EAST RICHLAND COUNTY PUBLIC SERVICE DISTRICT SOUTH CAROLINA FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION

Transcription

1 EAST RICHLAND COUNTY PUBLIC SERVICE DISTRICT SOUTH CAROLINA FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION FOR THE YEAR ENDED JUNE 30, 2011

2 EAST HIGHLAND COUNTY PUBLIC SERVICE DISTRICT FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION FOR THE YEAR ENDED JUNE 30, 2011 TABLE OF CONTENTS Page(s) Independent Auditors'Report 1-2 Management's Discussion and Analysis 3-8 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets 9 Statement of Activities 10 Fund Financial Statements: Balance Sheet - Governmental Fund 11 Statement of Revenues, Expenditures, and Changes in Fund Balance - Governmental Fund 12 Reconciliation of Combined Statement of Revenues, Expenditures, and Changes in Fund Balance - Governmental Fund to Statement of Activities 13 Balance Sheet - Proprietary Fund 14 Statement of Revenues, Expenses, and Changes in Net Assets - Proprietary Fund 15 Statement of Cash Flows - Proprietary Fund 16 Notes to Financial Statements 17-33

3 SUPPLEMENTARY INFORMATION Schedule of Expenses - Proprietary Fund Type Operating Expenses - Budget and Actual S chedule of Expenses - Proprietary Fund Type Gen. and Admin., Maintenance, and Treatment Plant- Budget and Actual Schedule of Expenses - Proprietary Fund Type Operating Expenses - Current and Prior Year Schedule of Expenses - Proprietary Fund Type Gen. and Admin., Maintenance, and Treatment Plant- Current and Prior Year 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 Summary of Findings and Responses 46

4 DOOLEY AND COMPANY, LLC CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS R. KEITH DOOLEY, CPA-PFS AMY SAWYER ELY, CPA RooK. DOOLEY, JR., CPA-PFS MARCHETA H. ROGERS, CPA Members: American Institute of Certified Public Accountants South Carolina Association of Certified Public Accountants North Carolina Association of Certified Public Accountants To the Commissioners East Richland County Public Service District Columbia, South Carolina INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of the governmental activities, the business-type activities, and each major fund of East Richland County Public Service District as of and for the year ended June 30, 2011, which collectively comprise the District's basic financial statements as listed in the table of contents. These financial statements and the supplemental financial information discussed below are the responsibility of the management of East Richland County Public Service District. Our responsibility is to express an opinion on these financial statements, based on our audit. We conducted our audit 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. 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, and each major fund of East Richland County Public Service District as of June 30, 2011, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated January 26, 2012 on our consideration of East Richland County Public Service District'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 results of reporting on compliance and not to provide an opinion on the internal controls over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. -1- COLUMBIA OFFICE: 532 Congaree Avenue Columbia, SC (803) Telecopier (803) LEXINGTON OFFICE: 468 Old Cherokee Road Lexington, SC (803) Telecopier (803) WEBSITE:

5 Management's discussion and analysis on pages 3-8 and the budgetary information on pages are not a required part of the basic financial statements but are supplementary information required by the Governmental Auditing Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the District's basic financials statements. The combining and individual fund schedules and the Schedule of Expenses - Proprietary Fund on page are presented for the purpose of additional analysis and are not a required part of the basic financial statements. The combining and individual fund and other schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. January 26,

6 , SOUTH CAROLINA MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED JUNE 30, 2011 The discussion and analysis of the East Richland County Public Service District's financial performance provides an overall narrative review of the District's financial activities for the year ended June 30, The intent of this discussion and analysis is to look at the District's performance as a whole; readers should also review the notes to the basic financial statements and the financial statements to enhance their understanding of the District's financial performance. Information contained in this section is qualified by the more detailed information contained elsewhere in this District's financial statements, notes to financial statements and any accompanying materials. To the extent this discussion contains any forward-looking statements of the District's plans, objectives, expectations and prospects, the actual results could differ materially from those discussed herein. FINANCIAL HIGHLIGHTS Total net assets increased $1,686,424 which represents a 4% increase from fiscal year Program revenues account for $9,810,597 in revenue, or 89% of all revenues. General revenues account for $1,097,047 in revenue, or 11% of all revenues. The District had $9,221,221 in expenses. The Proprietary Fund had $9,810,597 in program revenues and $8,826,369 in expenditures. Long-term debt decreased by $ 1,559,859 during the fiscal year. OVERVIEW OF FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the District's basic financial statements. The District's basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements (Statement of Net Assets and Statement of Activities) are designed to provide readers with a broad overview of the District's finances, in a manner similar to a private-sector business. These statements are prepared using the accrual basis of accounting and include all assets and liabilities. -3-

