Washington State Auditor s Office. Financial Statements and Federal Single Audit Report. Franklin County

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1 Washington State Auditor s Office Financial Statements and Federal Single Audit Report Franklin County Audit Period January 1, 2011 through December 31, 2011 Report No Issue Date September 26, 2012

2 Washington State Auditor Brian Sonntag September 26, 2012 Board of Commissioners Franklin County Pasco, Washington Report on Financial Statements and Federal Single Audit Please find attached our report on Franklin County s financial statements and compliance with federal laws and regulations. We are issuing this report in order to provide information on the County s financial condition. Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Insurance Building, P.O. Box Olympia, Washington (360) TDD Relay (800) FAX (360)

3 Table of Contents Franklin County January 1, 2011 through December 31, 2011 Federal Summary... 1 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards... 3 Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A Independent Auditor s Report on Financial Statements... 7 Financial Section... 9

4 Federal Summary Franklin County January 1, 2011 through December 31, 2011 The results of our audit of Franklin County are summarized below in accordance with U.S. Office of Management and Budget Circular A-133. FINANCIAL STATEMENTS An unqualified opinion was issued on the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information. Internal Control Over Financial Reporting: Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over financial reporting that we consider to be significant deficiencies. Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses. We noted no instances of noncompliance that were material to the financial statements of the County. FEDERAL AWARDS Internal Control Over Major Programs: Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over major federal programs that we consider to be significant deficiencies. Material Weaknesses: We identified no deficiencies that we consider to be material weaknesses. We issued an unqualified opinion on the County s compliance with requirements applicable to each of its major federal programs. We reported no findings that are required to be disclosed under section 510(a) of OMB Circular A

5 Identification of Major Programs: The following were major programs during the period under audit: CFDA No. Program Title Community Development Block Grants/State's Program Highway Planning and Construction Cluster ARRA - Highway Planning and Construction Cluster (Recovery Act) The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by OMB Circular A-133, was $300,000. The County qualified as a low-risk auditee under OMB Circular A

6 Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards Franklin County January 1, 2011 through December 31, 2011 Board of Commissioners Franklin County Pasco, Washington We have audited the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of Franklin County, Washington, as of and for the year ended December 31, 2011, which collectively comprise the County s basic financial statements, and have issued our report thereon dated September 25, During the year ended December 31, 2011, the County implemented Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. 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. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit, we considered the County s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the County s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the County s internal control over financial reporting. 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 County's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 3

7 COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the County s financial statements are free of material misstatement, we performed tests of the County s compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended for the information and use of management, the Board of Commissioners, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR September 25,

8 Independent Auditor s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 Franklin County January 1, 2011 through December 31, 2011 Board of Commissioners Franklin County Pasco, Washington COMPLIANCE We have audited the compliance of Franklin County, Washington, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended December 31, The County s major federal programs are identified in the Federal Summary. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the County s management. Our responsibility is to express an opinion on the County s compliance based on our audit. We conducted our audit of compliance 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 OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the County s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the County s compliance with those requirements. In our opinion, the County complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31,

9 INTERNAL CONTROL OVER COMPLIANCE The management of the County is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the County s internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the County's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended for the information of management, the Board of Commissioners, federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, CGFM STATE AUDITOR September 25,

10 Independent Auditor s Report on Financial Statements Franklin County January 1, 2011 through December 31, 2011 Board of Commissioners Franklin County Pasco, Washington We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of Franklin County, Washington, as of and for the year ended December 31, 2011, which collectively comprise the County s basic financial statements as listed on page 9. These financial statements are the responsibility of the County s management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of Franklin County, as of December 31, 2011, and the respective changes in financial position and, where applicable, cash flows thereof, and the respective budgetary comparison for the General Fund and County Road Fund, for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 1, during the year ended December 31, 2011, the County implemented Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. In accordance with Government Auditing Standards, we have also issued our report on our consideration of the County 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. 7

11 Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 10 through 24, and information on postemployment benefits other than pensions on pages 80 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 the 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. Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the County s basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. This schedule is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. BRIAN SONNTAG, CGFM STATE AUDITOR September 25,

12 Financial Section Franklin County January 1, 2011 through December 31, 2011 REQUIRED SUPPLEMENTARY INFORMATION Management s Discussion and Analysis 2011 BASIC FINANCIAL STATEMENTS Statement of Net Assets 2011 Statement of Activities 2011 Balance Sheet Governmental Funds 2011 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 2011 Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Funds 2011 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 2011 Budgetary Comparison Statement General Fund 2011 Budgetary Comparison Statement County Road Fund 2011 Statement of Net Assets Proprietary Funds 2011 Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Funds 2011 Statement of Cash Flows Proprietary Funds 2011 Statement of Fiduciary Net Assets Fiduciary Funds 2011 Notes to Financial Statements 2011 SUPPLEMENTARY INFORMATION Schedules of Funding Progress and Employer Contributions for LEOFF Plan 1 Other Postemployment Benefit Plan 2011 Schedule of Expenditures of Federal Awards 2011 Notes to the Schedule of Expenditures of Federal Awards

13 MANAGEMENT S DISCUSSION AND ANALYSIS Provided in this section of Franklin County s annual financial report is our narrative discussion and analysis of the financial activities for the fiscal year ended on December 31, The County s financial performance is discussed and analyzed within the context of the accompanying financial statements and disclosures following this section. FINANCIAL HIGHLIGHTS The total net assets of Franklin County exceeded its liabilities at the close of the most recent fiscal year by $222,951,400, a decrease of ($1,892,861) from At December 31, 2011, the County s governmental funds reported combined ending fund balance of $6,623,620, a decrease of ($295,965) from Approximately 29% of the fund balance is available to spend at the government s discretion, the rest is either restricted by outside sources or committed by the County for specific purposes. Unassigned fund balance of $1,790,802 in the General Fund at year end shows an increase of $252,415 over Of this increase, $321,840 can be attributed to fund balance reclassifications due to the implementation of GASB 54. The unassigned fund balance represented 7.53% of total General Fund expenditures compared to 6.83% of total General Fund expenditures for Adjusted for GASB 54 fund balance reclassifications, the 2010 General Fund fund balance was 6.82% of total expenditures prior to GASB 54. For information related to GASB 54 fund balance, please see the Major Governmental Funds section (The General Fund) of this report. The above financial highlights are explained in more detail in the financial analysis section of this document. OVERVIEW OF THE FINANCIAL STATEMENTS The County s annual financial report includes two government-wide financial statements. These statements provide both long-term and short-term information about the County s overall financial status. Financial reporting at this level uses a perspective similar to that found in the private sector with its basis in accrual accounting and elimination or reclassification of activities between funds. The first of these government-wide statements is the Statement of Net Assets. This is the government-wide statement of position presenting information that includes all of the County s assets and liabilities, with the difference reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the County as a whole is improving or deteriorating. Evaluation of the overall health of the County would extend to other non-financial factors such as 10

14 diversification of the taxpayer base or the condition of County infrastructure, in addition to the financial information provided in this report. The second government-wide statement is the Statement of Activities, which reports how the County s net assets changed during the current fiscal year. All current year revenues and expenses are included regardless of when cash is received or paid. An important purpose of the design of the statement of activities is to show the financial reliance of the County s distinct activities or functions on revenues provided by the County s taxpayers. Both government-wide financial statements distinguish governmental activities of the County that are principally supported by taxes from business-type activities that are intended to recover all or a significant portion of their costs through user fees and charges. Governmental activities include general government, public safety, judicialcourts, public works, economic environment (planning and building) culture and recreation and community services. Business-type activities include the Trade Recreation Agricultural Center (TRAC) and the Franklin County RV Park. Fund Financial Statements - A fund is an accountability unit used to maintain control over resources segregated for specific activities or objectives. The County uses funds to ensure and demonstrate compliance with finance-related laws and regulations. Within the basic financial statements, fund financial statements focus on the County s most significant funds rather than the County as a whole. Major funds are separately reported while all others are combined into a single, aggregated presentation. Individual fund data for non-major funds is provided in the form of combining statements in a later section of this report. County Fund Types Governmental Funds are reported in the fund financial statements and encompass the same functions reported as governmental activities in the government-wide financial statements. However, the focus is very different with fund statements providing a distinctive view of the County s governmental funds. These statements report shortterm fiscal accountability focusing on the use of spendable resources and balances of spendable resources available at the end of the year. They are useful in evaluating annual financing requirements of governmental programs and the commitment of spendable resources for the near-term. Since the government-wide focus includes the long-term view, comparisons between these two perspectives may provide insight into the long-term impact of short-term financing decisions. Both the governmental fund balance sheet and the governmental fund operating statement provide a reconciliation to assist in understanding the differences between these two perspectives. Individual fund information for non-major governmental funds is found in the combining statements in the supplementary section of this report. 11

15 Proprietary funds are reported in the fund financial statements and generally report services for which the County charges customers a fee. The County operates five proprietary funds, which includes two enterprise funds and three internal service funds. The enterprise funds (TRAC and RV Park) essentially encompass the same functions reported as business-type activities in the government-wide statements. Services are provided to customers external to the County. The TRAC Promotions fund was retired during 2011, and the net fund balance of $26,956 was transferred in the General Fund. The internal service funds consist of the Motor Vehicle Fund which accounts for the County s fleet of vehicles, and two small unemployment funds that the County uses to self-insure for actual unemployment claims. Services provided by these funds are internal to the County, and for the most part eliminated from the government-wide statements. Notes to the Basic Financial Statements The accompanying notes to the financial statements provide information essential to a full understanding of the government-wide and fund financial statements. Required Supplementary Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the County s budget presentations. Budgetary comparison statements are included as required supplementary information (RSI) for the General Fund and the County Road Fund. These statements and schedules demonstrate compliance with the County s adopted and final revised budget. Also required and presented in the financial statements is the County s Other Post Employment Benefit (OPEB) information. Supplementary Information As discussed, the County reports major funds in the basic financial statements. Combining and individual statements and schedules for non-major funds are presented in the supplementary section of this report. Overall Analysis of Financial Position and Result of Operations As noted earlier, net assets may serve over time as a useful indicator of a government s financial position. In the case of Franklin County, assets exceeded liabilities by $222,951,400 at the close of the most recent year, which compares to $224,844,261 at the end of There was a small decline in overall fund balance (net of capital and related debt) during 2011 in the amount of ($345,802). Most of this fund balance change was in the Governmental Activities ($340,057). 12

16 Below is a summary of changes in net assets for the County as a whole: Assets: Statement of Net Assets Governmental Activities Business-Type Activities Total Current Assets $ 9,879,857 $ 9,835,207 $ 445,046 $ 707,339 $ 10,324,903 $ 10,542,546 Noncurrent Assets 333, , , ,277 Capital Assets 232,780, ,805,874 5,879,715 6,477, ,659, ,283,285 Total Assets 242,993, ,041,358 6,324,761 7,184, ,318, ,226,108 Liabilities: Current Liabilities 2,954,139 2,844, , ,504 3,062,684 3,227,101 Long-Term Liabilities 23,070,023 24,857, , ,164 23,304,598 25,154,746 Total Liabilities 26,024,162 27,702, , ,668 26,367,282 28,381,847 Net Assets: Investment in Capital Assets, Net of Debt 213,157, ,186,800 5,719,715 6,237, ,877, ,424,211 Restricted 3,537, , ,537, ,570 Unrestricted 274,980 3,503, , , ,906 3,771,480 Total Net Assets $ 216,969,759 $ 218,339,179 $ 5,981,641 $ 6,505,082 $ 222,951,400 $ 224,844,261 The County reported capital assets, net of related debt, in governmental-type activities in the amount of $213,157,437. This compares to $214,186,800 for 2010, a decrease of ($1,029,363). Detailed information related to changes in capital assets can be found in the Notes to the Financial Statements, Note #5, and information relating to the changes in long-term liabilities can be found in Note #9. Depreciation expense in the amounts of $8,464,108 including $6,415,402 from infrastructure in government activities, and $840,262 in business-type funds, has a negative impact on net assets unrelated to the current operations of the County, however, the capital assets which are also shown net of related debt in the Net Assets section of the financial statement, increased by $1,996,301 due to the related debt that was retired during See the Capital Assets and Long Term Debt section of this report for more detailed information. Approximately 98.2% of the governmental activities net assets (net of related debt) are tied up in capital. This compares to 98.1% for Investments in infrastructure, net of accumulated depreciation, in the amount of $202,526,616 account for these high percentages. The County uses these capital assets to provide services to citizens, therefore these assets are not available for future expenses. Also, the resources needed to repay the debt used to obtain the capital assets must be provided from other sources, as the capital assets cannot be used to liquidate these liabilities. The business-type activities also have a high percentage of net capital assets to total net assets, at 95.6%. This is a small reduction to 2010 s percentage of 95.9%. Also, the reason for high business-type activities ratio of net capital assets to total net assets is 13

17 the inheritance of contributed capital, largely purchased with general obligation bonds being retired primarily by governmental activities. These assets include the TRAC and RV facilities and furnishings. Overall (Governmental and Business-type), the County had 98.0% of its net assets contained in capital assets, compared to 98.2% for Key elements of 2011 s changes in net assets are as follows: Revenues: Program: Charges for Services $ 7,162,051 $ 7,638,055 $ 2,436,775 $ 2,201,786 $ 9,598,826 $ 9,839,841 Operating Grants & Contributions 4,298,462 4,813, , ,987 4,541,330 5,083,473 Capital Grants & Contributions 4,458,365 3,151, ,565 45,513 4,700,930 3,197,214 General: Property Taxes 10,733,771 10,669, ,733,771 10,669,060 Sales Taxes 5,612,749 4,950, ,612,749 4,950,942 Other Taxes 2,986,069 2,812,720 (33,494) (27,529) 2,952,575 2,785,191 Unrestricted Contributions 44,538 49, ,538 49,564 Investment Earnings 182, , , ,925 Gain on sale of capital assets 24, ,597 - Total Revenues 35,502,812 34,273,384 2,888,761 2,489,826 38,391,573 36,763,210 Program Expenses Summary of Changes in Net Assets Governmental Activities Business-Type Activities Total Judicial 3,516,685 3,696, ,516,685 3,696,405 General Government 8,151,083 7,978, ,151,083 7,978,978 Public Safety 11,015,719 10,501, ,015,719 10,501,818 Physical Environment 184, , , ,914 Transportation 11,355,687 10,640, ,355,687 10,640,526 Human Services - 10, ,017 Economic Environment 587, , , ,525 Health 457, , , ,372 Culture & Recreation 478, ,596 3,517,602 3,377,630 3,996,091 3,600,226 Interest on Long-Term Debt 894, , , ,581 Total Expenses 36,640,387 35,310,732 3,517,602 3,377,630 40,157,988 38,688,362 Excess (Deficiency) (1,137,575) (1,037,348) (628,841) (887,804) (1,766,415) (1,925,152) Special Item - loss on disposition of capital assets (Note 6) (350,152) (350,152) Extraordinary Item (See Note 16) (126,446) (126,446) - Transfers (105,400) (117,820) 105, , Change in Net Assets (1,369,421) (1,505,320) (523,441) (769,984) (1,892,861) (2,275,304) Beginning Net Assets 218,339, ,883,765 6,505,082 7,275, ,844, ,158,831 Changes to Fund Balance (Note 17) (39,266) (39,266) Ending Net Assets $ 216,969,758 $ 218,339,179 $ 5,981,641 $ 6,505,082 $ 222,951,399 $ 224,844,261 14

18 In conclusion, the overall key indicators of net assets, capital assets net of related debt and fund balances continue to remain steady as the County continues to operate in a national economy that continues to struggle. GOVERNMENTAL REVENUES AND EXPENSES Governmental Activities Program Costs The results of Franklin County s governmental activities was a reduction in net assets of ($1,369,420). As noted earlier, depreciation expense of $8,464,108 plays an important role in the reduction of net assets. For 2011, governmental activities total net program costs were ($20,721,508), a increase of ($1,014,018) compared to 2010 ($19,707,490). The following table presents the cost of each of the County s programs, including the net costs (i.e., total cost less revenues generated by the activities). The net costs illustrate the financial burden that was placed on the County s taxpayers by each of these functions. Governmental Activities Total Cost Percentage Net cost Percentage Function of Services of Total of Services of Total Judicial $ 3,516, % $ (1,380,190) 6.7% General Government 8,151, % (5,881,958) 28.4% Public Safety 11,015, % (7,681,202) 37.1% Physical Environment 184, % 300, % Transportation 11,355, % (4,139,307) 20.0% Economic Environment 587, % (152,396) 0.7% Health 457, % (434,166) 2.1% Culture and Recreation 478, % (458,489) 2.2% Interest on Long-Term Debt 894, % (894,247) 4.3% Total $ 36,640, % $ (20,721,508) 100% General Revenues The County continues to be heavily reliant on taxes to operate the governmental activities functions. Of the $19,352,088 total general revenues (non-program) collected during 2011, $19,332,589 was from Taxes. This represents an increase over 2010 of $899,867. Of this increase, the sales taxes portion was $661,807, which is encouraging to County management as it is a good indicator that the local economy continues to improve from the economic slowdown. 15

19 BUSINESS-TYPE ACTIVITIES Revenues vs. Costs During 2011, business-type activities decreased Franklin County s net assets by ($523,441), an improvement of $174,590 from the previous year of ($769,984). Detailed financial information for the two enterprise funds can be found under Proprietary Funds later in this report. FINANCIAL ANALYSIS OF THE COUNTY S FUNDS Governmental Funds As discussed, governmental funds are reported in the fund statements with a shortterm, inflow and outflow of spendable resources focus. This information is useful in assessing resources available at the end of the year in comparison with upcoming financing requirements. In particular, the unassigned fund balance may serve as a useful measure of the County s net resources available for spending at the end of the fiscal year. Governmental funds reported ending fund balances of $6,623,620, compared to $6,919,585 for 2010, a decrease of ($295,965), or 4.3%. Major Governmental Funds The General (or Current Expense) Fund is the County s primary operating fund and is the largest source of day-to-day service delivery. The General Fund s fund balance increased by $252,415 during 2011 to $1,790,802, although $321,840 of this increase was attributed to fund balance reclassifications due to GASB 54 as shown later in this section. Without the additions to the General Fund, there was a net decrease of ($69,425). During 2011, and as discussed in detail in Note 1.E.11 Fund Balance Classification, the implementation of GASB 54 had a significant impact on how governmental funds report fund balance. Basically, this statement established fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Governmental funds activities and fund balances that are not restricted or committed for specific purposes are now rolled up into the General Fund for reporting purposes. The following represents the increases to the General Fund ending fund balance due to these governmental fund reclassifications: 16

