FiscalYear Ended June 30, 2017 AUDIT REPORT

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1 FiscalYear Ended June 30, 2017 AUDIT REPORT

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3 Flathead Emergency Communications Center Flathead County, Montana Fiscal Year Ended June 30, 2017 TABLE OF CONTENTS Page Organization 5-6 Independent Auditor s Report 9-10 Management s Discussion and Analysis FINANCIAL STATEMENTS Government-wide Financial Statements Statement of Net Position Statement of Activities Fund Financial Statements Balance Sheet Governmental Funds Reconciliation of Governmental Funds Balance Sheet to the Statement of Net Position Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Notes to Financial Statements Required Supplementary Information Schedule of Funding Progress for OPEB Obligations Schedule of Proportionate Share of the Net Pension Liability Schedule of Contributions Notes to Required Supplementary Information Budgetary Comparison Schedule General Fund State 911 Fee, Special Revenue Fund 911 Capital Improvement Plan, Capital Project Fund Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

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5 IN TRODU C TORY SEC TION 3

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7 Flathead Emergency Communications Center KALISPELL, MONTANA ORGANIZATION June 30, 2017 Governing Board Chuck Curry, Flathead County Sheriff... Chairman, Elected Official Susan Nicosia, City Manager, City of Columbia Falls..Vice-Chair, Appointed Official Phil Mitchell, Flathead County Commissioner...Elected Official Ed Corrigan, County Attorney...Elected Official Bill Dial, Police Chief, City of Whitefish..Appointed Official Mark Johnson, Mayor, City of Kalispell Elected Official Officials Elizabeth Brooks.... Director 5

8 6 39/2014 Technology Manager GIS Analyst Communications & Network Technician DIRECTOR ADMINISTRATIVE BOARD Flathead Emergency Communications Center Communications System Manager FECC Operations Board CITIZENS FECC Advisory Committee Dispatchers (24) 20 F/T, 4 P/T Dispatch Leads (4) Dispatch Supervisors (4) FLATHEAD EMERGENCY COMMUNICATIONS CENTER

9 FIN A N C IA LSEC TION 7

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11 ANDERSON ZURMUEHLEN & CO., P.C. CERTIFIED PUBLIC ACCOUNTANTS & BUSINESS ADVISORS 402 NORTH BROADWAY,4th FLOOR P.O. BOX BILLINGS, MONTANA TEL: FAX: WEB: M EM BE R : A ME R ICA N IN S T ITUTE O F CERT IF IED PUB L IC A CCOU N TA NT S INDEPENDENT AUDITOR S REPORT To the Governing Board of Flathead Emergency Communications Center Kalispell, Montana We have audited the accompanying financial statements of the governmental activities and each major fund of the Flathead Emergency Communications Center (the FECC), a component unit of Flathead County, as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the FECC s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the FECC s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 9

12 ANDERSON ZURMUEHLEN & CO., P.C CERTIFIED PUBLIC ACCOUNTANTS & BUSINESS ADVISORS Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and each major fund of the FECC, as of June 30, 2017, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, schedule of funding progress for OPEB obligations, schedule of proportionate share of the net pension liability, schedule of contributions, and budgetary comparison information be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the FECC s basic financial statements. The introductory section is presented for purposes of additional analysis and is not a required part of the basic financial statements. The introductory section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 8, 2017, on our consideration of the FECC 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 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 FECC s internal control over financial reporting and compliance. Billings, Montana December 8,

13 Flathead Emergency Communications Center (FECC) KALISPELL, MONTANA MANAGEMENT S DISCUSSION AND ANALYSIS Flathead Emergency Communications Center (FECC) is a component unit of Flathead County. This discussion and analysis of the financial performance provides an overview of the FECC financial activities for the fiscal year ended June 30, It should be read in conjunction with the financial statements that begin on page 19. Financial Highlights The assets of the FECC exceeded its liabilities at June 30, 2017 by 760,407 compared with 539,518 at June 30, The FECC s total net position increased 220,889 from As of the close of the current fiscal year, the FECC s governmental funds reported a combined ending fund balance of 1,901,466, an increase of 191,375 from the prior year. This was a result of vacancy savings. Of the fund balance amount, 1,307,394 or 46% is available for spending at the government s discretion (unassigned fund balance) on behalf of its citizens. Overview of the Financial Statements This Management s Discussion and Analysis (MD&A) is intended to serve as an introduction to the Flathead Emergency Communications Center s basic financial statements. The basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements and 3) notes to the financial statements. Government-wide financial statements The government-wide financial statements are designed to provide readers with a broad overview of the FECC s finances in a manner similar to a private-sector business. The Statement of Net Position and Statement of Activities provide information about all of the FECC s activities, presenting both an aggregate view of the FECC s finances and a long-term view of those assets. The government-wide financial statements can be found on pages of this report. 11

14 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 Flathead Emergency Communications Center, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the Flathead Emergency Communications Center are governmental 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 near-term inflows and outflows of 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 a government s near-term financing requirements. 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 government s near-term 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. The Flathead Emergency Communications Center adopts an annual appropriated budget for its general fund, special revenue fund and capital project fund. A budgetary comparison statement has been provided to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages of this report. 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 starting on page 27 of this report. 12

15 Government-wide Financial Analysis Net Position As noted earlier, net position may serve as a useful indicator of a government s financial position over time. In the case of Flathead Emergency Communications Center, assets exceeded liabilities by 760,407 at the close of the most recent fiscal year. The following table provides a summary comparison of the Center s governmental net position for fiscal years 2017 and Flathead Emergency Communications Center Net Position ,983, ,336 2,730, ,775, ,710 2,450,958 Deferred outflows of Resources Total Assets and Deferred Outflows of Resources 342,804 3,073, ,110 2,639,068 Current and other liabilities Long-term liabilities Total liabilities 231,287 2,075,305 2,306, ,648 1,737,153 1,945,801 6,652 6, , , ,336 13, , ,710 (136,192) 539,518 Current and other assets Capital assets Total assets Deferred Inflows of Resources Total Deferred Inflows of Resources Net Position: Net investment in capital assets Restricted for Public Safety Unrestricted Total Net Position as restated A large portion of Flathead Emergency Communications Center s net position (747,336) reflects its investment in capital assets (e.g., construction in progress, machinery and equipment, improvements other than buildings, net of depreciation, less any related debt used to acquire those assets that is still outstanding). The FECC uses these capital assets to provide services to citizens. Consequently, these assets are not available for future spending. Although the FECC s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. 13

16 Unrestricted net assets totaling 13,071 are available for FECC to use in its ongoing obligations to citizens, vendors and creditors. Changes in Net Position Governmental activities increased the FECC s net assets by 220,889 in fiscal year The following table provides a summary comparison of the FECC s governmental change in net assets for fiscal years 2017 and Flathead Emergency Communications Center's Change in Net Position Revenues: General Revenues: Intergovernmental Agreements Grants and Contributions Investment Earnings Other Revenues Total Revenues Program expenses: Public Safety Total Expenses Change in Net Position ,303, ,454 13,430 24,350 3,045,887 2,303, ,839 9,040 29,988 3,080,512 2,824,998 2,824,998 2,857,955 2,857, , ,557 Governmental Activities Public Safety expenses comprise all governmental activity expenses in Public safety expenses decreased 32,957 from the prior year. Most of this decrease is a result of a decrease in operations costs. Governmental Funds The focus of the FECC s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the FECC s financial requirements. In particular, unreserved fund balance may serve as a useful measure of the FECC s net resources available for spending at the end of the fiscal year. For the fiscal year ended June 30, 2017 the combined ending fund balances of Flathead Emergency Communications Center governmental funds were 1,901,466. This is an increase of 191,375 over the prior year ending fund balance. 14

