Regulatory Basis Financial Statements and Other Reports

Transcription

1 RSaline County, Arkansas Regulatory Basis Financial Statements and Other Reports December 31, 2012 LEGISLATIVE JOINT AUDITING COMMITTEE

2 TABLE OF CONTENTS FOR THE YEAR ENDED DECEMBER 31, 2012 Independent Auditor's Report Report on Internal Control Over Financial Reporting, Compliance and Other Matters, and Other Issues Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards REGULATORY BASIS FINANCIAL STATEMENTS Balance Sheet Regulatory Basis A Statement of Revenues, Expenditures, and Changes in Fund Balances Regulatory Basis B Statement of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual General and Road Funds Regulatory Basis C Notes to Financial Statements Exhibit SUPPLEMENTARY INFORMATION Combining Balance Sheet Other Funds in the Aggregate Regulatory Basis 1 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Other Funds in the Aggregate Regulatory Basis 2 Notes to Schedules 1 and 2 Schedule OTHER INFORMATION Schedule of Capital Assets (Unaudited) 3 Schedule of Selected Information for the Last Five Years Regulatory Basis (Unaudited) 4

3 Sen. Bryan B. King Senate Chair Rep. Kim Hammer House Chair Sen. Linda Chesterfield Senate Vice Chair Rep. John W. Walker House Vice Chair Roger A. Norman, JD, CPA, CFE Legislative Auditor INDEPENDENT AUDITOR'S REPORT Saline County, Arkansas Officials and Quorum Court Members Legislative Joint Auditing Committee Report on the Financial Statements We have audited the accompanying regulatory basis financial statements of the general fund, road fund, and other funds in the aggregate of Saline County, Arkansas, as of and for the year ended December 31, 2012, as listed in the table of contents, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the financial reporting provisions of Arkansas Code, as described in Note 1, to meet the requirements permitted by the State of Arkansas. Management is also responsible for 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 of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity s internal controls. 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 adverse and qualified audit opinions. Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles As described in Note 1 to the financial statements, to meet the financial reporting requirements permitted by the State of Arkansas, the financial statements are prepared by the County on the basis of the financial reporting provisions of Arkansas Code, which is a basis of accounting other than accounting principles generally accepted in the United States of America. The effects on the financial statements of the variances between the regulatory basis of accounting described in Note 1 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. Adverse Opinion on U.S. Generally Accepted Accounting Principles In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on Generally Accepted Accounting Principles paragraphs, the financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of Saline County, Arkansas, as of December 31, 2012, or the revenues, expenditures, and changes in net position and when applicable, cash flows, thereof for the year then ended. 172 STATE CAPITOL LITTLE ROCK, ARKANSAS PHONE (501) FAX (501)

4 Basis for Adverse Opinion on Regulatory Basis of Accounting The Saline County Special Federal Revenue Fund has not been included in the County s regulatory basis financial statements. The regulatory basis as prescribed or permitted by Arkansas Code, requires the Saline County Special Federal Revenue Fund to be presented as part of the other funds in the aggregate, thus increasing the column s assets, liabilities, revenues, and expenditures. The amount by which this departure would affect the assets, liabilities, revenues, and expenditures of the other funds in the aggregate column is not reasonably determinable. The County s financial statements also do not disclose all the required information concerning deposit risks. In our opinion, disclosure of this information is required by the regulatory basis of accounting described in Note 1. Adverse Opinion on Regulatory Basis of Accounting In our opinion, because of the omissions described in the Basis for Adverse Opinion on Regulatory Basis of Accounting paragraph, the financial statements referred to above do not present fairly, in conformity with the regulatory basis of accounting, as described in Note 1, the financial position of the other funds in the aggregate of Saline County, Arkansas, as of December 31, 2012, and the regulatory basis revenues, expenditures, and changes in net position for the year then ended. Basis for Qualified Opinion on Regulatory Basis of Accounting The County s financial statements do not disclose all the required information concerning deposit risks. In our opinion, disclosure of this information is required by the regulatory basis of accounting described in Note 1. Qualified Opinion on Regulatory Basis of Accounting In our opinion, except for the omission of the information described in the Basis for Qualified Opinion on Regulatory Basis of Accounting paragraph, the financial statements referred to above present fairly, in all material respects, the regulatory basis financial position of the general fund and road fund of Saline County, Arkansas, as of December 31, 2012, and the regulatory basis revenues, expenditures, and changes in net position, and the budgetary comparisons for the general fund and road fund for the year then ended in accordance with the financial reporting provisions of the Arkansas Code described in Note 1. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the accompanying regulatory basis financial statements. The accompanying supplementary information and other information listed in the table of contents are presented for purposes of additional analysis and are not a required part of the financial statements. Because of the omissions described above, it is inappropriate to and we do not express an opinion on the supplementary information referred to above. The other information has not been subjected to the auditing procedures applied in the audit of the regulatory basis financial statements, and accordingly, we do not express an opinion or provide any assurance on such information. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 26, 2014 on our consideration of the County's internal control over financial reporting and on our tests of its compliance with certain provisions of the state constitution, laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on 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 County s internal control over financial reporting and compliance. DIVISION OF LEGISLATIVE AUDIT Little Rock, Arkansas March 26, 2014 LOCO06212 Roger A. Norman, JD, CPA, CFE Legislative Auditor -2-