7 In the Statement of Net Assets and the Statement of Activities, the District is divided into two distinct kinds of activities: Governmental Activities - The District's activities include payment of debt. Business-type Activities The District charges fees to help it cover the costs of certain services it provides. The District's wastewater programs are included here. The statement of net assets presents information on all the District's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the District is improving or deteriorating. The statement of activities presents information showing how the District's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal years. The government-wide financial statements distinguish functions of the District that are principally supported by property taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the District include debt service fund. The business-type activities of the District include the wastewater. The government-wide financial statements can be found on pages 9-10 of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the District can be divided into two categories: governmental funds, and proprietary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on current spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the District's current financing requirements. Governmental Funds are reported using modified accrual accounting. This method of accounting measures cash and other assets that can be easily converted to cash. The Governmental Funds Statements provide a detailed short-term view of the District's operations. -4-

8 Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the governmentwide financial statements. By doing so, readers may better understand the long-term impact of the District's current financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. Proprietary funds. Services for which the District charges a fee are generally reported in the proprietary funds. Proprietary funds are reported in the same way as the government-wide financial statements. The District's wastewater department is the only proprietary fund. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages of this report. Other information, hi addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information that further supports the financial statements with a comparison of the District's budget for the year and other supplementary information required by the State of South Carolina. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net assets. Net assets may serve over time as a useful indicator of government's financial position, hi the case of the District, assets exceeded liabilities by $42,056,111 as of June 30, By far the largest portion of the District's net assets reflects its investment in capital assets (e.g., land, buildings, building improvements, improvements other than buildings, mobile equipment, and furniture and equipment) less any related debt used to acquire those assets that is still outstanding. The District uses these capital assets to provide services to its residents; consequently these assets are not available for future spending. The District's financial position is a product of several financial transactions including the net result of activities, the acquisition and payment of debt, the acquisition and disposal of capital assets. -5-

9 The following tables present a summary of the District's net assets for the fiscal year ended June 30, 2011, for the Business-type Activities and Governmental Activities, respectively. Business-Type Activities Current and other assets Capital assets Total assets June 3 0,20 11 $ 19,895,610 49,930,655 69,826,265 June 30, 2010 $ 17,903,485 51,753,542 69,657,026 Increase (Decrease) $ 1,992,125 (1,822,887) 169,238 Long-term debt outstanding Other liabilities Total liabilities 17,572,240 1,564,711 19,136,951 18,600,110 1,438,114 20,038,224 (1,027,870) (126,597) (901,273) Net assets Invested in capital assets, Net of related debt Restricted Unrestricted Total net assets Total liabilities and net assets 32,358, ,330,898 50,689,313 $ 69,826,265 33,153, ,902 16,119,468 49,618,802 $ 69,657,026 (795,018) (345,902) 2,211,430 1,070,511 $ 169,238 Governmental Activities Current and other assets Total assets June 3 0,20 11 $ 1,562,145 1,562,145 June 30, 2010 $ 1,478,221 1,478,221 Increase (Decrease) $ 83,924 83,924 Long-term debt outstanding Other liabilities Total liabilities 10,195,347 10,195,347 10,727,336 10,727,336 (531,989) (531,989) Net assets Restricted Unrestricted Total net assets Total liabilities and net assets 1,562,145 (10,195,347) (8,633,202) $ 1,562,145 1,478,221 (10,727,336) (9,249,115) $ 1,478,221 83, , ,913 $ 83,924-6-

