001Good evening and welcome to the St. Frank Valley Schools Board of Education study session Sarah would you call roll Absent mr. Brinkwell, right. This is Gilligan Mrs. Horanek here. Mr. Lechuga here. This is right here. This is wise here Thank you and welcome Tony we have our fiscal year 2025 annual comprehensive financial Thank you. Good evening president Raglan superintendent Capuchin and members of the board as you know Jean Frederick our comptroller along with her top-tier accounting team in the district's financial services department prepares the annual comprehensive financial report or AK for Which is a retrospective document that provides an in-depth and provides in-depth information about the overall Financial condition of st. Frank Valley schools for the previous fiscal year, which ended June 30th, 2025 Jane and her team have done extensive work to ensure the
002accuracy completeness and quality of this document and have facilitated a Tremendous amount of collaboration between members of finance Personnel from other departments our charter schools and our external auditors It is the single largest work product of the financial services department each year and represents a substantial effort from dozens of people I want to ensure I recognize and thank Jane and the others for those efforts and also acknowledge the two awards that Jane and her Team have earned in the preparation of previous actors and presumably that she'll earn from this one as well One from the governmental financial officers association or GFO a and the other from the International Association of school business officials or ASBO These two awards set a high bar for the preparation and presentation of content of the aqua and Jane and
003her team have Repeatedly met and exceeded this high bar and that accomplishment has now been consistently recognized by these two separate external organizations for 21 straight years now Tonight we have the pleasure of presenting a mostly complete draft of the aqua to this board and go through a few highlights and answer Any questions we anticipate the final issue report will be brought to the board at the first regular board meeting in November once a few Final touches are incorporated into the document and final reviews are completed separately this board engages an external auditor to review the information that is reported in our aqua and to perform some additional review of our financial transactions processes and internal controls Accordingly our auditors Excuse me our auditor Paul of neither middle neither most excuse me neither more can
004you say it neither Mueller neither Mueller? Thank you. It's got a great last name. I'm still working on it. Sorry Paul From Clifton Larson Allen or CLA are present tonight to provide his report to our board and all of us are happy to answer your Questions tonight finally we did get the opportunity to provide this draft and CLA did provide their report To our finance and audit committee on this past Monday, and we'd like to thank FAC for their engagement input and oversight Before I pass this on I just wanted to acknowledge I had some pre-written comments obviously and I also wanted to make sure I warned you that I was going to just do the same at the Public meeting a little later on at 6 p.m. So if it sounds repetitive it exactly
005is just it just helps me make sure I'm touching on all the points Acknowledging all the right people and being efficient with your time as well. So Anyway, now I'd like to introduce Jane Frederick our comptroller just to say a few comments And then she will turn the remainder of our time over to CLA for their report. Thank you The button person isn't here. You're the podium. Hi. Good evening. My name is Jane Frederick as Tony said Thank you for that. No, that's fine President Ragland Superintendent Capuchin and members of the board. It's a pleasure and delight to be here truly and As Tony said it is quite an accomplishment Not on any single person or a single department It takes the effort of many and I've said that every time I've had the opportunity
006to say so so it is my pleasure Before I say so I just want to give a shout out to the accounting and reporting team in particular That's the division. I have the honor of Being part of and they put in lots of time and effort and I have to give a special shout out Shout out shouts out to Mimi living more who oversees the component unit or the charter school piece of this document and to Kirk young men who has overseen various components as well, but we also have other members that Lauren and Janice and Stacey that I also want to acknowledge because without them we can do this as timely as we do So it is my pleasure to turn this over to Paul Nina Mueller our auditor from Clifton Larson Allen and
007He will give his report to you at this time. Thank you Well, thank you Jane and thank you for the opportunity to present the annual comprehensive financial report Unfortunately, our pieces so small in this document are our pieces as mentioned with with Tony's Opening comments is is reviewing the information is provided in all material respects and we take that job very seriously We evaluate your those internal controls that put forth and the team behind the report to make sure that you're providing the public with material representation of the school district and so on along those lines we kind of Call out some certain things and communications with Board of Governance Before I get into maybe those specific items I didn't want to just kind of give you a background of where we're at in the
008process And so we are still going through our review for those have been through an audit before it's never over until it's over And so we're still evaluating things. We do not anticipate any significant changes, but there were Reviews that Neil still need to be done and the one that is still outstanding is our concurring partner review So we've gotten through improvement engagement team, but we will get through that by this week and then into next week We will be set to issue the final report in terms of the single audit the single audit for those are not familiar with that Type is the federal piece of the audit. So as a recipient of more than seven hundred fifty thousand dollars You're required to undergo a more comprehensive audit Determining how you spent your federal
