ADAM H. EDELEN AUDITOR OF PUBLIC ACCOUNTS

Transcription

1 REPORT OF THE AUDIT OF THE TRIGG COUNTY FISCAL COURT For The Fiscal Year Ended June 30, 2011 ADAM H. EDELEN AUDITOR OF PUBLIC ACCOUNTS ST. CLAIR STREET FRANKFORT, KY TELEPHONE (502) FACSIMILE (502)

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3 EXECUTIVE SUMMARY AUDIT EXAMINATION OF THE TRIGG COUNTY FISCAL COURT June 30, 2011 The Auditor of Public Accounts has completed the audit of the Trigg County Fiscal Court for fiscal year ended June 30, The financial statements of Trigg County Hospital, Inc., a discretely presented component unit, has been prepared under accounting principles generally accepted in the United States of America, which is inconsistent with the basis of accounting Trigg County, Kentucky uses to prepare its financial statements. As a result, we have issued a qualified opinion of the discretely presented component unit. We have issued an unqualified opinion on the governmental activities, each major fund, and the aggregate remaining fund information. Financial Condition: The fiscal court had total net assets of $10,708,460 as of June 30, The fiscal court had unrestricted net assets of $1,937,570 in its governmental activities as of June 30, The fiscal court s discretely presented component unit had net assets of $1,218,772 as of June 30, The discretely presented component unit had net cash and cash equivalents of $795,084. The fiscal court had total debt principal as of June 30, 2011 of $11,650,000 with $469,167 due within the next year. The discretely presented component unit had total debt principal as of April 30, 2011 of $2,153,849 with $313,102 due within the next year. Report Comments: The Fiscal Court Should Strengthen Internal Controls Over The Financial Reporting Of Capital Assets And Infrastructure The Fiscal Court Did Not Properly Dispose of A Firearm As Required By KRS The Fiscal Court Should Include All Financial Activity On Quarterly Financial Statements Debt Principal Should Be Properly Disclosed On The Quarterly Financial Statements Deposits: The fiscal court deposits were insured and collateralized by bank securities. However, the discretely presented component units deposits as of April 30, 2011, were exposed to custodial credit risk as follows: Uncollateralized and Uninsured $555,396

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5 CONTENTS PAGE INDEPENDENT AUDITOR S REPORT... 1 TRIGG COUNTY OFFICIALS... 4 STATEMENT OF NET ASSETS - MODIFIED CASH BASIS... 7 STATEMENT OF ACTIVITIES - MODIFIED CASH BASIS BALANCE SHEET - GOVERNMENTAL FUNDS - MODIFIED CASH BASIS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS - MODIFIED CASH BASIS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES - MODIFIED CASH BASIS NOTES TO FINANCIAL STATEMENTS BUDGETARY COMPARISON SCHEDULES NOTES TO REQUIRED SUPPLEMENTARY INFORMATION COMBINING BALANCE SHEET - NON-MAJOR GOVERNMENTAL FUNDS - MODIFIED CASH BASIS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - NON-MAJOR GOVERNMENTAL FUNDS - MODIFIED CASH BASIS 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 COMMENTS AND RECOMMENDATIONS APPENDIX A: CERTIFICATION OF COMPLIANCE - LOCAL GOVERNMENT ECONOMIC ASSISTANCE PROGRAM

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7 To the People of Kentucky Honorable Steven L. Beshear, Governor Lori H. Flanery, Secretary Finance and Administration Cabinet Honorable Stanley H. Humphries, Trigg County Judge/Executive Members of the Trigg County Fiscal Court Independent Auditor s Report We have audited the accompanying financial statements of the governmental activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of Trigg County, Kentucky, as of and for the year ended June 30, 2011, which collectively comprise the County s basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the Trigg County Fiscal Court. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Trigg County Hospital, Inc., a discretely presented component unit. Those financial statements were audited by other auditors, whose report thereon has been furnished to us, and our opinion, insofar, as it relates to the amounts included for the discretely presented opinion unit is based on the report of the other auditors. Those financial statements reflect 100% of assets and revenues of the discretely presented component unit opinion. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, and the Audit Guide for Fiscal Court Audits issued by the Auditor of Public Accounts, Commonwealth of Kentucky. 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 and the report of other auditors provide a reasonable basis for our opinions. As described in Note 1, Trigg County, Kentucky, prepares its financial statements in accordance with the modified cash basis, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. The financial statements of the Trigg County Hospital, Inc., a discretely presented component unit, are presented in accordance with the accrual basis of accounting and therefore include certain accruals required by accounting principles generally accepted in the United States of America that are not presented in accordance with the modified cash basis of accounting. The amounts by which these accruals affect the financial statements are not reasonably determinable.