10 Changes in net assets. The District's total revenues for the fiscal year ended June 30, 2011 were $10,907,644. The total cost of all programs and services was $9,221,221. The following tables present a summary of the changes in net assets for the fiscal year ended June 30, Business-Type Activities Revenues Program revenues Charges for sales and services General revenues Interest Income Other Total revenues June 30, 2011 June 30, 2010 Variance $ 9,810,597 80,699 9,891,296 $ 8,335,790 81,102 8,416,892 $ 1,474,807 (403) 1,474,404 Expenses General and Administrative Maintenance Pump Station and Treatment Plant Interest Expense Total Expenses Gain on Sale of Fixed Assets Transfer from Debt Service Fund Increase (decrease) in net asset Net Assets, July 1,2010 Net Assets, June 30, 2011 $ 911,108 3,255,887 3,975, ,390 8,826,369 5,583 1,070,511 49,618,802 - $ 50,689,313 $ 782,828 3,015,017 3,829, ,907 8,348,294 21,995 90,593 49,528,209 $ 49,618,802 $ 128, , ,442 (37,517) 478,075 (16,412) 979,918 90,593 $ 1,070,511 Governmental Activities Revenues General revenues Property Taxes Levied Total revenues June 30, 2011 $ 1,010,765 1,010,765 June 30, 2010 $ 1,065,483 1,065,483 Variance $ (54,718) (54,718) Expenses Interest Expense Total Expenses Transfer to Proprietary Fund Increase (decrease) in net asset Net Assets, July 1,2010 Net Assets, June 30, , , ,913 (9,249,115) $(8,633,202) 424, , ,250 (9,890,364) $(9,249,115) (29,381) (29,381) 25,337 (641,250) $ (615,913) -7-

11 FINANCIAL ANALYSIS OF THE DISTRICT'S FUNDS As noted earlier, the District uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the District's governmental funds is to provide information on current inflows, outflows and balances of spendable resources. Such information is useful in assessing the District's financing requirements, hi particular, unreserved fund balance may serve as a useful measure of the District's net resources available for spending at the end of the fiscal year. The financial performance of the District as a whole is reflected in its governmental funds. As the District completed the year, its governmental funds reported a combined fund balance of $1,562,145, an increase of $83,924. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets. As of June 30, 2011, the District's total capital assets were $97,492,790, including buildings, water and sewer systems with improvements and various types of equipment necessary to operate the District. This amount represents an increase of $783,491 from the previous year. Total accumulated depreciation as of June 30, 2011 was $47,562,135 and total depreciation expense for the year was $2,664,021. Debt Administration. At June 30, 2011, the District had $27,767,587 in long-term debt outstanding, of which $1,610,974 is due within one year. CURRENT ISSUES The District is currently working to replace sewer lines in the Woodfield Park area as well as a new force main to the Treatment Plant. CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT If you have questions about this report, contact: East Richland County Public Service District 704 Ross Road Columbia, South Carolina

12 STATEMENT OF NET ASSETS JUNE 30, 2011 ASSETS Current Assets: Cash and Cash Equivalents Investments Restricted Net Accounts Receivable Due from County Treasurer Prepaid Expenses Inventory Total Current Assets Governmental Activities $ 1,562,145 1,562,145 Primary Government Business-type Activities $16,474,213 1,925,608 1,386,973 11,784 97,031 19,895,610 Total $16,474,213 1,925,608 1,386,973 1,562,145 11,784 97,031 21,457,755 Capital Assets: Not Subject to Depreciation: Land Construction in Progress Total Capital Assets, Not Subject to Depreciation Subject to Depreciation: Buildings Office Equipment Vehicles Machinery & Equipment Treatment Plant Pump Stations Sewer Lines Total Capital Assets, Subject to Depreciation Less: Accumulated Depreciation Total Capital Assets, Subject to Depreciation, Net Depreciation Total Capital Assets TOTAL ASSETS 1,562, , ,909 1,046, , ,574 1,471,302 1,136,297 46,407,002 11,344,983 35,155,903 96,446,107. -(47,562,135) 48,883,972 49,930,655 69,826, , ,909 1,046, , ,574 1,471,302 1,136,297 46,407,002 11,344,983 35,155,903 96,446,107 (47,562,135) 48,883,973 49,930,655 71,388,409 LIABILITIES Current Liabilites: Accounts Payable and Other Current Liabilities Accrued Interest Bonds Payable Total Current Liabilities 552, , , ,060 1,058,753 1,676, , ,060 1,610,974 2,229,145 Long-Term Liabilities Bonds Payable OPEB Liability Deferred Contributions from Customers Total Long-Term Liabilities 9,643,126 9,643,126 16,513, , ,125 17,460,027 26,156, , ,125 27,103,153 TOTAL LIABILITIES 10,195,347 19,136,951 29,332,298 NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted For: Debt Service Unrestricted TOTAL NET ASSETS 1,562,145 (10,195,347) ($8,633,202) 32,358,415 1,925,608 16,405,290 $50,689,313 32,358,415 3,487,753 6,209,943 $42,056,111 See accountants' report and notes to the financial statements. -9-