20 General Fund fund balance additions due to GASB 54 Fund Balance 12/31/2011 $ 1,468,962 Cumulative Reserve Fund 131,845 Election Reserve Fund 92,660 L&I Reserve Fund 20,421 Liability Reserve Fund 12,383 Jail Commissary Fund 54,823 Sheriff-DARE Fund 6,837 Capital Projects Fund 2,871 Subtotal Additions 321,840 Fund Balance 12/31/ Adjusted $ 1,790,802 The General Fund s total 2011 revenue of $21,775,187 was $709,740 over 2010 s total revenue. Most notable to this increase in revenue were sales taxes of $4,495,059 that were $574,444 over 2010 s sales taxes, or 14.7%. Total 2011 General Fund expenses, net of transfers, of $21,537,737 was $1,047,548 over 2010 s expenditures total of $20,490,189, an increase of 5.1%. Approximately $443,000 of this expenditure increase was from overall salary and benefit changes including $240,000 for employees earning step increases and $126,000 for a State of Washington retirement rate increase. The County Road Fund is used by the County to construct roads and other infrastructure. The primary sources of revenue are from State and Federal grant revenues and property taxes. Total 2011 revenues were $10,032,281, with $7,260,874 coming from intergovernmental revenues, and $2,572,226 received from property taxes total revenues were $8,647,988, with intergovernmental revenues of $5,858,087 and property taxes of $2,536,733. Total Revenues for 2011 were $1,384,293 over 2010, or 16.0%. During 2011, total expenses were $10,248,242, compared to $7,383,161 for 2010, an increase of $2,865,081 or 38.8%. The ending fund balance for 2011 was $1,209,461, compared to $1,502,830 at the end of 2010, a decrease of ($293,369) or (19.5%). Of this 2011 increase in revenues and expenditures, $1,686,689 can be attributed to the East Foster Wells Road Extension. This is a $2,569,445 project linking the Pasco- Kahlotus Highway with East Foster Wells Road. It should be noted that out of the current year revenues and expenditures relating to this project, $1,005,594 was funded through the American Recovery and Reinvestment Act (ARRA). The Proprietary Funds The following table shows the operating activities from the County s business-type activities Major Fund for the previous five years: 17

21 TRAC Operations Totals Operating Revenues $ 2,172,324 $ 1,941,581 $ 1,833,722 $ 2,037,757 $ 1,744,835 $ 9,730,219 Operating Expenses (3,337,741) (3,171,379) (3,090,537) (3,245,583) (2,912,372) (15,757,612) Operating Income (Loss) (1,165,417) (1,229,798) (1,256,815) (1,207,826) (1,167,537) (6,027,393) Add: Depreciation Expense 792, , , , ,088 3,914,500 Operating Income(Loss) Net of Depreciation Exp $ (372,975) $ (430,297) $ (461,234) $ (443,938) $ (404,449) $ (2,112,893) The TRAC Facility is subsidized by Franklin County and City of Pasco s contributions. The following table shows the contributions from each entity for the past five years: TRAC Operations Totals Franklin County $ 242,868 $ 269,987 $ 275,409 $ 243,167 $ 427,444 $ 1,458,875 City of Pasco 242, , , , ,444 1,258,876 Totals $ 485,736 $ 539,974 $ 550,819 $ 486,334 $ 654,888 $ 2,717,751 During April of 2004, the County opened the Franklin County RV (Recreational Vehicle) Park, located adjacent to the TRAC facility. The RV Park has not only become self-sufficient, but also is available to help fund the County s portion of the TRAC subsidy ($106,912) for The following table depicts the summarized operating activities of the RV Park for the last five years: Franklin County RV Park Totals Operating Revenues $ 280,451 $ 276,205 $ 242,569 $ 209,740 $ 188,456 $ 1,197,421 Operating Expenses (187,124) (179,271) (204,776) (203,382) (206,142) (980,695) Operating Income (Loss) 93,327 96,934 37,793 6,358 (17,686) 216,726 Add: Depreciation Expense 47,820 47,820 47,918 52,381 52, ,318 Operating Income (Loss) Net of Depreciation Exp $ 141,147 $ 144,754 $ 85,711 $ 58,739 $ 34,693 $ 465,044 The proprietary fund statements share the same focus as the government-wide statements, reporting both short-term and long-term information about financial status. BUDGETARY HIGHLIGHTS The General Fund During 2011, the General Fund s revenue and expenditure budgets reversed the declining trend due to the recession, increasing over the 2010 ending approved budget by $815,081 for a total revenue and expenditure budgets of $23,514,

22 Some highlights between the 2011 and 2010 budgets are as follows: 2011 General Fund Budget Highlights Major Revenes Increases 2011 Final 2010 Adopted Increase Property Taxes (Includes Road Shift $265K) $ 7,018,533 $ 6,788,875 $ 229,658 Sales Taxes - General 2,710,000 2,400, ,000 Board & Room of Prisoners 1,080,621 1,068,371 12,250 CJ Local Sales Tax - 1st & 2nd 1/10th 1,440,000 1,230, ,000 Total Major Revenue Increases $ 12,249,154 $ 11,487,246 $ 761,908 Salary and Benefit Changes Personnel Services 2011 Final 2010 Adopted Increase Salary (net of contingency) $ 10,580,569 $ 10,185,565 $ 395,004 Benefits 3,358,809 3,310,430 48,379 Subtotal Personnel Services $ 13,939,378 $ 13,495,995 $ 443,383 Cost of Living Adjustment Percent Increase 0.00% 0.00% 3.00% Other Notable Expenditure Increases (Decreases) County Clerk - Jury Fees $ 20,000 Disability Board - Leoff I Medical 20,706 Dist Court Probation - Transfer to Work Crew 25,000 Non-Departmental - Liability & Property Insurance (82,000) Aids to Other Gov'ts - Judge's Salaries & Drug Court 21,890 Juvenile Services 47,730 Tuberculosis (15,000) Total $ 38,326 Contingencies & Reserves Variance Contingencies Miscellaneous $ 172,781 $ 150,000 $ 22,781 Salary & Benefits 242, ,200 Subtotal Contingencies 414, , ,981 Reserves Reserved Fund Balance 918, , ,044 Reserved Fund Balance/Cumulative Reserve - 163,800 (163,800) Reserved for Software/Transfer to Capital Projects 555, ,000 - Reserved for TRAC Promo Closeout 26,956-26,956 Subtotal Reserved Funds/Fund Balance 1,500,000 1,356, ,200 Total Contingencies & Reserves $ 1,914,981 $ 1,506,800 $ 408,181 There was no change to the 2011 bottom line General Fund budget appropriations during the year, although there were some internal transfers of appropriations within the charges to appropriations side of the budget: 19

23 2011 Franklin County General Fund Charges to Appropriations Charges to Appropriations (Outflows) Original Final Variance (Decrease ) Increase General government $ 7,875,857 $ 7,669,934 $ (205,923) Judicial 2,938,805 3,305, ,763 Public safety 9,743,334 9,893, ,466 Human services 3,800 3,800 - Health and coroner 431, ,288 2,199 Economic environment 318, ,100 3,791 Culture and recreation 186, ,871 1,343 Capital outlay 48,500 75,308 26,808 Total Expenditures 21,546,222 21,891, ,447 Non-Expenditures Other budgeted non-expenditures Transfers to other funds 468, ,078 4,743 Total Charges to Appropriations 22,014,807 22,364, ,190 Budgetary Fund Balance - December 31 $ 1,500,000 $ 1,149,810 $ (350,190) DEBT ADMINISTRATION AND CAPITAL ASSETS Long-term Debt At the end of the fiscal year, the County had total ending bonded debt outstanding of $16,500,000 compared to $17,915,000 for Franklin County debt is being retired with property taxes, sales and use taxes, and an operating lease. Also, at the end of 2011, the County had $3,576,439 in Public Works Trust Fund revenue debt. These funds are being used to finance County road infrastructure projects. The following table is a summary of Franklin County s Long-term Debt at 12/31/2011: Change General Obligation Debt $ 16,340,000 $ 17,675,000 $ 160,000 $ 240,000 $ 16,500,000 $ 17,915,000-8% PW Revenue Debt 3,576,429 3,944, ,576,429 3,944,074-9% Bond Deferrals (293,657) (293,657) - Claims & Judgements 728, , , ,577-1% Comp Absences 1,532,698 1,455,357 74,574 57,164 1,607,272 1,512,521 6% OPEB* 1,186,095 1,048, ,186,095 1,048,574 13% Total $ 23,070,024 $ 24,857,582 $ 234,574 $ 297,164 $ 23,304,598 $ 25,154,746-7% *Other Post Employment Benefits Governmental Activities Business-Type Activities Totals % See Notes #8, #9 and #14 for additional information about the County s long-term debt and OPEB obligations. 20

24 Capital Assets The following table provides a summary of capital asset activity: Governmental Activities Business Activities Total Non-Depreciable Assets: Land $ 592,769 $ 592,769 $ 25,407 $ 25,407 $ 618,176 $ 618,176 Construction in Progress 10,251,979 14,763, ,251,979 14,763,629 Total non-depreciable Assets 10,844,748 15,356,398 25,407 25,407 10,870,155 15,381,805 Depreciable Assets: Buildings 27,935,129 27,935,129 14,137,287 14,130,010 42,072,416 42,065,139 Equipment 11,673,549 11,019,060 2,185,334 2,028,161 13,858,883 13,047,221 Improvements to Land 537, ,188 1,367,794 1,367,794 1,904,982 1,904,982 Other Improvements ,139 99, ,139 99,023 Infrastructure** 258,477, ,320, ,477, ,320,152 Total depreciable assets 298,623, ,811,530 17,867,554 17,624, ,491, ,436,517 Less accumulated depreciation 76,688,006 68,362,054 12,013,246 11,172,984 88,701,252 79,535,038 Book Value - Depreciable Assets 221,935, ,449,476 5,854,308 6,452, ,789, ,901,480 Percentage depreciated 26% 24% 67% 63% 28% 26% Total book value $ 232,780,209 $ 235,805,874 $ 5,879,715 $ 6,477,411 $ 238,659,924 $ 242,283,285 During 2011, the County added $9,157,447 in governmental activities infrastructure additions, formerly shown on the 2010 financial statements as Construction in Progress. These expenditures were primarily made on various road projects throughout the county Major Infrastructure Additions to Construction in Progress Project CRP 500 E. Foster Wells Rd 1,786,543 CRP 581 Pasco-Kahlotus Rd. 1,635,397 CRP 593 Rd. 100 Dent Rd. Ext. 835,791 CRP 596 R-170 Landslide 398,201 Total $ 4,655,932 The County s investment in capital assets, net of accumulated depreciation for the current year decreased by ($3,646,568) ($238,659,924 - $242,306,492), or 1.5%. See Note #5 for a net basis adjustment of $23,206 to the December 31, 2010 capital balances. Additions, net of infrastructure for governmental activities amounted to $895,171 for governmental funds. Adjusted for disposals, net additions were $538,461. Business-type activities had non-infrastructure increases of $242,566. Included in these contributed capital items to TRAC were $108,900 for tables and chairs and $78,116 for a freeway readerboard. Assets that were capitalized by TRAC during 2011 were donated from the Public Facilities Construction and TRAC Renewal and replacement funds. 21

25 Capital Commitments As discussed in the Notes to the Financial Statements, Note# 5B Construction Commitments, in 2011 the residents of Franklin County approved a three-tenths of one percent (.003) local sales and use tax effective April 1, 2012 to be used for criminal justice and public safety purposes. As a result of the approved tax, the County will build and operate a new corrections facility. Total cost of the project will be approximately $19,125,000, including a current commitment of $1,295,058 for architectural fees. On March 28 th, 2012, the Board of County Commissioners entered into a contract with SunGard Public Sector Inc. for the implementation of a financial information and asset management system (computer software). Total cost of the financial software and installation is estimated to be $1,220,000, with a current commitment of $1,082,170. Please see Note#8 Long Term Debt for the detailed information related to the $20,345,000 indebtedness that is being incurred to finance these two capital items. Current commitments for county-wide road projects total $5,035,701. See the Note #5-B in the Notes to the Financial Statements for a breakdown on the County s other construction commitments at year end. Infrastructure - The County reports infrastructure assets on a network and subsystem basis. To determine the value of the historical infrastructure the County refers to the State Auditor s Office web site for the cost/mile averages of the different types of construction projects for each classification of road. The County did not experience any significant changes in the condition levels of our infrastructure during Our current condition levels are in line with our target levels. The County developed and follows a Maintenance Management Program as required by the State CRAB Board. This program was put into place during Please refer to Notes #1.E.6 - Capital Assets and Note #5 Capital Assets and Depreciation for further information. ISSUES AND ECONOMIC CONDITIONS AFFECTING THE COUNTY City of Pasco Prisoner Lodging Management at the County is reviewing the percentage of recovered costs that it receives from the City of Pasco compared to the total cost of operations for the jail. Reimbursement to the county is based on daily inmate population and the method that a prisoner is sentenced (concurrent versus consecutive) changes the City/County composition when computing who is responsible for the cost. 22

26 As the chart below illustrates, since 2007 the inmate population remains consistent in total, but the percentage of City of Pasco prisoners has been reduced by nearly 50% during the last five years, and Franklin County s prisoner population has risen by 57%: Schedule of Corrections Revenues & Expenses Revenues City of Pasco $ 846,360 $ 1,254,704 $ 1,314,084 $ 1,411,276 $ 1,425,081 Other 398, , , , ,472 Total Revenues 1,244,949 1,821,788 1,973,775 2,114,388 1,895,553 Total Corrections Expenditures 3,404,944 3,244,544 3,427,923 3,283,138 3,128,484 Total Revenues Less Expenditures $ (2,159,995) $ (1,422,756) $ (1,454,148) $ (1,168,750) $ (1,232,931) Rev-Exp Change from Prior Year (737,239) 31,392 (285,398) 64,181 (3,094) Inmate Populations City of Pasco ,126 Franklin County 1,550 1,247 1,226 1, Other Total Population 2,217 2,141 2,354 2,337 2,338 Inmate Populations % City of Pasco 25% 33% 37% 40% 48% Extraordinary Item Fraud Investigation As discussed in Notes# 10- Contingencies and Litigation, Note #16 - Extraordinary Item and Note #17 - Subsequent Events in the Notes to the Financial Statements, in early 2012, the County initiated an internal fraud investigation concerning misappropriation of funds by a former Public Works employee (Director of Accounting and Administration). The Washington State Attorney General conducted a criminal investigation and in May 2012 filed criminal charges including theft and money laundering of approximately $1.8 million. As a result of the investigation, the Public Works Director was also terminated. Currently, the County is contracting with the Benton County Public Works Department for their Professional Engineer who is acting as the interim director of Franklin County Public Works. The contract has been extended to run through July, For 2011, the extraordinary item of $126,446 is reported on the government-wide Statement of Activities and on the Statement of Revenues, Expenses and Changes in Fund Net Assets. The fraud appears to be isolated to the Motor Vehicle Fund. 23

27 See Note# 17 Subsequent Events in the Notes to the Financial Statements for the County s response to the fraud. Favorable Outlook on Investment Default As discussed in Note #3 Deposits and Investments, Note #10 Contingencies and Litigation, and Note #17- Subsequent Events in the Notes to the Financial Statements, the County holds a $300,000 municipal security that defaulted in December Based on developments occurring in 2012, it is probable that the County will fully recoup its original residual cash investment. Favorable Bond Rating During the process to secure funding for the $20,345,000 limited tax general obligation bonds to pay for costs of improvements to the County s courthouse and criminal justice facilities and purchase the County s financial information and asset management software, Standard and Poor s reaffirmed the County s A rating with a positive outlook. This favorable rating helped the County attain a combined net borrowing cost on the 30 year financing of 3.82%. In large part, the favorable rating was due to the strong local economy, experienced management, and a commitment by County management to hold in reserves 7% of the operating budget, as explained in Note #1.E.13 Fund Balance Policy. 24

28 Franklin County, Washington Statement of Net Assets December 31, 2011 Governmental Activities Business-type Activities ASSETS Cash and cash equivalents $ 7,414,267 $ 301,146 $ 7,715,413 Cash held in internal trust 567,579 18, ,464 Receivables (net) Property taxes 935, ,992 Accounts 275,460 67, ,106 Interest 1,800-1,800 Internal balances (12,839) 12,839 - Due from other governments 467,088 26, ,663 Inventories 230,510 17, ,465 Deferred Charges and Other Assets: Deferred charges 11,232-11,232 Investment in joint ventures 322, ,623 Capital Assets Not Being Depreciated: Land 592,769 25, ,176 Construction in progress 10,251,979-10,251,979 Capital Assets Net of Accumulated Depreciation: Depreciable assets 19,408,845 5,854,308 25,263,153 Infrastructure 202,526, ,526,616 Total Assets 242,993,921 6,324, ,318,682 LIABILITIES Accounts payable and accrued expenses 1,143,877 89,167 1,233,044 Other current liabilities 18,738-18,738 Interest payable 56, ,595 Custodial accounts 567,579 18, ,464 Deferred revenue 1,167,842-1,167,842 Noncurrent Liabilities: Claims and judgments 728, ,459 Compensated absences 1,532,698 74,575 1,607,273 Net other postemployment benefits obligation 1,186,095-1,186,095 Bonds due within one year 2,156,135 80,000 2,236,135 Bonds due in more than one year 17,466,637 80,000 17,546,637 Total Liabilities 26,024, ,120 26,367,282 NET ASSETS Invested in capital assets, net of related debt 213,157,437 5,719, ,877,152 Restricted for: Debt service 99,803-99,803 Capital projects 602, ,818 Other purposes 2,834,721-2,834,721 Unrestricted 274, , ,906 Total Net Assets $ 216,969,759 $ 5,981,641 $ 222,951,400 The notes to the financial statements are an integral part of this statement. Total 25

29 26 Franklin County, Washington Statement of Activities For the Year Ended December 31, 2011 Expenses Grants and Contributions Net (Expense) Revenue and Changes in Net Assets Charges for Services Operating Capital Governmental Activities Business-type Activities Total FUNCTIONS/PROGRAMS Governmental Activities: Judicial $ 3,516,685 $ 1,529,800 $ 606,695 $ - $ (1,380,190) $ - (1,380,190) General government 8,151,083 1,484, ,791 - (5,881,958) - (5,881,958) Public safety 11,015,719 3,105, ,175 11,852 (7,681,202) - (7,681,202) Physical environment 184, ,467 51, , ,447 Transportation 11,355, ,392 2,629,475 4,446,513 (4,139,307) - (4,139,307) Economic environment 587, , (152,396) - (152,396) Health 457,116 13,862 9,088 - (434,166) - (434,166) Culture and recreation 478,489 20, (458,489) - (458,489) Interest on long-term debt 894, (894,247) - (894,247) Total Governmental Activities 36,640,386 7,162,051 4,298,462 4,458,365 (20,721,508) - (20,721,508) Business-type Activities: TRAC facility 3,346,228 2,156, , ,565 - (704,471) (704,471) Other enterprise activities 171, , , ,077 Total Business-type Activities 3,517,602 2,436, , ,565 - (595,394) (595,394) Total Primary Government $ 40,157,988 $ 9,598,826 $ 4,541,330 $ 4,700,930 (20,721,508) (595,394) (21,316,902) General Revenues Taxes: Property taxes, levied for general purposes 10,733,771-10,733,771 Sales and use taxes 5,612,749-5,612,749 Other taxes 2,986,069 (33,494) 2,952,575 Grants and contributions not restricted to specific programs 44,538-44,538 Unrestricted investment earnings 182, ,257 Gain on sale of capital assets 24,597-24,597 Extraordinary item (126,446) - (126,446) Transfers (105,400) 105,400 - Total General Revenues, Extradordinary Item and Transfers 19,352,088 71,953 19,424,041 Change in Net Assets Program Revenues (1,369,420) (523,441) (1,892,861) Net Assets - Beginning 218,339,179 6,505, ,844,261 Net Assets - Ending $ 216,969,759 $ 5,981,641 $ 222,951,400 The notes to the financial statements are an integral part of this statement.