009monies in determination with the Office of Management and Budget So since Office of Management and Budget is the one that we rely on in terms of if you have provided that information and spent them appropriately That report is not out and what the government shut down We don't know have a timeline in terms of what that information will become available Typically it is in May of each year. So it's significantly delayed And so we will not be able to issue the single audit until that report is delivered So when we come back or when the report comes back to the board is highly likely that it will just include the financial statements It will not include the report over the federal funds So that's kind of catching you up. You know, we had a lot
010of back and forth. We were from May all the way to now That's kind of the rundown the cliff notes of what's happened over the last six months before I get into maybe more specifics Is there any questions on the timeline or kind of where we are at with the audit process today? Also, if I just reiterate the comment about the single audit, that's something that's doesn't just affect us doesn't just affect Colorado It affects the nation because that is a federal document that they need to provide in order for our auditors to complete that So that's nothing I think that reflects on the operation of the school district or anything like that It's just a tiny impact from the shutdown and some other things And well said. And there is precedent for this. This
011happened back in 20 and 21 as a result of the COVID funding And making sure that the government understood the compliance that was required to conform with those funds And so it took longer to do that. This at this time, there's no real there is a draft that has been out there for three months But it has not been finalized by the Office of Management, but you're in the same boat as everybody else A couple of things that we talked with the FAC that I want to also bring to your attention is we are considered the group auditor And so what that means is we take responsibility for the entire financial statements and we work with other auditors to conform that presentation Part of being the group auditor, we must communicate to those other audit
012firms that we're going to be referring to their work as a result of our reporting And so all of their communications goes directly to the group auditor and any information that we have or questions that we have We go directly to those component auditors to make sure they comply with generally accepted auditing standards One of the things that came to light during our review process when we were evaluating the competencies of the firm, of the firms that are engaged with the component audits Is one firm failed peer review and so by failing peer review, which that means is every three years you're required to have a peer review Or someone else evaluate your quality of work to make sure it conforms with the professional standards And there's three levels of deficiencies or three levels of
013grades per cent, where the school district grades make sense, right? Pass, pass with deficiencies or fail, so fail is the most significant item So we discussed this with management, we discussed this with the component auditors, we discussed this with the charters And we were going to refer to the audit firm but we were going to have to require us to review to make sure it conforms with the professional standards We have not been able to opine on that yet and we have gone back and forth several times And we're a little bit delayed from the other auditor, we've asked them to do additional work, we've asked them to conform with what we believe to be requirements of the standards So I just also wanted to bring that to your attention, we will be providing comments
014in our governance communication about the quality of the component audits That's a requirement of the audit standards and we're going to say that we have significant concerns over the quality of the component audits Not only from the peer review but our review itself, so I just wanted to bring that to your attention and open for any questions because I know that's a very serious matter Can you clarify, these are audits that come from our charter schools and they independently select, or do they independently select their auditor? That's correct, they have the full autonomy to select their own auditor But because, as Paul mentioned, the auditors have to rely on the work of the charter school auditors, CLA needs some assurances that those audits have integrity And there's some evidence that they needed some additional oversight
015here on these particular audits for these two charter schools I also want to be very clear that this isn't something that the charter school did wrong It doesn't reflect poorly on them, their choices, or anything that they've done specifically They're sort of a victim of the thing that happened with their auditor I also want to be clear that this auditor has previously performed audits in prior years So this is a new status that occurred for this auditor this year that CLA detects and is a matter that we need to address Okay, thank you So that process is continuing, or is ongoing In terms of evaluation of internal controls, we did not bring the following comment up to the FAC as we're continuing to evaluate audit evidence So we're bringing this up to you tonight because
016we just had conversations with the district We are going to be issuing one management letter comment, which is referred to as almost a best practice With the intent or the increase in capital additions and capital outlay in the funds related to the bond program There were some numbers where we weren't able to reconcile the additions versus what was booked as capital outlet The amount was not significant or material, but we believe with the uptick in spending in subsequent periods That the control needs to be evaluated and conform with the uptick in that activity So we will be addressing that in our written comments to have more oversight and more controls surrounding the Where you go from capital outlay in your modified accrual statements to what was actually capitalized and depreciated under your capital additions So
017I just wanted to bring that to your attention and that will be a comment that we will address the management And we will follow back up with the board next year to make sure that that has been rectified to our satisfaction Tony, can you give more context on that? I just want to be clear that this doesn't impact a misappropriation of funds or inappropriate expenditures It doesn't reflect anything like that What it reflects is how the capital assets as we expend those dollars are reported on our financial statements As you know, there's something called depreciation, right? When we capitalize certain items, instead of expensing that entirety in one particular year, we'll spread that expense over multiple years And so there's some work that has to be done with regard to when we spend that money,