17 Of the ending fund balance 1,307,394 constitutes unassigned fund balance, which is available for current needs. The FECC maintains a cash reserve to provide liquidity until interlocal or State 911 funds are received. Flathead Emergency Communications Center has three major governmental funds: The General Fund, State 911 Fee, and the 911 Capital Improvement Plan (CIP) Fund. General Fund - This is the chief operating fund of the FECC. At the end of the fiscal year 2017, unassigned fund balance of the general fund was 1,307,394. Unreserved fund balance as a percentage of total fund expenditures can be used to measure the liquidity of the funds the higher the percentage, the higher the liquidity. For fiscal year 2017 the unassigned fund balance represented 61% of total general fund expenditures including other financing uses compared to 50% for the previous year. The general fund accounts for many of the FECC s general and administrative services. The fund balance increased by 180,468 during the current fiscal year. This increase was a result of vacancy savings and an increase in miscellaneous revenue. State 911 Fee Fund This is a special revenue fund of the FECC. At the end of the fiscal year 2017 there was a 0 fund balance available. 911 Capital Improvement Plan Fund - This is a capital project fund of the FECC. At the end of the fiscal year 2017 the entire balance of 590,658 is assigned to capital projects. Flathead Emergency Communications Center Budget Highlights The FECC s budget is prepared in accordance with generally accepted accounting principles. During the year, the Administrative Board may amend the budget in accordance with state law. The original general fund expenditure budget including transfers out was 3,218,510 and the final amended budget was 2,551,323 a decrease of 667,187. This budget decrease was a result of breaking out the State 911 Fee revenue and related expenditures into a separate fund. Actual expenditures were 2,154,998 including transfers out. The most significant budget variance in the General fund was in personal services which was a result of salary savings due to the delay in filling vacancies. The special revenue fund final budget was 738,075. The budget was established by an amendment to the general fund budget and capital project fund. Actual expenditures were 667,187. The most significant budget variance was the savings in actual capital outlay expenditures. The original capital project fund expenditure budget was 216,850 and the final amended budget was 145,962. Actual expenditures were 145,791. The budget variance was due to some projects not being completed and projects that were delayed due to change in priorities. 15

18 Capital Assets Flathead Emergency Communications Center capital assets consist of construction in progress, machinery and equipment and improvements other than buildings. The FECC s investment in capital assets (net of accumulated depreciation and outstanding debt) was 747,336 at June 30, Significant activity in capital assets for fiscal year 2017 includes: New world computer system upgrades totaling 13,858; upgrades to the 911 phone system upgrades totaling 134,181; and master site fiber link upgrade totaling 11,610. More detailed capital asset activity is presented in Note 4 of the financial statements. Requests for Information This financial report is designed to provide a general overview of the Flathead Emergency Communications Center s finances for all those with an interest in the government s finances. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to Flathead County Finance Director, 800 South Main Room 214, Kalispell, MT

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21 Flathead Emergency Communication Center A Component Unit of Flathead County Statement of Net Position June 30, 2017 Governmental Activities Assets Current assets: Cash and investments Accounts receivable, net Interest receivable Prepaid expenses Total current assets Noncurrent assets: Capital assets - construction in progress Capital assets - net of depreciation Total noncurrent assets Total Assets 1,975, ,406 3,414 1,983, , , ,336 2,730,847 Deferred Outflows of Resources Contributions to pension plan in current fiscal year Total Deferred outflows of resources Total Assets and Deferred Outflows of Resources Liabilities Current liabilities Accounts payable Accrued payroll Current portion of compensated absences payable Total current liabilities 342, ,804 3,073,651 42,471 36, , ,287 Noncurrent liabilities: Noncurrent portion of compensated absences Noncurrent portion of OPEB liability Noncurrent portion of net pension liability Total noncurrent liabilities Total Liabilities 50,883 14,795 2,009,627 2,075,305 2,306,592 Deferred Inflows of Resources Pension deferrals Total deferred inflows of resources 6,652 6,652 Net Position Net investment in capital assets Unrestricted Total Net Position 747,336 13, ,407 Total Liabilities, deferred inflows of resources and Net Position See accompanying notes to the financial statements 19 3,073,651

22 20 See accompanying notes to the financial statements Total Primary Government Functions/Programs Primary government: Governmental activities: Public safety Total Governmental Activities 2,824,998 2,824,998 2,824,998 Expenses - 37,267 37,267 37,267 Operating Grants and Contributions Net Position - Beginning of Year Net Position - End of Year 667, , ,187 Capital Grants and Contributions General revenues: Unrestricted investment earnings Miscellaneous Intergovernmental Agreements Total General Revenues and Transfers Change in Net Position Charges for Services Program Revenues Flathead Emergency Communication Center A Component Unit of Flathead County Statement of Activities For the Fiscal Year Ended June 30, , ,407 13,430 24,350 2,303,653 2,341, ,889 (2,120,544) (2,120,544) (2,120,544) Governmental Activities 539, ,407 13,430 24,350 2,303,653 2,341, ,889 (2,120,544) (2,120,544) (2,120,544) Total Net (Expense) Revenue and Changes in Net Position

23 Flathead Emergency Communication Center, Montana Balance Sheet Governmental Funds June 30, General Special Revenue Fund Capital Project Fund 2855 State 911 Fee CIP Total Governmental Funds Assets Current Assets: Cash and investments Accounts receivable, net Interest receivable Prepaid expenditures Total Current Assets 1,348, ,331 3,414 1,355, ,335 1, ,410 1,975, ,406 3,414 1,983,511 Total Assets 1,355, ,410 1,983,511 Liabilities Current liabilities: Accounts payable Accrued payroll Total Current liabilities 5,794 36,168 41,962-36,677 36,677 42,471 36,168 78,639 41,962-36,677 78,639 Total Liabilities Deferred Inflows of Resources Deferred Interest Total Deferred Inflows of Resources Fund Balance Nonspendable: Prepaid expenditures Assigned for: Capital projects Unassigned Total Fund Balance Total liabilities, deferred inflows and fund balance 2,331 2,331-1,075 1,075 3,406 3,406 3, ,414 1,307,394 1,310, , , ,658 1,307,394 1,901,466 1,355,101 - See accompanying notes to the financial statements ,410 1,983,511

24 Flathead Emergency Communication Center, Montana Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position June 30, 2017 Amounts reported for governmental activities in the statement of net position are different because: Total Fund Balances - Governmental Funds Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. 1,901, ,336 Other assets are not available for current-period expenditures and, therefore, are deferred in the funds. 3,406 Long-term liabilities are not due and payable in the current period and, therefore, are not reported as liabilities in the funds. (203,531) Net other post employment benefit obligation reported in the statement of net assets do not require the use of current financial resources and are not reported as liabilities in government funds until actually due. (14,795) Contributions to the pension plan(s) in the current fiscal year are deferred outflows of resources on the Statement of Net Position. 342,804 Pension plan deferrals are deferred inflows of resources on the Statement of Net Position. (6,652) Net pension liabilities are not due and payable in the current period and therefore, are not reported as liabilities in the funds. Net position of governmental activities (2,009,627) See accompanying notes to the financial statements ,407