8 To the People of Kentucky Honorable Steven L. Beshear, Governor Lori H. Flanery, Secretary Finance and Administration Cabinet Honorable Stanley H. Humphries, Trigg County Judge/Executive Members of the Trigg County Fiscal Court Page 2 In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had the Trigg County Hospital, Inc. s financial statements been prepared using the same basis of accounting as Trigg County, Kentucky, based on our report and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the discretely presented component unit of Trigg County, Kentucky, as of June 30, 2011, and the changes in financial position, thereof for the year then ended in conformity with the basis of accounting described in Note 1. In addition, in our opinion the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Trigg County, Kentucky, as of June 30, 2011, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with the basis of accounting described in Note 1. The county has implemented Governmental Accounting Standards Board Statement 54 as it relates to the modified cash basis of accounting as described in Note 1, which has altered the format and content of the basic financial statements. The county has not presented the management s discussion and analysis that the Governmental Accounting Standards Board (GASB) has determined is necessary to supplement, although not required to be part of, the basic financial statements. The budgetary comparison information is not a required part of the basic financial statements but is supplementary information required by GASB. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the budgetary comparison information. However, we did not audit it and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Trigg County, Kentucky s basic financial statements. The accompanying supplementary information, combining fund financial statements, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The combining fund financial statements 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. In accordance with Government Auditing Standards, we have also issued our report dated July 9, 2012 on our consideration of Trigg County, Kentucky'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 the internal control 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.

9 To the People of Kentucky Honorable Steven L. Beshear, Governor Lori H. Flanery, Secretary Finance and Administration Cabinet Honorable Stanley H. Humphries, Trigg County Judge/Executive Members of the Trigg County Fiscal Court Page 3 Based on the results of our audit, we present the accompanying comments and recommendations included herein, which discusses the following report comments: The Fiscal Court Should Strengthen Internal Controls Over The Financial Reporting Of Capital Assets And Infrastructure The Fiscal Court Did Not Properly Dispose of A Firearm As Required By KRS The Fiscal Court Should Include All Financial Activity On Quarterly Financial Statements Debt Principal Should Be Properly Disclosed On The Quarterly Financial Statements Respectfully submitted, July 9, 2012 Adam H. Edelen Auditor of Public Accounts

10 OFFICIALS Page 4 For The Year Ended June 30, 2011 Fiscal Court Members: Stanley H. Humphries Mike Wright Barry Littlejohn Jon Goodwin Jeff Broadbent Rick Nelson Larry Lawrence Donnie Tyler County Judge/Executive Magistrate Magistrate Magistrate Magistrate Magistrate Magistrate Magistrate Other Elected Officials: Randall Braboy James Hughes Wanda Thomas Pam Perry Ray Burnam, II Michael Bryan John Mark Vinson County Attorney Jailer County Clerk Circuit Court Clerk Sheriff Property Valuation Administrator Coroner Appointed Personnel: Lucy Oliver Ruth Anne Mitchell Tommy Hanberry County Treasurer Finance Officer Road Supervisor

11 STATEMENT OF NET ASSETS - MODIFIED CASH BASIS June 30, 2011

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13 STATEMENT OF NET ASSETS - MODIFIED CASH BASIS Page 7 June 30, 2011 Component Primary Government Unit Trigg County Governmental Hospital, Inc Activities (April 30, 2011) ASSETS Current Assets: Cash and Cash Equivalents $ 3,026,648 $ 795,084 Patient Accounts Receivable, Net Allowance of $353,800 1,819,125 Supplies 117,748 Prepaid Expenses and Other 183,046 Total Current Assets 3,026,648 2,915,003 Noncurrent Assets: Cash and Investments Internally Designated For Capital Improvements 185,435 Capital Assets - Net of Accumulated Depreciation Construction In Progress 367,513 Land and Land Improvements 1,791,639 Buildings 13,296,279 Vehicles 240,891 Equipment 434,690 Hospital Capital Assets, Net of Accumulated Depreciation 2,310,863 Infrastructure 3,200,800 Total Noncurrent Assets 19,331,812 2,496,298 Total Assets 22,358,460 5,411,301 LIABILITIES Current Liabilities: Accounts Payable 474,070 Accrued Employee Related Expenses 426,477 Current Maturities of Long-Term Obligations 313,102 Estimated Amounts Due To Third Party Payers 764,842 Notes Payable To Banks 302,177 Other Accrued Expenses 71,114 Bonds Payable 460,000 Financing Obligations Payable 9,167 Total Current Liabilities 469,167 2,351,782 Noncurrent Liabilities: Bonds Payable 10,550,000 Financing Obligations Payable 630,833 Long-Term Obligations 1,840,747 Total Noncurrent Liabilities 11,180,833 1,840,747 Total Liabilities 11,650,000 4,192,529 The accompanying notes are an integral part of the financial statements.

14 STATEMENT OF NET ASSETS - MODIFIED CASH BASIS June 30, 2011 (Continued) Page 8 Component Primary Government Unit Trigg County Governmental Hospital, Inc Activities (April 30, 2011) NET ASSETS Invested in Capital Assets, Net of Related Debt $ 7,681,812 $ 511,884 Restricted For: Protection to Persons and Property 59,260 Debt Service 369 Roads 1,029,449 Unrestricted 1,937, ,888 Total Net Assets $ 10,708,460 $ 1,218,772 The accompanying notes are an integral part of the financial statements.