13 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 Expenses Charges for Services and Sales Program Revenues Operating Grants and Contributions Capital Grants and Contributions ebt $394,852 l Activities 394,852 8,826,369 Activities 8,826,369 $9,810,597 9,810,597 9,221,221 9,810,597 General Revenues: Property Taxes Levied for: General Purpose Unrestricted Investment Earnings Gain on the Sale of Assets Total General Revenues Change in Net Assets Net Assets, Beginning of Year Net Assets, End of Year See accountants' report and notes to the financial statements. Net (Expenses) Revenue and Changes to Net Assets Governmental Activities Business-type Activities Total ($394,852) (394,852) ($394,852) ($394,852) $984, , ,228 $984,228 (394,852) 984, ,376 1,010,765 1,010, ,913 (9,249,115) ($8,633,202) 80,699 5,583 86,283 1,070,511 49,618, ,689,313 1,010,765 80,699 5,583 1,097,048 1,686,424 40,369,687 $42,056,111

14 BALANCE SHEET GOVERNMENTAL FUND DEBT SERVICE FUND JUNE 30, 2011 ASSETS Due from County Treasurer $ 1,562,145 TOTAL ASSETS 1,562,145 LIABILITIES AND FUND BALANCE LIABILITIES FUND BALANCE Restricted 1,562,145 TOTAL LIABILITIES AND FUND BALANCE $ 1,562,145 TOTAL GOVERNMENTAL FUND BALANCE $1,562,145 Amounts reported for governmental activities in the statement of net assets are different because: Long-term liabilities, including notes payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Bonds Payable (10,195,347) Total net assets - governmental activities _$ (8,633,202) See accountants' report and notes to the financial statements. -11-

15 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUND TYPE DEBT SERVICE FUND FOR THE YEAR ENDED JUNE 30, 2011 Revenues: Property Taxes $1,010,765 Total Revenue 1,010,765 Expenditures: Bond Payments - Principal 531,989 Bond Payments - Interest 394,852 Total Expenditures 926,841 Excess Revenues Over (Under) Expenditures 83,924 Other Financing Sources (Uses) Transfer In (Out) Total Other Financing Sources (Uses) ' Net Change in Fund Balances 83,924 Fund Balance-Beginning of Year 1,478,221 Fund Balance - End of Year $1,562,145 See accountants' report and notes to financial statements. -12-

16 EAST HIGHLAND COUNTY PUBLIC SERVICE DISTRICT RECONCILIATION OF STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTTVITDZS FOR THE YEAR ENDED JUNE 30, 2011 Total net change in fund balance - governmental funds $83,924 Amounts reported for govermental activites in the statement of activities are different because of the following: Repayment of loan principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. 531,989 Change in net assets of governmental activities $615,913 See accountants' report and notes to the financial statements. -13-

17 BALANCE SHEET PROPRIETARY FUND JUNE 30,2011 ASSETS Current Assets: Cash on Deposit Investments Restricted Net Accounts Receivable Prepaid Expenses Inventory Total Current Assets Fixed Assets: Utility Plant in Services, net Construction in Progress Total Fixed Assets TOTAL ASSETS LIABILITIES & EQUITY LIABILITIES Current Liabilities: Accounts Payable Accrued Interest Current Maturities of Revenue Bonds Total Current Liabilites Long Term Liabilities: Long-Term Maturities of Revenue Bonds OPEB Liability Deferred Contributions from Customers Total Long Term Liabilities TOTAL LIABILITIES EQUITY Invested in Capital Assets, Net of Related Debt Unreserved TOTAL EQUITY TOTAL LIABILITIES & EQUITY $16,474,213 1,925,608 1,386,973 11,784 97,031 $19,895,610 49,422, ,909 49,930,655 69,826, , ,060 1,058,753 1,676,924 16,513, , ,125 17,460,027 19,136,951 32,358,415 18,330,898 50,689,313 $69,826,265 See accountants' report and notes to the financial statements. -14-