25 23 See accompanying notes to the financial statements 1,130,340 1,310,808 Fund Balances - Beginning of Year Fund Balances - End of Year (79,112) (79,112) 259,580 2,075,886 2,075,886 2,303,653 22,950 8,863 2,335, ,468 Net Change in Fund Balances Other Financing Sources (Uses): Transfers in Transfers (out) Total Other Financing Sources and Uses Excess (deficiency) of Revenues over (under) Expenditures Expenditures: Current Operations: Public Safety Capital Outlay Total Expenditures Revenues: Intergovernmental Revenue Miscellaneous Revenue Investment Earnings Total Revenues General - - (70,888) (70,888) 70, ,495 19, , , ,187 State 911 Fee Special Revenue Fund 579, ,658 10, , ,000 (139,093) 145, ,791 1,400 5,298 6, CIP Capital Project Fund Flathead Emergency Communication Center, Montana Statement of Revenue, Expenditures and Changes in Fund Balances Governmental Funds For the Fiscal Year Ended June 30, ,710,091 1,901, , ,000 (150,000) - 191,375 2,652, ,595 2,817,976 2,970,840 24,350 14,161 3,009,351 Funds Total Governmental

26 Flathead Emergency Communication Center, Montana Reconciliation of the Statement of Revenue, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30, 2017 Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances - total governmental funds Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. - Capital assets purchased or constructed - Depreciation expense 191, ,595 (93,969) Investment earnings in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds. (731) The increase in expenses due to the increase in the liability for compensated absences reported in the statement of activities does not consume current financial resources and, therefore, is not reported in the governmental funds. (6,694) The increase in expenses due to the increase in the liability for post employment benefits reported in the statement of activities does not consume current financial resources and, therefore, is not reported in the governmental funds. (1,409) The change in the proportionate share of collective net pension liability related to the proportionate share of collective pension expense is reported on the Statement of Activities but is not reported in the Statement of Revenues, Expenditures, and Changes in Fund Balance (70,545) On behalf State contributions to pensions are not reported as revenues on the Statement of Revenues, Exenditures, and Changes in Fund Balance and are reported as revenues on the Statement of Activities Change in net position of governmental activities 37,267 See accompanying notes to the financial statements ,889

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29 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of Flathead Emergency Communication Center (FECC) have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America as set forth in standards established by the Governmental Accounting Standards Board (GASB). New Accounting Pronouncements For the fiscal year ended June 30, 2017, Flathead County implemented the following Governmental Accounting Standards Board (GASB) pronouncement: Statement No. 82, Pension Issues, an amendment of GASB No. 67, 68, and 73. The objective of this Statement is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. This Statement is effective for fiscal years beginning after June 15, 2016, with early application encouraged. A. Reporting Entity: The Flathead Emergency Communications Center (FECC) was created by an Interlocal Agreement between Flathead County, The City of Columbia Falls, The City of Kalispell, and the City of Whitefish. The FECC is a public body, corporate and politic as provided under the Interlocal Cooperation Act Title 7, Chapter 11, Part1, Montana Code Annotated. FECC is a discretely presented component unit of Flathead County. FECC is fiscally dependent on the County. The County provides more than 50% of the funding of the Center. The complete financial statements for Flathead County can be obtained from Flathead County s Finance office. The Board is composed of six members. Three officials represent Flathead County; the Flathead County Sheriff, the Flathead County Attorney, and a County Commissioner chosen by the Board of County Commissioners. In addition, an elected official or designee from each of the incorporated cities of Kalispell, Whitefish and Columbia Falls chosen by their respective City Council are members. 27

30 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The board can set its budget, adopt by-laws, hire and manage a director, set policy, and administer the Flathead Emergency Communications Center. Nature of Operations: The FECC is a consolidation of all dispatch services in Flathead County and the Cities in Flathead County. Its purpose is to provide efficient dispatch service to all emergency responders. The service includes receiving calls concerning governmental services outside of regular business hours which may not involve emergency response but do require timely governmental action, such as problems with governmental water and sewer facilities. Major funding comes from a proportionate share from each agency based upon the population of each of the Cities and of the County outside of the Cities as determined in the latest United States census completed every ten years. B. Government-Wide and Fund Financial Statements: The government-wide financial statements (i.e. the statement of net position and the statement of changes in net position) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program revenues include: 1) charges to customers who purchase, use, or directly benefit from goods, services, or privileges provided by a given function and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation: The Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. 28

31 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The FECC reports the following major governmental funds: General Fund (2850) This is the FECC s primary operating fund and it accounts for all financial resources of the FECC except those required to be accounted for in other funds. Special Revenue Fund (2855) This fund accounts for enhancement revenues received from the State collected from a Statewide Emergency Telephone System fee. It also accounts for offsetting expenditures related to the dispatch service. Capital Project Fund 4025) This fund accounts for capital purchases made on behalf of the Flathead Emergency Communications Center to support its operation. D. Assets, Liabilities, and Net Position: FECC Cash and Investments are managed by the County Treasurers. The investments of pooled cash, which is authorized by state law, consists of demand deposits, non-negotiable certificates of deposit, government agency securities and notes, and investments in Montana s state shortterm investment pool (STIP). Cash equivalents are short-term, highly liquid investments that are both readily convertible to known amounts of cash, and have maturities at purchase date of three months or less. FECC s cash and cash equivalents are cash on hand, demand, savings and time deposits, STIP and all short-term investments with original maturity dates of three months or less from the date of acquisition. Investments, with limited exceptions, are reported at fair value. Investments in nonparticipating certificates of deposit are reported at cost. Money market investments, including U.S. Treasury and Agency obligations, that mature within one year of acquisition are reported at amortized cost. Fair value is defined as the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is determined annually, and requires the use of valuation techniques, a specific method or combination of methods using one or more of three approaches: market, cost or income approach. Receivables and Payables: Accounts receivables are shown net of allowance for uncollectible accounts. The direct write-off method is used for these accounts. 29

32 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Capital Assets: Capital assets, which include property, plant, equipment, and infrastructure assets (towers, repeaters etc.) are reported in the government-wide financial statements. Capital assets, other than infrastructure assets, are defined by the FECC as assets with an initial cost of 5,000 or more and an estimated useful life of 5 years or more. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Property, plant, and equipment of the primary government are depreciated using the straight line method over the following estimated useful lives: Buildings years Improvements other than Buildings years Machinery & Equipment 5-20 years Infrastructure years Intangibles 5-20 years Compensated Absences: As required by State law, the FECC allows for employees to accumulate earned but unused vacation and sick leave benefits. Unused vacation leave benefits are 100 percent payable upon termination and ¼ of unused sick leave benefits are payable upon termination. Such amounts are reported as liabilities in the appropriate activity in the government wide statements. Expenditures for unpaid vacation and sick leave benefits are recorded when paid. NOTE 2: RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS: Long-Term Obligations: In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities. In the Governmental Fund financial statements, long-term debt and other long-term obligations are not reported as liabilities until due. Fund Balance: GASB Statement No. 54 requires presentation of governmental fund balances by specific purpose. In the basic financial statements, the fund balance classifications are presented in the aggregate for the following fund balance classifications: non-spendable, restricted, committed, assigned and unassigned. Further definition of fund balance classifications can be found in Note 4. 30