15 STATEMENT OF ACTIVITIES - MODIFIED CASH BASIS For The Year Ended June 30, 2011

16 STATEMENT OF ACTIVITIES - MODIFIED CASH BASIS Page 10 For The Year Ended June 30, 2011 Program Revenues Received Operating Capital Functions/Programs Charges for Grants and Grants and Reporting Entity Expenses Services Contributions Contributions Primary Government: Governmental Activities: General Government $ 1,934,344 $ 42,717 $ 1,644,499 $ Protection to Persons and Property 1,029,779 90, ,479 General Health and Sanitation 377,973 79,224 Social Services 59,654 29,904 15,000 Recreation and Culture 311,301 36,015 Roads 1,190, ,239 1,654,323 Interest on Long-Term Debt 548,779 Capital Projects 439,708 Total Governmental Activities 5,891, ,886 2,222,441 1,654,323 Total Primary Government $ 5,891,941 $ 198,886 $ 2,222,441 $ 1,654,323 Discretely Presented Component Unit: Trigg County Hospital, Inc $ 11,164,210 $ 10,486,115 $ 633,054 $ General Revenues: Taxes: Real Property Taxes Hospital Taxes Motor Vehicle Taxes Insurance Premium Tax Other Taxes In Lieu of Taxes Excess Fees Alcohol Beverage Sales Miscellaneous Revenues Interest Received Total General Revenues Change in Net Assets Net Assets - Beginning (Restated) Net Assets - Ending The accompanying notes are an integral part of the financial statements.

17 STATEMENT OF ACTIVITIES - MODIFIED CASH BASIS For The Year Ended June 30, 2011 (Continued) Page 11 Net (Expenses) Revenues Primary Government Component Unit Trigg County Governmental Hospital, Inc. Activities Totals 4/30/2011 $ (247,128) $ (247,128) $ (736,050) (736,050) (298,749) (298,749) (14,750) (14,750) (275,286) (275,286) 744, ,159 (548,779) (548,779) (439,708) (439,708) (1,816,291) (1,816,291) (1,816,291) (1,816,291) (45,041) 620, , , ,238 93,776 93, , , , , , , , , , ,963 95,772 95, ,024 22,421 22,421 5,795 3,085,220 3,085, ,819 1,268,929 1,268, ,778 9,439,531 9,439,531 1,050,994 $ 10,708,460 $ 10,708,460 $ 1,218,772 The accompanying notes are an integral part of the financial statements.

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19 BALANCE SHEET - GOVERNMENTAL FUNDS - MODIFIED CASH BASIS June 30, 2011

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21 BALANCE SHEET - GOVERNMENTAL FUNDS - MODIFIED CASH BASIS Page 15 June 30, 2011 Public Justice Non- Total General Road Center Major Governmental Fund Fund Corporation Funds Funds ASSETS Cash and Cash Equivalents $ 1,929,729 $ 1,037,128 $ 369 $ 59,422 $ 3,026,648 Total Assets 1,929,729 1,037, ,422 3,026,648 FUND BALANCES Restricted For: Protection to Persons and Property 59,260 59,260 Debt Service Roads 1,029,449 1,029,449 Assigned To: General Government 22,309 22,309 Protection to Persons and Property General Health and Sanitation 44,747 44,747 Roads 7,679 7,679 Unassigned 1,862,673 1,862,673 Total Fund Balances $ 1,929,729 $ 1,037,128 $ 369 $ 59,422 $ 3,026,648 Reconciliation of the Balance Sheet-Governmental Funds to the Statement of Net Assets Total Fund Balances $ 3,026,648 Amounts Reported For Governmental Activities In The Statement Of Net Assets Are Different Because: Capital Assets Used in Governmental Activities Are Not Financial Resources And Therefore Are Not Reported in the Governmental Funds. 21,834,217 Accumulated Depreciation (2,502,405) Long- term Debt Is Not Due And Payable In The Current Period And, Therefore, Is Not Reported In The Governmental Funds. Due Within One Year - Bonds and Financing Obligation Principal Payments (469,167) Due In More Than One Year - Bonds and Financing Obligation Principal Payments (11,180,833) Net Assets Of Governmental Activities $ 10,708,460 The accompanying notes are an integral part of the financial statements.

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23 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS - MODIFIED CASH BASIS For The Year Ended June 30, 2011

24 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS - MODIFIED CASH BASIS Page 18 For The Year Ended June 30, 2011 Public Justice General Road Center Fund Fund Corporation REVENUES Taxes $ 2,277,829 $ $ In Lieu Tax Payments 389,705 47,874 Excess Fees 133,656 Licenses and Permits 5,177 Intergovernmental 921,273 1,934, ,190 Charges for Services 82,451 Miscellaneous 304,767 20,474 Interest 7,382 6, Total Revenues 4,122,240 2,009, ,364 EXPENDITURES General Government 1,428,738 Protection to Persons and Property 792,187 General Health and Sanitation 377,973 Social Services 260,391 Recreation and Culture 317,380 Roads 1,925,403 Debt Service 716, ,940 Capital Projects 439,708 Administration 532, ,879 1,300 Total Expenditures 4,426,277 2,120,282 1,350,948 Excess (Deficiency) of Revenues Over Expenditures Before Other Financing Sources (Uses) (304,037) (110,716) (429,584) Other Financing Sources (Uses) Transfers To Other Funds (150,000) Transfers From Other Funds Total Other Financing Sources (Uses) (150,000) Net Change in Fund Balances (454,037) (110,716) (429,584) Fund Balances - Beginning (Restated) 2,383,766 1,147, ,953 Fund Balances - Ending $ 1,929,729 $ 1,037,128 $ 369 The accompanying notes are an integral part of the financial statements.