5 Sen. Bryan B. King Senate Chair Rep. Kim Hammer House Chair Sen. Linda Chesterfield Senate Vice Chair Rep. John W. Walker House Vice Chair Roger A. Norman, JD, CPA, CFE Legislative Auditor REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING, COMPLIANCE AND OTHER MATTERS, AND OTHER ISSUES BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS INDEPENDENT AUDITOR'S REPORT Saline County, Arkansas Officials and Quorum Court Members Legislative Joint Auditing Committee We have audited 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, the accompanying regulatory basis financial statements of the general fund, road fund, and other funds in the aggregate of Saline County, Arkansas, as of and for the year ended December 31, 2012, and the related notes to the financial statements, and have issued our report thereon dated March 26, We issued an adverse opinion because the financial statements are prepared by the County on the basis of the financial reporting provisions of Arkansas Code, which is a basis of accounting other than accounting principles generally accepted in the United States of America. The effect on the financial statements of the variances between the regulatory basis of accounting described in Note 1 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. However, with respect to the regulatory basis of accounting described in Note 1, our opinion on the other funds in the aggregate was adverse because of the effects on the financial statements of not including the Saline County Special Federal Revenue Fund, which is material to other funds in the aggregate. Our opinions on the general fund and road fund were qualified because required disclosures were not made concerning deposit risks. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the County s internal control over financial reporting 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 County s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the County s internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be material weaknesses. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the County s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the following deficiencies to be material weaknesses: To ensure the proper safeguarding of assets, financial accounting duties relating to initiating, receipting, depositing, disbursing, and recording transactions should be distributed among appropriate employees. The Treasurer, Sheriff, County Clerk, Circuit Clerk, Tax Collector, County Librarian, Airport Commission Chairman, and District Court Clerk, did not segregate these duties to sufficiently reduce the risks of fraud or error and properly safeguard the County s assets, because of limited financial resources. We recommend that the financial accounting duties in each office be segregated among employees to the extent possible. The Treasurer, Sheriff, County Clerk, Circuit Clerk, Tax Collector, County Librarian, Airport Commission Chairman, and District Court Clerk responded and indicated that their offices will segregate the duties relating to initiating, receipting, depositing, disbursing, and recording transactions to the extent possible with the current staffing levels. 172 STATE CAPITOL LITTLE ROCK, ARKANSAS PHONE (501) FAX (501)