30 Franklin County, Washington Balance Sheet Governmental Funds December 31, 2011 General Fund County Road Fund Other Governmental Funds Total Governmental Funds ASSETS Current Assets: Cash and cash equivalents $ 2,152,657 $ 1,484,205 $ 3,631,732 $ 7,268,594 Cash held in internal trust 541,229 26, ,579 Receivables (net) Property taxes 817,571 74,524 43, ,992 Accounts 225,363 4,649 34, ,330 Interest 1, ,800 Due from other funds 126,258 29, , ,489 Due from other governments 131, ,150 32, ,088 Interfund loans 42,493 19,758-62,251 Noncurrent Assets: Deferred charges ,232 11,232 Total Assets 4,038,020 1,942,204 3,880,131 9,860,355 LIABILITIES Current Liabilities: Accounts payable 510, ,202 68,520 1,080,377 Custodial accounts 541,229 26, ,579 Due to other funds 145,913 88, , ,686 Interfund loans - 42,493 19,758 62,251 Deferred revenue 1,049,421 74,524 43,897 1,167,842 Total Liabilities 2,247, , ,774 3,236,735 FUND BALANCE Restricted - - 3,537,342 3,537,342 Committed - 1,178,608 4,078 1,182,686 Assigned - 30,853 81, ,790 Unassigned 1,790, ,790,802 Total Fund Balance 1,790,802 1,209,461 3,623,357 6,623,620 Total Liabilities and Fund Balance $ 4,038,020 $ 1,942,204 $ 3,880,131 $ 9,860,355 The notes to the financial statements are an integral part of this statement. 27

31 Franklin County, Washington Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets December 31, 2011 Fund balances of governmental funds: $ 6,623,620 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 are not reported in the funds. Capital assets $ 302,673,068 Accumulated depreciation (72,395,344) 230,277,724 Investment in joint ventures are not financial resources and are not reported in the funds. 322,623 Current bond interest payable is not accrued on the governmental statements. (56,102) An other accrued liability related to an asset acquisition is not reported in the funds. (18,738) Long-term liabilities are not due and payable in the current period and are not reported in the funds. Bonds payable (19,622,773) Compensated absences (1,491,440) Net other postemployment benefits obligation (1,186,095) Claims and judgments (728,459) (23,028,767) Internal service funds are used by management to charge the costs of certain activities to individual funds. These assets and liabilities are included in governmental activities in the statement of net assets. Assets 2,962,740 Liabilities (113,341) 2,849,399 Net Assets of Governmental Activities $ 216,969,759 The notes to the financial statements are an integral part of this statement. 28

32 Franklin County, Washington Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2011 General Fund County Road Fund Other Governmental Funds Total Governmental REVENUES Taxes: Property $ 7,016,453 $ 2,572,226 $ 1,145,092 $ 10,733,771 Sales 4,495,059-1,117,690 5,612,749 Other 2,090, , ,638 2,986,069 Licenses and permits 485, ,043 Intergovernmental 3,702,197 7,260, ,702 11,517,773 Charges for services 2,883,201 91, ,042 3,713,626 Fines and forfeitures 858, ,258 Investment earnings 183,503 1,850 1, ,179 Rents and leases 44, , ,303 Miscellaneous revenues 16,016-74,649 90,665 Total Revenues 21,775,187 10,032,281 4,526,968 36,334,436 EXPENDITURES Current: Judicial 3,242, ,656 3,430,845 General government 7,471, , ,880 7,879,700 Public safety 9,818,112 29, ,251 10,536,270 Physical environment , ,843 Transportation - 5,042,426-5,042,426 Economic environment 313, , ,205 Coroner 204, ,534 Health 225, ,982 Culture and recreation 165, , ,640 Debt Service: Principal - 247,645 1,930,000 2,177,645 Interest - 26, , ,176 Bond issuance and advance refunding costs , ,261 Capital Outlay: Judicial ,070 16,070 General government 75, ,845 Public safety 20, , ,255 Physical environment ,944 23,944 Transportation - 4,746,723-4,746,723 Economic environment - - 9,741 9,741 Total Expenditures 21,537,737 10,248,242 4,888,126 36,674,105 Excess (Deficiency) of Revenues Over (Under) Expenditures 237,450 (215,961) (361,158) (339,669) OTHER FINANCING SOURCES (USES) Transfers-in 108, , ,916 Transfers-out (453,078) (13,294) (601,944) (1,068,316) Refunding bonds issued - - 6,605,000 6,605,000 Premium on refunding bonds , ,878 Payment to refunding bond escrow agent - - (6,500,505) (6,500,505) Intergovernmental payments - (64,114) (14,540) (78,654) Sale of capital assets 10, ,385 Total Other Financing Sources (Uses) (334,337) (77,408) 455,449 43,704 Net Change in Fund Balances (96,887) (293,369) 94,291 (295,965) Funds Fund Balances - Beginning, as Previously Reported 1,538,387 1,502,830 3,878,368 6,919,585 Prior period adjustment - change in accounting principle 349,302 - (349,302) - Fund Balances - Beginning, as Adjusted 1,887,689 1,502,830 3,529,066 6,919,585 Fund Balances - Ending $ 1,790,802 $ 1,209,461 $ 3,623,357 $ 6,623,620 The notes to the financial statements are an integral part of this statement. 29

33 Franklin County, Washington Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended December 31, 2011 Amounts reported for governmental activities in the statement of activities are different because: Net changes in fund balances - total governmental funds $ (295,965) Governmental funds report capital outlays as expenditures. In the statement of activities, the cost of those assets is depreciated over their estimated useful lives. Capital outlays $ 5,154,578 Depreciation (8,059,343) (2,904,765) The proceeds from the sale of assets are reported for governmental activities while the gain/loss from sales are reported on the government-wide statement of activities. (645) The loss from investment in joint ventures do not require the use of current financial resources and are not reported as an expenditure of governmental funds. (65,728) The issuance of long-term debt (bonds) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt and payments made in the course of bond refunding consume the current financial resources of governmental funds. These transactions do not have an effect on the statement of activities. Refunding bonds issued (6,605,000) Payment to refunding bond escrow agent - principal portion 6,130,000 Bond principal payment 2,177,645 1,702,645 Governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. Premium on refunding bonds (112,878) Amortization of premium 3,593 Payment to refunding bond escrow agent - amortizable portion 370,505 Amortization of bond refunding amounts (103,360) Bond issuance and advance refunding costs 140,261 Amortization of bond issuance and advance refunding costs (4,464) 293,657 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds. (195,966) Internal service funds are used by management to charge the costs of certain activities to individual funds. The net revenue of most of these activities is reported with governmental activities. 97,347 Change in Net Assets - Governmental Activities $ (1,369,420) The notes to the financial statements are an integral part of this statement. 30

34 Franklin County, Washington Budgetary Comparison Statement General Fund For the Year Ended December 31, 2011 Actual Variance with Amounts - Final Budget Budgeted Amounts Budgetary Positive Original Final Basis (Negative) Beginning Fund Balance - January 1 $ 1,673,044 $ 1,673,044 $ 1,538,387 $ (134,657) Resources (Inflows) Taxes Property 7,019,533 7,019,533 7,016,453 (3,080) Sales 4,152,500 4,152,500 4,495, ,559 Other 2,011,375 2,011,375 2,090,268 78,893 Total Taxes 13,183,408 13,183,408 13,601, ,372 Licenses and permits 437, , ,258 48,208 Intergovernmental 3,940,584 3,940,584 3,690,780 (249,804) Charges for goods and services 2,998,132 2,998,132 2,617,149 (380,983) Fines and forfeitures 921, , ,618 (63,300) Investment earnings 168, , ,748 11,598 Miscellaneous 49,315 49,315 67,308 17,993 Total Revenues 21,698,557 21,698,557 21,500,641 (197,916) Other Financing Sources Other budgeted non-revenue (114) Transfers from other funds 142, ,956 98,613 (44,343) Total Other Financing Sources 143, ,206 98,749 (44,457) Amounts Available for Appropriation 23,514,807 23,514,807 23,137,777 (377,030) Charges to Appropriations (Outflows) General government 7,875,857 7,669,934 7,375, ,116 Judicial 2,938,805 3,305,568 3,242,189 63,379 Public safety 9,743,334 9,893,800 9,667, ,898 Human services 3,800 3,800-3,800 Health and coroner 431, , ,516 2,772 Economic environment 318, , ,548 8,552 Culture and recreation 186, , ,216 22,655 Capital outlay 48,500 75,308 20,412 54,896 Total Expenditures 21,546,222 21,891,669 21,215, ,068 Non-Expenditures Other budgeted non-expenditures Transfers to other funds 468, , ,078 20,000 Total Charges to Appropriations 22,014,807 22,364,997 21,668, ,182 Budgetary Fund Balance - December 31 $ 1,500,000 $ 1,149,810 $ 1,468,962 $ 319,152 Note to Budgetary Comparison Schedule The Statement of Revenues, Expenditures, and Changes in Fund Balance - Governmental Funds reports the annual General Fund activity. This column includes the activity from special revenue and capital projects funds that are required to be combined with the activity of the General Fund in accordance with GASB Statement No Fund Balance Reporting and Governmental Fund Type Definitions. The following is a reconciliation of the General Fund activity on the statement of Revenues, Expenditures and Changes in Fund Balance - Governmental Funds to the Budgetary Comparison Statement for the General Fund: General Fund- Per the Statement of Revenues, Expenditures, and Changes in Fund Balances Adjustment for Special Revenue Funds Adjustment for Capital Projects Funds General Fund - Per the Budgetary Comparison Statement Beginning Fund Balance, January 1 $ 1,887,689 $ (295,900) $ (53,402) $ 1,538,387 Total Revenues and Other Financing Sources 21,893,928 (279,115) (15,423) 21,599,390 Amounts Available for Appropriation 23,781,617 (575,015) (68,825) 23,137,777 Total Charges to Appropriations (21,990,815) 256,046 65,954 (21,668,815) Budgetary Fund Balance - December 31 $ 1,790,802 $ (318,969) $ (2,871) $ 1,468,962 31

35 Franklin County, Washington Budgetary Comparison Statement County Road Fund For the Year Ended December 31, 2011 Actual Variance with Amounts - Final Budget Budgeted Amounts Budgetary Positive Original Final Basis (Negative) Beginning Fund Balance - January 1 $ 650,000 $ 650,000 $ 1,502,830 $ 852,830 Resources (Inflows) Taxes Property 2,535,000 2,535,000 2,572,226 37,226 Other 81,000 81, ,163 24,163 Total Taxes 2,616,000 2,616,000 2,677,389 61,389 Licenses and permits 1,000 1, (215) Intergovernmental revenue 9,164,000 9,164,000 7,260,874 (1,903,126) Charges for goods and services 6,000 6,000 91,383 85,383 Investment earnings - - 1,850 1,850 Miscellaneous revenues 20,000 20,000 - (20,000) Total Revenues 11,807,000 11,807,000 10,032,281 (1,774,719) Amounts Available for Appropriation 12,457,000 12,457,000 11,535,111 (921,889) Charges to Appropriations (Outflows) General government services 105, , ,921 (49,921) Public Safety 30,000 30,000 29, Transportation 5,187,600 5,187,600 5,042, ,174 Redemption of general long-term debt 247, , ,645 (645) Interest and other debt service costs 4,000 4,000 26,620 (22,620) Capital outlays 6,810,000 6,810,000 4,746,723 2,063,277 Total Expenditures 12,383,600 12,383,600 10,248,242 2,135,358 Other Financing Uses Intergovernmental payments 60,000 60,000 64,114 (4,114) Transfers to other funds 13,400 13,400 13, Total Charges to Appropriations 12,457,000 12,457,000 10,325,650 2,131,350 Budgetary Fund Balance - December 31 $ - $ - $ 1,209,461 $ 1,209,461 Note to Budgetary Comparison Schedule Charges for goods and services and Capital outlays variances: The County Road budget is built conservatively to account for mid-year grant awards. 32

36 Franklin County, Washington Statement of Net Assets Proprietary Funds December 31, 2011 TRAC Operations Fund Other Non- Major Enterprise Funds Total Business- Type Activities Governmental Activities-Internal Service Funds ASSETS Current Assets: Cash and cash equivalents $ 208,853 $ 92,293 $ 301,146 $ 145,673 Cash held in internal trust 13,114 5,771 18,885 - Receivables (net) 62,776 4,870 67,646 11,130 Due from other funds 28,969-28,969 72,940 Due from other governments 26,575-26,575 - Inventories 17,955-17, ,510 Total Current Assets 358, , , ,253 Noncurrent Assets: Capital Assets - Land 25,407-25,407 - Improvements to land 467, ,226 1,367,794 - Improvements other than buildings 177, ,139 - Equipment 2,169,464 15,870 2,185,334 6,614,062 Buildings 14,030, ,500 14,137, ,086 Less: accumulated depreciation (11,615,612) (397,634) (12,013,246) (4,292,661) Total Capital Assets Enterprise Funds (Net of Accumulated Depreciation) 5,254, ,963 5,879,715 2,502,487 Total Assets 5,612, ,897 6,340,891 2,962,740 LIABILITIES Current Liabilities: Accounts payable and accrued expenses 82,955 6,212 89,167 63,501 Custodial accounts 13,114 5,771 18,885 - Due to other funds 9,218 6,912 16,130 8,582 Matured bond and accrued interest payable General obligation bonds payable - current 80,000-80,000 - Total Current Liabilities 185,780 18, ,675 72,083 Noncurrent Liabilities: Compensated absences 74,575-74,575 41,258 Bonds Payable: General obligation bonds payable 80,000-80,000 - Total Noncurrent Liabilities 154, ,575 41,258 Total Liabilities 340,355 18, , ,341 NET ASSETS Invested in capital assets, net of related debt 5,094, ,963 5,719,715 2,502,487 Unrestricted 177,887 84, , ,912 Total Net Assets $ 5,272,639 $ 709,002 $ 5,981,641 $ 2,849,399 The notes to the financial statements are an integral part of this statement. 33

37 Franklin County, Washington Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds For the Year Ended December 31, 2011 TRAC Operations Fund Enterprise Funds Other Non- Major Enterprise Funds Total Business- Type Activities Governmental Activities-Internal Service Funds OPERATING REVENUES Charges for Services: Public facilities $ 2,156,324 $ 280,451 $ 2,436,775 $ - Interfund 16,000-16,000 1,928,993 Miscellaneous revenue ,567 Total Operating Revenues 2,172, ,451 2,452,775 1,949,560 OPERATING EXPENSES Maintenance and operations 2,545, ,554 2,684,853 1,344,606 Depreciation 792,442 47, , ,766 Total Operating Expenses 3,337, ,374 3,525,115 1,749,372 Operating Income (Loss) (1,165,417) 93,077 (1,072,340) 200,188 NONOPERATING REVENUES (EXPENSES) Intergovernmental 242, ,868 - Investment earnings Interest expense (8,487) - (8,487) (1,255) Gain on sale of assets ,857 Taxes (32,020) (1,474) (33,494) - Total Non-Operating Revenues (Expenses) 202,408 (1,474) 200,934 13,605 Income (Loss) Before Grants and Contributions, Transfers and Extraordinary Item (963,009) 91,603 (871,406) 213,793 Grants and contributions 242, ,565 10,000 Transfers: Transfers-in 242, ,868 - Transfers-out (3,600) (133,868) (137,468) - Extraordinary item (126,446) Change in Net Assets (481,176) (42,265) (523,441) 97,347 Net Assets - Beginning 5,753, ,267 6,505,082 2,752,052 Net Assets - Ending $ 5,272,639 $ 709,002 $ 5,981,641 $ 2,849,399 The notes to the financial statements are an integral part of this statement. 34