33 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 2: RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS(continued): A. Explanation of Certain Differences Between the Governmental Fund Balance Sheet and the Government-Wide Statement of Net Position: The governmental fund balance sheet includes a reconciliation between fund balance total governmental funds and net position governmental activities as reported in the governmentwide statement of net position. B. Explanation of Certain Differences Between the Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balances and the Government-Wide Statement of Activities: The governmental fund statement of revenues, expenditures, and changes in fund balances includes a reconciliation between net changes in fund balances total governmental funds and changes in net position of governmental activities as reported in the government-wide statement of activities. NOTE 3: STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY: Budgetary Information: The FECC follows rules provided in Montana state law to prepare and adopt its budget each year. The budget is adopted using the same basis of accounting as the fund financial statements. The FECC has established budgetary control at the consolidated level. Budget transfers may be made between and among the general classification of operations provided that total expenditures do not exceed the total consolidated budget. NOTE 4: DETAILED NOTES ON ALL FUNDS: A. Deposits and Investments: Cash and Investments All cash and investments are on deposit with the Flathead County Treasurer. Flathead County has one pooled investment trust fund invested in non-negotiable certificates of deposit and U.S. Government securities. Flathead County maintains a cash and investment pool that is used by the FECC for each fund. Each fund type s portion of this pool is displayed on the combined balance sheet as Cash and investments. As of June 30, 2017, the government had the following cash and investments: 1,975,

34 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS (continued): A. Deposits and Investments (continued): Flathead Emergency Communications Center Cash Composition June 30, 2017 Cash in pooled bank deposits Pooled investments: Non-negotiable certificates of deposit U.S. government securities STIP Total Cash Balance 481,954 Fair Value Measurement: 155,794 Level 2 693,502 Level 2 644,576 1,975,826 FECC categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy, as follows, is based on the valuation inputs used to measure fair value. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs. Level 1 Inputs Quotes prices in active markets for identical assets; these investments are valued using prices quoted in active markets. Level 2 Inputs- Significant other observable inputs; these investments are valued using matrix pricing. Level 3 Inputs Significant unobservable inputs; these investments are valued using consensus pricing. Interest Rate Risk Interest rate risk is defined as the risk that the fair value of investments could decrease in a rising interest rate environment. Flathead County does have a formal investment policy that limits investment maturities to five years as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk As a means of limiting its exposure to credit risk (the risk that an issuer or other counter party to an investment will not fulfill its obligations), Flathead County limits its investments to the safest types of securities. State statutes authorize the County to invest in direct obligations of the U.S. Government, such as U.S. Treasury bills and notes and U.S. Government securities as defined by law, repurchase agreements and the state Short-term Investment Pool (STIP). 32

35 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS (continued): Concentration of Credit Risk Flathead County diversifies the investment portfolio so that the impact of the potential losses from any one type of security or from any one individual issuer will be minimized. Custodial Credit Risk Flathead County minimizes custodial credit risk by restrictions set forth in County policy and state law. Custodial credit risk for deposits is the risk that in the event of a financial institution failure, the County s deposits may not be returned or the County will not be able to recover the collateral securities in the possession of the outside party. To reduce this risk, the County maintains a list of pre-qualified authorized institutions that it will do business with in accordance with the County s investment policy. Sections and of the Montana Code Annotated (MCA) severely limit the types of investments and time deposits which are permitted by the County. Compliance with these statutes minimizes the County custodial credit risk and therefore minimizes the FECC s custodial credit risk. B. Capital Assets Capital asset activity for the fiscal year ended June 30, 2017 was as follows: Construction in Progress (CIP) Machinery & Equipment Improvement Other than Buildings Total capital assets Less: Accumulated Depreciation on Machinery & Equipment Improvement Other than Buildings Total accumulated depreciation Capital Assets (net) Beginning 6/30/2016 Additions Deletions 139, ,649 1,355,573 5,946 30,564 1,525, ,595 - (844,618) (5,513) (850,131) 675,710 (92,441) (1,528) (93,969) 71,626 Depreciation expense was allocated to the primary government as follows: Governmental Activities: Public Safety 93, Ending 6/30/ ,353 1,361,519 30,564 1,691,436 (937,059) (7,041) (944,100) - 747,336

36 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS (continued): C. Long-Term Debt Obligations: Compensated Absences State law permits employees to accumulate a limited amount of earned but unused vacation benefits, which will be paid to employees upon separation from service. Employees are allowed to accumulate and carryover a maximum of two times their annual accumulation of vacation, but no more than 90 days into the next calendar year. There is no restriction on the amount of sick leave that may be accumulated. Unused vacation leave benefits are 100 percent payable upon termination and one-quarter of unused sick leave benefits are payable upon termination. These amounts are reported as liabilities in the government-wide statement of net position. Expenditures for unpaid vacation and sick leave benefits are recorded when paid in the governmental funds on the modified accrual basis of accounting. Compensated Absences Beginning Balance Additions Deletions 196,837 31,236 (24,542) Restatements Ending Balance Total due within 1 year 203, ,648 D. State-Wide Retirement Plans General Information About Pension Plan(s): All full-time FECC employees are covered under Montana Public Employees Retirement System (PERS). The plans are established by State law and administered by the State of Montana. The plans are cost-sharing multiple-employer defined benefit plans (PERS also has a defined contribution option) that provide retirement, disability and death benefits to plan members and beneficiaries with amounts determined by the State. Public Employee Retirement System (PERS): Plan Description: The PERS-Defined Benefit Retirement Plan (DBRP), administered by the Montana Public Employee Retirement Administration (MPERA), is a multiple-employer, cost-sharing plan established July 1, 1945, and governed by Title 19, chapters 2 & 3, MCA. This plan provides retirement benefits to covered employees of the State, and local governments, and certain employees of the Montana University System, and school districts. All new members are initially members of the PERS-DBRP and have a 12-month window during which they may choose to remain in the PERS-DBRP or join the PERS-DCRP by filing an irrevocable election. Members may not be participants of both the defined benefit and defined contribution retirement plans. All new members from the universities also have a third option to join the university system s Montana University System Retirement Program (MUS-RP). The PERS-DBRP provides retirement, disability, and death benefits to plan members and their beneficiaries. Benefits are established by state law and can only be amended by the Legislature. 34