6 Unaccounted For Funds State law and proper accounting procedures require all funds received by a county employee or official to be receipted and deposited intact. A. A comparison of inmate phone cards on-hand in kiosks, purchased, and sold to the Sheriff s Communication, Facility, and Equipment Fund bank account deposits indicated that revenue of $5,610 was not deposited during the period January 1, 2013 through November 6, Chief Deputy of Finance JoNell Mallory, whose employment was terminated November 4, 2013, was custodian of these funds and responsible for purchasing the phone cards, restocking the kiosks, and receipting and depositing kiosk sales. B. Manual receipts totaling $5,240 were not recorded in the computer system or deposited in the bank. Primarily issued for fingerprint and accident report fees, these receipts indicated methods of payment as cash ($4,750) and check/money orders ($475). C. Receipts issued for cash totaling $1,140 and $1,187 in 2013 and 2012, respectively, were voided without replacement receipts being issued. In addition, receipts issued for cash were voided and reissued for $210 less than the original receipts during this same time period. D. We noted 137 receipts during 2013 and 2012 that were voided without the original receipt being retained. Once a receipt is voided in the computer system, the original information is no longer available. E. Checks payable to the Sheriff s Office totaling $1,373 in 2013 were cashed by Sheriff Bruce Pennington ($1,000) and Chief Deputy of Finance JoNell Mallory ($373). The Sheriff s office did not adhere to state laws and proper accounting procedures relating to the depositing of receipts. This lack of adherence constitutes a significant deficiency in the receipting and depositing processes. We recommend the Sheriff s Office implement procedures to ensure receipting and depositing processes comply with state laws and proper accounting procedures and provide training for employees who receipt or deposit public funds. The Sheriff responded: Since October 2013, new procedures have been put in place to ensure that all monies are accounted for. Prenumbered receipt books were ordered to replace the existing receipt books. If any receipts are voided, the original must be placed back in the receipt book and an explanation detailing the reason for voiding must be attached. The employee s supervisor must sign or initial the receipt. A policy has been implemented that two employees must be present when the inmate phone card machine is serviced Unallowable Disbursements The Sheriff s Office maintained a Sheriff s Communication, Facility, and Equipment Fund outside the County Treasury, as permitted by Ark. Code Ann , Ark. Code Ann sets aside 25% of Sheriff s fees to be used to train operations staff; operate, equip, repair, or replace existing communications equipment; purchase additional communications equipment; or improve a communication facility or system for a sheriff s department. In addition, Ark. Code Ann provides that 50% of commissions from inmate telephone services may be used for maintenance and operations of the county jail. State law and proper accounting procedures also require expenditures to have a county business purpose and proper documentation. Further, Ark. Code Ann , , and require expenditures made from the County Treasury to be budgeted by the Quorum Court, approved by the County Judge, and paid by the County Treasurer. The following transactions appear to conflict with state law: Funds totaling $86,259 disbursed from the Sheriff s Communication, Facility, and Equipment Fund were not for purposes allowed by law during the period January 1, 2012 through November 8, These disbursements included advertising ($26,353), digital ticket costs ($25,872), promotional items ($14,549), flooring ($5,679), memberships/subscriptions ($5,306), accounting software ($4,350), clothing ($829), utilities East End substation ($389), and miscellaneous items ($2,932). By improperly using the Sheriff s Communication, Facility, and Equipment Fund, the Sheriff circumvented laws that require expenditures to be appropriated and paid based on an approved claim. In addition, disbursements of $10,395 were made to various businesses without adequate documentation; therefore, the validity of these disbursements could not be determined. A lack of management oversight with respect to state laws and proper accounting procedures, regarding expenditures, constitutes a significant control deficiency in the disbursements process. We recommend the Sheriff s Office implement procedures to ensure disbursements comply with state laws and proper accounting procedures and provide proper training for employees who disburse public funds. The Sheriff responded that he will comply with the requirements of Ark. Code Ann when making disbursements from this account. -4-

7 Compliance and Other Matters As part of obtaining reasonable assurance about whether the County s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of the state constitution, laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed instances of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are described in the Internal Control over Financial Reporting section as items and The County s response to the findings identified in our audit is described above. The County s response was not subjected to the auditing procedures applied in the audit of the financial statements, and accordingly, we express no opinion on it. Other Issues The following issues are not significant deficiencies, material weaknesses, or material instances of noncompliance, but are issues that are presented to assist in the efficient operation of the County. The commentary contained in this section relates to the following officials that held office during 2012: County Judge: Lanny Fite Treasurer: Sandra McPherson Sheriff: Bruce Pennington Tax Collector: Joy Ballard County Clerk: Linda Montalvo (appointed November 1, 2012) Freddy Burton (retired October 31, 2012) Circuit Clerk: Dennis Milligan Assessor: Jim Crawford County Librarian: Erin Waller Airport Commission Chairman: Mark Westbrook District Court Clerk: Cheryl Spade Our audit procedures indicated that the Offices of County Judge, Treasurer, Tax Collector, County Clerk, Circuit Clerk, Assessor, County Librarian, Airport Commission Chairman, and District Court Clerk were in substantial compliance with Arkansas fiscal and financial laws. Noncompliance with state law was noted in the Office of Sheriff. Noncompliance with accepted accounting practices was noted in the Offices of Treasurer, Sheriff, County Clerk, Circuit Clerk, County Librarian, and District Court Clerk. Sheriff 1. We noted the following during our review of county credit card charges during 2012 and 2013: A. Sheriff Bruce Pennington charged $1,170 on the County credit card and subsequently reimbursed the County $1,170 from his campaign account. B. Charges of $5,338 were not supported by adequate documentation; therefore, we were unable to determine the business purpose. C. Fuel purchases of $2,026 were charged on the County credit card rather than a fuel card, thus circumventing the County procedures. D. Numerous meal and travel cost charges were not supported by trip reports or other documentation to substantiate the business purpose of these charges. 2. The Sheriff s office did not notify the Circuit Judge, in writing, of fines or costs assessed but not collected in accordance with the Circuit Court order. These fines and costs were collected by a collection agency and remitted to the Sheriff s office monthly, but were not being properly distributed. 3. Funds of $11,337 in the Sheriff s Circuit Bond, Bond and Fine, and Time Pay bank accounts were not identified as receipts issued but not yet settled. In addition, we noted an unreconciled amount of $168,638 between the Sheriff s Miscellaneous Bond bank account and settlements pending. A similar finding was noted in the previous report. -5-