18 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS - PROPRIETARY FUND TYPE ENTERPRISE FUND FOR THE YEAR ENDED JUNE 30,2011 Operating Revenue: Sewer Service Tap and Cap Late Fees Inspection Hay Sales Delegated Review Other Actual $8,753, , ,705 6,150 3,984 7,312 Budget $7,800, , ,200 12,600 10,000 6,400 1,600 Variance Favorable (Unfavorable) $953, ,220 17,505 (6,450) (6,016) 912 (1,600) Total Operating Revenues 9,810,597 8,419,800 1,390,798 Operating Expenses: General and Administrative Maintenance Pump Station and Treatment Plant 911,108 3,255,887 3,975, ,620 2,995,000 3,920,680 (173,488) (260,887) (55,304) Total Operating Expenses 8,142,979 7,653,300 (489,679) Operating Income 1,667, , ,118 Nonoperating Revenues (Expenses): Interest Income Gain (Loss) on Sale of Fixed Assets IP iierest txpense 80,699 5,583 ly 96,000 (679,700) (15,301) 5,583 (3,690) Total Nonoperating Revenues (Expenses) (597,107) (583,700) (13,407) Net Income Before Transfers 1,070, , ,711 Transfer In (Out) Net Income 1,070,511 $ 182,800 $887,711 Retained Earnings - Beginning of year 49,618,802 Retained Earnings - End of year

19 EAST HIGHLAND COUNTY PUBLIC SERVICE DISTRICT STATEMENT OF CASH FLOW PROPRIETARY FUND FOR THE YEAR ENDED JUNE 30,2011 Cash Flows from Operating Activities: Cash Received From Patrons Cash Payments To Suppliers For Goods and Services Cash Payments To Employees For Services Net Cash Provided (Used) by Operating Activities Cash Flows from Capital and Related Financing Activities: Acquisition of Capital Assets Proceeds from the Sale of Assets Principal Paid on Long-Term Debt Interest Paid on Revenue Bonds Net Cash Provided (Used) by Capital and Related Financing Activities Cash Flows from Investing Activities: Decrease in Restricted Investments Interest on Investments Net Cash Provided (Used) by Investing Activities $9,420,369 (2,858,258) (2,338,286) 4,223,824 (841,135) 5,583 (1,027,870) (690,161) (2,553,583) 1,404 80,699 82,103 Net Increase (Decrease) in Cash Cash and Cash Equivalents - July 1, 2010 Cash and Cash Equivalents - June 30, ,752,344 14,721,870 $16,474,213 Cash Flows from Operating Activities: Net Income Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization (Increase) Decrease in Current Assets: Accounts Receivable Prepaid Expenses Inventory Increase (Decrease) in Current Liabilities: Accounts Payable OPEB Liability Contributions Tap & Cap Total Adjustments Net Cash Provided (Used) By Operating Activities $ 1,667,618 2,664,021 (234,078) (931) (6,175) (52,489) 342,008 (156,150) 2,556,206 S 4,223,824 See accountants' report and notes to financial statements. -16-

20 NOTES TO FINANCIAL STATEMENTS I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The East Richland County Public Service District (the District) is a special purpose district established by Act 1114 of the South Carolina Joint Acts and Resolutions, 1960, for the purpose of providing sanitary sewer service and treatment to a certain service area generally located within the eastern portion of Richland County. The District operates under a commission form of government. The financial statements of the District have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied through governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The District also applies Financial Accounting Standards Board (FASB) statements and interpretations issued on or before November 30, 1989, to its governmental and business-type activities and to its proprietary funds provided they do not conflict with or contradict GASB pronouncements. The following is a summary of the more significant policies. A. Reporting Entity The District's financial statements include all funds over which the District is considered to be financially accountable. The District receives funding from local, state, and federal government sources and must comply with the requirements of these funding source entities. However, the District is not included in any other governmental reporting entity because it does not meet the financial accountability criteria for inclusion established by Governmental Accounting Standards Board Statement Number 14 (GASB No. 14). Commissioners have decision-making authority, the power to designate management, the ability to significantly influence operations and the primary accountability for fiscal matters. The Commissioners of the District determine the operating policies of the District and such policies are implemented by the Executive Director and his staff. The Commission consists of five members who are recommended by Richland County Council and appointed by the governor. The members of the Commission and their terms of office are as follows: Commissioners Term Expires John H. Hudgens, Chairman 2014 Catherine S. Cook, Vice Chairman 2012 Phyllis B. Beighley, Commissioner 2013 Robert C. Murphy, Commissioner.2015 Yves Naar, Commissioner