38 Franklin County, Washington Statement of Cash Flows Proprietary Funds For the Year Ended December 31, 2011 Enterprise Funds TRAC Operations Fund Other Non-Major Enterprise Funds Total Business- Type Activities Governmental Activities-Internal Service Funds Cash Flows From Operating Activities Receipts from customers $ 2,193,473 $ 284,823 $ 2,478,295 $ 9,812 Payments to suppliers (1,175,615) (93,702) (1,269,317) (1,038,115) Custodial account activity (201,657) 2,195 (199,462) - Payments to employees (1,375,297) (15,169) (1,390,466) (392,767) Internal activity - payments to (from) other funds 24,515 (35,199) (10,684) 1,905,758 Cash flow from operating activities before extraordinary item (534,582) 142,948 (391,634) 484,688 Extraordinary item (126,446) Net Cash Provided (Used) by Operating Activities (534,582) 142,948 (391,634) 358,242 Cash Flows from Noncapital Financing Activities Operating transfers-in 261, ,619 - Operating transfers-out (3,600) (168,216) (171,816) - External operating subsidies 320, ,997 - Interfund loan repayment - principal (45,971) Interfund loan proceeds ,000 Interfund loan interest (2,574) Operating assessments and tax levies (32,020) (1,474) (33,494) - Net Cash Provided (Used) by Noncapital Financing Activities 546,996 (169,690) 377,306 (46,545) Cash Flows From Capital and Related Financing Activities Proceeds from sales of equipment ,919 Capital contributions ,000 Purchase of capital assets (319,264) Principal paid on capital debt (80,000) - (80,000) - Interest paid on capital debt (8,720) - (8,720) - Net Cash Used by Capital and Related Financing Activities (88,720) - (88,720) (280,345) Cash Flows from Investing Activities Interest revenue Net Cash Provided by Investing Activities Net Increase (Decrease) in Cash and Cash Equivalents (76,260) (26,742) (103,001) 31,355 Cash and Cash Equivalents - Beginning of the Year 298, , , ,318 Cash and Cash Equivalents - End of the Year $ 221,967 $ 98,064 $ 320,031 $ 145,673 Reconciliation of Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities Operating income (loss) $ (1,165,417) $ 93,077 $ (1,072,340) $ 200,188 Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation expense 792,442 47, , ,766 Change in assets and liabilities: Deferred revenue (37,279) - (37,279) - Petty cash redemption Receivables, net 74,427 4,372 78,799 (10,755) Accounts and other payables (35,766) (1,467) (37,233) (69,901) Custodial accounts (201,657) 2,195 (199,462) - Due to other funds 3,289 (3,299) (10) (58,557) Due from other funds 23,847-23,847 35,323 Inventories (5,878) - (5,878) (14,426) Compensated absences 17,410-17,410 (1,950) Extraordinary item (126,446) Net Cash Provided (Used) by Operating Activities $ (534,582) $ 142,948 $ (391,634) $ 358,242 Footnote 1 - TRAC Operations Fund received a total of $242,565 in contributed non-cash capital from other funds. Footnote 2 - Internal Service Funds traded in equipment valued at $132,300 for upgraded models. The notes to the financial statements are an integral part of this statement. 35

39 Franklin County, Washington Statement of Fiduciary Net Assets Fiduciary Funds December 31, 2011 Agency Funds ASSETS Cash and cash equivalents $ 102,297,049 Investments 359,151 Total Assets 102,656,200 LIABILITIES Accounts payable and accrued expenses 7,181,830 Due to other governments 95,474,370 Total Liabilities 102,656,200 Total Net Assets $ - The notes to the financial statements are an integral part of this statement. 36

40 FRANKLIN COUNTY, WASHINGTON Notes to Financial Statements For the Fiscal Year Ended December 31, 2011 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the County have been prepared in conformity with the generally accepted accounting principals (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The significant accounting policies are described below. A. The Reporting Entity Franklin County was incorporated in 1883 and operates under the laws of the State of Washington applicable to a "fourth-class county with commissioner form of government". As required by generally accepted accounting principles the financial statements present Franklin County as the primary government. Franklin County does not have any component units. B. 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. For the most part, the effect of interfund activity 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 fees and charges for support. 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 or segment. Our policy is to not allocate indirect costs to a specific function or segment. Program revenues include 1) charges to customers or applicants 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 or a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses 37

41 are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 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 County considers revenues to be available if they are collected within 90 days of the end of the current fiscal period. To be consistent with our state and federal financial assistance schedules, grant revenues may be susceptible to accrual outside of this time frame. 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. Property taxes, licenses, and interest associated within the current period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the County. The County reports the following major governmental funds: General (or Current Expense) Fund is the County s operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. County Road Fund is funded largely from property taxes, taxes on gasoline, and state and federal grants. The use of these funds is for constructing new roads and the maintenance of existing county roads. The County reports the following major proprietary fund: TRAC (Trade, Recreation, Agricultural Center) Operations Fund accounts for all events held at the TRAC Multipurpose Facility. The County reports the following proprietary fund types: Internal Service Funds account for the financing of goods and services provided to other County departments, funds, or other governments on a cost-reimbursement basis. The Motor Vehicle Equipment Rental Fund is responsible for the management, maintenance, and repair of all County-owned vehicles and heavy equipment. The replacement rates are established to create a reserve for the necessary replacement of County equipment and vehicles. (See Note #16 Extraordinary Item.) Franklin County operates two small unemployment funds that account for all County unemployment expenditures. The self- 38

42 insurance revenue comes from individual County General Fund departments and the County Road Fund. Internal service funds provide services to the County s internal customers and are reported in total in the proprietary fund statements. However, internal service fund balances are included within governmental fund balances in the governmental activities section of the statement of net assets. Internal service activity is excluded from the statement of activities and any profit or loss is allocated to the respective governmental activity. Any external activity is not eliminated from the entity-wide statement of activities. Amounts reported as program revenues include 1) charges to customers, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than program revenues. General revenues include all taxes. Proprietary Funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the enterprise funds are event admission fees, room, equipment and site rentals, parking, and concessions. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation of capital assets. All revenue and expenses not meeting this definition are reported as non-operating revenues and expenses. Fiduciary Funds consist of agency funds that are custodial in nature, and therefore only assets and liabilities are reported in total on the Statement of Fiduciary Net Assets. Fiduciary Funds account for assets and liabilities the County holds for others in an agency capacity. These funds have no measurement focus and do not present results of operations. D. Budgetary Information 1. Scope of Budget Annual appropriated budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds. Budgets for the debt service funds and capital projects funds are adopted at the level of the individual debt issue or project and for fiscal periods that correspond to the lives of debt issues or projects. Other budgets are adopted at the level of the fund, except in the General (Current Expense) Fund, where expenditures may not exceed appropriations at the bottom line level with the exception of the salary and benefit line items. Appropriations for general and special revenue funds lapse at year-end (except for appropriations for capital outlays, which are carried forward from year to year until fully expended or the purpose of the appropriation has been accomplished or abandoned). 2. Amending the Budget Fund level appropriation changes must be advertised two weeks in advance of a public meeting before they can be adopted by resolution. 39

43 For the General Fund, individual expenditure line items may be overspent as long as the department s combined non-salary and benefit total remain positive. County Commissioners must approve transfers between departments or funds in the form of a Resolution during a public hearing. Amendments to non-general Fund budgets that do not affect the bottom line appropriations can be made with a letter to the Auditor s Office. The budget amounts shown in the financial statements are the final authorized amounts as revised during the year. The financial statements contain the original and final budget information. The original budget is the first complete appropriated budget. The final budget is the original budget adjusted by all reserves, transfers, allocations, supplemental appropriations, and other legally authorized changes applicable for the fiscal year. The General Fund Budget was amended during 2011 for transfers between budgeted lines however the bottom line appropriation was not changed. 3. Excess of Expenditures over Appropriations During 2011, there were no violations of excess expenditures over appropriations. 4. Deficit Fund Equity At year end, all of the County s funds maintained positive fund balances. E. Assets, Liabilities, Fund Balance, Net Assets or Equities 1. Cash and Cash Equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash or are so near their maturity that they present an insignificant risk of changes in value because of changes in interest rates. It is the County s policy to invest all temporary cash surpluses. At December 31, 2011, the Treasurer was holding $6,764,015 in short-term residual investments of surplus cash. This amount is classified on the balance sheet as cash and cash equivalents in various funds. The General Fund is the recipient of all residual cash interest. The amounts reported as cash and cash equivalents may also include compensating balances maintained with the bank in lieu of payments for services rendered. During 2011, the County did not need to maintain a compensating balance. For purposes of the statement of cash flows, the County considers all highly liquid investments (including restricted assets) with a maturity of three months or less when purchased to be cash equivalents. 2. Investments (See Note #3 - Deposits and Investments) 3. Receivables Taxes receivable includes property taxes and related interest and penalties (see Note #4 - Property Taxes). Accrued interest receivable consists of amounts earned on investments, notes, and contracts at the end of the year. 40

44 Special assessments are recorded when levied. Special assessments receivable consist of current and delinquent assessments and related interest and penalties. Deferred assessments on the fund financial statements consist primarily of unbilled special assessments that are liens against the property benefited. As of December 31, 2011, there were no material delinquent special assessments receivables. Customer accounts receivable consist of amounts owed from private individuals or organizations for goods and services rendered. 4. Amounts Due To and From Other Funds and Governments, Interfund Loans and Advances Receivable Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as interfund loans receivable/payable. All other outstanding balances between funds are reported as due to/from other funds. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as internal balances. A separate schedule of interfund loans receivable and payable is furnished in Note #12 - Interfund Transactions and Balances. 5. Inventories Inventories in proprietary funds are valued by the FIFO (first in-first out) method (which approximates market value). 6. Capital Assets - See Note #5 Capital Assets and Depreciation. Capital assets, which include property, plant, equipment, and infrastructure assets (e.g. roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type columns in the government-wide financial statements. For inventory management purposes, capital assets are defined by the County as assets with an initial, individual cost of more than $500 for capital items, and all high-risk items (i.e. cameras, guns, walkie talkies, etc.) with values between $100 and $499. However, for the purposes of capitalized assets on the County s financial statements, a $5,000 threshold is used, except in the Motor Vehicle Public Works Fund, which uses historical cost regardless of purchase price so there is not a gap in the amounts spent and the amounts recovered from county funds. Useful lives of capitalized assets start at three years. Capital assets, including infrastructure, 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. Costs for additions or improvements to capital assets are capitalized when they increase the effectiveness or efficiency of the asset. The cost of normal maintenance and repairs are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of the capital assets of business-type activities is included as part of the capitalized value of the assets constructed. 41

45 Property, plant, and equipment of the primary government is depreciated using the straight-line method over the following useful lives: Computers, Printers, etc. Autos, Light Trucks, Copiers, Telephones, Radio and Safety Equipment, etc. Heavy Trucks, Light Road Equipment, Kitchen Equipment, etc. 3 Years 5 Years 7 Years Office Furniture, Heavy Road Equipment, Minor Building Improvements 10 Years Buildings, Parking Lots, Major Building Improvements, Infrastructure Years Infrastructure The County reports infrastructure assets on a network and subsystem basis. Accordingly, the amounts spent for the construction or acquisition of infrastructure assets are capitalized and reported in the government-wide financial statements regardless of their amount. The County depreciates infrastructure over a 40-year useful life based on a combination of the relatively moderate weather in our area and local soils which provide excellent drainage to minimize the erosion of the roadway. 7. Compensated Absences Compensated absences are absences for which employees will be paid, such as vacation (and sick) leave. All vacation, compensatory time, and sick leave is accrued when incurred in the government-wide and proprietary fund financial statements. Vacation pay, which may be accumulated up to 30 days, is payable upon resignation, retirement or death. Sick leave is accumulated up to 120 days and is paid out at 25% into an employee s MSA (medical savings account) at termination. On December 31, 2011, the county-wide compensated absences payable amounted to 55,285 hours and $1,607,273. Also included in this total is 443 hours of accrued compensatory time. 8. Long-Term Debt - See Note #8 Long-Term Debt. 9. Deferred Revenues This account includes amounts recognized as receivables but not revenue in governmental funds because the revenue recognition criteria have not been met. During 2011, the City of Pasco overpaid Franklin County $189,514 for prisoner lodging services. This credit, which is reported as deferred revenue, was applied in January to 42

46 March The overpayment was the difference between the estimated annual liability to the City billed in equal installments during the year, and the actual costs determined in an annual reconciliation. 10. Other Internal Trust Accounts Other internal trust accounts are various bank accounts that some County departments maintain to hold monies in suspense until they can be returned to the rightful owner or become revenue in a governmental fund. These reconciled cash balances are shown as cash held in internal trust on the financial statements with an offset to custodial accounts. The following table depicts the custodial trust accounts that are accounted for outside of the County s governmental funds: Franklin County Custodial Trust Bank Accounts as of 12/31/2011 Department Fund Purpose Balance 12/31/2011 Sheriff General Civil Fees and Refunds $ 292 Sheriff General Reserve Activities 3,666 Corrections/Work Release General Inmate Pay/Holding 22,598 Corrections General Out of County Bail 281 Commissioner General Wellness Activities 1,251 Superior Court Clerk General Court Ordered Disbursements 250,000 Superior Court Clerk General Extradition Funds 40,143 District Court General Funds Held in Trust 207,392 Franklin County Prisoners Fund Jail Commissary Inmate Accounts 15,606 General Fund Subtotal 541,229 Public Works County Road Cross Cut/Permit Deposits 26,350 Governmental Activites Subtotal 567,579 TRAC Operations TRAC Event Settlement 8,994 TRAC Operations TRAC Event Deposits 4,120 TRAC Operations Subtotal 13,114 RV Park RV Park Rental Deposits 5,771 Business Activites Subtotal 18,885 Grand Total Other Internal Trust Accounts $ 586, Fund Balance Classification During 2011, the County implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This statement established fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. The first fund balance distinction is nonspendable, such as a fund balance associated with inventories. The restricted category includes amounts that can be spent only for the specific purposes stipulated by external resource providers or through enabling 43

47 legislation. The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the government s highest level of decision-making authority. Amounts in the assigned fund balance classification are intended to be used for specific purposes but do not meet the criteria to be classified as restricted or committed. Unassigned fund balance is the residual classification for the County s General Fund and includes all spendable amounts not contained in other classifications. When expenditures are incurred that could be paid from any classified category, restricted funds are drawn first, committed second, assigned third and finally the unassigned fund balance is drawn. The fund balance is committed when the Board of County Commissioners commits a revenue source to a specific purpose through a formal resolution. A fund balance is assigned when the Board defines the intended use of a revenue source. An approved budget may assign, but not commit, a fund balance. In order to report a Special Revenue Fund separate from the General Fund, a test is applied to the respective fund s current year revenue and the total restricted and/or committed revenues should be a substantial portion of the total inflows of resources for each fund. If the fund does not meet this test, the activity is combined and reported in the General Fund column in the governmental funds statements. A detail of the fund balances has been included in Note #1.E.13 Fund Balance Details. Also, the adherence to this new GASB created a prior period adjustment change in accounting principle (see Note #15). 7. Fund Balance Policy In accordance with a resolution passed in April 2012, it is the policy of the Board of County Commissioners to maintain reserve funds at a level necessary to affect fiscally sound management practices, comply with legal and contractual covenants, ensure service levels to citizens, maintain reliable cash flows and protect against economic downturns and fiscal emergencies. However, just as important as maintaining adequate reserves is an avoidance to overtax County residents. Therefore, it is the County policy to hold in reserves seven percent (7%) of the current year s operating budget so as to ensure adequate funding for legitimate needs while rejecting unnecessary spending in the interest of delivering effective, affordable county governance. See Note #17 Subsequent Events. 8. Fund Balance Details The following schedule represents the detailed fund balance constraints for the governmental funds as of December 31,

48 Fund balances: Restricted for: General Fund County Road Fund Other Governmental Funds Total Judicial $ - $ - $ 385,258 $ 385,258 General government , ,664 Public safety , ,675 Physical environment , ,220 Transportation ,868 27,868 Economic environment , ,682 Culture and recreation ,354 30,354 Debt service ,803 99,803 Capital projects , ,818 Total Restricted Fund Balance - - 3,537,342 3,537,342 Committed to: Transportation - 1,178,608 4,078 1,182,686 Assigned to: General government ,522 41,522 Public safety ,452 17,452 Physical environment ,836 14,836 Transportation - 30, ,570 Capital projects - - 7,410 7,410 Total Assigned Fund Balance - 30,853 81, ,790 Unassigned: 1,790, ,790,802 Total Fund Balance $ 1,790,802 $ 1,209,461 $ 3,623,357 $ 6,623,620 NOTE 2 STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY There have been no material violations of finance-related legal or contractual provisions, and there have been no expenditures exceeding legal appropriations in any of the funds of the County. NOTE 3 - DEPOSITS AND INVESTMENTS The County s deposits and certificates of deposit are entirely covered by federal depository insurance (FDIC) or by collateral held in a multiple financial institution collateral pool administered by the Washington Public Deposit Protection Commission (PDPC). As required by state law, all investments of the County s funds are obligations of the U.S. Government; U.S. agency issues; obligations of the State of Washington; general obligations of Washington State municipalities; general obligation bonds of a state or local government of a state other than the state of Washington which at the time of investment have one of the three highest credit ratings of a nationally recognized rating agency; the State Treasurer's Investment Pool; bankers' acceptances; or certificates of deposit with Washington State banks and savings and loan institutions. 45