8 4. We noted the following instances of noncompliance with Ark. Code Ann : A. Voided receipts were not properly documented as to the reason for the void. B. Prenumbered receipts were not issued for all moneys collected. C. Receipts were not prenumbered by a printer, and a printer s certificate was not maintained. D. Receipts issued were not reconciled with monthly bank deposits. We discovered the following information systems weakness during a review of computers: Treasurer, Sheriff, County Clerk, Circuit Clerk, County Librarian, and District Court Clerk The Disaster Recovery Plan in place was inadequate (both technical and end-user) for restoring from short-term or long-term interruptions of computer processing. This situation could cause the entity to be without computer processing for an extended period of time in the event of a disaster or major interruption and could also place a financial and personnel burden on the resources of the entity. 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 result 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. However, pursuant to Ark. Code Ann , all reports presented to the Legislative Joint Auditing Committee are matters of public record and distribution is not limited. DIVISION OF LEGISLATIVE AUDIT Little Rock, Arkansas March 26, 2014 June M. Barron, CPA, CFE Deputy Legislative Auditor -6-

9 BALANCE SHEET - REGULATORY BASIS DECEMBER 31, 2012 Exhibit A Other Funds in the General Road Aggregate ASSETS Cash and cash equivalents $ 3,484,467 $ 3,003,209 $ 10,902,299 Accounts receivable 282, , ,877 Interfund receivables 730,043 TOTAL ASSETS $ 4,497,333 $ 3,113,170 $ 11,267,176 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 449,499 $ 176,552 $ 252,355 Interfund payables 10, ,043 Settlements pending 2,817,186 Total Liabilities 449, ,552 3,789,584 Fund Balances: Restricted 2,926,618 5,972,435 Committed 339,219 Assigned 185,871 1,165,938 Unassigned 3,861,963 Total Fund Balances 4,047,834 2,926,618 7,477,592 TOTAL LIABILITIES AND FUND BALANCES $ 4,497,333 $ 3,113,170 $ 11,267,176 The accompanying notes are an integral part of these financial statements. -7-

10 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - REGULATORY BASIS FOR THE YEAR ENDED DECEMBER 31, 2012 Exhibit B Other Funds in the General Road Aggregate REVENUES State aid $ 2,127,507 $ 2,580,773 $ 800,563 Federal aid 118, , ,371 Property taxes 6,550,429 2,764,268 2,238,869 Sales taxes 189 Fines, forfeitures, and costs 367,991 1,192,206 Interest 61,009 52, ,726 Officers' fees 85,036 1,069,018 Jail fees 375, fees 685,766 Natural gas severance tax 146,186 Fuel sales 141,676 Hangar rent 120,481 Library fines and fees 53,602 Library sales 25,971 Treasurer's commission 91,833 11,644 Collector's commission 476, ,369 Taxes apportioned - Assessor's salary and expense 1,225, Other 1,460, , ,057 TOTAL REVENUES 12,564,165 6,373,132 7,441,212 Less: Treasurer's commission 152, ,012 98,035 NET REVENUES 12,411,558 6,267,120 7,343,177 EXPENDITURES Current: General government 5,791, ,548 Law enforcement 5,317,084 2,861,673 Highways and streets 5,351,612 Public safety 798, ,870 Health 61,957 Recreation and culture 2,602,294 Social services 91,914 10,035 Airport 407,076 Total Current 12,061,008 5,351,612 6,986,496-8-

11 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - REGULATORY BASIS FOR THE YEAR ENDED DECEMBER 31, 2012 Exhibit B Other Funds in the General Road Aggregate EXPENDITURES (Continued) Debt Service: Bond principal $ 65,000 Bond interest and other charges 55,534 Note principal $ 219,265 $ 30,636 27,408 Note interest and fees 11,045 5,881 3,290 TOTAL EXPENDITURES 12,291,318 5,388,129 7,137,728 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 120, , ,449 OTHER FINANCING SOURCES (USES) Transfers in 1,380,837 1,490,711 Transfers out (1,019,000) (5,754) (1,846,794) Sale of equipment 19,888 Sale of materials 864 2,731 1,080 TOTAL OTHER FINANCING SOURCES (USES) 382,589 (3,023) (355,003) EXCESS OF REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES 502, ,968 (149,554) FUND BALANCES - JANUARY 1, AS PREVIOUSLY REPORTED 3,628,642 2,258,957 7,591,289 Restatement adjustment (83,637) (208,307) 35,857 FUND BALANCES - JANUARY 1, AS RESTATED 3,545,005 2,050,650 7,627,146 FUND BALANCES - DECEMBER 31 $ 4,047,834 $ 2,926,618 $ 7,477,592 The accompanying notes are an integral part of these financial statements. -9-