21 NOTES TO FINANCIAL STATEMENTS I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) B. Basis of Presentation The statements of the District are presented as follows: Government-wide Financial Statements - The statement of net assets and the statement of activities display information about the District as a whole. These statements include the financial activities of the District, except for fiduciary funds. For the most part, the effect of the interfund activity has been removed from these statements. The statements distinguished between those activities of the District that are governmental and those that are considered business-type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other non-exchange transactions. Business-type activities are financed in part by fees charged to external parties. The government-wide statements are prepared using economic resources measurement focus. This is the same approach used in the preparation of the proprietary fund financial statements but differs from the manner in which governmental fund financial statements are prepared. Governmental fund financial statements therefore include a reconciliation with brief explanations to better justify the relationship between the government-wide statements and the statements for governmental funds. The government-wide statement of activities presents a comparison between District expenses and program revenues for each segment of the business-type activities of the District and for each function or program of the District's governmental activities. Direct expenses are those that are specifically associated with a service, program or department and therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues, including taxes with certain limited exceptions. The comparison of direct expenses with program revenues identifies the extent to which each business segment or governmental function is self-financing or draws from the general revenues of the District. Fund Financial Statements - Fund financial statements report detailed information about the District. The focus of the governmental and enterprise fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column. The District has no nonmajor funds. Fiduciary funds are reported by fund type. The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All governmental fund types are accounted for using a flow of current financial resources measurement focus. The financial statements for governmental funds are a balance sheet, which generally includes only current assets and current liabilities, and a statement of revenues, expenditures and changes in fund balances, which reports on the sources (i.e., revenues and other financing sources) and uses (i.e., expenditures and other financing uses) of current financial sources. -18-

22 NOTES TO FINANCIAL STATEMENTS I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) B. Basis of Presentation - (Continued) All proprietary fund types are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the statement of net assets. The statement of changes in fund net assets presents increases (i.e., revenues) and decreases (i.e., expenses) in net total assets. The statement of cash flows provides information about how the District finances and meets cash flow needs of its proprietary activities. Cash Flow Statement - For the purposes of the statement of cash flows, the proprietary fund considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. C. Measurement Focus and Basis of Accounting Fund Accounting The District uses funds to maintain its financial records during the fiscal year. Fund accounting is designed to demonstrate legal compliance and to aid management by segregating transactions related to certain District functions or activities. A fund is defined as a fiscal and accounting entity with a selfbalancing set of accounts. The various funds of the District are grouped into the categories governmental, proprietary and fiduciary. Governmental Funds Governmental funds focus on the sources, uses and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities is separated as fund balance. The following are the District's major governmental funds: Debt Service Fund - used to account for the debt financed through general obligation bonds. Proprietary Funds Proprietary funds are used to account for activities similar to those found in the private sector, where the determination of net income is necessary or useful to provide sound financial administration. Goods or services from such activities can be provided either to outside parties (enterprise funds) or to other departments or agencies within the government (internal services funds). The District has no internal service funds. Within proprietary funds, operating revenues and expenses are presented in the Statement of Revenue Expenses and Changes in Fund Net Assets. Operating revenues are those revenues that are generated directly from the primary activity of the proprietary funds. -19-

23 NOTES TO FINANCIAL STATEMENTS I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) C. Measurement Focus and Basis of Accounting - (Continued) Sales for wastewater represent the operating revenues of the District's proprietary fund. Operating expenses are necessary costs incurred to provide the goods or service that are the primary activity of the fund. Enterprise Funds - to account for operations (a) that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or covered primarily through user charges; or (b) where the governing body has decided that periodical determination or revenue earned, expenses incurred and/or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. The Wastewater department is the District's only enterprise fund. Basis of Accounting Basis of accounting determines when transactions are recorded in the financial records and reported on the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Proprietary and fiduciary funds also use the accrual basis of accounting. On the accrual basis accounting, revenues are recognized when earned and expenses are recognized when incurred. Under the modified accrual basis of accounting, revenues and expenditures are recognized when they become both measurable and available. Revenues resulting from exchange transactions, in which each party gives and receives essentially equal value, are recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the District, available means expected to be received within sixty days from fiscal year-end. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable. Allocations of cost, such as depreciation, are not recognized in governmental funds. D. Assets, Liabilities and Equity Cash and Investments - South Carolina statutes authorize investments in certificates of deposit, savings accounts, repurchase agreements, the State Treasurer's Local Governmental Investment Pool (invested in governmental guaranteed securities), obligations of the U.S. Government, and governmental agencies unconditionally guaranteed by the U.S. Government. Investments are recorded at fair market value. -20-