37 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) Public Employee Retirement System (PERS): (continued) Summary of Benefits: Eligibility for Benefit: Service retirement: Hired prior to July 1, 2011: o Age 60, 5 years of membership service; o Age 65, regardless of membership service; or o Any age, 30 years of membership service Hired on or after July 1, 2011: o Age 65, 5 years of membership service; o Age 70, regardless of membership service Early retirement, actuarially reduced: Hired prior to July 1, 2011: o Age 50, 5 years of membership service; or o Any age, 25 years of membership service Hired on or after July 1, 2011: o Age 55, 5 years of membership service Vesting: 5 years of membership service. Compensation Cap: Hired on or after July 1, % annual cap on compensation considered as part of a member s highest average compensation. Member s Highest Average Compensation (HAC): Hired prior to July 1, 2011 highest average compensation during any consecutive 36 months. Hired on or after July 1, 2011 highest average compensation during any consecutive 60 months. Hired on or after July 1, % annual cap on compensation considered as part of a member s highest average compensation. Monthly Benefit Formula: Members hired prior to July 1, 2011; o Less than 25 years of membership service: 1.785% of HAC per year of service credit. o 25 years of membership service or more: 2% of HAC per year of service credit. Members hired on or after July 1, 2011: o Less than 10 years of membership service: 1.5% HAC per year of service credit. o 10 years or more, but less than 30 years of membership service: 1.786% of HAC per year of service credit. o 30 years or more of membership service: 2% of HAC per year of service credit. 35

38 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) Public Employee Retirement System (PERS): (continued) Summary of Benefits (continued) Guaranteed Annual Benefit Adjustment (GABA) o 3% for members hired prior to July 1, 2007 o 1.5% for members hired on or after July 1, 2007 and June 30, o Members Hired on or after July 1, 2013 o 1.5% for each year PERS is funded at or above 90% o 1.5% is reduced by 0.1% for each 2% PERS is funded below 90% and o 0% whenever the amortization period for PERS is 40 years or more. Overview of Contributions Rates are specified by state law for periodic member and employer contributions and are a percentage of the member s compensation. Contributions are deducted from each member s salary and remitted by participating employers. The State legislature has the authority to establish and amend contribution rates to the plan. Member and employer contribution rates are shown in the table below. Fiscal Year Member Local Government Hired Hired <7/01/11 >7/01/11 Employer State % 7.9% 8.370% 0.10% % 7.9% 8.270% 0.10% % 7.9% 8.170% 0.10% % 7.9% 8.070% 0.10% % 7.9% 7.070% 0.10% % 7.070% 0.10% % 6.935% 0.10% % 6.800% 0.10% 1) Member contributions to the system of 7.9% are temporary and will be decreased to 6.9% on January 1 following actuary valuation results that show the amortization period has dropped below 25 years and would remain below 25 years following the reduction of both the additional employer and additional member contribution rates. 36

39 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) Public Employee Retirement System (PERS): (continued) Overview of Contributions (continued) 2) Employer contributions to the system: a) Effective July 1, 2014, following the 2013 Legislative Session, PERS-employer contributions increase an additional 0.1% a year and will continue over 10 years through The additional employer contributions including the 0.27% added in 2007 and 2009, will terminate on January 1 following an actuary valuation that shows the amortization period of the PERS-DBRP has dropped below 25 years and remains below the 25 years following the reduction of both the additional employer and member contributions rates. b) Effective July 1, 2013, employers are required to make contributions on working retirees compensation. Member contributions for working retirees are not required. c) The portion of employer contributions allocated to the PCR are included in the employers reporting. The PCR was paid off effective March 2016 and the contributions previously directed to the PCR are now directed to member accounts. 3) Non Employer Contributions: a. Special Funding i. The State contributes 0.1% of members compensation on behalf of local government entities. ii. The State contributes 0.37% of members compensation on behalf of school district entities. b) Not Special Funding i) The State contributes a portion of Coal Severance Tax income and earnings from the Coal Trust Permanent Trust Fund. Stand-Alone Statements The financial statements of the Montana Public Employees Retirement Board (PERB) Comprehensive Annual Financial Report (CAFR) and the GASB 68 Report disclose the Plan s fiduciary net position. The reports are available from the PERB at PO Box , Helena MT , (406) or the MPERA website at 37

40 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) Public Employee Retirement System (PERS): (continued) Actuarial Assumptions The Total Pension Liability as of June 30, 2017, is based on the results of an actuarial valuation date of June 30, 2015 with update procedures to roll forward the Total Pension Liability to June 30, There were several significant assumptions and other inputs used to measure the Total Pension Liability. The actuarial assumptions used in the June 30, 2016 valuation were based on the results of the last actuarial experience study, dated June 2010, for the six-year period July 1, 2003 to June 30, Among those assumptions were the following: Investment Return (net of admin expense) Admin Expense as % of Payroll General Wage Growth* * includes inflation at Merit Increases Postretirement Benefit Increases 7.75% 0.27% 4.00% 3.00% 0% to 6% Guaranteed Annual Benefit Adjustment (GABA) After the member has completed 12 full months of retirement, the member s benefit increases by the applicable percentage each January, inclusive of other adjustments to the members benefit. o 3% for members hired prior to July 1, 2007 o 1.5% for members hired between July 1, 2007 and June 30, 2013 o Members hired on or after July 1, 2013: i. 1.5% for each year PERS is funded at or above 90%; and ii. 1.5% is reduced by 0.1% for each 2% PERS is funded below 90%; and iii. 0% whenever the amortization period for PERS is 40 years or more. Mortality assumptions among contributing members, terminated vested members, service retired members and beneficiaries based on RP 2000 Combined Employee and Annuitant Mortality Tables projected to 2015 with scale AA. Mortality assumptions among Disabled Retirees are based on RP 2000 Combined Employee and Annuitant Mortality Tables with no projections. No future mortality improvement is assumed. 38

41 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) Public Employee Retirement System (PERS): (continued) Discount Rate The discount rate used to measure the Total Pension Liability was 7.75%. The projection of cash flows used to determine the discount rate assumed that contributions from participating plan members, employers, and non- employer contributing entities would be made based on the Board s funding policy, which establishes the contractually required rates under Montana Code Annotated. The State contributes 0.1% of salaries for local governments and 0.37% for school districts. In addition, the State contributes coal severance tax and interest money from the general fund. The interest was contributed monthly and the severance tax was contributed quarterly. Based on those assumptions, the Plan's fiduciary net position was projected to be adequate to make all the projected future benefit payments of current plan members through the year Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the Total Pension Liability. A municipal bond rate was not incorporated in the discount rate. Target Allocations The long-term expected return on pension plan assets was reviewed as part of the regular experience study prepared for the Plan. The experience study, performed for the period of fiscal years 2003 through 2009, was outlined in a report dated June 2010 and can be located on the MPERA website. The long-term expected rate of return on pension plan investments was determined by considering information from various sources, including historical rates of return, rate of return assumptions adopted by similar public sector systems, and by using a buildingblock method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges were combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the target asset allocation as of June 30, 2016, are summarized below. Target Asset Allocation Asset Class Cash Equivalents Domestic Equity Foreign Equity Fixed Income Private Equity Real Estate Total (a) 2.6% 36.0% 18.0% 23.4% 12.0% 8.0% 100% Inflation Portfolio Return Expectation 39 Real Rate of Return Arithmetic Basis Long-Term Expected Real Rate of Return (b) 4.00% 4.55% 6.35% 1.00% 7.75% 4.00% (a) x (b) 0.10% 1.64% 1.14% 0.23% 0.93% 0.32% % 7.37%