12 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL AND ROAD FUNDS - REGULATORY BASIS FOR THE YEAR ENDED DECEMBER 31, 2012 Exhibit C General Road Variance Variance Favorable Favorable Budget Actual (Unfavorable) Budget Actual (Unfavorable) REVENUES State aid $ 1,571,482 $ 2,127,507 $ 556,025 $ 2,599,919 $ 2,580,773 $ (19,146) Federal aid 142, ,453 (24,217) 510, ,819 (207,384) Property taxes 6,156,755 6,550, ,674 2,658,506 2,764, ,762 Fines, forfeitures, and costs 412, ,991 (44,779) Interest 46,208 61,009 14,801 35,997 52,868 16,871 Officers' fees 128,813 85,036 (43,777) Natural gas severance tax 210, ,186 (64,526) Treasurer's commission 205,021 91,833 (113,188) Collector's commission 802, ,221 (325,837) Taxes apportioned - Assessor's salary and expense 1,198,649 1,225,275 26,626 Other 2,714,831 1,460,411 (1,254,420) 83, , ,012 TOTAL REVENUES 13,379,257 12,564,165 (815,092) 6,098,543 6,373, ,589 Less: Treasurer's commission 152,607 (152,607) 106,012 (106,012) NET REVENUES 13,379,257 12,411,558 (967,699) 6,098,543 6,267, ,577 EXPENDITURES Current: General government 6,164,209 5,791, ,997 Law enforcement 6,998,405 5,317,084 1,681,321 Highways and streets 5,934,795 5,351, ,183 Public safety 951, , ,070 Health 86,100 61,957 24,143 Social services 115,190 91,914 23,276 Total Current 14,315,815 12,061,008 2,254,807 5,934,795 5,351, ,183 Debt Service: Note principal 219,265 (219,265) 30,636 (30,636) Note interest and fees 11,045 (11,045) 5,881 (5,881) TOTAL EXPENDITURES 14,315,815 12,291,318 2,024,497 5,934,795 5,388, ,

13 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL AND ROAD FUNDS - REGULATORY BASIS FOR THE YEAR ENDED DECEMBER 31, 2012 Exhibit C General Road Variance Variance Favorable Favorable Budget Actual (Unfavorable) Budget Actual (Unfavorable) EXCESS OF REVENUES OVER (UNDER) EXPENDITURES $ (936,558) $ 120,240 $ 1,056,798 $ 163,748 $ 878,991 $ 715,243 OTHER FINANCING SOURCES (USES) Transfers in 522,094 1,380, , (152) Transfers out (1,019,000) (1,019,000) (5,754) (5,754) Sale of equipment ,888 19,348 6,407 (6,407) Sale of materials ,731 2,231 TOTAL OTHER FINANCING SOURCES (USES) 522, ,589 (140,045) 7,059 (3,023) (10,082) EXCESS OF REVENUES AND OTHER SOURCES OVER (UNDER) EXPENDITURES AND OTHER USES (413,924) 502, , , , ,161 FUND BALANCES - JANUARY 1, AS PREVIOUSLY REPORTED 2,680,240 3,628, ,402 2,408,981 2,258,957 (150,024) Restatement adjustment (83,637) (83,637) (208,307) (208,307) FUND BALANCES - JANUARY 1, AS RESTATED 2,680,240 3,545, ,765 2,408,981 2,050,650 (358,331) FUND BALANCES - DECEMBER 31 $ 2,266,316 $ 4,047,834 $ 1,781,518 $ 2,579,788 $ 2,926,618 $ 346,830 The accompanying notes are an integral part of these financial statements. -11-