24 EAST HIGHLAND COUNTY PUBLIC SERVICE DISTRICT NOTES TO FINANCIAL STATEMENTS I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) D. Assets, Liabilities and Equity - (Continued) Inventory - Under the system of accounting for inventory, materials and supplies are carried in an inventory account at cost, using the first-in, first-out method of accounting and are subsequently charged to expense when consumed Prepaid Expenses - Payments made to vendors for services benefiting future periods are recorded as prepaid expenses, using the consumption method. A current asset for the prepaid amount is recorded at the time of the purchase and an expenditure/expense is reported in the year in which services are consumed. Compensated Absences The District reports compensated absences in accordance with GASB Statement No. 16, Accounting for Compensated Absences Full-time employees of the District accrue leave according to the following schedule: Years of Service Vacation Days Maximum Accumulation or more The leave year (begins on the first day of the first full pay period in January) runs from January 1st through December 31st. Employees are authorized to carry over a maximum of 45 days of unused annual leave to the next calendar year and may accumulate a maximum of 45 days. The entire compensated absence liability is reported on the government-wide financial statements. For governmental fund financial statements, the current portion of unpaid compensated absences is the amount expected to be paid using expendable available resources. These amounts are recorded in the account "compensated absences payable" in the fund from which the employees who have accumulated unpaid leave are paid. The noncurrent portion of the liability is not reported. Capital Assets General capital assets are those assets not specifically related to activities reported in the enterprise fund. These assets generally result from expenditures in the governmental funds. These assets are reported in the governmental activities column of the government-wide statement of net assets but are not reported in the fund financial statements. Capital assets utilized by the enterprise fund are reported both in the business-type activities column of the government-wide statement of net assets and in the respective fund. All capital assets are capitalized at cost (or estimated historical cost) and updated for additions and retirements during the year. The cost and accumulated depreciation of property sold or retired are removed from the accounts, and gains or losses, if any, are reflected in revenue or expenditures/expenses for the year. Donated fixed assets are recorded in their fair market values as of the date received. -21-

25 NOTES TO FINANCIAL STATEMENTS I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) D. Assets, Liabilities and Equity - (Continued) The District maintains a capitalization threshold of $500. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extend an asset's life are expensed. hi the enterprise fond, assets acquired or constructed by grants and shared revenues externally restricted for capital acquisitions and construction are reported as revenue in the period received in accordance with Governmental Accounting Standards Board Statement No. 33. hi previous years, these assets were accounted for as contributed capital, hi connection with the adoption of GASB No. 34, the balance of contributed capital has been combined with retained earnings to comprise the net assets of the enterprise fund. All reported capital assets are depreciated. Improvements are depreciated over the remaining useful lives of the related capital assets. Depreciation is computed using the straight-line method over the following useful lives: Governmental Business-Type Activities Activities Description Estimated Lives Estimated Lives Land improvement years years Buildings and improvements years years Furniture and equipment 5-10 years 5-10 years Vehicles 4 years 4 years Accrued Liabilities and Long-Term Obligations - All payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements, and all payables, accrued liabilities and long-term obligations payable from proprietary funds are reported on the proprietary fond financial statements. In general, payables and accrued liabilities that will be paid from governmental funds are reported on the governmental fond financial statements regardless of whether they will be liquidated with current resources. However, claims and judgments, the noncurrent portion of capital leases and compensated absences, that will be paid from governmental funds are reported as a liability in the fond financial statements only to the extent that they will be paid with current, expendable, available financial resources, hi general, payments made within sixty days after year end are considered to have been made with current available financial resources. Bonds and other long-term obligations that will be paid from governmental funds are not recognized as a liability in the fund financial statements until due. -22-