25 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS - MODIFIED CASH BASIS For The Year Ended June 30, 2011 (Continued) Page 19 Non- Major Funds Total Governmental Funds $ $ 2,277, , ,656 5,177 99,739 3,876,764 7,799 90, , , ,700 7,160,870 1,428, ,831 1,053, ,973 15, , ,380 1,925,403 1,626, ,708 26, , ,997 8,199,504 (194,297) (1,038,634) (150,000) 150, , ,000 (44,297) (1,038,634) 103,719 4,065,282 $ 59,422 $ 3,026,648 The accompanying notes are an integral part of the financial statements.

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27 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES - MODIFIED CASH BASIS For The Year Ended June 30, 2011

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29 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES - MODIFIED CASH BASIS For The Year Ended June 30, 2011 Page 23 Reconciliation to the Statement of Activities: Net Change In Fund Balances - Total Governmental Funds $ (1,038,634) Amounts Reported For Governmental Activities In The Statement Of Activities Are Different Because: 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 Outlay 1,725,277 Depreciation Expense (495,839) The Issuance Of Long Term Debt Provides Current Financial Resources To Governmental Funds While Repayment Consumes The Current Financial Resources. These Transactions Have No Effect On Net Assets. Financing Obligation Principal Payments 638,125 Bond Principal Payment 440,000 Change in Net Assets of Governmental Activities $ 1,268,929 The accompanying notes are an integral part of the financial statements.

30 INDEX FOR NOTES TO THE FINANCIAL STATEMENTS Page 24 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NOTE 2. DEPOSITS NOTE 3. PATIENT ACCOUNTS RECEIVABLE NOTE 4. CAPITAL ASSETS NOTE 5. HOSPITAL NOTES PAYABLE NOTE 6. LONG-TERM DEBT NOTE 7. EMPLOYEE RETIREMENT SYSTEM NOTE 8. DEFERRED COMPENSATION NOTE 9. INSURANCE NOTE 10. INTERFUND TRANSFERS NOTE 11. SUBSEQUENT EVENTS NOTE 12. PRIOR PERIOD ADJUSTMENTS NOTE 13. CHANGE IN ACCOUNTING PRINCIPAL NOTE 14. DIFFERENCE IN FISCAL YEAR END OF DISCRETELY PRESENTED COMPONENT UNIT... 40

31 NOTES TO FINANCIAL STATEMENTS Page 25 June 30, 2011 Note 1. Summary of Significant Accounting Policies A. Basis of Presentation The county presents its government-wide and fund financial statements in accordance with a modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. Under this basis of accounting, assets, liabilities, and related revenues and expenditures are recorded when they result from cash transactions, with a few exceptions. This modified cash basis recognizes revenues when received and expenditures when paid. Property tax receivables, accounts payable, compensated absences, and donated assets are not reflected in the financial statements. The financial statements of the Trigg County Hospital, Inc., a discretely presented component unit, are prepared on the accrual basis in accordance with accounting principles generally accepted in the United States of America. Under this basis of accounting all assets and liabilities are recognized on the Statement of net Assets. Revenues are recorded when earned and liabilities are recorded when incurred, regardless of timing of cash. The State Local Finance Officer does not require the county to report capital assets and infrastructure; however the value of these assets is included in the Statement of Net Assets and the corresponding depreciation expense is included on the Statement of Activities. B. Reporting Entity The financial statements of Trigg County include the funds, agencies, boards, and entities for which the Fiscal Court is financially accountable. Financial accountability, as defined by Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards, as amended by GASB 14 and GASB 39, was determined on the basis of the government s ability to significantly influence operations, select the governing authority, participate in fiscal management and the scope of public service. Consequently, the reporting entity includes organizations that are legally separate from the primary government. Legally separate organizations are reported as component units if either the county is financially accountable or the organization s exclusion would cause the county s financial statements to be misleading or incomplete. Component units may be blended or discretely presented. Blended component units either provide their services exclusively or almost entirely to the primary government, or their governing bodies are substantively the same as the primary government. All other component units are discretely presented. Blended Component Units The following legally separate organizations provide their services exclusively to the primary government, and the fiscal court is able to impose its will on this organization. These organizations balances and transactions are reported as though they are part of the county s primary government using the blending method. Trigg County Public Justice Center Corporation The Trigg County Public Justice Center Corporation was created exclusively to issue bonds to finance construction of a new judicial center in Trigg County, Kentucky. The Trigg County Fiscal Court is essentially the same governing board as the Trigg County Public Justice Center Corporation and therefore has the ability to impose its will on the governing board. In addition, the fiscal court is financially accountable and legally obligated for the debt of the Public Justice Center Corporation.