42 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) Public Employee Retirement System (PERS): (continued) Sensitivity Analysis The sensitivity of the Net Position Liability (NPL) to the discount rate in shown in the table below in accordance with GASB 68. A small discount rate change can create a significant change in the NPL. The NPL was calculated using the discount rate of 7.75%, as well as what the NPL would be if it were calculated using a discount rate that is 1.00% lower or 1.00% higher than the current rate. Employer's Net Pension Liability 1.0% Decrease (6.75%) Current Discount Rate 1.0% Increase (8.75%) 2,916,117 2,009,627 1,228,775 Summary of Significant Accounting Policies The Montana Public Employee Retirement Administration (MPERA) prepares its financial statements using the accrual basis of accounting. For the purposes of measuring the NPL; deferred inflows of resources and deferred outflows of resources related to pensions; Pension Expense; information about the fiduciary net position; and, additions to/deductions from fiduciary net position have been determined on the same accrual basis as they are reported by MPERA. For this purpose, member contributions are recognized in the period in which contributions are due. Employer contributions are recognized when due and the employer has made a formal commitment to provide the contributions. Revenues are recognized in the accounting period they are earned and become measurable. Benefit payments and refunds are recognized in the accounting period when due and payable in accordance with the benefit terms. Expenses are recognized in the period incurred. Investments are reported at fair value. MPERA adheres to all applicable Governmental Accounting Standards Board (GASB) statements. Net Pension Liability The Total Pension Liability (TPL) minus the Fiduciary Net Position equals the Net Pension Liability (NPL). As GASB Statement 68 allows, a measurement date of up to 12 months before the employer s fiscal year-end can be utilized to determine the Plan s TPL. The basis for the TPL as of June 30, 2016, was determined by taking the results of the June 30, 2015, actuarial valuation and applying standard roll forward procedures. The roll forward procedure uses a calculation that adds the annual normal cost (also called the service cost), subtracts the actual benefit payments and refunds for the plan year, and then applies the expected investment rate of return for the year. The update procedures are in conformity with Actuarial Standards of Practice issued by the Actuarial Standards Board. 40

43 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) Public Employee Retirement System (PERS): (continued) Special Funding PERS has a special funding situation in which the State of Montana is legally responsible for making contributions directly to PERS on behalf of the employers. Due to the existence of this special funding situation, the State is required to report a proportionate share of a local government or school district s collective NPL that is associated with the non-state employer. Not Special Funding The State of Montana also has a funding situation that is not Special Funding whereby the State General Fund provides contributions from the Coal Severance Tax fund. All employers are required to report the portion of Coal Tax Severance Tax and earnings attributable to the employer. The proportionate shares of the employer s and the state of Montana s NPL for June 30, 2016, and 2015, are displayed below. The employer s proportionate share equals the ratio of the employer s contributions to the sum of all employer and non-employer contributions during the measurement period. The state s proportionate share for a particular employer equals the ratio of the contributions for a particular employer to the total state contributions paid. As of measurement date: Net Pension Liability as of 6/30/2017 Employer Proportionate Share State of Montana Proportionate Share associated with the Employer Total Net Pension Liability as of 6/30/2016 Percent of Percent of Change in Collective Collective Percent of NPL as of NPL as of Collective 6/30/2017 6/30/2016 NPL 2,009,627 1,674, % % % 24,555 2,034,182 20,569 1,695, % % % % % % As of the employer s reporting date the employer recorded a liability of 2,009,627 and the employer s proportionate share was % Changes in actuarial assumptions and methods: There were no changes in assumptions or other inputs that affected the measurement of the Total Pension Liability. Changes in benefit terms: There have been no changes in benefit terms since the previous measurement date. Changes in proportionate share: There were no changes between the measurement date of the collective Net Pension Liability and the employer s reporting date that are expected to have a significant effect on the employer s proportionate share of the collective NPL. 41

44 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) Public Employee Retirement System (PERS): (continued) Pension Expense At June 30, 2017, the FECC recognized a Pension Expense of 154,043 for its proportionate share of the PERS Pension Expense. The FECC also recognized grant revenue of 2,058 for the support provided by the State of Montana for its proportionate share of the Pension Expense that is associated with the employer and grant revenue of 35,209 from Coal Severence Tax Fund. Pension Expense as of 6/30/2017 As of reporting date Employer's Proportionate Share of PERS State of Montana Proportionate Share associated with the Employer Grant Revenue - State of Montana Coal Tax for employer Total Pension Expense as of 6/30/ ,043 91,125 2,058 1,278 35, ,310 40, ,591 Deferred Inflows and Outflows At June 30, 2017, the FECC reported its proportionate share of PERS deferred outflows of resources and deferred inflows of resources related to PERS from the following sources: Expected vs. Actual Experience Projected Investment Earnings vs. Actual Investment Earnings Changes in Assumptions Changes in Proportion and Differences Between Employer Contributions and Proportionate Share of Contributions Employer Contributions subsequent to the measurement date Deferred Outflows of Resources 10,843 Deferred Inflows of Resources 6, ,066-22, ,681 Total 342,804 6,652 Amounts reported as deferred outflows of resources related to pensions resulting from the FECC s contributions subsequent to the measurement date will be recognized as a reduction of the Net Pension Liability beginning in the year ended June 30,

45 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) Public Employee Retirement System (PERS): (continued) Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in Pension Expense as follows: For the Reporting Year ended June 30: Thereafter Amount of deferred outflows and deferred inflows recognized in future years as an increase or (decrease) to Pension Expense 9,153 9, ,439 67,511 - The governmental funds utilized to liquidate these obligations are the General Fund and Special Revenue Funds. E. Other Post Employment Benefits (OPEB) Plan Description Employee medical insurance is provided through the FECC s participation in the Flathead County self-insured medical plan. This plan is a single employer defined benefit healthcare plan and provides medical, vision and dental benefits to current employees, terminated employees and retirees. The plan is administered by Allegiance Benefit Plan Management, Inc. The plan is reported as an internal service fund on Flathead County s financial statements. Benefit provisions are set annually by the Board of County Commissioners and may be revoked or altered at any time. Terminated employees may remain on the health insurance plan for up to 18 months if they pay the monthly premiums. This benefit is required under the federal COBRA law. A retiree is considered eligible for coverage under this plan only if the retiree was covered under this plan as a participant on his or her last day of active service for the employer prior to retirement, and subject to the terms of MCA Retirees may remain on the health plan provided they pay the monthly premiums. A retiree s dependents, upon the death of the retiree, are also eligible if the retiree was eligible for coverage and covered under this plan, subject to the terms of MCA Normal retirement eligibility is age 65 or age 60 and 5 years of service, or 30 years of service. Early retirement eligibility is age 50 and 5 years of service or 25 years of service. 43