26 NOTES TO FINANCIAL STATEMENTS I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) D. Assets, Liabilities and Equity - (Continued) Fund Balances, Equity and Net Assets - Reservations of fund balance represent amounts that are not appropriated or are legally segregated for a specific purpose. Reservations of net assets, in the enterprise fund, are limited to outside third-party restrictions. Designations of fund balance represent tentative management plans that are subject to change. Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net or related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances or any borrowings used for the acquisition, construction or improvement of those assets. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. The District applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. Interfund Activity - Transfers between governmental and business-type activities on the governmentwide statements are reported in the same manner as general revenues. Transfers between governmental funds and enterprise balances are eliminated. Exchange transactions between funds are reported as revenues in the seller funds and as expenditures/expenses in the purchaser funds. Flows of cash or goods from one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers are reported as other financing sources/uses in governmental funds and after nonoperating revenues/expenses in proprietary funds. Repayments from funds responsible for particular expenditures/expenses to the funds that initially paid for them are not presented on the financial statements. Operating Revenues and Expenses - Operating revenues are those revenues that are generated directly from the primary activity of the proprietary funds. For the District, those revenues consist of sales of sewer service to customers. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United State of America requires management to make estimates and assumptions that affect the District's financial position and results of operations and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. -23-

27 EAST HIGHLAND COUNTY PUBLIC SERVICE DISTRICT NOTES TO FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) E. Fund Balance Fund Balance reporting for the fond level financial statements of the District are reported in accordance with GASB Statement number 54, "Fund Balance Reporting and Governmental Fund Type Definitions." The objective of this Statement is to enhance the usefulness of fond balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fond type definitions. The following categories are being used: Nonspendable fond balance Nonspendable fond balance includes amounts that cannot be spent because they are either not in spendable form or 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 and prepaid amounts. It may also include the long-term amount of loans and notes receivable, as well as property acquired for resale. Restricted Fund Balance Restricted fond balance includes amounts that are either restricted externally by creditors, grantors, contributors, laws or regulations of other governments, or restricted by law through constitutional provisions or enabling legislation.. Committed Fund Balance Committed fond balance includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the District's highest level of decision-making authority. These committed amounts cannot be used for nay other purpose unless the District removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. Committed fond balances also incorporate contractual obligations to the extent that existing resources in the fond have been specifically committed for use in satisfying those contractual requirements. The District recognizes committed fond balances that have been approved for specific purposed by District Commissioners before the fiscal year end. Assigned Fund Balance Assigned fond balance includes amounts that are constrained by the District's intent to be used for specific purposed but are not restricted or committed. The authority for making an assignment is not required to be the District's highest level of decision-making authority and as such, the nature of the actions necessary to remove or modify an assignment does not require the District's highest level of authority. UnassJRned Fund Balance Unassigned fond balance includes amounts that have not been assigned to other fonds and has not been restricted, committed, or assigned for specific purposed within the general fond. -24-

28 NOTES TO FINANCIAL STATEMENTS I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E. Fund Balance (Continued) Based on the District's policies regarding fund balance classifications as noted above, the District considers amounts that are restricted, committed, or assigned to be spent when the corresponding expenditure that has been designated by District Commissioners or donors has been made. After these fund balances have been depleted, unassigned fund balance will be considered to have been spent. II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Accounting - State statutes require a budget for operations be approved before any expenditures are made. The Commission will usually approve the operating budget in May for the fiscal year beginning July 1. A budget is adopted by July 1 of each fiscal year on the same modified accrual basis used to reflect actual revenues and expenditures in the fund financial statements. Budget and actual comparisons are presented in the accompanying fund financial statements. The amounts reported as the original budgeted amounts in the budgetary, statements reflect the amounts adopted in the original appropriations. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts in the final amended budget issued during the year ended June 30, All appropriations lapse at the fiscal year end. The District adopted a budget that addressed expenditures at the departmental level. III. DETAILED NOTES ON ALL FUNDS AND OTHER INFORMATION NOTE1- CASH AND INVESTMENTS: The District's deposits and investments are categorized to indicate the level of risk assumed by the District at year end. Category 1 includes deposits that are insured or collateralized with securities held by the entity or by its agent in the entity's name. Category 2 includes deposits that are collateralized with securities held by the banks trust department or agent in the District's name. Category 3 includes uncollateralized deposits (this includes amounts collateralized with securities held by the bank or its trust department or agent but not in the District's name). At June 30, 2011, deposits and investments were as follows: Checking and Saving Accounts $ 250,000 $16,231,819 Cash on Hand Total Deposits $ 250,000 $ 16,231,819 Category 1 Bank Balance Carrying Value $ 16,481,819 $ 16,473, $ 16,481,819 $ 16,474,213 Total Restricted Investments S 1,925,608 $ 1,925,608 $ 1,925,