32 NOTES TO FINANCIAL STATEMENTS June 30, 2011 (Continued) Page 26 Note 1. Summary of Significant Accounting Policies (Continued) B. Reporting Entity (Continued) Discretely Presented Component Unit The component unit column in the financial statements includes the data for the Trigg County Hospital, Inc. It is reported on the Statement of Net Assets and the Statement of Activities in a separate column to emphasize its separateness from the fiscal court s primary government. Trigg County Hospital, Inc. The Trigg County Fiscal Court (Trigg County) appoints a voting majority of the Trigg County Hospital, Inc. s governing board. The Trigg County Hospital, Inc. is financially accountable and legally obligated for the debt of the hospital as long as a lease dated July 23, 1999, by and between Trigg County and the Trigg County Public Hospital Corporation, a component unit of Trigg County Hospital, is in effect. The Trigg County Hospital, Inc. may make additional improvements to the hospital at its own cost, which becomes part of the hospital. Exclusion of this entity as a component unit of Trigg County would cause the county s financial statements to be misleading or incomplete. The financial information for the Hospital is presented discretely within Trigg County s financial statements. Audited financial statements for the Trigg County Hospital, Inc., a discretely presented component unit, may be requested by contacting the Trigg County Hospital at (270) The county has another discretely presented component unit, the Trigg County Tourist Commission (Commission). The Commission s financial statements have not been included in the County s financial statements, as they are considered immaterial. C. Trigg County Elected Officials Kentucky law provides for election of the officials below from the geographic area constituting Trigg County. Pursuant to state statute, these officials perform various services for the Commonwealth of Kentucky, its judicial courts, the fiscal court, various cities and special districts within the county, and the board of education. In exercising these responsibilities, however, they are required to comply with state laws. Audits of their financial statements are issued separately and individually and can be obtained from their respective administrative offices. These financial statements are not required to be included in the financial statements of Trigg County, Kentucky. Circuit Court Clerk County Attorney Property Valuation Administrator County Clerk County Sheriff

33 NOTES TO FINANCIAL STATEMENTS June 30, 2011 (Continued) Page 27 Note 1. Summary of Significant Accounting Policies (Continued) D. Government-wide and Fund Financial Statements The government wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its non-fiduciary component units. For the most part, the effect of interfund activities has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on sales, fees, and charges for support. Business-type revenues come mostly from fees charged to external parties for goods or services. Fiduciary funds are not included in these financial statements due to the unavailability of fiduciary funds to aid in the support of government programs. The statement of net assets presents the reporting entity s non-fiduciary assets and liabilities, the difference between the two being reported as net assets. Net assets are reported in three categories: 1) invested in capital assets, net of related debt - consisting of capital assets, net of accumulated depreciation and reduced by outstanding balances for debt related to the acquisition, construction, or improvement of those assets; 2) restricted net assets - resulting from constraints placed on net assets by creditors, grantors, contributors, and other external parties, including those constraints imposed by law through constitutional provisions or enabling legislation; and 3) unrestricted net assets - those assets that do not meet the definition of restricted net assets or invested in capital assets. The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program revenues include: l) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function; 2) operating grants and contributions; and 3) capital grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Internally dedicated resources such as taxes and unrestricted state funds are reported as general revenues. Generally and except as otherwise provided by law, property taxes are assessed as of January 1, levied (mailed) November 1, due at discount November 30, due at face value December 31, delinquent January 1 following the assessment, and subject to sale ninety days following April 15. Funds are characterized as either major or non-major. Major funds are those whose assets, liabilities, revenues, or expenditures/expenses are at least ten percent of the corresponding total (assets, liabilities, etc.) for all funds or type (governmental or proprietary) and whose total assets, liabilities, revenues, or expenditures/expenses are at least five percent of the corresponding total for all governmental and enterprise funds combined. The fiscal court may also designate any fund as major. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds. Major individual governmental funds and major enterprise funds are reported as separate columns in the financial statements.