46 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) E. Other Post Employment Benefits (OPEB): (continued) Funding Policy The FECC has adopted the provisions of GASB Statement 45, Accounting and Financial Reporting by Employers for Postemployment Benefits other than Pension Plan. FECC s other post-employment benefit (OPEB) consists of the above described post-employment healthcare benefits. FECC has accounted for this OPEB cost on a pay-as-you-go basis. The government funds utilized to liquidate these obligations are the general fund and special revenue funds. GASB 45 requires employers to calculate the actuarial liability for future retiree benefits and the annual required contribution for retirees. The FECC s annual OPEB cost consists of an implied rate subsidy since retirees and current employees are in the same plan as well as a cost for future benefits of current employees. The FECC s policy at this time is to not fund the OPEB obligation. Annual OPEB Cost and Net OPEB Obligation. The FECC s annual OPEB cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the FECC s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the FECC s OPEB obligation: Annual required contribution Interest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost (expense) Contributions made toward funding Increase in net OPEB obligation Net OPEB obligation, beginning of year Net OPEB obligation, end of year 44 7, (648) 7,255 (5,846) 1,409 13,386 14,795

47 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) E. Other Post Employment Benefits (OPEB): (continued) Annual OPEB Cost and Net OPEB Obligation (continued) FECC s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the past 3 years are as follows: Fiscal Year Annual OPEB Ended Cost June 30, ,264 June 30, ,417 June 30, ,221 June 30, ,255 Annual Plan Percentage of Annual Sponsor OPEB Cost Net OBEB Contribution Contributed Obligation 10, % 17,580 9, % 15,865 8, % 13,386 5, % 14,795 Funded Status and Funding Progress. As of July 1, 2016, the most recent actuarial valuation date, the plan was zero percent funded resulting in an unfunded actuarial accrued liability (UAAL) of 53,404 for FECC. The covered payroll (annual payroll of active employees covered by the plan) was 1,523,853. The ratio of the UAAL to the covered payroll was 3.5%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the July 1, 2016 actuarial valuation, the projected unit credit cost method was used. The objective under this method is to fund each participant s benefits under the plan as they accrue. The total benefit to which each participant is expected to become entitled to at retirement is broken down into units, each associated with a year of past or future credited service. The actuarial assumptions included a 4.0% inflation rate, 3.52% investment rate of return, a 4.00% 45

48 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) E. Other Post Employment Benefits (OPEB): (continued) Actuarial Methods and Assumptions (continued) payroll growth rate assumption, a 45% participation rate, and an annual healthcare cost trend rate of 6.5% for 2017 reduced by decrements to an ultimate rate of 4.5% after six years. The UAAL is being amortized over a thirty year period on a level percentage of pay amortization on an open basis. The FECC has no retired or terminated employees participating in the plan as of June 30, F. Fund Balance In accordance with Government Accounting Standards Board 54, Fund Balance Reporting and Governmental Fund Type Definitions, the FECC classified governmental fund balances as follows: Non-spendable includes fund balance amounts that cannot be spent either because it is not in spendable form or because of legal or contractual constraints. Restricted includes fund balance amounts that are constrained for specific purposes which are externally imposed by providers such as creditors or amounts constrained due to constitutional provisions or enabling legislation. Committed includes fund balance amounts that are constrained for specific purposes that are internally imposed by the government through formal action (board resolution) of the highest level of decision making authority and does not lapse at year-end. Assigned includes fund balance amounts that are intended to be used for specific purposes that are not considered restricted or committed. Fund Balance may be assigned based on future budget expenditures. Assigned fund balance may become unassigned by the same action. Unassigned includes positive fund balance within the General Fund which has not been classified within the above mentioned categories and negative fund balances in other governmental funds. The FECC received inflows from revenue and other financial sources from numerous sources for use in the General fund. The Fund will expend those resources on multiple purposes of the local government. The intention of this spending policy is to identify the expenditure order of resource categories for the General Fund. Resources will be categorized according to Generally Accepted Accounting Principles (GAAP) for state and local governments. When both restricted and unrestricted resources are available in the General Fund, the following spending policy will apply as default as no formal policy has been adopted: Restricted, Committed, Assigned, Unassigned. 46

49 FLATHEAD EMERGENCY COMMUNICATIONS CENTER (FECC) NOTES TO THE BASIC FINANCIAL STATEMENTS June 30, 2017 NOTE 4: DETAILED NOTES ON ALL FUNDS: (continued) F. Fund Balance: (continued) No specific circumstances in which unrestricted fund balance in the General Fund can be spent exists. It is determined in the budget process which is formally adopted by the Administrative Board. The FECC does not have a formal minimum fund balance policy. G. Net Position: Net position represents the difference between assets and liabilities. Net investment in capital assets, net of related debt, consists of capital assets net of accumulated depreciation/amortization, reduced by the outstanding balance of any borrowing used for acquisition, construction or improvements of those assets. Net position is reported as restricted when there are limitations imposed on the resources used either through the enabling legislation adopted by the FECC or through external restrictions imposed by creditors, grantors, laws, or regulations of other governments. The FECC applies restricted resources first when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. NOTE 5: RISK MANAGEMENT The FECC faces a considerable number of risks of loss, including (a) damage to and loss of property and contents, (b) employee torts, (c) professional liability, i.e., errors and omissions, (d) environmental damage, (e) worker s compensation, i.e., employee injuries, and (f) medical insurance costs of employees. Settled claims resulting from these risks have not exceeded commercial insurance coverage in each of the past three fiscal years. There were no significant changes in how the FECC covered its risks in FY

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51 REQU IRED SU PPLEM EN TA RY IN FORM A TION 49

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53 REQUIRED SUPPLEMENTARY INFORMATION Other Post-Employment Benefits Plan Schedule of Funding Progress Fiscal Year Ended June 30, 2012 June 30, 2013 June 30, 2014 June 30, 2015 June 30, 2016 June 30, 2017 Actuarial Valuation Date July 1, 2010 July 1, 2012 July 1, 2012 July 1, 2014 July 1, 2014 July 1, 2016 Unfunded Unfunded Actuarial Actuarial Actuarial Liability as a Accrued Value of Accrued Funded Covered Percentage of Liability Plan Assets Liability Ratio Payroll Payroll 144, , % 1,449, % 123, , % 1,504, % 127, , % 1,459, % 72,306 72, % 1,540, % 70,335 70, % 1,635, % 53,404 53, % 1,523, % 51

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55 53 Plan fiduciary net position as a percentage of the total pension liability FECC proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll % 78.40% % 74.71% 79.90% % 17,352 1,557,133 1,398,013 1,290,963 20,569 FECC covered-employee payroll 24, % 2015 State of Montana's proportionate share of the Net Pension Liability associated with the Employer % 2,009,627 1,674,558 1,420, % FECC proportionate share of the net pension liabiltiy (asset). FECC proportion of the net pension liability (asset) PERS * The schedule(s) are presented to illustrate the requirement to show information for 10 years. However, until a full 10-year trend is compliled, the schedule(s) present information for those year(s) for which information is available. Last 10 Fiscal Years* SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY Flathead Emergency Comm Center REQUIRED SUPPLEMENTARY INFORMATION FISCAL YEAR ENDED June 30, 2017

56 54 PERS Contractually required contributions Contributions in relation to the contractually required contribution Contribution deficiency (excess) FECC covered-employee payroll Contributions as a percentage of covered payroll * The schedule(s) are presented to illustrate the requirement to show information for 10 years. However, until a full 10-year trend is compliled, the schedule(s) present information for those year(s) for which information is available. Flathead County REQUIRED SUPPLEMENTARY INFORMATION FISCAL YEAR ENDED June 30, 2017 SCHEDULE OF CONTRIBUTIONS Last 10 Fiscal Years* , ,681 1,557, % , ,763 1,413, % , ,055 1,398, %