49 Franklin County s investment policy states that safety, liquidity and rate of return on investment are of primary concern. Furthermore, the County Treasurer will seek the highest rate of return available in the market consistent with the primary requirements of legality, and safety, in that order. The County Treasurer s cash management portfolio shall be designed with the objective of regularly exceeding the average return on threemonth U.S. Treasury bills, or the average rate on Federal funds, whichever is higher. These indices are considered benchmarks for risk-less investment transactions, and therefore, comprise a minimum standard for the portfolio s rate of return. Greater Wenatchee Regional Event Center Public Facilities District, WA, Series 2008 Bond Anticipation Note Investment In 2009 the County invested $310,149 of residual cash and purchased a $300,000 Greater Wenatchee Regional Event Center Public Facilities District, WA, Series 2008 Bond Anticipation Note with accrued interest. At the time of investment, the municipal security had a bond rating of Standard & Poor s rating of SP-1+. The interest rate on this investment was 5.25% and it was scheduled to mature on December 1, 2011, however, upon maturity, the district defaulted on the security. Consequently, this investment is currently valued at $0. While the County is liable to replenish the principal investment back to the residual cash pool, recent developments have created a favorable situation for the County. In 2012, citizens in the Wenatchee Public Facilities District approved an increase in the sales tax to fund the defaulting obligations. While the County has not yet received the maturing funds, it is probable that the County will fully collect the principal investment; no liability has been recorded on the financial statements as of December 31, This investment has been included in Note #10 as a contingency and in Note #17 as a subsequent event. All temporary investments are stated at fair market value. The book value of the County s investments does not differ materially from the bank balances of the deposits and are thus are stated at book value. At December 31, 2011, the County was invested as follows: Investment Maturities Fair Value of County's Own Investments Fair Value of Investments Held by County as an Agent for Other Local Governments Total State Pool $ 92,129,297 $ 2,517,734 $ 89,611,563 $ 92,129,297 Municipal Securities 1,840,000-1,644,297 1,644,297 U.S. Government Securities 650, , ,735 Time Deposits 18,043-18,043 18,043 Demand Deposits 78,299 16,726 61,573 78,299 Totals $ 94,715,639 $ 2,534,460 $ 91,999,211 $ 94,533,671 The credit ratings for the municipal securities held as investments are as follows: 46

50 Municipal Security Original Cost Fair Value Credit Rating Greater Wenatchee WA Regl Evnt Ctr Pub Facs Dist Rev & SPL Tax $ 310,149 $ - Standard & Poor's D Port Longview Wash Ref-Amt-LtdTa- Ser B N/C BE 116, ,156 Moody's A3 Benton Cnty Wash Pub Util Dist No Standard & Poor's 001 Elec Rev 341, ,454 A+/Stable El Paso TX GO Ltd Taxable Pension Non-Callable 314, ,895 Standard & Poor's AA/Stable WA St Hlth Care Facs Auth Rev Seattle Cancer Care Alliance 324, ,952 Moody's A3 New York NY GO Unltd Taxable- Subser J-2 514, ,840 Standard & Poor's AA Totals $ 1,921,512 $ 1,644,297 Custodial credit risk is the risk that in the event of a failure of the counterparty to an investment transaction, the County would not be able to recover the value of the investment or collateral securities. At December 31, 2011, the County did not have any investments exposed to custodial credit risk. NOTE 4 - PROPERTY TAXES The County Treasurer acts as an agent to collect property tax levied in the county for all taxing authorities. The following schedule represents the County s annual property tax calendar: January 1 Tax is levied and becomes an enforceable lien against properties. February 14 Tax bills are mailed. April 30 May 31 First of two equal installment payments is due. Assessed value of property established for next year's levy at 100 percent of market value. October 31 Second installment is due. Property tax is recorded as a receivable and revenue when levied. Property tax collected in advance of the fiscal year to which it applies is recorded as deferred revenue and recognized as revenue of the period to which it applies. The balance of taxes receivable includes related interest and penalties. No allowance for uncollectible tax is established because delinquent taxes are considered fully collectible. Prior year tax levies were recorded using the same principle, and delinquent taxes are evaluated annually. During 2011, $7,934 of uncollectible accounts were identified and cancelled in early The County may levy up to $1.80 per $1,000 of assessed valuation for general governmental services. For 2011, the County s regular levy was $ per $1,000 on an assessed valuation of $5,207,298,183 for a total regular levy of $7,307,625. Washington State Constitution and Washington State law, RCW , limit the rate. 47

51 The County is also authorized to levy $2.25 per $1,000 of assessed valuation in unincorporated areas for road construction and maintenance. This levy is subject to the same limitations as the levy for general government services. The County s road levy for 2011 was $ per $1,000 on an assessed valuation of $1,842,626,689 for a total road levy of $2,656,935. The road shift for 2011 was $ per $1,000 on an assessed valuation of $5,207,298,183 for a total shifted road levy of $265,000. The following table depicts Franklin County's levy for 2011: Purpose of Levy Levy Rates/$1,000 Total Levy General Government $ $7,307,625 County Road (On assessed value of unincorporated areas totaling $1,842,626,689) ,656,935 Mental Health ,183 Veteran s Relief ,582 TRAC Bond (On assessed value of unincorporated areas totaling $5,175,430,683) ,002 Courthouse Remodel Bond (On assessed value of unincorporated areas totaling $5,175,430,683) ,998 Total $ $11,263,325 NOTE 5 CAPITAL ASSETS AND DEPRECIATION A. Capital Assets Capital assets activity for the year ended December 31, 2011 was as follows: Governmental Activities: 48

52 Governmental Activities Capital assets, not being depreciated: Beginning Balance 01/01/2011 Increases Decreases Ending Balance 12/31/2011 Land $ 592,769 $ - $ - $ 592,769 Construction in Progress 14,763,629 5,094,932 (9,606,582) 10,251,979 Total capital assets, not being depreciated 15,356,398 5,094,932 (9,606,582) 10,844,748 Capital assets, being depreciated: Buildings 27,935, ,935,129 Machinery and Equipment 11,135, ,171 (356,710) 11,673,549 Land Improvements 537, ,188 Infrastructure 249,320,153 9,157, ,477,600 Total capital assets being depreciated 288,927,559 10,052,618 (356,710) 298,623,467 Less accumulated depreciation for: Buildings 11,336,235 1,113,422-12,449,657 Machinery and Equipment 7,504, ,425 (230,979) 8,181,998 Land Improvements 78,507 26, ,366 Infrastructure 49,535,582 6,415,402-55,950,984 Total accumulated depreciation 68,454,876 8,464,108 (230,979) 76,688,006 Governmental activities capital assets, net $ 235,829,081 $ 6,683,442 $ (9,732,313) $ 232,780,209 The beginning balance of Machinery and Equipment and related Accumulated Depreciation have been increased by $116,029 and $92,823, respectively, to reflect corrections to fixed asset listings at December 31, Due to the immateriality of the net amount, public safety expenses as shown on the government-wide statement of activities have been adjusted by the net basis of $23,206. Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities: Judicial $ 76,794 General Government 620,542 Public Safety 932,157 Physical Environment 4,789 Transportation 6,676,998 Economic Environment 101,776 Health 26,692 Culture and Recreation 24,360 Total Depreciation - Governmental Activities $ 8,464,108 49

53 Business-type Activities: Business-type Activities Capital assets, not being depreciated: Beginning Balance 01/01/2011 Increases Decreases Ending Balance, 12/31/2011 Land $ 25,407 $ - $ - $ 25,407 Total capital assets, not being depreciated 25, ,407 Capital assets, being depreciated: Buildings 14,130,010 7,277-14,137,287 Machinery and Equipment 2,028, ,173-2,185,334 Improvements to Land 1,367, ,367,794 Other Improvements 99,023 78, ,139 Total Capital assets being depreciated 17,624, ,566-17,867,554 Less accumulated depreciation for: Buildings 8,942, ,752-9,625,262 Machinery and Equipment 1,845,804 72,752-1,918,556 Improvements to Land 353,513 66, ,652 Other Improvements 31,157 18,619-49,776 Total accumulated depreciation 11,172, ,262-12,013,246 Business-type activities capital assets, net $ 6,477,411 $ (597,696) $ - $ 5,879,715 Depreciation Expense was charged to functions/programs of the Business-type Activities as follows: Business-type Activities: TRAC Multi-Use Facility $792,442 Other Non-Major Enterprise Funds 47,820 Total Depreciation Business-type Activities $840,262 B. Construction Commitments The County was engaged in active County Road construction projects as of December 31, The following schedule represents the County s commitments for road construction projects at December 31, In 2011, the residents of Franklin County approved a three-tenths of one percent (.003) local sales and use tax effective April 1, 2012 to be used for criminal justice and public safety purposes. As a result of the approved tax, the County will build a new corrections facility and has engaged an architect for the project. The schedule shown below reflects the respective architectural fee commitment executed on February 29, See Note #17 Subsequent Events. 50

54 On March 28 th, 2012, the Board of County Commissioners entered into a contract with SunGard Public Sector Inc. for the implementation of a financial information and asset management system (computer software). The County s respective commitment is also itemized below. See Note #17 Subsequent Events. Project County Road Department Spent to Date through 12/31/11 Remaining Commitment East Foster Wells Road $ 1,617,707 $ 1,275,695 Road 100/Dent Road Extension Phase 2 1,481,837 1,755,332 R-170 Landslide Area Phase 3 Road Realignment 5,812, ,470 Filbert Bridge # , ,139 Franklin County Road Safety Program 20, ,565 Peterson Road/Juniper Dunes 29, ,500 Total County Road Department 9,000,375 5,035,701 Franklin County Correction Facilities -.3% Criminal Justice Const. Fund Architectural Fees 20,412 1,295,058 Total.3% Criminal Justice Const. Fund 20,412 1,295,058 Financial Information and Asset Management System - Capital Projects Fund Software License and Services Agreement - 1,082,170 Total Capital Projects Fund - 1,082,170 Grand Total Franklin County Commitments $ 9,020,787 $ 7,412,929 NOTE 6 - PENSION PLANS Substantially all County full-time and qualifying part-time employees participate in one of the following statewide retirement systems administered by the Washington State Department of Retirement Systems, under cost-sharing multiple-employer public employee defined benefit retirement plans. The Department of Retirement Systems (DRS), a department within the primary government of the State of Washington, issues a publicly available comprehensive annual financial report (CAFR) that includes financial statements and required supplementary information for each plan. The DRS CAFR may be obtained by writing to: Department of Retirement Systems, Communications Unit, P.O. Box 48380, Olympia, WA ; or it may be downloaded from the DRS website at The following disclosures are made pursuant to GASB Statements No. 27, Accounting for Pensions by State and Local Government Employers and No. 50, Pension Disclosures, an Amendment of GASB Statements No. 25 and No. 27. A. Public Employees' Retirement System (PERS) Plans 1, 2 and 3 Plan Description The Legislature established PERS in Membership in the system includes: elected officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges currently in the Judicial Retirement System); employees of legislative committees; community and technical colleges, college and university employees not participating in higher education retirement programs; judges of district and municipal 51

55 courts; and employees of local governments. PERS retirement benefit provisions are established in Chapters and RCW and may be amended only by the State Legislature. PERS is a cost-sharing multiple-employer retirement system comprised of three separate plans for membership purposes: Plans 1 and 2 are defined benefit plans and Plan 3 is a defined benefit plan with a defined contribution component. PERS members who joined the system by September 30, 1977 are Plan 1 members. Those who joined on or after October 1, 1977 and by either, February 28, 2002 for state and higher education employees, or August 31, 2002 for local government employees, are Plan 2 members unless they exercised an option to transfer their membership to Plan 3. PERS members joining the system on or after March 1, 2002 for state and higher education employees, or September 1, 2002 for local government employees have the irrevocable option of choosing membership in either PERS Plan 2 or PERS Plan 3. The option must be exercised within 90 days of employment. An employee is reported in Plan 2 until a choice is made. Employees who fail to choose within 90 days default to PERS Plan 3. Notwithstanding, PERS Plan 2 and Plan 3 members may opt out of plan membership if terminally ill, with less than five years to live. PERS Plan 1 and Plan 2 defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. PERS Plan 1 members are vested after the completion of five years of eligible service. Plan 1 members are eligible for retirement after 30 years of service, or at the age of 60 with five years of service, or at the age of 55 with 25 years of service. The monthly benefit is 2 percent of the average final compensation (AFC) per year of service. (AFC is the monthly average of the 24 consecutive highest-paid service credit months.) The retirement benefit may not exceed 60 percent of AFC. The monthly benefit is subject to a minimum for PERS Plan 1 retirees who have 25 years of service and have been retired 20 years, or who have 20 years of service and have been retired 25 years. Plan 1 members retiring from inactive status prior to the age of 65 may receive actuarially reduced benefits. If a survivor option is chosen, the benefit is further reduced. A cost-ofliving allowance (COLA) was granted at age 66 based upon years of service times the COLA amount. This benefit was eliminated by the Legislature, effective July 1, Plan 1 members may elect to receive an optional COLA that provides an automatic annual adjustment based on the Consumer Price Index. The adjustment is capped at 3 percent annually. To offset the cost of this annual adjustment, the benefit is reduced. PERS Plan 1 provides duty and non-duty disability benefits. Duty disability retirement benefits for disablement prior to the age of 60 consist of a temporary life annuity payable to the age of 60. The allowance amount is $350 a month, or two-thirds of the monthly AFC, whichever is less. The benefit is reduced by any workers compensation benefit and is payable as long as the member remains disabled or until the member attains the age of 60. A member with five years of covered employment is eligible for non-duty disability retirement. Prior to the age of 55, the allowance amount is 2 percent of the AFC for each year of service reduced by 2 percent for each year that the member s age is less than 55. The total benefit is limited to 60 percent of the AFC and is actuarially reduced to reflect the choice of a survivor option. A cost-of-living allowance was granted at age 66 52

56 based upon years of service times the COLA amount. This benefit was eliminated by the Legislature, effective July 1, Plan 1 members may elect to receive an optional COLA that provides an automatic annual adjustment based on the Consumer Price Index. The adjustment is capped at 3 percent annually. To offset the cost of this annual adjustment, the benefit is reduced. PERS Plan 1 members can receive credit for military service. Members can also purchase up to 24 months of service credit lost because of an on-the-job injury. PERS Plan 2 members are vested after the completion of five years of eligible service. Plan 2 members are eligible for normal retirement at the age of 65 with five years of service. The monthly benefit is 2 percent of the AFC per year of service. (AFC is the monthly average of the 60 consecutive highest-paid service months.) PERS Plan 2 members who have at least 20 years of service credit and are 55 years of age or older are eligible for early retirement with a reduced benefit. The benefit is reduced by an early retirement factor (ERF) that varies according to age, for each year before age 65. PERS Plan 2 members who have 30 or more years of service credit and are at least 55 years old can retire under one of two provisions: With a benefit that is reduced by 3 percent for each year before age 65. With a benefit that has a smaller (or no) reduction (depending on age) that imposes stricter return-to-work rules. PERS Plan 2 retirement benefits are also actuarially reduced to reflect the choice, if made, of a survivor option. There is no cap on years of service credit; and a cost-of-living allowance is granted (based on the Consumer Price Index), capped at 3 percent annually. The surviving spouse or eligible child or children of a PERS Plan 2 member who dies after leaving eligible employment having earned ten years of service credit may request a refund of the member s accumulated contributions. PERS Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component and member contributions finance a defined contribution component. The defined benefit portion provides a monthly benefit that is 1 percent of the AFC per year of service. (AFC is the monthly average of the 60 consecutive highest-paid service months.) Effective June 7, 2006, PERS Plan 3 members are vested in the defined benefit portion of their plan after ten years of service; or after five years of service, if twelve months of that service are earned after age 44; or after five service credit years earned in PERS Plan 2 prior to June 1, Plan 3 members are immediately vested in the defined contribution portion of their plan. Vested Plan 3 members are eligible for normal retirement at age 65, or they may retire early with the following conditions and benefits: 53

57 If they have at least ten service credit years and are 55 years old, the benefit is reduced by an ERF that varies with age, for each year before age 65. If they have 30 service credit years and are at least 55 years old, they have the choice of a benefit that is reduced by 3 percent for each year before age 65; or a benefit with a smaller (or no) reduction factor (depending on age) that imposes stricter return-towork rules. PERS Plan 3 defined benefit retirement benefits are also actuarially reduced to reflect the choice, if made, of a survivor option. There is no cap on years of service credit and Plan 3 provides the same cost-of-living allowance as Plan 2. PERS Plan 3 defined contribution retirement benefits are solely dependent upon contributions and the results of investment activities. The defined contribution portion can be distributed in accordance with an option selected by the member, either as a lump sum or pursuant to other options authorized by the Director of the Department of Retirement Systems. PERS Plan 2 and Plan 3 provide disability benefits. There is no minimum amount of service credit required for eligibility. The Plan 2 monthly benefit amount is 2 percent of the AFC per year of service. For Plan 3, the monthly benefit amount is 1 percent of the AFC per year of service. These disability benefit amounts are actuarially reduced for each year that the member s age is less than 65, and to reflect the choice of a survivor option. There is no cap on years of service credit, and a cost-of-living allowance is granted (based on the Consumer Price Index) capped at 3 percent annually. PERS Plan 2 and Plan 3 members may have up to ten years of interruptive military service credit; five years at no cost and five years that may be purchased by paying the required contributions. Effective July 24, 2005, a member who becomes totally incapacitated for continued employment while serving the uniformed services, or a surviving spouse or eligible children, may apply for interruptive military service credit. Additionally, PERS Plan 2 and Plan 3 members can also purchase up to 24 months of service credit lost because of an on-the-job injury. PERS members may also purchase up to five years of additional service credit once eligible for retirement. This credit can only be purchased at the time of retirement and can be used only to provide the member with a monthly annuity that is paid in addition to the member s retirement benefit. Beneficiaries of a PERS Plan 2 or Plan 3 member with ten years of service who is killed in the course of employment receive retirement benefits without actuarial reduction, if the member was not at normal retirement age at death. This provision applies to any member killed in the course of employment, on or after June 10, 2004, if found eligible by the Department of Labor and Industries. A one-time duty-related death benefit is provided to the estate (or duly designated nominee) of a PERS member who dies in the line of service as a result of injuries 54