34 NOTES TO FINANCIAL STATEMENTS June 30, 2011 (Continued) Page 28 Note 1. Summary of Significant Accounting Policies (Continued) D. Government-wide and Fund Financial Statements (Continued) Governmental Funds The primary government reports the following major governmental funds: General Fund - This is the primary operating fund of the fiscal court. It accounts for all financial resources of the general government, except where the Department for Local Government requires a separate fund or where management requires that a separate fund be used for some function. Road Fund - This fund is for road and bridge construction and repair. The primary source of revenue for this fund is state payments for truck license distribution, municipal road aid, and transportation grants. The Department for Local Government requires the fiscal court to maintain these receipts and expenditures separately from the General Fund. Trigg County Public Justice Center Corporation This fund is used to account for the activities of the Public Justice Center Corporation, a blended component unit of the County. The Public Justice Center Corporation issued debt to construct a new judicial facility, to be leased to the Administrative Office of The Courts (AOC), Commonwealth of Kentucky. The Department for Local Government does not require the Fiscal Court to report or budget these funds. The primary government also has the following non-major funds: Jail Fund and Community Development Block Grant Fund. Special Revenue Funds: The Road Fund, Jail Fund, and, Community Development Block Grant Fund, are presented as special revenue funds. Special revenue funds are to account for the proceeds of significant restricted and/or committed revenue sources and expenditures that are legally restricted or committed for specific purposes. Debt Service Fund: The Public Justice Center Corporation is presented as a debt service fund. Debt service funds are to account for the accumulation of resources for, and the payment of general long-term debt principal and interest. This fund was formerly shown as a capital projects fund. However, in fiscal year ended June 30, 2011 the fund was predominantly used as a debt service fund Presentation of Component Units The financial statements present the following major discretely presented component unit: Trigg County Hospital, Inc. This component unit is presented in separate columns in the combined financial statements. It is also reported on the Statement of Net Assets and the Statement of Activities in a separate total column that is labeled as Component Unit to emphasize these organizations separateness from the fiscal court s primary government.

35 NOTES TO FINANCIAL STATEMENTS June 30, 2011 (Continued) Page 29 Note 1. Summary of Significant Accounting Policies (Continued) E. Deposits and Investments The government s cash and cash equivalents are considered to be cash on hand, demand deposits, certificates of deposit, and short-term investments with original maturities of three months or less from the date of acquisition. KRS authorizes the county to invest in the following, including but not limited to, obligations of the United States and of its agencies and instrumentalities, obligations and contracts for future delivery or purchase of obligations backed by the full faith and credit of the United States, obligations of any corporation of the United States government, bonds or certificates of indebtedness of this state, and certificates of deposit issued by or other interest-bearing accounts of any bank or savings and loan institution which are insured by the Federal Deposit Insurance Corporation (FDIC) or which are collateralized, to the extent uninsured, by any obligation permitted by KRS (4). F. Capital Assets Capital assets, which include land, land improvements, buildings, furniture and office equipment, building improvements, machinery, equipment, and infrastructure assets (roads and bridges) that have a useful life of more than one reporting period based on the government s capitalization policy, are reported in the applicable governmental or business-type activities of the government-wide financial statements. Such assets are recorded at historical cost or estimated historical cost when purchased or constructed. Cost of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset s life are not capitalized. Land and Construction In Progress are not depreciated. Interest incurred during construction is not capitalized. Capital assets and infrastructure are depreciated using the straight-line method of depreciation over the estimated useful life of the asset. Capitalization Threshold Useful Life (Years) Buildings and Building Improvements $ 5, Machinery and Equipment $ 5, Vehicles $ 5, Infrastructure $ 5, G. Long-term Obligations In the government-wide financial statements and proprietary fund types in the fund financial statements, long term debt and other long-term obligations are reported as liabilities in the applicable financial statements. The principal amount of bonds, notes and financing obligations are reported. In the fund financial statements, governmental fund types recognize bond interest, as well as bond issuance costs when received or when paid, during the current period. The principal amount of the debt and interest are reported as expenditures. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as expenditures. Debt proceeds are reported as other financing sources.

36 NOTES TO FINANCIAL STATEMENTS June 30, 2011 (Continued) Page 30 Note 1. Summary of Significant Accounting Policies (Continued) H. Fund Equity In the fund financial statements, the difference between the assets and liabilities of governmental funds is reported as fund balance. Fund balance is divided into non-spendable and spendable components, if applicable. Non-spendable includes amounts that must be maintained intact legally or contractually. Spendable include the following: Restricted-amounts constrained for a specific purpose by external parties, constitutional provisions, or enabling legislation. Committed-amounts constrained for a specific purpose by the county using its highest level of decision making authority. Assigned-for all governmental funds, other than general fund, any remaining positive amounts not classified as non-spendable, restricted, or committed. For the general fund, amounts constrained by intent to be used for a specified purpose by the County or the delegated county committee or official given authority to assign amounts. Unassigned-for the general fund, amounts not classified as non-spendable, restricted, committed or assigned. For all other governmental funds, amount expended in excess of resources that are non-spendable, restricted, committed or assigned. For resources considered committed, the county issues an ordinance or resolution that can only be changed with another corresponding ordinance or resolution. For resources considered assigned, the county has designated the treasurer to carry out the intent of the fiscal court. It is the policy of the County to spend restricted resources first, when both restricted and unrestricted resources are available to spend on the activity. Once restricted resources are exhausted, then committed, assigned and unassigned resources will be spent in that order on the activity. Encumbrances, although not reported on the balance sheet, are purchase orders that will be fulfilled in a subsequent fiscal period. Although the purchase order or contract creates a legal commitment, the fiscal court incurs no liability until performance has occurred on the part of the party with whom the fiscal court has entered into the arrangement. When a government intends to honor outstanding commitments in subsequent periods, such amounts are encumbered. Due to the modified cash basis of accounting, encumbrances can also include invoices for goods or services received at June 30, but not yet paid and not included as an accounts payable. Significant encumbrances at year end are reported by major funds and non-major funds in the aggregate and included with the commitments and contingencies note disclosure, if applicable. I. Budgetary Information Annual budgets are adopted on a cash basis of accounting and according to the laws of Kentucky as required by the State Local Finance Officer. The County Judge/Executive is required to submit estimated receipts and proposed expenditures to the fiscal court by May 1 of each year. The budget is prepared by fund, function, and activity and is required to be adopted by the fiscal court by July 1.