14 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 1: Summary of Significant Accounting Policies A. Financial Reporting Entity The County is a political subdivision of the state governed by an elected quorum court. The reporting entity includes all the funds of the County. The Saline County Special Federal Revenue Fund was not presented in this report. Individual accounts within the Special Federal Revenue Fund include: Community Development Block Grant (I Can Art Center Project), Community Development Block Grant (Rushing Road Project), Community Development Block Grant (Saint Gobain Project), Homeland Security FY 2009 SHSGP (State Homeland Security Grant Program), Special Stop Recovery Act Victim Advocate, E. Byrne JAG (Justice Assistance Grant) - Local, Arrest/Community Defined Solution Grant, Court Improvement Team Grant, STOP (Services Training Officers Prosecutors) Grant FY 11/12, Homeland Security FY 2010 LETPP (Law Enforcement Terrorism Prevention Program), E. Byrne JAG (Justice Assistance Grant) FY 2012, STOP (Services Training Officers Prosecutors) Grant FY 12/13, and VOCA (Victims of Crime Assistance) Program Grant FY11/12. B. Basis of Presentation - Regulatory Fund Accounting The financial statements are presented in accordance with the regulatory basis of presentation as prescribed or permitted by Arkansas Code. The law requires that the financial statements be presented on a fund basis with, as a minimum, the general fund and road fund presented separately with all other funds included in the financial statements presented in the aggregate. This law also stipulates that the financial statements consist of a balance sheet; a statement of revenues, expenditures, and changes in fund balances; a comparison of the final adopted budget to actual expenditures for the general and road funds; notes to financial statements; and a supplemental schedule of capital assets. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with related liabilities and residual balances, and changes therein, which are segregated for purposes of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. The following types of funds are recognized in the accompanying regulatory basis financial statements. General Fund - The General Fund is used to account for and report all financial resources not accounted for and reported in another fund Road Fund - The Road Fund (Special Revenue Fund) is used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. The Road Fund accounts for and reports proceeds of state highway turnback, property taxes, and federal aid that are restricted or committed for maintaining and constructing roads. Other Funds in the Aggregate - Other Funds in the Aggregate consist of all funds included in the financial statements except for the General and Road Funds. The following types of funds are included in this column as follows: Special Revenue Funds - Special Revenue Funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. The following Special Revenue Funds are reported with other funds in the aggregate: County Emergency, County Library, Public Defender, District Court Cost, Sheriff s Drug Control, 911 Emergency, Voluntary Tax Warning System, Jail Maintenance, Airport Commission, Juvenile Fees, Juvenile Drug Court, Sheriff s Telephone Commission, Project Life Saver, Veteran s Memorial, Drug Court, Child Support Collection, County Recorder s Cost 75%, County Recorder s Cost 25%, Treasurer s Automation, Circuit Court Automation, County Clerk s Automation, Bond Forfeitures, Sheriff s Bail Bond 10%, Collector s Automation, Assessor s Amendment no. 79, County Planning Board, Communication Facility and Equipment, Airport Commission Hangar, Airport Commission Fuel, Airport Lighting and Paving Grant, Airport State Grant, Homeland Security Hazmat Part 1 Grant, STOP (Service Training Officers Prosecutors), E. Byrne JAG (Justice Assistance Grant), Selective Traffic (STEP) DUI/Seatbelt, and Arrest and Protect Program. -12-

15 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 1: Summary of Significant Accounting Policies (Continued) B. Basis of Presentation - Regulatory Fund Accounting (Continued) Capital Projects Funds - Capital Projects Funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. The following Capital Projects Funds are reported with other funds in the aggregate: Jail Construction and Capital Improvement Revenue Bonds 2009 Jail Project Construction. Debt Service Funds - Debt Service Funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest. The following Debt Service Funds are reported with other funds in the aggregate: Capital Improvement, Capital Improvement Revenue Bonds 2009 Bond, and Capital Improvement Revenue Bonds 2009 Debt Service Reserve. Agency Funds - Agency Funds are used to account for assets held by the entity as an agent for individuals, private organizations, other governmental units, and other funds. The following Agency Funds are reported with other funds in the aggregate: Treasurer (Treasurer s Commission, Interest Unapportioned, and Volunteer Fire);; Collector (Delinquent Tax, Escrow, and Protest Property Tax); Sheriff (Paper Service, Bond and Fine, Circuit Bond, Time Pay, Inmate Commissary, and Miscellaneous); County Clerk (Fee and Probate); Circuit Clerk (Fee, Trust, Child Support, Juvenile Representation, and Restitution); and District Court (Bond and Fine). C. Basis of Accounting The financial statements are prepared on the regulatory basis of accounting as prescribed or permitted by Arkansas Code. This regulatory basis differs from accounting principles generally accepted in the United States of America. Revenues are recognized as soon as they are both measurable and available except for Treasurer s and Collector s commission and Taxes apportioned Assessor s salary and expense which are recognized when earned. 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 60 days of the end of the current period. Expenditures generally are recorded when a liability is incurred. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. As a result of the use of this regulatory basis of accounting, capital assets and long-term debt are not recorded in these financial statements. D. Assets, Liabilities, and Fund Balances Cash and Cash Equivalents For the purpose of financial reporting, cash and cash equivalents includes all demand and savings accounts, certificates of deposit, treasury bills, and short-term investments with an original maturity of three months or less. Settlements Pending Settlements pending are considered fines, forfeitures, costs, commissions, interest, trust accounts, and property taxes that have not been transferred to the appropriate entities. Fund Balance Classifications 1. Restricted fund balance amounts that are restricted when constraints placed on the use of resources are either (a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or (b) imposed by law through constitutional provisions or enabling legislation. 2. Committed fund balance amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the Quorum Court. 3. Assigned fund balance amounts that are constrained by the Quorum Court s intent to be used for specific purposes, but are neither restricted nor committed. -13-