018pay the contractor, track the purchase Or the construction that's being done and report that in our finances There's some work that needs to be done where it's reconciled with the amount that we spend and how much is reported in the overarching capitalized expenses And so when they look at those two schedules, the amount that we spent and went out the door with regard to what was sent to our contractors or any vendors And they look at the amount that we actually added to our capitalization records, those two are a little bit out of whack, just a little bit And so we're going to tighten up that process and make sure that those two numbers reconcile very tightly and that there's no concerns from our auditors in the future But again, it does not represent any
019kind of potential for fraud or embezzlement or loss of money We still know where it all is and where it's all going. It's a matter of how it's being presented in our financials with regard to how much went out the door Thank you So that will be an item that we will bring to your attention, written comment again, not a significant deficiency, not a material weakness I think we've gone over kind of the definitions, but there's three buckets, I guess there's three of everything in Auditor So material weakness would be something that, you know, this, if you don't have a control, absolutely control or the control failed, caused a material misstatement of your financial statements The second bucket is a significant deficiency, which is something that is not, again, material, but could in the future
020lead to a material weakness, but it warrants the attention of governance This last bucket is management letter comment, which is something more of a best practice or something that you need to kind of tighten the controls because there could be a propensity to have a higher risk in the future And so, I mean, those are the best ways I can describe those comments, and so this is the least severe, but here's what happens on the least severe Sometimes they can become more severe, so this is why it's really important to come back to next year to say what has been done, what has been addressed, and to make sure that that has been identified, resolved, and we'll come back and let you know the process of that I shared a couple comments with the FAC
021in terms of our opinion, so again, it's not over until it's over. What we do to anticipate an issue, an unmodified opinion in all material respects over the district as a whole, that is a clean opinion, that is the best opinion you can receive We did not have any disagreements with management. In fact, it was the opposite. Management provided us all the information we requested and was able to provide the information to support the financials as presented. We had that one past adjustment that we talked about, and we call it a past adjustment because the reconciliation didn't happen, and it's over that threshold of what we call clearly trivial, so it wasn't insignificant on the capital assets versus the capital additions And then the final thing that we brought to the attention is kind of
022a comment in terms of your fund balance, and this is definitely not the CFO, but we work with a lot of school districts, and there is caution ahead at the state level and the federal level surrounding this. This is the first time that I've, since we've been working with the district where you've gone in a deficit position in your fund balance, and it was only at $5 million, and you still have significant reserves, but it's just something to make sure you're always looking at right-sizing the organization, and that trend can continue in perpetuity. And so I just keep caution in terms of deficit spending and making sure you have a forward-looking plan, which, again, not questioning anything there. I would put your fund balance up against any school district in the state, but it's something
023that you just want to have a keen eye on as you move forward. I'm going to add some color commentary to that. So this is a reinforcement of the same thing that I've been speaking with the board about on a consistent basis, and that is the fact that we do see and have seen for a while and continue to see some softening of our revenue prospects down the road. We want to make sure that we are being disciplined and tighten our belt accordingly. Now, we are well positioned to weather volatility and the troughs of revenue volatility based on our fund balance. Use of fund balance is on purpose. That's what it's there for, and that's what it's designed to do, and so this was on purpose. But what we want to make sure is that
024we don't continue to exacerbate the rate of spend down of fund balance. It's okay to go down a little bit, especially when we do have a healthy reserve, but we don't want that to continue to accelerate. Based on our operations budget for the current year, we do anticipate to spend our fund balance down again. So you might hear another comment like that. It is on purpose. It is to facilitate our healthy compensation increases in anticipation of softening revenues. But what we want to make sure is that that curve, that acceleration of use of fund balance flattens out, and eventually we arrive at a mostly neutral budget of revenues matching expenses. Now, recall that when we talk about our budget, we usually do have a spend down built into that budget that we then outperform. What
025we want to make sure is that outperformance still gets us approaching zero. It won't this year. It didn't last year, and it won't this year. But in future years, again, we want to make sure that once we all of a sudden done, that our use of fund balance is minimal and is appropriate and not continuing to increase. Any questions for me or Paul? So again, I'm happy that Paul brought this up. It's not something new or unknown or unexpected, but wanted you to hear it also from people other than just me. And we've been monitoring that since the beginning of the year. There's been very little expenditures that have come since the beginning of the school year and very little of unknown expenditures. So things that we are purchasing have been budgeted and planned for,