37 NOTES TO FINANCIAL STATEMENTS June 30, 2011 (Continued) Page 31 Note 1. Summary of Significant Accounting Policies (Continued) I. Budgetary Information (Continued) The fiscal court may change the original budget by transferring appropriations at the activity level; however, the fiscal court may not increase the total budget without approval by the State Local Finance Officer. Expenditures may not exceed budgeted appropriations at the activity level. The Trigg County Public Justice Center Corporation (blended component unit) and the Trigg County Hospital, Inc. (discretely presented component unit) are not budgeted. The Department for Local Government does not require the Fiscal Court to report or budget these funds. J. Interfund Transactions The Trigg County Fiscal Court has the following type of interfund transactions. Interfund Transfers - Transfers presented in the fund financial statements represent the flow of assets (such as goods or cash) without equivalent flow of assets in return or requirement of repayment. The composition of the interfund transfers is presented in Note 5. Note that at the entity-wide level, the interfund transfers have been eliminated. This is to avoid revenues and expenses from being reported more than once. K. Joint Venture and Jointly Governed Organization Joint Venture A legal entity or other organization that results from a contractual agreement and that is owned, operated, or governed by two or more participants as a separate activity subject to joint control, in which the participants retain (a) an ongoing financial interest or (b) an ongoing financial responsibility is a joint venture. Based upon these criteria, the following is considered a joint venture of the Trigg County Fiscal Court: Trigg County Industrial Development. Jointly Governed Organizations A regional government or other multi-governmental arrangement that is governed by representatives from each of the governments that created the organization, but that is not a joint venture because the participants do not retain an ongoing financial interest or responsibility is a jointly governed organization. Based on these criteria, the following are considered jointly governed organizations of the Trigg County Fiscal Court: Trigg County/City of Cadiz Planning and Zoning Commission. Note 2. Deposits The primary government maintained deposits of public funds with depository institutions insured by the Federal Deposit Insurance Corporation (FDIC) as required by KRS (1)(d). According to KRS (4), the depository institution should pledge or provide sufficient collateral which, together with FDIC insurance, equals or exceeds the amount of public funds on deposit at all times. In order to be valid against the FDIC in the event of failure or insolvency of the depository institution, this pledge or provision of collateral should be evidenced by an agreement between the county and the depository institution, signed by both parties, that is (a) in writing, (b) approved by the board of directors of the depository institution or its loan committee, which approval must be reflected in the minutes of the board or committee, and (c) an official record of the depository institution. These requirements were met.

38 NOTES TO FINANCIAL STATEMENTS June 30, 2011 (Continued) Page 32 Note 2. Deposits (Continued) Custodial Credit Risk Deposits Custodial credit risk is the risk that in the event of a depository institution failure, the government s deposits may not be returned. The government does not have a deposit policy for custodial credit risk, but rather follows the requirements of KRS (4). As of June 30, 2011, all deposits of the primary government were covered by FDIC insurance or a properly executed collateral security agreement. Discretely Presented Component Unit -Trigg County Hospital, Inc. April 30, 2011 Uninsured and collateral held by pledging finacial institution $ 555,396 Note 3. Patient Accounts Receivable The Hospital grants credit without collateral to its patients, many of whom are area residents and are insured under third-party payer agreements. Patients account receivable at April 30, 2011 consisted of: Medicare $ 791,388 Medicaid 130,537 Other Third-Party Payers 765,453 Patients 485,571 2,172,949 Less Allowance For Uncollectible Accounts (353,824) Net Patients Accounts Receivable $ 1,819,125

39 NOTES TO FINANCIAL STATEMENTS June 30, 2011 (Continued) Page 33 Note 4. Capital Assets Capital asset activity for the year ended June 30, 2011 was as follows: Reporting Entity Beginning Ending Primary Government: Balance Increases Decreases Balance Governmental Activities: Capital Assets Not Being Depreciated: Land and Land Improvements $ 13,159,735 $ 710,366 $ (12,078,462) $ 1,791,639 Construction In Progress 367, ,513 Total Capital Assets Not Being Depreciated 13,527, ,366 (12,078,462) 2,159,152 Capital Assets, Being Depreciated: Buildings 1,994,857 12,078,462 14,073,319 Vehicles 610,649 81, ,701 Equipment 1,093, ,626 (12,000) 1,189,111 Infrastructure 2,894, ,233 3,720,934 Total Capital Assets Being Depreciated 6,593,692 13,093,373 (12,000) 19,675,065 Less Accumulated Depreciation For: B Buildings (555,423) (221,617) (777,040) V Vehicles (399,025) (51,785) (450,810) E Equipment (676,085) (90,336) 12,000 (754,421) I Infrastructure (388,033) (132,101) (520,134) Total Accumulated Depreciation (2,018,566) (495,839) 12,000 (2,502,405) Total Capital Assets, Being Depreciated, Net 4,575,126 12,597,534 17,172,660 Governmental Activities Capital Assets, Net $ 18,102,374 $ 13,307,900 $ (12,078,462) $ 19,331,812 Depreciation expense was charged to functions of the primary government as follows: Governmental Activities: General Government $ 236,454 Protection to Persons and Property 30,587 Social Services 8,792 Recreation and Culture 13,871 Roads, Including Depreciation of General Infrastructure Assets 206,135 Total Depreciation Expense - Governmental Activities $ 495,839