16 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 1: Summary of Significant Accounting Policies (Continued) D. Assets, Liabilities, and Fund Balances (Continued) Fund Balance Classifications (Continued) 4. Unassigned fund balance amounts that have not been assigned to other funds and that have not been restricted, committed, or assigned to specific purposes within the general fund. This classification may also include negative amounts in other governmental funds, if expenditures incurred for specific purposes exceeded the amounts restricted, committed, or assigned to those purposes. E. Property Taxes A lien attaches to the real property in January and on personal property in June of each year. Property taxes are collectible beginning the first business day of March of the subsequent year, but are not considered delinquent until after October 15. F. Budget Law 1. Legal Requirements State law requires that the Quorum Court, before the end of each fiscal year, make appropriations, by ordinance, for the expenditures of County government for the following year. The Quorum Court may make appropriation amendments at any time during the current fiscal year. Appropriations lapse at the end of each year. Under certain conditions, the budget may be amended subsequent to the year-end. 2. Accounting The County prepared an annual budget on the regulatory basis for the General Fund, Road Fund, and the other Special Revenue Funds except for the Airport Commission Hangar, Airport Commission Fuel, Airport Lighting and Paving Grant, Airport State Grant, and Communication Facility and Equipment Funds. G. Fund Balance Classification Policies and Procedures The County s highest level of decision-making authority is its Quorum Court. The establishment of amounts classified as committed fund balances and any subsequent modifications to such balances are the result of formal action taken by the Quorum Court through passage of an ordinance. The Quorum Court is authorized to assign amounts to a specific purpose, although a formal policy has not been established. The County does not have a policy addressing whether it considers restricted or unrestricted amounts to have been spent when an expenditure is incurred for purposes for which both restricted and unrestricted amounts are available. For classification of fund balance amounts, restricted resources are considered spent before unrestricted. The County does not have a policy addressing which resources to use within the unrestricted fund balance when committed, assigned, or unassigned fund balances are available. When expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used, committed amounts are reduced first, followed by assigned amounts, and then unassigned amounts. NOTE 2: Cash Deposit risks related to credit risk, concentration of credit risk, interest rate risk, and foreign currency risk have not been provided as required by Governmental Accounting Standards Board Statement no

17 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 3: Legal or Contractual Provisions for Deposits and Investments State law generally requires that county funds be deposited in federally insured banks located in the State of Arkansas. The county deposits may be in the form of checking accounts, savings accounts, and time deposits. Public funds may be invested in eligible investment securities having a maturity of not longer than 5 years from the date of acquisition unless, as documented at the time of acquisition, the investment is to fund or support a specific purpose and there are no expectations that the investment will be sold before maturity; an Arkansas bank certificate of deposit; an account established by a local government joint investment trust; or an Arkansas financial institution repurchase agreement for eligible investment securities in which the seller agrees to repurchase the investment at a price including interest earned during the holding period as determined by the repurchase agreement. NOTE 4: Accounts Receivable The accounts receivable balance at December 31, 2012 is composed of the following: General Road Other Funds Description Fund Fund in the Aggregate Treasurer's commission $ 11,643 Jail fees 26,215 Officers' fees $ 11, ,410 Fines, forfeitures, and costs 13, fees 114,279 Other 271,304 $ 109,961 81,051 Totals $ 282,823 $ 109,961 $ 364,877 NOTE 5: Accounts Payable The accounts payable balance at December 31, 2012 is composed of the following: General Road Other Funds Description Fund Fund in the Aggregate Vendor payables $ 449,499 $ 176,552 $ 252,355 NOTE 6: Interfund Balances Individual fund interfund receivable and payable balances are as follows: December 31, 2012 Interfund Interfund Fund Receivables Payables General $ 730,043 Road $ 10,000 Other Funds in the Aggregate: Special Revenue Funds: 911 Emergency 628,493 District Court Cost 17,000 County Recorder's Cost 75% 74,550 Totals $ 730,043 $ 730,043 Interfund receivables and payables consist of reimbursements for salaries and expenses paid by General Fund. These balances were repaid in January and February

18 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 7: Legal Debt Limit A. Property Tax Secured Bonded Debt The County is subject to a constitutional limitation for bonded indebtedness equal to 10% of the total assessed value for tax purposes of real and personal property as determined by the last tax assessment. At December 31, 2012, the legal debt limit for bonded debt was $147,416,999. There were no property tax secured bond issues. B. Short-term Financing Obligations The County is subject to a constitutional limitation for short-term financing obligations equal to 2.5% of the assessed value of taxable property within the County as determined by the last tax assessment. At December 31, 2012, the legal debt limit for short-term financing obligations was $37,973,122. The amount of short-term financing obligations was $354,437 leaving a legal debt margin of $37,618,685. NOTE 8: Details of Fund Balance Classifications Fund balance classifications at December 31, 2012 are composed of the following: Other Funds in Description General Road the Aggregate Fund Balances: Restricted for: General government $ 1,298,198 Law enforcement 343,752 Highw ays and streets $ 2,926,618 Public safety 634,156 Recreation and culture 2,333,885 Airport 51,742 Debt service 256,871 Capital outlay 1,053,831 Total Restricted 2,926,618 5,972,435 Committed for: Law enforcement 4,875 Public safety 333,671 Airport 673 Total Committed 339,219 Assigned to: General government $ 185, ,000 Law enforcement 1,015,938 Total Assigned 185,871 1,165,938 Unassigned 3,861,963 Totals $ 4,047,834 $ 2,926,618 $ 7,477,592 NOTE 9: Commitments Total commitments consist of the following at December 31, 2012: December 31, 2012 Long-term liabilities $ 1,624,