58 sustained in the course of employment, or if the death resulted from an occupational disease or infection that arose naturally and proximately out of said member s covered employment, if found eligible by the Department of Labor and Industries. Judicial Benefit Multiplier During January 1, 2007 through December 31, 2007, judicial members of PERS were given the choice to participate in the Judicial Benefit Multiplier Program (JBM) enacted in Justices and judges in PERS Plan 1 and Plan 2 were able to make a one-time irrevocable election to pay increased contributions that would fund a retirement benefit with a 3.5 percent multiplier. The benefit would be capped at 75 percent of AFC. Judges in PERS Plan 3 could elect a 1.6 percent of pay per year of service benefit, capped at 37.5 percent of AFC. Members who chose to participate in JBM would: accrue service credit at the higher multiplier beginning with the date of their election; be subject to the benefit cap of 75 percent of AFC, pay higher contributions; stop contributing to the Judicial Retirement Account (JRA); and be given the option to increase the multiplier on past judicial service. Members who did not choose to participate would: continue to accrue service credit at the regular multiplier; continue to participate in JRA, if applicable; never be a participant in the JBM Program; and continue to pay contributions at the regular PERS rate. Newly elected or appointed justices and judges who chose to become PERS members on or after January 1, 2007, or who had not previously opted into PERS membership, were required to participate in the JBM Program. Members required into the JBM program would: return to prior PERS Plan if membership had previously been established; be mandated into Plan 2 and not have a Plan 3 transfer choice, if a new PERS member; accrue the higher multiplier for all judicial service; not contribute to JRA; and not have the option to increase the multiplier for past judicial service. There are 1,197 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valuation date for the plans of June 30, 2010: Retirees and Beneficiaries Receiving Benefits 76,899 Terminated Plan Members Entitled to But Not Yet Receiving Benefits 28,860 Active Plan Members Vested 105,521 Active Plan Members Nonvested 51,005 Total 262,285 Funding Policy Each biennium, the state Pension Funding Council adopts PERS Plan 1 employer contribution rates, PERS Plan 2 employer and employee contribution rates, and PERS Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by statute at 6 percent for state agencies and local government unit employees, and at 7.5 percent for state government elected officials. The employer and employee contribution rates for Plan 2 and the employer contribution rate for Plan 3 are developed by the Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. All employers are required to contribute at the level established by the 55

59 Legislature. Under PERS Plan 3, employer contributions finance the defined benefit portion of the plan and member contributions finance the defined contribution portion. The Plan 3 employee contribution rates range from 5 percent to 15 percent, based on member choice. Two of the options are graduated rates dependent on the employee s age. As a result of the implementation of the Judicial Benefit Multiplier Program in January 2007, a second tier of employer and employee rates was developed to fund, along with investment earnings, the increased retirement benefits of those justices and judges that participate in the program. The methods used to determine the contribution requirements are established under state statute in accordance with Chapters and RCW. The required contribution rates expressed as a percentage of current-year covered payroll, as of December 31, 2011, are as follows: Members not participating in JBM: PERS Plan 1 PERS Plan 2 PERS Plan 3 Employer* 7.25% 7.25% 7.25%** Employee 6.00% 4.64% *** * The employer rates include the employer administrative expense fee currently set at 0.16%. ** Plan 3 defined benefit portion only. *** Variable from 5.0% minimum to 15.0% maximum based on rate selected by the PERS 3 member. Members participating in JBM: PERS Plan 1 PERS Plan 2 PERS Plan 3 Employer- Local Government* Employee- Local Government 7.25% 7.25% 7.25%** 12.26% 11.60% 7.50%*** * The employer rates include the employer administrative expense fee currently set at 0.16%. ** Plan 3 defined benefit portion only. ***Minimum rate. Both County and the employees made the required contributions. The County s required contributions for the years ending December 31 were as follows: 56

60 PERS Plan 1 PERS Plan 2 PERS Plan $31,858 $605,634 $39, $32,614 $502,389 $34, $48,769 $651,894 $41,930 B. Law Enforcement Officers' And Fire Fighters' Retirement System (LEOFF) Plans 1 and 2 Plan Description The Legislature established LEOFF in Membership in the system includes all fulltime, fully compensated, local law enforcement commissioned officers, firefighters and, as of July 24, 2005, emergency medical technicians. LEOFF membership is comprised primarily of non-state employees, with Department of Fish and Wildlife enforcement officers, who were first included prospectively effective July 27, 2003, being an exception. LEOFF retirement benefit provisions are established in Chapter RCW and may be amended only by the State Legislature. LEOFF is a cost-sharing multiple-employer retirement system comprised of two separate defined benefit plans. LEOFF members who joined the system by September 30, 1977 are Plan 1 members. Those who joined on or after October 1, 1977 are Plan 2 members. LEOFF defined benefit retirement benefits are financed from a combination of investment earnings, employer and employee contributions, and a special funding situation in which the state pays through state legislative appropriations. Effective July 1, 2003, the LEOFF Plan 2 Retirement Board was established by Initiative 790 to provide governance of LEOFF Plan 2. The Board s duties include adopting contribution rates and recommending policy changes to the Legislature for the LEOFF Plan 2 retirement plan. LEOFF Plan 1 members are vested after the completion of five years of eligible service. Plan 1 members are eligible for retirement with five years of service at the age of 50. The benefit per year of service calculated as a percent of final average salary (FAS) is as follows: Term of Service Percent of Final Average Salary 20 or more years 2.0% 10 but less than % years 5 but less than 10 years 1.0% The FAS is the basic monthly salary received at the time of retirement, provided a member has held the same position or rank for 12 months preceding the date of retirement. Otherwise, it is the average of the highest consecutive 24 months salary within the last 10 years of service. A cost-of-living allowance is granted (based on the Consumer Price Index). 57

61 LEOFF Plan 1 provides death and disability benefits. Death benefits for survivors of Plan 1 members on active duty consist of the following: (1) If eligible spouse, 50 percent of the FAS, plus 5 percent of FAS for each eligible surviving child, with a limitation on the combined allowances of 60 percent of the FAS; or (2) If no eligible spouse, eligible children receive 30 percent of FAS for the first child plus 10 percent for each additional child, subject to a 60 percent limitation of FAS, divided equally. A one-time duty-related death benefit is provided to the estate (or duly designated nominee) of a LEOFF Plan 1 member who dies as a result of injuries or illness sustained in the course of employment, if found eligible by the Department of Labor and Industries. The LEOFF Plan 1 disability allowance is 50 percent of the FAS plus 5 percent for each child up to a maximum of 60 percent. Upon recovery from disability before the age of 50, a member is restored to service with full credit for service while disabled. Upon recovery after the age of 50, the benefit continues as the greater of the member s disability allowance or service retirement allowance. LEOFF Plan 1 members may purchase up to five years of additional service credit once eligible for retirement. This credit can only be purchased at the time of retirement and can be used only to provide the member with a monthly annuity that is paid in addition to the member s allowance. LEOFF Plan 2 members are vested after the completion of five years of eligible service. Plan 2 members may retire at the age of 50 with 20 years of service, or at the age of 53 with five years of service, with an allowance of 2 percent of the FAS per year of service. (FAS is based on the highest consecutive 60 months). Plan 2 members who retire prior to the age of 53 receive reduced benefits. Benefits are actuarially reduced for each year that the benefit commences prior to age 53 and to reflect the choice of a survivor option. If the member has at least 20 years of service and is age 50, the reduction is 3 percent for each year prior to age 53. A cost-of-living allowance is granted (based on the Consumer Price Index), capped at 3 percent annually. LEOFF Plan 2 provides disability benefits. There is no minimum amount of service credit required for eligibility. The Plan 2 allowance amount is 2 percent of the FAS for each year of service. Benefits are actuarially reduced for each year that the member s age is less than 53, unless the disability is duty-related, and to reflect the choice of a survivor option. If the member has at least 20 years of service and is age 50, the reduction is 3 percent for each year prior to age 53. A catastrophic disability benefit equal to 70 percent of their FAS, subject to offsets for workers compensation and Social Security disability benefits received, is also available to those LEOFF Plan 2 members who are severely disabled in the line of duty and incapable of future substantial gainful employment in any capacity. Effective June 2010, benefits to LEOFF Plan 2 members who are catastrophically disabled include payment of eligible health care insurance premiums. Members of LEOFF Plan 2 who leave service because of a line of duty disability are allowed to withdraw 150 percent of accumulated member contributions. This withdrawal benefit is not subject to federal income tax. Alternatively, members of LEOFF Plan 2 who leave service because of a line of duty disability may be eligible to receive a retirement 58

62 allowance of at least 10 percent of FAS and 2 percent per year of service beyond five years. The first 10 percent of the FAS is not subject to federal income tax. LEOFF Plan 2 retirees may return to work in an eligible position covered by another retirement system, choose membership in that system and suspend their pension benefits, or not choose membership and continue receiving pension benefits without interruption. LEOFF Plan 2 members who apply for retirement may purchase up to five years of additional service credit. The cost of this credit is the actuarial equivalent of the resulting increase in the member s benefit. LEOFF Plan 2 members can receive service credit for military service that interrupts employment. Additionally, LEOFF Plan 2 members who become totally incapacitated for continued employment while servicing in the uniformed services may apply for interruptive military service credit. Should any such member die during this active duty, the member s surviving spouse or eligible child (ren) may request service credit on behalf of the deceased member. LEOFF Plan 2 members may also purchase up to 24 consecutive months of service credit for each period of temporary duty disability. Beneficiaries of a LEOFF Plan 2 member who is killed in the course of employment receive retirement benefits without actuarial reduction, if found eligible by the Director of the Department of Labor and Industries. Benefits to eligible surviving spouses and dependent children of LEOFF Plan 2 members killed in the course of employment include the payment of on-going health care insurance premiums paid to the Washington state Health Care Authority. A one-time duty-related death benefit is provided to the estate (or duly designated nominee) of a LEOFF Plan 2 member who dies as a result of injuries or illness sustained in the course of employment, if found eligible by the Department of Labor and Industries. There are 374 participating employers in LEOFF. Membership in LEOFF consisted of the following as of the latest actuarial valuation date for the plans of June 30, 2010: Retirees and Beneficiaries Receiving Benefits 9,647 Terminated Plan Members Entitled to But Not Yet Receiving Benefits 782 Active Plan Members Vested 13,420 Active Plan Members Nonvested 3,656 Total 27,505 Funding Policy Starting on July 1, 2000, LEOFF Plan 1 employers and employees contribute zero percent as long as the plan remains fully funded. Employer and employee contribution rates are developed by the Office of the State Actuary to fully fund the plan. LEOFF Plan 2 employers and employees are required to pay at the level adopted by the LEOFF Plan 2 Retirement Board. The Legislature, by means of a special funding arrangement, appropriated money from the state General Fund to supplement the current service liability and fund the prior service costs of LEOFF Plan 2 in accordance with the 59

63 requirements of the Pension Funding Council and the LEOFF Plan 2 Retirement Board. However, this special funding situation is not mandated by the state constitution and this funding requirement could be returned to the employers by a change of statute. The required contribution rates expressed as a percentage of current-year covered payroll, as of December 31, 2011, are as follows: LEOFF Plan 1 LEOFF Plan 2 Employer* 0.16% 5.24% Employee 0.00% 8.46% State N/A 3.38% *The employer rates include the employer administrative expense fee currently set at 0.16%. Both County and the employees made the required contributions. The County s required contributions for the years ending December 31 were as follows: LEOFF Plan 1 LEOFF Plan $274 $79, $267 $73, $264 $78,953 C. Public Safety Employees Retirement System (PSERS) Plan 2 Plan Description The Legislature created PSERS in 2004 and the system became effective July 1, PSERS Plan 2 membership includes full-time employees of a covered employer on or before July 1, 2006, who met at least one of the PSERS eligibility criteria, and elected membership during the election period of July 1, 2006 to September 30, 2006; and those full-time employees, hired on or after July 1, 2006 by a covered employer, that meet at least one of the PSERS eligibility criteria. PSERS retirement benefit provisions are established in Chapter RCW and may be amended only by the State Legislature. PSERS is a cost-sharing multiple-employer retirement system comprised of a single defined benefit plan, PSERS Plan 2. PSERS defined benefit retirement benefits are financed from a combination of investment earnings and employer and employee contributions. A covered employer is one that participates in PSERS. Covered employers include the following: State of Washington agencies: Department of Corrections, Department of Natural Resources, Gambling Commission, Liquor Control Board, Parks and Recreation Commission, and Washington State Patrol; Corrections departments of Washington State counties; 60

64 Corrections departments of Washington State cities except for Seattle, Tacoma and Spokane; and Interlocal corrections agencies. To be eligible for PSERS, an employee must work on a full-time basis and: Have completed a certified criminal justice training course with authority to arrest, conduct criminal investigations, enforce the criminal laws of Washington and carry a firearm as part of the job; or Have primary responsibility to ensure the custody and security of incarcerated or probationary individuals; or Function as a Washington peace officer, as defined in RCW ; or Have primary responsibility to supervise eligible members who meet the above criteria. PSERS Plan 2 members are vested after completing five years of eligible service. PSERS Plan 2 members may retire at the age of 65 with five years of service, or at the age of 60 with at least 10 years of PSERS service credit, with an allowance of 2 percent of the average final compensation (AFC) per year of service. The AFC is the monthly average of the member s 60 consecutive highest-paid service credit months, excluding any severance pay such as lump-sum payments for deferred sick leave, vacation or annual leave. Plan 2 members who retire prior to the age of 60 receive reduced benefits. If retirement is at age 53 or older with at least 20 years of service, a 3 percent per year reduction for each year between the age at retirement and age 60 applies. There is no cap on years of service credit; and a cost-of-living allowance is granted (based on the Consumer Price Index), capped at 3 percent annually. PSERS Plan 2 provides disability benefits. There is no minimum amount of service credit required for eligibility. Eligibility is based on the member being totally incapacitated for continued employment with a PSERS employer and leaving that employment as a result of the disability. The disability allowance is 2 percent of the average final compensation (AFC) for each year of service. AFC is based on the member s 60 consecutive highest creditable months of service. Service credit is the total years and months of service credit at the time the member separates from employment. Benefits are actuarially reduced for each year that the member s age is less than 60 (with ten or more service credit years in PSERS), or less than 65 (with fewer than ten service credit years). PSERS Plan 2 members can receive service credit for military service that interrupts employment. Additionally, PSERS members who become totally incapacitated for continued employment while serving in the uniformed services may apply for interruptive military service credit. Should any such member die during this active duty, the member s surviving spouse or eligible child (ren) may request service credit on behalf of the deceased member. PSERS members may also purchase up to 24 consecutive months of service credit for each period of temporary duty disability. Beneficiaries of a PSERS Plan 2 member with ten years of service who is killed in the course of employment receive retirement benefits without actuarial reduction, if the member was not at normal retirement age at death. This provision applies to any 61

65 member killed in the course of employment, if found eligible by the Director of the Department of Labor and Industries. A one-time duty-related death benefit is provided to the estate (or duly designated nominee) of a PSERS member who dies as a result of injuries or illness sustained in the course of employment, if found eligible by the Department of Labor and Industries. There are 76 participating employers in PSERS. Membership in PSERS consisted of the following as of the latest actuarial valuation date for the plan of June 30, 2010: Retirees and Beneficiaries Receiving Benefits 7 Terminated Plan Members Entitled to But Not Yet Receiving Benefits 0 Active Plan Members Vested 0 Active Plan Members Nonvested 4,210 Total 4,217 Each biennium, the state Pension Funding Council adopts PSERS Plan 2 employer and employee contribution rates. The employer and employee contribution rates for Plan 2 are developed by the Office of the State Actuary to fully fund Plan 2. All employers are required to contribute at the level established by the Legislature. The methods used to determine the contribution requirements are established under state statute in accordance with Chapters and RCW. The required contribution rates expressed as a percentage of current-year covered payroll, as of December 31, 2011, are as follows: PSERS Plan 2 Employer* 8.86% Employee 6.36% * The employer rate includes an employer administrative expense fee of 0.16%. Both County and the employees made the required contributions. The County s required contributions for the years ending December 31 were as follows: PSERS Plan $80, $71, $87,232 NOTE 7 - RISK MANAGEMENT Franklin County is one of twenty-seven members of the Washington Counties Risk Pool ( Pool ). Other members include: Adams, Benton, Chelan and Clallam, Clark, Columbia, Cowlitz and Douglas, Garfield, Grays Harbor and Island, Jefferson, Kittitas, Lewis and Mason, Okanogan, Pacific, Pend Oreille and San Juan, Skamania, Skagit, Spokane and 62

66 Thurston, Walla Walla, Whatcom and Yakima Counties. Kitsap, Klickitat and Whitman Counties are former Pool members, having terminated their memberships September 30, 2010, 2002 and 2003 respectively. Contingent Liability: The Pool is a cooperative program with joint liability amongst its participating members. Contingent liabilities occur when assets are not sufficient to cover liabilities. Deficits resulting from any of the Pool s fiscal years are financed by proportional reassessments (aka retroactive assessments) amongst the deficient year s membership. The Pool s reassessments receivable balance at December 31, 2011 was $0 as no contingent liabilities were known to exist at that time. Joint Self-Insurance Liability Program: The Pool has provided its member counties occurrence-based, jointly self-insured and/or jointly purchased liability coverage for 3rdparty bodily injury, personal injury, property damage, errors and omissions, and advertising injury, including public officials errors and omissions, since October 1, Total coverage limits have grown over time, from the $1 million limit during the Pool s initial two months to $5 million, then to $10 million and onto $15 million before reaching the $20 million limit the past eight years. (Note: Additional limits of $5 million were offered the past several years for acquisition as a member-by-member option.) Except for the Pool s self insured retention (the greater of the member s deductible or $100,000), the initial coverage of at least $10 million has been fully reinsured since October 1994 by superior-rated commercial carriers. Members annually select a deductible amount of $10,000, $25,000, $50,000, $100,000, $250,000 or $500,000. The remaining insurance (up to $15 million) is acquired as following form excess insurance, also from superior-rated commercial carriers. There are no aggregate limits to the payments made for any one member county or all member counties combined. The Pool s claims database increased during Py2011 with the addition of 744 new claims (and lawsuits) raising the 3rd-party liability claims to-date total submitted by member counties to 17,982. Estimates of total incurred losses (payments made plus reserved estimates for open claims) increased $16.0 million during the year to $237.4 million. Washington Counties Property Program: Since the Pool began offering the jointlypurchased, fully-insured property insurance coverage to its membership in October 2005 as an individual county option, participation has grown by more than 50% and the total value of covered properties has nearly doubled. Twenty seven member counties with covered properties totaling $2.6 billion participated in this program during Py2011. Coverage is for structures, vehicles, mobile equipment, EDP equipment, etc., and composite limits include $500 million for normal (All Other Perils) exposures and $200 million for catastrophe (Flood / Earthquake) exposures. Occurrence deductibles, which the participating counties annually select from and which they are solely responsible for, range between $5,000 and $50,000 for the AOP coverage. Superior-rated commercial insurers are responsible for covered losses exceeding the participant deductibles to the maximum limits of the policy. There were 13 property claims submitted for processing during Py2011 with incurred losses-to-date totaling nearly $0.85 million. During its first six years being offered through the WCRP as an optional insuring program, there have been 78 property claims filed with incurred losses-to-date totaling nearly $9.75 million. With to-date premiums for this coverage totaling $13.75 million, the resulting to-date loss ratio is