026and there have not been a lot of expenditures outside of those budgeted expenditures. And we're keeping a close eye on it, and Tony's absolutely right. We've had a slowdown in what is contributing to our fund balance, and we're going to have to weather that over the next few years until we start to see that balancing out. And we're paying attention to that. I would be happy to talk all day about your finances. I think there's a lot of great information. If you have an opportunity to read the management discussion analysis, I think it paints a tremendous picture of where the district is and where the district is going from a financial standpoint as well as an operational standpoint. I did also mention to the FAC some things that are beyond your control. And if you
027look at PARA and OPEC, the funding continues to get better in terms of because of the stock market. You're now 67% funded. I just say this as a cautionary tale because back in 2020, one of the things that the governor's office did or the state budget to JVC was cut the contributions from 2008 to 2019. The Senate bill in 2018 that required $225 million to go fund and help fund school districts and other municipalities, counties, etc. And that was cut. And so again, I'm not saying that that's going to happen, but there may be increases in contribution rates, which does have an impact on your overall spend as a district. So that's something just to watch legislatively and monitor the impact you will have on your PARA contribution rates in the future with what's happening
028at the state level. And at this point, I wanted to leave in that additional time to have any questions that you have any questions for me or any other things that I can address within the report. Thank you for pointing out that that management's discussion and analysis. It's always my favorite section because it's like the least with numbers. President Ryan, if you would mind, could I pivot to a different subject that I think is probably appropriate to bring up to the board today? Of course, of course. So we also brought up another item with the Finance and Audit Committee and wanted to pass along some of their comments regarding our mill levy override. So our mill levy override, as you know, was passed in 2008-2012 and combined provides some additional funding for our system from
029the community. It doesn't go through the state, doesn't go through the total program formula. That mill levy override produces a certain amount of money that is subject to a cap of 25 percent of our total program. Now, the amount that it produced back in 2024, because of that oil and gas spike that we experienced in assessed valuation, we hit that 25 percent cap. And we also accordingly reduced our mill levy override rate a little bit to make sure we stayed within that boundary. Since then, as you know, assessed valuation has come back down and we now have quite a bit of room between what we were levying on our community versus what we had been historically. And so we had discussed with Dr. Kabushian, with Finance and Audit Committee, whether it would be appropriate to
030return to the historical rate of 13.59 mills. It wouldn't result in much more of an impact. I think it was about $12 for a household on an annual basis for a $500,000 home and would result in about $2 million in change of additional revenue in FY26 in the current year to help bolster the support programming of our district. We would recommend returning to this rate. We recognize it was a charge by our voters at the time when they passed those two mills and they intend to fund the educational programming of our district with those resources. But any time that we have the discretion to increase a mill, even though it is a return to a historical rate, we thought we would just bring that up with the board. There was mostly consensus with our Finance
031and Audit Committee that it would be appropriate to go back to that 13.59 mills with one individual just mentioning that, hey, because we do have a healthy reserve, maybe we could delay it a year if you'd like. So I wanted to bring those thoughts to the board and answer any questions you have. And Jocelyn, I know you were on that committee and in that committee meeting. Sorry, no discussion. Yeah, so I did hear several of the members comment about what they thought. I think I just wanted to, I mean, in light of some of the stuff that Paul was just talking about with some financial uncertainty, both at the federal level and the state level, I just think it would be prudent for us to return to what we had been at before. And I
032just worry that if we didn't do that, we regret it, we wouldn't be able to retroactively do that. So I just thought it would be responsible of us as a district to capture that opportunity while we can. And we actually have the ability to raise it more than that, and we're not recommending that. That's correct. There is a statutory, sorry, maximum, it's not statutory, it's based on what the voter approved maximum amount. We were never at that, even at the inception, and so we're not recommending that we go to that full authorized amount. Just back to the historical level that we've been at since 2012, which is 13.59 miles. We're at 13.359, I think is what it is. It's a pretty small increase, and it's a pretty small impact. And to be clear, the total
033amount levied on the community would still be, even though we return to historical levels, the total dollar amount would be less than what we brought in in 2024. And does that require a vote of the board? So all of our mill levy certifications are coming to the board for board approval in the first December regular meeting. And so what we would do is we would prepare all four of our mill levies, one of which being in the levy override, at that recommended rate. And I think it would be helpful if you could provide some of the numbers you were just talking about, just so that everyone can see that. Sure, we can do that, definitely. Happy to. Thank you, Tony. Thank you. And thank you, Jane. I know you work so hard, especially during audit
034season, so thank you for your work. Thank you. Yeah, I would just add to that, Jane, thank you for your exhaustive work. I'm an actor. And please extend our appreciation to your team as well. Paul, we value your partnership and appreciate every all of the detail and expertise that CLA provides to us to ensure that all of our taxpayer dollars, every hard-earned penny is scrutinized and that our district's finances stay strong. So you're in how many years now? This is six, seven, seven. Great. Great. Well, thank you. Thank you so much. Okay, if nothing else, I would entertain a motion to adjourn. So moved. Second. All in favor? Aye.