19 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 9: Commitments (Continued) Long-term Liabilities Long-term liabilities at December 31, 2012 are comprised of the following: Capital Improvement Refunding and Construction Revenue Bonds; Series 2009 A, $1,325,000 and Series B, $150,000; Monthly payments through 2029; 2.5% interest, payable from the Capital Improvement Revenue Bonds 2009 Bond Fund. Promissory note for the purchase of Sheriff's vehicles; $660,017 due in annual installments over four years; 2.35% interest; payable from the General Fund. Promissory note for the purchase of road equipment; $160,016 due in annual installments over five years; 4.5% interest; payable from the Road Fund. Promissory note for an airport ramp extension; $95,263 due in monthly installments over four years; 5.25% interest; payable from the Airport Commission Hangar Fund. December 31, 2012 $ 1,270, , ,063 33,580 Total Long-term liabilities $ 1,624,437 Due to the County s regulatory basis of accounting, these liabilities are not recorded in the financial statements. Compensated Absences Compensated absences do vest or accumulate. The amount of compensated absences was not determined. Post Employment Benefits Other Than Pensions The amount of any actuarially determined accrued liability for post employment benefits other than pensions was not determined. Debt Service Requirements to Maturity The County is obligated for the following amounts at December 31, 2012: Years Ending December 31, Bonds Notes Total 2013 $ 113,453 $ 296,372 $ 409, ,971 36, , ,021 36, , , , , , through , , through , , through , ,331 Total Obligations 1,843, ,040 2,212,773 Less Interest 573,733 14, ,336 Total Principal $ 1,270,000 $ 354,437 $ 1,624,

20 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 10: Interfund Transfers The General Fund transferred $1,019,000 to the Other Funds in the Aggregate to supplement operations. The Other Funds in the Aggregate transferred $1,014,641 to the General Fund for reimbursement of expenditures, $313,455 for excess pledged revenues, and $46,987 to close grant funds. The Road Fund transferred $5,754 to the General Fund to correct an error. Within Other Funds in the Aggregate, $209,013 was transferred for debt service payments and $262,698 for operations. NOTE 11: Prior Year Restatement The General Fund, Road Fund, and Other Funds in the Aggregate fund balances at January 1, 2012 were restated in the amounts of ($83,637), ($208,307), and $35,857, respectively, to eliminate turnback accruals and to include federal funds not previously included in the financial statements. NOTE 12: Pledged Revenues The County pledged revenues to repay $1,475,000 in capital improvement refunding and construction bonds that were issued in Pledged revenues consist of fines (including fines in the nature of restitution) and court costs collected by and through the Benton District Court and Bryant District Court (including any successor court or courts hearing matters now heard by such courts), fees collected by the Saline County Circuit Clerk as recording fees for recording instruments, fees for filing actions in Saline County Circuit Court, and fees and fines ordered by the Saline County Circuit Court in juvenile matters in excess of sums required by state law to be remitted to other accounts. Total principal and interest remaining on the bonds are $1,270,000 and $573,733, respectively, payable through March 1, For 2012, principal and interest paid were $65,000 and $54,934, respectively. The County received $505,544 in pledged revenues in Pledged revenues received in excess of debt service requirements may be used for other county expenditures. NOTE 13: Risk Management The County is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. These risks are covered by commercial insurance purchased from independent third parties and participation in a public entity risk pool. The amount of settlements, if any, has not exceeded the insurance coverage for each of the past three years. There were no significant reductions in insurance coverage in the major categories of risk from coverage in the prior year. The County participates in the Association of Arkansas Counties Program (public entity risk pools) for coverage in the following area: Workers Compensation - This program provides statutory benefits for losses incurred by County officials, employees, and volunteer fire fighters while performing work for the County. Rates for counties participating in this program are revised annually based on the cost experience of the particular county or group as determined by the Workers Compensation Commission. The County participates in the Central Arkansas Risk Management Association (CARMA) public risk pool for coverage in the following areas: Building and Contents Program - This program covers county-owned property as listed on the Statement of Values. Coverage is limited to $50,000 per building/location. Excess limits are provided up to the Actual Replacement Cost of the property as per the Statement of Values, annual aggregate of $100,000 per location for buildings and content, and electronic data processing equipment. Vehicle Program This program provides general liability and auto physical damage. Automobile liability is limited to $25,000 for bodily injury per person, $50,000 for bodily injury per accident. Auto physical damage comprehensive/collision coverage is actual cash value of vehicle. -18-