67 Other Insurances: Several member counties also use the Pool s producer (broker) for other insurance placements. Public officials bonds, or crime & fidelity, special events/concessionaires and environmental hazards insurance coverages are a few examples. Background: The Pool was formed August 18, 1988 when several Washington counties approved an Interlocal (Cooperative) Agreement under Chapter RCW to provide its member counties with joint programs and services including self-insurance, purchasing of insurance, and contracting for or hiring of personnel to provide administrative services, claims handling and risk management. The Pool operates under Washington s pooling laws, more specifically Chapters RCW and WAC. It is overseen by the State Risk Manager and subject to fiscal audits performed annually by the State Auditor. The Pool s mission is: To provide comprehensive and economical risk coverage; to reduce the frequency and severity of losses; and to decrease costs incurred in the managing and litigation of claims. The Pool s core values include: being committed to learn, understand and respond to the member counties insurance needs; being committed to establish working relationships with all members that identify business issues and jointly develop solutions; member counties commit to allocate necessary resources to risk management in their own operations; the Pool s board of directors and professional staff share a commitment to manage the organization based on sound business principles, benchmarked industry standards and measurable outcomes; and being committed to continuous planning and innovation in product development and service delivery. The enabling Interlocal Agreement was amended once (in 2000) to add a Membership Compact, a commitment to strengthen the Pool by helping its member counties implement and/or enhance local risk management efforts to reduce losses and support the best management of the Pool and its resources. The intent of the Compact was to obligate member counties to support these goals through three major elements; membership involvement, risk control practices, and a targeted risk management program. A new member may be asked to pay modest admittance fees to cover that member s share of the Pool s organizational expenses and costs to analyze its loss data and risk profile. Members contract initially to remain in the Pool for at least five years. Counties may terminate their memberships at the conclusion of any Pool fiscal year following the initial term if the county timely files its required advance written notice. Otherwise, the Interlocal Agreement is renewed automatically for another year. Even after termination, a former member remains responsible for reassessments from the Pool for its proportional shares of any unresolved, unreported, and in-process claims for the periods they were a signatory to the Interlocal Agreement. Governance / Oversight: The Pool is governed by a board of directors consisting of one director (and at least one alternate director) appointed by each member county. The Pool s board of directors, made up of both elected and appointed county officials, meets three times each year with the summer meeting being the Pool s Annual Meeting. The board of directors is responsible for determining the 3 rd -party liability coverage to be offered (approving the insuring document or coverage form), the reinsurance program(s) to acquire and the excess insurance(s) to be jointly purchased or offered for optional purchase by the member counties, for approval of the Pool s annual operating budget(s) and work program(s), and for approval of the member deposit assessment formulas 64

68 applicable to the ensuing policy year. Regular oversight of the Pool s operations is furnished by an 11-person executive committee. The committeepersons are elected by the Pool s board of directors from its membership to staggered, 3-year terms during each Annual Meeting. The committee meets several times throughout the year to approve all Pool disbursements and examine the Pool s financial health; to approve any case settlement exceeding the member s deductible by at least $50,000, and to review all claims with incurred loss estimates exceeding $100,000; to evaluate the Executive Director and the Pool s operations and program deliverables; and to participate in the board s standing committees (finance, personnel, risk management, and underwriting) for development or review/revision of the organization s policies and coverage documents. Staffing and Support Teams: The Pool s 5-person claims staff with more than eighty years combined claims-handling experience handles or oversees the handling of the several hundred liability cases filed upon the Pool s member counties each year. This includes establishing reserves for covered events and estimating undiscounted future cash payments for losses and their related claims adjustment expenses. Other Pool staffers provide various member services, e.g. conducting risk assessments and compliance audits, coordinating numerous trainings, researching other coverages and marketing. Some address and support the organization s administrative needs. Professionals from some of the most respected organizations worldwide are called upon regularly to address specific needs of the Pool. For example, independent actuarial services are furnished by PricewaterhouseCoopers, LLP; independent claims auditing is performed by Startegic Claims Direction with special claims audits frequently performed by the Pool s commercial reinsurers / insurers; insurance producer (broker) and advanced loss control services are provided by Arthur J. Gallagher Risk Management Services, Inc.; and coverage counsel is provided by J. William Ashbaugh of Hackett Beecher & Hart. These professionals are in addition to the many contracted and in-county attorneys assigned to defend Pool cases, as well as the examinations by and services from the State Risk Manager and the State Auditor. Financial Summary: The following constitute the most significant highlights from the Pool s most recently completed Policy (Fiscal) Year (October 2010 through September 2011): year. Net Operating Income was realized of $0.8 million, a 58% decrease from the prior Total Assets grew $2.2 million (6%) to $41.1 million. Current assets increased $2.3 million (6%) while non-current assets decreased 4%. Total Claims Reserves for the Pool s direct reserving exposures increased to $15.0 million, up 6.7% from the prior year. This total includes: $5.6 million for losses in the coverage layer retained by the Pool, down 9.3%; $8.6 million for the aggregated stop losses in the retained layers associated with the corridor program for automobile and general liabilities, up 22%; and $0.8 million for unallocated loss adjustment expenses, down 5% from one year ago. NOTE: The corridor program referenced is now five years old yet still not fully matured. Further, its occurrence coverage maximum was increased to one million dollars beginning with Py2010, up from the half million level that existed during the program s first three years, while the program s occurrence minimum remains the greater of the applicable member s deductible or $100,

69 Net Position (formerly referred to as Net Assets and also known as Members Equity) increased $.08 million to $11.0 million as of September 30, Of the total, $5.5 million is classified as Restricted Net Position $0.9 million to satisfy the State s solvency provisions (WAC ) plus $4.6 million for the Pool s Underwriting Policy requirements. $0.2 million is invested in a real property (fraud) recovery, and another $1 million in Capital Assets (net of debt). The remaining $4.4 million held as Non-Restricted Net Position is available for use as directed by the Pool s Board of Directors. The Washington Counties Risk Pool provides each County in the pool an annual figure that represents the County s Incurred But Not Reported (IBNR) liability. The IBNR is figured by using a formula that includes loss history, worker hours, licensed vehicles and several other factors. Franklin County s IBNR at December 31, 2011 amounted to $728,459, compared to $734,577 for NOTE 8 - LONG-TERM DEBT A. Long-Term Debt The County issues general obligation bonds to finance new construction and to make improvements to existing buildings and structures. Bonded indebtedness has also been entered into (currently and in prior years) to advance refund several general obligation bonds. General obligation bonds have been issued for both general government and business-type activities and are being repaid from the applicable resources. The County s revenue debt acquired in 1991 is owed to the Washington State Public Works Trust Fund and has been repaid through a portion of the County s gasoline taxes, held by the State. As of December 31, 2011, this debt has been fully repaid. During 2006, the County obtained another Public Works Trust Fund loan in the amount of $4,500,000 for the paving of 30 miles of gravel road. Repayment of this loan is made from an additional excise tax on the sale of real property in the unincorporated areas of Franklin County at a rate of one-quarter of one percent of the selling price, under the authority of RCW (2). In the financial statements, debt for business-type activities and governmental activities is shown as a liability in the type of activity that is retiring the debt, even if the purpose of the debt was for the other activity. The funds to retire Franklin County s debt are generated from taxes, transfers, and a semi-annual operating lease from the City of Pasco. General obligation bonds currently outstanding are as follows: 66

70 Purpose Maturity Range Interest Rate Original Amount Amount of Installment 2005 TRAC Enhancement $ 615,000 $ 160, Courthouse Remodel Unlimited ,200, , Courthouse Remodel Unlimited Refunding Bond ,605,000 6,545, RV Park Limited ,435, , Distressed Counties Limited ,025,000 1,520, CJ/Juv/Jail 3rd Floor Remodel Refunding ,295,000 1,775, Distressed Counties Limited Refunding ,435,000 3,740, TRAC Unlimited Refunding ,520, , TRAC Limited Refunding ,330, ,000 Total $ 31,460,000 $ 16,500,000 The annual debt service requirements to maturity for general obligation bonds issued are as follows: Year Ending December 31 Governmental Activities Business-Type Activities Principal Interest Principal Interest 2012 $ 1,915,000 $ 564,513 $ 80,000 $ 5, ,965, ,605 80,000 3, ,685, , ,500, , ,545, , ,320,000 1,051, ,410,000 56, Totals $ 16,340,000 $ 3,389,977 $ 160,000 $ 8,920 At December 31, 2011, the County has $637,805 available in debt service funds to service the general bonded debt, which includes funds related to the County s Economic Development Plan. This combined fund balance does not include $56,102 of interest payable, accrued between December 1 st and December 31 st, 2011, and due June 1, The revenue bonds currently outstanding are as follows: Purpose Maturity Range Interest Rate Original Amount Amount of Installment 2006 PWTF Loan ,500,000 3,576,429 Revenue bond debt service requirements to maturity are as follows: 67

71 Year Ending Governmental Activities Principal Interest 2012 $ 241,135 $ 17, ,235 16, ,235 15, ,235 14, ,235 13, ,191,177 47, ,191,177 17,868 Totals $ 3,576,429 $ 143,066 At December 31, 2011, the County s total margin of indebtedness available was $92,858,176. B. Refunded Debt During 2011, the county issued $6,605,000 of general obligation refunding bonds to provide resources to purchase U.S. Government securities that were placed in an irrevocable trust for the purpose of generating resources for all future debt service payments of $6,130,000 of general obligation bonds and accrued interest. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the governmental activities column of the statement of net assets. (See Note #10 Contingencies and Litigations) The reacquisition price exceeded the net carrying amount of the old debt by $370,505. This amount is being netted against the new debt and amortized over the remaining life of the refunded debt, which is shorter than the life of the new debt issued. This advance refunding was undertaken to reduce total debt service payments over the next 11 years by $579,989 and resulted in an economic gain of $504,014. The new bonds were issued with an original issue premium of $112,878 along with related bond issuance costs of $140,261, both of which are applied to the new debt and are being amortized over the life of the new debt through December 1, C. New Bond Issuance On May 16, 2012, the Board of County Commissioners approved the issuance of $20,345,000 aggregate principal amount of limited tax general obligation bonds to pay costs of improvements to the County s courthouse and criminal justice facilities, cost of a financial information and asset management system (computer software) and costs of issuing said bonds. The bond principal of $19,125,000 will to be paid over a period of 29.5 years from the proceeds of a 2011 voter-approved three-tenths of one percent (.003) local sales and use tax for criminal justice and public safety purposes. Both the City of Pasco and Franklin County will benefit from the tax. The County will apply two-tenths of one-percent of its share toward the debt service of the bond. The remaining one-tenth will be used to fund the operations of its correction facility. The net borrowing cost of the bond over the term is 3.86%. 68

72 Also included in the bond issuance is $1,220,000 of principal to be utilized in the purchase and installation of a new financial and Public Works inventory and fleet management system. The term of the bond is 12.5 years at an effective interest rate of 2.54%. Payments of principal and interest will be funded by the General Fund. See Note #17 Subsequent Events. The annual debt service requirements to maturity for these general obligation bonds committed but not yet issued are as follows: Year Ending December 31 Governmental Activities Principal Interest 2012 $ - $ , , , , , , , , ,825,000 3,269, ,110,000 2,858, ,155,000 2,326, ,795,000 1,690, ,690, , ,055,000 42,200 Totals $ 20,345,000 $ 13,487,617 NOTE 9 CHANGES IN LONG-TERM LIABILITIES During the year ended December 31, 2011, the following changes occurred in long-term liabilities: 69

73 Beginning Ending Governmental Activities Balance 1/1/2011 Additions Reductions Balance 12/31/2011 Due Within One Year Bonds Payable: General Obligation Bonds $ 9,715,000 $ - $ 6,755,000 $ 2,960,000 $ 655,000 Refunding General Obligation Bonds 7,960,000 6,605,000 1,185,000 13,380,000 1,260,000 Public Works Revenue Debt 3,944, ,645 3,576, ,135 Less Deferred Amounts for: Refunding - (370,505) (103,360) (267,145) - Bond Issuance Premiums - 112,878 3, ,285 - Refunding Issuance Costs - (140,261) (4,464) (135,797) - Total Bonds Payable 21,619,074 6,207,112 8,203,414 19,622,772 2,156,135 Claims & Judgments 734,577-6, ,459 Unknown Compensated Absences 1,455,357 1,259,868 1,182,527 1,532,698 Unknown Net Other Postemployment Benefits Obligation 1,048, ,521-1,186,095 Unknown Governmental Activity Long- Term Liabilities $ 24,857,582 $ 7,604,501 $ 9,392,059 $ 23,070,024 $ 2,156,135 Business-Type Activities: Refunding General Obligation Bonds $ 240,000 $ - $ 80,000 $ 160,000 $ 80,000 Compensated Absences 57,164 58,865 41,454 74,575 Unknown Business-Type Activities: Long- Term Liabilities $ 297,164 $ 58,865 $ 121,454 $ 234,575 $ 80,000 Internal service funds predominantly serve the governmental funds. Accordingly, longterm liabilities for them are included as part of the totals stated above for governmental activities. At year end, $41,258 of internal service funds compensated absences is included in the amounts stated above. Also, for the governmental activities, claims and judgments and compensated absences are generally liquidated by the general fund. NOTE 10 CONTINGENCIES AND LITIGATIONS Contingencies The County has recorded in its financial statements all material liabilities, including an estimate for situations which are not yet resolved but where, based on available information, management believes it is probable that the County will have to make payment. This includes the County s $300,000 municipal security investment in the 70

74 defaulted Greater Wenatchee Regional Event Center Public Facilities District, WA, Series 2008 Bond Anticipation Note. In 2012, citizens in the Wenatchee Public Facilities District approved an increase in the sales tax to fund the defaulting obligations and it is probable that the County will fully collect the principal investment. No liability has been recorded on the financial statements as of December 31, See Note #3 Deposits and Investments and Note #17 Subsequent Events. In the opinion of management, the County s insurance policies are adequate to pay all known or pending claims. As discussed in Note #8 - Long-Term Debt, the County is contingently liable for repayment of refunded debt. The County participates in a number of federal- and state-assisted programs. These grants are subject to audit by grantors of their representatives. Such audits could result in requests for reimbursement to grantor agencies for expenditures disallowed under the terms of the grants. Management believes that such disallowances, if any, will be immaterial. Litigation In early 2012, Franklin County initiated an internal fraud investigation concerning misappropriation of funds by a former Public Works employee. The Washington State Attorney General conducted a criminal investigation and in May 2012 filed criminal charges including theft and money laundering of approximately $1.8 million against the individual. In addition, the County has filed a civil lawsuit against the former employee and his spouse in an effort to reclaim damages. See Note #16 Extraordinary Item for reference to the effect on the financial statements and Note #17 Subsequent Events. NOTE 11 RESTRICTED NET ASSETS The government-wide statement of net assets reports $3,537,342 of restricted net assets, which is all restricted by enabling legislation. NOTE 12 - INTERFUND TRANSACTIONS AND BALANCES A. Interfund Balances For a variety of reasons, including transfers, reimbursements, revenue or expenditure adjustments at year-end there are balances owed between funds. Interfund balances at December 31, 2011 were as follows: 71

75 Due To Fund County Other Internal General Road Governmental Service Fund Fund Funds TRAC Funds Total Due From Fund General Fund $ 13,590 $ 2,083 $ 112,432 $ - $ 17,808 $ 145,913 County Road Fund 20,333-13,294-54,547 88,174 Other Governmental Funds 78,810 23,732 22, ,599 TRAC 8, ,218 Other Non-Major Enterprise Funds ,912-6,912 Internal Service Funds 4,892 3, ,582 Total $ 126,258 $ 29,505 $ 125,726 $ 28,969 $ 72,940 $ 383,398 B. Interfund Transfers 1. Transfers are typically transactions that would be treated as revenues, expenditures or expenses if they involved external organizations. In some instances transfers are used to support ongoing operations in funds, and in others they are used to fund debt service funds for the purpose of retiring the County s long-term debt. 2. Transfers to support operations of other funds are recorded in "Other Financing Sources or Uses. Interfund transfers for the year ended December 31, 2011 were as follows: Transfer From Other Non- County Other Major General Road Governmental Enterprise Fund Fund Funds TRAC Funds Total Transfer To General Fund $ 4,743 $ - $ 76,657 $ - $ 26,956 $ 108,356 Other Governmental Funds 448,335 13, ,331 3, ,560 TRAC , , ,868 Total $ 453,078 $ 13,294 $ 601,944 $ 3,600 $ 133,868 $ 1,205,784 C. Interfund Loans Loans between funds are classified as interfund loans receivable and payable on the combined balance sheet. Interfund loans do not affect total fund equity. The following table displays interfund loan activity during 2011: 72

76 Borrowing Lending Balance New Loans Repayments Balance Fund Fund 1/1/ /31/2011 Motor Vehicle County Road $ 43,971 $ 2,000 $ 45,971 $ - CRID #14 County Road CRID #18 County Road 19, ,640 Subtotal County Road 63,729 2,000 45,971 19,758 County Road General Fund - Cumulative Reserve Fund 83,351-40,858 42,493 Subtotal General Fund - Cumulative Reserve Fund 83,351-40,858 42,493 Grand Totals $ 147,080 $ 2,000 $ 86,829 $ 62,251 NOTE 13 - JOINT VENTURES A. Bi-County Police Information Network The Bi-County Police Information Network (BI-PIN) was established November 24, 1982, when an Interlocal Agreement was entered into by five participating municipal corporations; the cities of Kennewick, Pasco and Richland, and Benton and Franklin Counties. BI-PIN was established to assist the participating police and sheriff's departments in the deterrence and solution of criminal incidents. BI-PIN is served by an Executive Committee composed of the City Manager of each of the cities and a member from each of the Boards of County Commissioners of Benton and Franklin Counties. A liaison from the Bi-County Chiefs and Sheriffs is an ex officio, non-voting member. The allocation of financial participation among the participating jurisdictions is based upon the approved budget for that year and is billed quarterly in advance to each agency. On dissolution of the Interlocal Agreement, the net assets will be shared based upon participant contribution. Franklin County s equity interest in BI-PIN was $288,465 on December 31, 2011, which is reported as an investment in joint ventures in the government-wide statement of net assets. The $72,435 decrease in equity is reflected in the government-wide statement of activities under Public Safety. The City does not anticipate any income distributions from BI-PIN since charges are assessed only to recover anticipated expenses. Complete separate financial statements for BI-PIN may be obtained at the City of Kennewick, 210 West Sixth Avenue, Kennewick, Washington. B. Metro Drug Forfeiture Fund The Metropolitan Controlled Substance Enforcement Group (Metro) was established in 1987, when an Interlocal Agreement was entered into by six participating municipal corporations, the cities of Kennewick, Pasco, Richland and West Richland and Benton and Franklin Counties. In 2005, the City of West Richland withdrew as a partner from the group. In 1990, the Cities of Prosser and Connell were added to the Metro Interlocal Agreement and both subsequently withdrew in 1991 and 1994, respectively. Metro was established to account for the proceeds of forfeitures, federal grants and court 73

