ten-Year Summary of Governmental Funds Revenues and Expenditures 100 – 101 Ten-Year Comparison of Unreserved General Fund Balance (Deficit) to Expenditures and Other Uses 102 Revenue Capacity Summary of Property Tax Data 104 – 105 Assessed Value and Estimated Actual Value of Taxable Property 106 Assessed Valuation Data 107 Direct and Overlapping Property Tax Rates 108 Principal Property Tax Payers – Current Year and Nine Years Ago 109 Property Tax Levies and Collections 110 Debt Capacity Outstanding Debt by Type 112 – 113 Direct and Overlapping Governmental Activities Debt 114 Schedule of Legal Debt Margin Information 115 Legal Debt Margin Calculation 116 – 117 Pledged Revenue Coverage 118 DETROIT PUBLIC SCHOOLS Table of Contents (Continued) Page(s) Ten-Year Comparison of Bonded Debt to State Equalized Valuation/Taxable Value and Population 119 Percentage of Debt Service to Noncapital Expenditures – Last Ten Fiscal Years 120 Demographic and Economic Information Demographic and Economic Statistics 121 Principal Employers, Current Year and Nine Years Ago 122 Operating Information Operating Statistics 124 – 125 Summary of Building and Sites 126 – 156 Schedule of Major Insurance Coverage 158 – 159 Graduation Information 160 School Lunch Program 162 – 163 Pupil Transportation Data 164 Federal Awards Supplemental Information Issued under separate cover INTRODUCTORY SECTION December 17, 2007 Citizens and Board of Education Detroit Public Schools Detroit, Michigan Ladies and Gentlemen: We are hereby submitting the Comprehensive Annual Financial Report (CAFR) of the Detroit Public Schools (the School District) for the fiscal year (FY) ended June 30, 2007. State and federal statutes require that the School District issue annual financial reports and that such reports be audited by an independent firm of certified public accountants. Pursuant to that requirement, we hereby issue the CAFR and all appropriate disclosures for the FY ended June 30, 2007 in an effort to provide all interested parties information on the financial condition of Detroit Public Schools. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the Division of Finance of the Detroit Public Schools. To provide a reasonable basis for making these representations, management of the Detroit Public Schools has established a comprehensive internal control framework that is designed both to protect the Detroit Public Schools’ assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the School District’s financial statements in conformity with U.S. generally accepted accounting principles (GAAP). As the cost of internal controls should not outweigh their benefits, the Detroit Public Schools’ comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and results of all operations of the various government-wide and governmental funds of the School District. All disclosures necessary to enable the reader to gain an understanding of the Detroit Public Schools’ financial activities have been included. The School District’s financial statements have been audited by KPMG LLP, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the School District for the FY ended June 30, 2007 are free of material misstatement. The independent audit consisted of reviewing, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion, suggesting that the School District’s financial statements for the FY ended June 30, 2007 are fairly presented in conformity with GAAP. In addition, in accordance with Government Auditing Standards, the School District issued the federally mandated single audit, designed to meet the special needs of federal grantor agencies. The standards governing single audit engagements require the independent auditor to report on both the fair presentation of the financial statements and on the School District’s internal controls and compliance with legal i requirements, especially concerning the administration of federal awards. This report is available separately in the report on federal awards issued by the School District. Reporting Entity and Organization The Detroit Public Schools is an independent reporting entity that follows the criteria established by the Governmental Accounting Standards Board. All funds of the School District are included in this report. Budgetary Controls The adopted annual budget serves as the foundation for the School District’s financial planning and control. Enrollment projections that drive staffing and expenditure allocations for local schools are developed in February. Also in February, central office managers are given a preliminary budget, based on current activities in order to begin the Zero Based Budgeting (ZBB) process. Both the allocations and preliminary budgets are used as the starting point for budget development. A proposed budget prepared by the schools and central office department heads approved by the budget department is presented to the General Superintendent and his/her Cabinet for review. After review by the General Superintendent and Cabinet, the proposed budget is reviewed by the Board of Education Finance, Budget and Title I Committee, after review is completed, and approved, the proposed budget is displayed for three days in June for public viewing, after which a public hearing is held in late June. The budget is then adopted by the Board of Education on July 1st of each year. The budget presentation and the adopted budget are then posted to the School District’s Web site along with updates at various times throughout the year to provide public access and viewing. Management is responsible for maintaining budgetary controls to ensure that budgets are in compliance with the legal provisions of the State of Michigan Uniform Budgeting and Accounting Act, and within the annual appropriations adopted by the General Superintendent. Detailed line item budgetary reports are provided to the appropriate managers, who have been delegated the responsibility for monitoring and controlling their respective budget allocations. The School District’s financial accounting system allows budget managers online access to their budget, expenditure,