57 Flathead Emergency Communication Center NOTES TO REQUIRED SUPPLEMENTARY INFORMATION June 30, 2017 Public Employees' Retirement System Changes of Benefit Terms The following changes to the plan provision were made as identified: 2013 Legislative Changes: House Bill Permanent Injunction Limits Application of the GABA Reduction passed under HB 454 Guaranteed Annual Benefit Adjustment (GABA) - After the member has completed 12 full months of retirement, the member s benefit increases by the applicable percentage (provided below) each January, inclusive of all other adjustments to the member s benefit. 3% for members hired prior to July 1, % for members hired on or after July 1, 2007 and before July 1, 2013 Members hired on or after July 1, 2013 o 1.5% each year PERS is funded at or above 90%; o 1.5% is reduced by 0.1% for each 2% PERS is funded below 90%; and, o 0% whenever the amortization period for PERS is 40 years or more Legislative Changes: House Bill 101 (effective January 1, 2016)-General Revisions Second Retirement Benefit for PERS 1) Applies to PERS members who return to active service on or after January 1, Members who retire before January 1, 2016, return to PERS-covered employment, and accumulate less than 2 years of service credit before retiring again: receive a refund of member s contributions from second employment plus regular interest (currently 0.25%); receive no service credit for second employment; start same benefit amount the month following termination; and GABA starts again in the January immediately following second retirement. 2) For members who retire before January 1, 2016, return to PERS-covered employment and accumulate two or more years of service credit before retiring again: member receives a recalculated retirement benefit based on laws in effect at second retirement; and, GABA starts in the January after receiving recalculated benefit for 12 months. 55

58 Flathead Emergency Communication Center NOTES TO REQUIRED SUPPLEMENTARY INFORMATION June 30, 2017 Public Employees' Retirement System 3) For members who retire on or after January 1, 2016, return to PERS-covered employment and accumulate less than 5 years of service credit before retiring again: receive a refund of member s contributions from second employment plus regular interest (currently 0.25%); receive no service credit for second employment; start same benefit amount the month following termination; and, GABA starts again in the January immediately following second retirement. 4) For members who retire on or after January 1, 2016, return to PERS-covered employment and accumulate five or more years of service credit before retiring again: member receives same retirement benefit as prior to return to service; member receives second retirement benefit for second period of service based on laws in effect at second retirement; and GABA starts on both benefits in January after member receives original and new benefit for 12 months. House Bill 107 (effective July 1, 2015)-Revise DC Funding Laws Employer Contributions and the Defined Contribution Plan: The PCR was paid off effective March 2016 and the contributions of 2.37%, 0.47%, and the 1.0% increase previously directed to the PCR are now directed to the Defined Contribution. Public Employees' Retirement System (continued) Changes in Actuarial Assumptions and Methods Methods and assumptions used in calculations of actuarially determined contributions. The following addition to the actuarial assumptions was adopted in 2014 based upon implementation of GASB Statement 68: Admin Expense as % of Payroll 0.27% There were no changes following the 2013 Economic Experience study. 56

59 Flathead Emergency Communication Center NOTES TO REQUIRED SUPPLEMENTARY INFORMATION June 30, 2017 Public Employees' Retirement System The following actuarial assumptions are from the June 2010 Experience Study: General Wage Growth* *Includes inflation at Merit increase Investment rate of return Asset valuation method Actuarial cost method Amortization method 4.00% 3.00% 0% to 6.0% 7.75%, net of pension plan investment expense, and including inflation 4-year smoothed market Entry age Level percentage of pay, open 57

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61 Flathead Emergency Communication Center Schedule of Revenue, Expenditures and Changes in Fund Balance General Fund - Budget and Actual For Fiscal Year Ended June 30, 2017 Totals Budgeted Amounts Original Final Revenue Intergovernmental Other revenue Miscellaneous Investment Earnings Total Revenue Expenditures Current Public Safety Personal Services Operations Capital Outlay Total Expenditures 2,968,653 2,303,653 Actual 2,303,653-15,000 5,400 2,324,053 22,950 8,863 2,335,466 7,950 3,463 11,413 2,317, ,450 25,245 3,068,510 2,072, ,955 5,441 2,472,211 1,827, ,611 2,075,886 (245,540) (145,344) (5,441) (396,325) (79,457) (148,158) 259,580 Other financing sources (uses) Transfers in Transfers (out) Total other financing sources (uses) (150,000) (150,000) (79,112) (79,112) (79,112) (79,112) (227,270) 180,468 15,000 5,400 2,989,053 Excess (deficiency) of revenue over expenditures Net change in fund balance Over (under) Final Budget (229,457) Fund balance Beginning of year End of year 59 1,130,340 1,310, , ,738

62 Flathead Emergency Communication Center Schedule of Revenue, Expenditures and Changes in Fund Balance State 911 Fee - Major Special Revenue Fund - Budget and Actual For Fiscal Year Ended June 30, 2017 Budgeted Amounts Original Final Revenue Intergovernmental Total Revenue - Expenditures Current Public Safety Personal Services Operations Capital Outlay Total Expenditures 665, ,000 Over (under) Final Budget Actual 667, ,187 2,187 2, , ,495 90, , , ,495 19, ,299 (70,888) (70,888) Excess (deficiency) of revenue over expenditures - (667,187) (596,299) 73,075 Other financing sources (uses) Transfers (out) Total other financing sources (uses) - (70,888) (70,888) (70,888) (70,888) - Net change in fund balance - Fund balance Beginning of year End of year (73,075) ,075

63 Flathead Emergency Communication Center Schedule of Revenue, Expenditures and Changes in Fund Balance 911 Capital Improvement Plan (CIP) Major Special Revenue Fund - Budget and Actual For Fiscal Year Ended June 30, 2017 Budgeted Amounts Original Final Revenue Other revenue Miscellaneous Investment Earnings Total Revenue Expenditures Current Capital Outlay Total Expenditures Excess of revenue over expenditures Other financing sources (uses) Transfers in Total other financing sources (uses) Net change in fund balance 2,500 2,500 2,500 2,500 Actual 1,400 5,298 6, , , , , , ,791 (214,350) (143,462) (139,093) 150, , , , , ,000 6,538 10,907 (64,350) Fund balance Beginning of year End of year , ,658 Over (under) Final Budget 1,400 2,798 4,198 (171) (171) 4,369 4,369

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65 ANDERSON ZURMUEHLEN & CO., P.C. CERTIFIED PUBLIC ACCOUNTANTS & BUSINESS ADVISORS 402 NORTH BROADWAY,4th FLOOR P.O. BOX BILLINGS, MONTANA TEL: FAX: WEB: M EM BE R : A ME R ICA N IN S T ITUTE O F CERT IF IED PUB L IC A CCOU N TA NT S INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Governing Board of Flathead Emergency Communications Center Kalispell, Montana We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities and each major fund of the Flathead Emergency Communications Center (the FECC), a component unit of Flathead County, as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the FECC s basic financial statements, and have issued our report thereon dated December 8, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the FECC s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the FECC s internal control. Accordingly, we do not express an opinion on the effectiveness of the FECC s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 63