77 ordered contributions, and to facilitate the disbursement of those proceeds for the purpose of drug enforcement and investigations within the Tri-Cities community. The Metro Fund is served by an Executive Committee consisting of the City Manager or designee from each of the cities and a member from each of the Boards of County Commissioners of Benton and Franklin Counties. In addition, a Governing Board, consisting of the Chiefs of Police from the cities and the Sheriffs from the counties administers daily activity. Franklin County s equity interest in Metro was $34,158 at June 30, 2011, compared to $27,451 on June 30, 2010, and is shown as an investment in joint ventures on the government-wide Statement of Net Assets. The $6,707 change in equity is reflected in the government-wide Statement of Activities under Public Safety. The County does not anticipate any income distribution since charges are assessed only to recover anticipated expenses. Complete separate financial statements for the Metro Fund may be obtained at the City of Kennewick, 210 West Sixth Avenue, Kennewick, Washington. NOTE 14 OTHER POSTEMPLOYMENT BENEFIT (OPEB) PLAN Plan Description The County participates in the statewide retirement system administered by the Washington State Department of Retirement Systems. One such retirement system is the LEOFF Plan 1. Under the Law Enforcement Officers and Fire Fighters Retirement System (LEOFF) Plan 1, mandated under RCW (1), the County pays 100 percent of necessary medical services and long-term coverage for LEOFF 1 retirees. This plan is an agent multiple-employer defined benefit OPEB plan where there is no pooling of benefit costs. It is administered by a disability board whose authority has been established under RCW (1)(a)&(b). The board uses its own discretionary power to determine whether an active employee has been disabled in the line of duty and has the power to designate the medical services available to any sick or disabled member. Membership in the LEOFF system includes all full-time, fully compensated, local law enforcement officers and firefighters. LEOFF participants who joined the system by September 30, 1977 are Plan 1 members. LEOFF Plan 1 members are vested after the completion of five years of eligible service and are eligible for retirement with five years of service at the age of 50. Membership in the LEOFF Plan 1 as of December 31, 2011 was as follows: Retirees and Beneficiaries Receiving Benefits 9 Terminated Plan Members Entitled to But Not Yet Receiving Benefits 0 Active Plan Members Vested 2 Active Plan Members Non-vested 0 Total 11 The County does not issue a stand-alone financial report for its OPEB plan. The Office of 74

78 the State Actuary, however, has issued a 2011 Other Post-Employment Benefits (OPEB) Actuarial Valuation Report and a 2011 OPEB Report Supplement which may be obtained from Office of the State Actuary, P.O. Box 40914, Olympia, Washington or online at: Funding Policy The LEOFF Plan 1 has retirement benefit provisions that are established in state statute and may be amended by state Legislature. Beginning July 1, 2000, Plan 1 active employees were no longer required to make contributions to the plan. Instead, the County has since funded the medical expenses on a pay-as-you-go basis, whereby contributions equal the amount of subsidies paid out to current retirees in the current year. For fiscal year ended December 31, 2011, the County paid $144,308 for current medical premiums and other out-of-pocket medical costs. The County is not legally required to contribute to a reserve to fund future costs. Annual OPEB Cost and Net OPEB Obligation The County s annual other postemployment benefit (OPEB) cost is calculated based on the annual required contribution of the employer (ARC), 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 the 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 County s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the County s net OPEB obligation: Annual required contribution (ARC) $332,280 Net OPEB Obligation interest 47,186 Net OPEB Obligation amortization (97,637) Annual OPEB Cost 281,829 Contributions made ( 144,308) Increase in net OPEB obligation 137,521 Net OPEB obligation beginning of year 1,048,574 Net OPEB obligation end of year $1,186,095 The annual required contribution (ARC) includes $26,674 of normal cost or the portion of liability that is earned in one year s time, and $305,606 of amortization of the current unfunded actuarial accrued liability (UALL) over a 15-year period. The County s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2011 and the two preceding years were as follows: 75

79 Year Annual Actual Plan Annual OPEB OPEB Ended OPEB Cost Contributions Cost Contributed Obligation 12/31/2011 $ 281,829 $ 144, % $ 1,186,095 12/31/ ,162 70, % 1,048,574 12/31/ ,260 75, % 827,926 Funded Status The actuarial accrued liability (AAL) is the actuarial present value of those benefits earned by employees of the plan in prior years of employment. In order to determine the AAL, an actuarial valuation was performed on May 3, 2012 based on December 31, 2011 data. The funded status of the plan as of December 31, 2011, was as follows: Actuarial accrued liability (AAL) $3,282,067 Actuarial value of plan assets -0- Unfunded actuarial accrued liability (UAAL) $3,282,067 Funded ratio (actuarial value of plan Assets /AAL) 0.00% Covered payroll (active plan members) $171,114 UALL as a percentage of covered payroll 1,918.06% 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. Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The Schedule of Funding Progress for LEOFF Plan 1 Other Postemployment Benefit Plan, included as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial liability for benefits. Stated calculations are based on the types of benefits provided under the terms of the substantive plan at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the employer and plan members in the future. Actuarial calculations reflect a long-term prospective. Consistent with that perspective, actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities. Actuarial Methods and Assumptions We have used the alternative measurement method permitted under GASB Statement 76

80 No. 45. A single retirement age of was assumed for all active members for the purpose of determining the actuarial accrued liability (AAL) and normal cost. Retirement, disablement, termination, and mortality rates were assumed to follow the LEOFF 1 rates used in the June 30, 2009 actuarial valuation report issued by the Office of the State Actuary (OSA). Healthcare costs and trends were determined by Milliman and used by OSA in the state-wide LEOFF 1 medical study performed in The results were based on grouped data with 4 active groupings and 4 inactive groupings. The actuarial cost method used to determine the AAL was Projected Unit Credit. The AAL and the Net OPEB Obligation are amortized on an open basis as a level dollar over 15 years. These assumptions are individually and collectively reasonable for the purposes of this valuation. Note 15 PRIOR PERIOD ADJUSTMENT CHANGE IN ACCOUNTING PRINCIPLE During 2011 the County implemented GASB Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definitions. This statement defines new requirements for classifying and reporting fund balances on the governmental financial statements into five categories: non-spendable, restricted, committed, assigned and unassigned. In order to report a Special Revenue Fund separate from the General Fund, a test is applied to the respective fund s current year revenue and the total restricted and/or committed revenues should be a substantial portion of the total inflows of resources for each fund. If the fund does not meet this test, the activity is combined and reported in the General Fund column. The prior period adjustment of $349,302 represents the January 1, 2011 fund balance of funds that were reported in the Other Governmental Funds column on the 2010 governmental statements but are combined in the General Fund column for The Net Assets category shown on the December 31, 2011 government-wide Statement of Net Assets has also been updated to reflect the restricted for classification in accordance with GASB Statement No. 54. Note 16 EXTRAORDINARY ITEM In early 2012, the County initiated an internal fraud investigation concerning a misappropriation of funds by a former Public Works employee that resulted in criminal and civil charges filed against the individual. His title had been the Director of Accounting and Administration for the County s Public Works department and he was responsible for financial reporting. These financial statements reflect information generated during his tenure. The extraordinary item of $126,446 as reported on the government-wide Statement of Activities and on the Statement of Revenues, Expenses and Changes in Fund Net Assets Internal Service Funds represents the identified loss incurred from this event during the fiscal year ended December 31, See Note #10 Contingencies and Litigation and Note #17 Subsequent Events for additional information. 77

81 Note 17 SUBSEQUENT EVENTS New Criminal Justice and Public Safety Tax In 2011, the residents of Franklin County authorized the sale and use tax in Franklin County and cities therein to be increased three-tenths of one percent (0.003) for thirty years to in support of criminal justice and public safety purposes, and to expand, operate, and maintain the County correctional facility. This increase in tax became effective April 1, The County will apply two-tenths of one-percent (0.002) of its share of tax collections to fund the debt service of the bond issued to finance the jail expansion. The remaining one-tenth of one percent (0.001) will be used to fund the operations of the improved facility. New Bond Issuance On May 16, 2012, the Board of County Commissioners approved the issuance of $20,345,000 aggregate principal amount of limited tax general obligation bonds to pay costs of improvements to the County s courthouse and criminal justice facilities, cost of a financial information and asset management system (computer software) and costs of issuing said bonds. This indebtedness has been disclosed in Note #8 Long-Term Debt. Financial Information and Asset Management System On March 28 th, 2012, the Board of County Commissioners entered into a $1,082,170 contract with a financial software provider for the purchase and implementation of a financial information and Public Works inventory and fleet management system. Architectural Work for the Franklin County Corrections Facility A resolution was passed on February 29, 2012 authorizing an architect to prepare plans and specifications for the construction of a new jail and administration building, renovation of the existing jail, and assistance in the bidding, construction and inspection phases through the completion of the project. The cost of services was fixed at $1,295,058 plus normal reimbursable expenses and, in addition, on-site project representation during construction not to exceed $34,778. The commitment for this project and the financial information and asset management system project has been included in the construction commitment section of Note #5 Capital Assets and Depreciation. Fraud Investigation See Note #16 Extraordinary Item and Note #10 - Contingencies and Litigation for discussion regarding the criminal investigation of a former employee and civil charges filed against him. In response to this event, management is taking the following proactive measures: 1) enhancing internal controls; 2) strengthening the control environment; 3) restructuring administrative departments; and 4) implementing a new financial information and asset management software project. 78

82 Favorable Outlook on Investment Default The county holds a $300,000 municipal security that defaulted in December Based on developments occurring in 2012, it is probable that the County will fully recoup its original investment. See Note #3 Deposits and Investments and Note #10 Contingencies and Litigation. Financial Policy As explained in Note #1.E.12 Fund Balance Policy, the Board of County Commissioners passed a resolution that defines the County s reserve policy, in which seven percent (7%) of the current year s operating budget will be held in reserves. Note 18 - CLOSURE AND POSTCLOSURE CARE COSTS The County does not own or operate a landfill, but it does have a Landfill Closure Trust Fund. The purpose of this fund is to provide the County with the means to fund the liability or pay expenses related to third party claims asserted against Franklin County due to the Pasco Sanitary Landfill, Inc., and/or pay expenses related to remediation of waste at PSL. In March of 2005 the County received $330,555 as a settlement and entered into an agreement to provide cost sharing and cooperation between parties to conduct the Interim Remedy, to release each other from certain claims, to resolve undisputed claims, to provide for the handling of certain settlement proceeds, and to coordinate other activities related to the PSL and the Landfill Group s agreement with Industrial Waste Area Group (IWAG) and Philip Services Corporation (PSC). At December 31 st, 2011 there was $247,071 in the Landfill Closure Trust Fund. 79

83 FRANKLIN COUNTY, WASHINGTON Schedules of Funding Progress and Employer Contributions for LEOFF Plan 1 Other Postemployment Benefit Plan For the Fiscal Years Ended December 31, 2009 through 2011 Schedule of Funding Progress Actuarial Accrued Liability UALL as a Actuarial (AAL) - Unfunded Percentage Actuarial Value of Entry AAL Funded Covered of Covered Fiscal Valuation Assets Age (UAAL) Ratio Payroll Payroll Year Date (a) (b) (b - a) (a / b) ( c) ((b - a) / c) /3/2012 $ - $ 3,282,067 $ 3,282, % $ 171,114 1,918.06% /2/2011-3,307,774 3,307, % 170,228 1,943.14% /3/2010-3,388,010 3,388, % 165,238 2,050.38% Schedule of Employer Contributions Percentage Annual of Annual Annual Required Required Employer Contribution Contribution Fiscal Contribution (ARC) Contributed Year (a) (b) (a / b) 2011 $ 144,308 $ 332, % , , % , , % The accompanying notes to this schedule are an integral part of this schedule. 80

84 MCAG No Schedule 16 FRANKLIN COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For Fiscal Year Ended December 31, Federal Agency/Pass Through Agency Name Federal Program Name CFDA Number Other I.D. Number From Pass- Through Awards Expenditures From Direct Awards Total U.S. Department of Housing and Urban Development (HUD) WA State Department of Commerce Community Development Block Grant , ,796 1,4 WA State Department of Commerce Community Development Block Grant ,211-4,211 1,4 WA State Department of Commerce Community Development Block Grant ,513-51,513 1,4 Total HUD , ,520 US Department of the Interior Bureau of Land Management ARRA-Recreation Resource Management l11ap ,355 29,355 1,5 Total US Department of the Interior ,355 29,355 US Department of Justice Washington State Patrol Domestic Cannabis Eradication/Suppression C110845FED 6,000-6,000 1,2 WA State Dept of Commerce Crime Victim Assistance/Victims of Crime Act (VOCA) S ,506-14,506 1,2 WA State Dept of Commerce Crime Victim Assistance/Victims of Crime Act (VOCA) S ,649-16,649 1,2 City of Pasco Edward Byrne Formula Grant Program/METRO N/A 53,417-53,417 1,2 WA State Dept of Commerce ARRA-Violence Against Women Formula -Stop Grant F ,870-34,870 1,2,5 Bureau of Justice Assistance State Criminal Alien Assistance Program AP-BX ,394 56,394 1,2 WASPC Public Safety Partnership & Community Policing/Meth WSMI ,647-5,647 1,2 WA State Dept of Commerce Edward Byrne Memorial Justice Assistance/PA Gang F ,328-70,328 1,2 Total US Department of Justice 16.xxx 201,418 56, ,812 US Department of Transportation/Federal Highway Administration Washington State Dept of Transportation Highway Planning and Construction STPR-F111 (001) 681, ,095 1,2 Washington State Dept of Transportation Highway Planning and Construction STPD-B111(003) 175, ,705 1,2 Washington State Dept of Transportation Highway Planning and Construction BRS-11BB(001) 31,251-31,251 1,2 Washington State Dept of Transportation Highway Planning and Construction HSIP-000S(287) 19,935-19,935 1,2 Washington State Dept of Transportation ARRA-Highway Planning and Construction TIGERII-ST-F111(002) 1,005,594 1,005,594 1,2,5 Subototal US Department of Transportation CFDA ,913,580-1,913,580 Washington Traffic Safety Commision State & Community Highway Safety/Traffic Emphasis Patrols N/A 1,897-1,897 1,2 Washington Association of Sheriffs and Police Chiefs State & Community Highway Safety/Safety Equipment N/A 11,852-11,852 1,2 Subtotal US Department of Transportation CFDA ,749-13,749 Washington Traffic Safety Commision Alcohol Impaired Driving Countermeasures Incentive Grants I N/A 1,773-1,773 1,2 Subtotal US Department of Transportation CFDA ,773-1,773 Washington Traffic Safety Commision Occupant Protection Incentive Grants N/A 1,423-1,423 1,2 Subtotal US Department of Transportation CFDA ,423-1,423 Total US Department of Transportation 20.xxx 1,930,525-1,930,525 US Department of Health and Human Services Department of Social and Health Services Child Support Enforcement , ,429 1,2,3 Total US Department of Health and Human Services , ,429 U.S. Department of Homeland Security Washinton State Military Department Chemical Stockpile Emergency Preparedness Program EMS-2009-GR-002 CSEPP 18,048-18,048 1 Total U.S. Department of Homeland Security A ,048-18,048 Total Federal Awards Expended $ $ 3,278,939 $ 85,749 3,364,688 The Accompanying Notes To The Schedule Of Expenditures of Federal Awards Are An Integral Part Of This Schedule Footnote Ref.

85 FRANKLIN COUNTY, WASHINGTON Notes to the Schedule of Expenditures of Federal Awards For the Fiscal Year Ended December 31, 2011 NOTE 1 - BASIS OF ACCOUNTING This schedule is prepared on the same basis of accounting as the County's financial statements. The County uses a modified accrual basis of accounting in all of the related governmental funds. NOTE 2 REVOLVING LOAN - PROGRAM INCOME The amounts shown as current year expenditures represent only the federal grant portion of the program costs. Entire program costs, including the County's portion, are more than shown. NOTE 3 INDIRECT COST RATE The amount expended includes $37,561 claimed as an indirect cost recovery using an approved indirect cost rate of 17.6%. NOTE 4 AMOUNTS AWARDED TO SUBRECIPIENTS The total amount expended for this program was passed through to a subrecipient that administered its own project NOTE 5 AMERICAN RECOVERY AND REINVESTMENT ACT (ARRA) of 2009 Expenditures for this program were funded by ARRA. 82

86 ABOUT THE STATE AUDITOR'S OFFICE The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. Our mission is to work with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office employees are located around the state to deliver services effectively and efficiently. Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments and fraud, whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our Web site and through our free, electronic subscription service. We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive quality assurance program. State Auditor Brian Sonntag, CGFM Chief of Staff Ted Rutt Deputy Chief of Staff Doug Cochran Chief Policy Advisor Jerry Pugnetti Director of Audit Chuck Pfeil, CPA Director of Performance Audit Larisa Benson Director of Special Investigations James E. Brittain, CPA, CFE Director for Legal Affairs Jan Jutte, CPA, CGFM Director of Quality Assurance Ivan Dansereau Local Government Liaison Mike Murphy Communications Director Mindy Chambers Public Records Officer Mary Leider Main number (360) Toll-free Citizen Hotline (866) Website Subscription Service (SAO FACTS.DOC - Rev. 09/11)