40 NOTES TO FINANCIAL STATEMENTS June 30, 2011 (Continued) Page 34 Note 4. Capital Assets (Continued) Capital asset activity for the discretely presented component unit for the year ended April 30, 2011was as follows: Reporting Entity Beginning Ending Discretely Presented Component Unit Balance Increases Decreases Balance Trigg County Hospital, Inc. Capital Assets: Land $ 66,000 $ $ $ 66,000 Buildings and Leasehold Improvements 5,436, ,085 5,578,766 Equipment 1,112, ,760 (95,000) 1,271,531 Capital Leased Assets 591, ,681 7,207, ,845 (95,000) 7,507,978 Less Accumulated Depreciation For: Buildings and Leasehold Improvements (2,508,733) (2,508,733) Equipment (2,375,562) (407,820) 95,000 (2,688,382) Total Accumulated Depreciation (4,884,295) (407,820) 95,000 (5,197,115) Capital Assets, Net $ 2,322,838 $ (11,975) $ 0 $ 2,310,863 Depreciation expense was charged to functions of the discretely presented component unit as follows: Discretely Presented Component Unit: Trigg County Hospital, Inc $ (407,820) Total Depreciation Expense - Governmental Activities $ (407,820) Note 5. Hospital Notes Payable The Hospital periodically borrows funds from banks to finance working capital and capital asset acquisitions on an interim basis. The following is a summary of the short-term notes payable to banks for transactions at April 30, 2011: April 30, 2011 $400,000 line of credit, prime rate (3.25% at April 30, 2011) due March 30, 2012, secured by all business assets $ 302,177 $ 302,177

41 NOTES TO FINANCIAL STATEMENTS June 30, 2011 (Continued) Page 35 Note 6. Long-term Debt A. Trigg County Public Justice Center Corporation Lease Revenue Bonds, Series 2007 The Trigg County Public Justice Center Corporation issued Lease Revenue Bonds, Series 2007 dated September 26, 2007 for $12,280,000 to be used for the construction of a new judicial center and for the retirement of the General Obligation Anticipation Notes, Series Interest is payable semi-annually for 20 years and varies from percent to percent. The Trigg County Public Justice Center Corporation has leased the building to the Administrative Office of The Courts (AOC), Commonwealth of Kentucky, and the AOC is providing the debt service payments as prescribed in the aforementioned lease. The principal balance as of June 30, 2011 was $11,010,000. Future principal and interest requirements are as follows: Governmental Activities Fiscal Year Ended June 30 Principal Interest 2012 $ 460,000 $ 453, , , , , , , , , ,035,000 1,519, ,745, , ,745,000 78,359 Totals $ 11,010,000 $ 4,478,576 B. Senior Citizens Center The Trigg County Fiscal Court entered into a lease agreement with the Kentucky Association of Counties Leasing Trust Program (KACoLT) for the construction of a new senior citizens center for $1,300,000. The terms of the lease agreement are monthly principal and interest payments at an interest rate of 4.99% for a thirty year period. In January 2011, KACoLT refinanced the loan and Trigg County made additional principal payments. The refinanced loan principal amount was $650,000.

42 NOTES TO FINANCIAL STATEMENTS June 30, 2011 (Continued) Page 36 Note 6. Long-term Debt (Continued) B. Senior Citizens Center (Continued) The principal balance as of June 30, 2011 was $640,000. Future principal and interest requirements are as follows: Governmental Activities Fiscal Year Ended June 30 Principal Interest 2012 $ 9,167 $ 29, ,083 31, ,000 31, ,000 30, ,000 29, , , , , ,083 92, ,083 54, ,417 10,984 Totals $ 640,000 $ 568,931 C. Changes in Long-term Liabilities Long-term liability activity for the year ended June 30, 2011, was as follows Primary Government: Governmental Activities: Beginning Ending Due Within Balance Additions Reductions Balance One Year Revenue Bonds $ 11,450,000 $ $ 440,000 $ 11,010,000 $ 460,000 Financing Obligations 1,278, , ,000 9,167 Governmental Activities Long-term Liabilities $ 12,728,125 $ 0 $ 1,078,125 $ 11,650,000 $ 469,167 D. Trigg County Hospital, Inc. Discretely Presented Component Unit The following is a summary of long-term obligation transactions for the Trigg County Hospital, Inc., a discretely presented component unit of Trigg County, Kentucky, for the year ended April 30, 2011: