VENTURA COUNTY SCHOOLS SELF-FUNDING AUTHORITY ANNUAL FINANCIAL REPORT JUNE 30, 2016

Transcription

1 VENTURA COUNTY SCHOOLS SELF-FUNDING AUTHORITY ANNUAL FINANCIAL REPORT

2 CAMARILLO, CALIFORNIA BOARD OF DIRECTORS REPRESENTATIVE MEMBER OFFICE Misty Key Ventura County Office of Education President Stephen Dickinson Oxnard Union High School District Vice President Joe Richards Ventura Unified School District Secretary Kristen Pifko Rio School District Treasurer Michele Hellewell Ocean View School District Executive Committee Donna Rose Santa Paula Unified School District Executive Committee Dr. Christine Walker Hueneme School District Executive Committee Andrea McNeill Fillmore Unified School District Member Tami Peterson Briggs, Mesa, Mupu, Santa Clara, Somis Member Martin Klauss Oak Park Unified School District Member Dr. Kelli Hays Moorpark Unified School District Member Dr. Jesus Vaca Oxnard School District Member Evalene Murphy Pleasant Valley Elementary School District Member Dr. Victor Hayek Conejo Valley Unified School District Member Andrew Cantwell Ojai Unified School District Member Karen Longobart Simi Valley Unified School District Member ADMINISTRATION Elizabeth Atilano Executive Director

3 TABLE OF CONTENTS FINANCIAL SECTION Independent Auditor's Report 1 Management's Discussion and Analysis 4 Basic Financial Statements Statement of Net Position 9 Statement of Revenues, Expenses, and Changes in Net Position 10 Statement of Cash Flows 11 Notes to Financial Statements 12 REQUIRED SUPPLEMENTARY INFORMATION Claims Development Information 34 Reconciliation of Claims Liabilities by Type of Coverage 37 Schedule of the Authority's Proportionate Share of the Net Pension Liability 38 Schedule of Authority Contributions 39 Note to Required Supplementary Information 40 SUPPLEMENTARY INFORMATION Combining Statement of Net Position 42 Combining Statement of Revenues, Expenses and Changes in Net Position 43 Note to Supplementary Information 44 INDEPENDENT AUDITOR'S REPORT Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards 46 SCHEDULE OF FINDINGS Financial Statement Findings 49 Summary Schedule of Prior Audit Findings 50

4 FINANCIAL SECTION

5 INDEPENDENT AUDITOR'S REPORT Board of Directors Ventura County Schools Self-Funding Authority Camarillo, California Report on the Financial Statements We have audited the accompanying financial statements of the Ventura County Schools Self-Funding Authority (the Authority) as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the State Controller's Minimum Audit Requirements for California Special Districts, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Authority's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions Foothill Blvd., Suite 300 Rancho Cucamonga, CA Tel: Fax:

6 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Ventura County Schools Self-Funding Authority as of June 30, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 4 through 8, claims development information on pages 34 through 36, reconciliation of claims liabilities by type of coverage on page 37, and the Authority's proportionate share of the net pension liability and the Authority's contribution on pages 38 and 39 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Ventura County Schools Self-Funding Authority's basic financial statements. The accompanying combining statement of net position and combining statement of revenues, expenses, and changes in net position are presented for purposes of additional analysis and 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 basic 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 basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining statement of net position and combining statement of revenues, expenses, and changes in net position are fairly stated, in all material respects, in relation to the basic financial statements as a whole. 2

7 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 12, 2016, on our consideration of the Ventura County Schools Self-Funding Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Ventura County Schools Self-Funding Authority's internal control over financial reporting and compliance. Rancho Cucamonga, California October 12,

8 MANAGEMENT'S DISCUSSION AND ANALYSIS Since July 1, 1982, the Ventura County Schools Self-Funding Authority (VCSSFA), a self-insurance pool, has provided coverage to twenty local educational agencies in California. The VCSSFA operates programs for excess property, excess liability, and excess workers' compensation. In addition to its programs, the VCSSFA provides loss control training to members. The VCSSFA is governed by a sixteen member Board of Directors representing the twenty local educational agencies. From its members, the Board of Directors elects a President, Vice President, Secretary, Treasurer, and three Executive Committee members. The VCSSFA's day-to-day operations are administered by an Executive Director who serves as the chief executive officer. The Executive Director is responsible for the administration of policies as set forth by the pool's organizational documents, bylaws, and the Board of Directors. DESCRIPTION OF BASIC FINANCIAL STATEMENTS Individual program accounting is maintained in-house and is provided as supplemental information to the Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position, and the Statement of Cash Flows. The Statement of Net Position provides information about the combined financial position of the VCSSFA as of June 30, The Statement of Revenues, Expenses, and Changes in Net Position reports the operations of the VCSSFA for the year ended June 30, The Statement of Cash Flows is presented on the direct method to reflect the operations of the VCSSFA for the year ended June 30, 2016, based strictly on the inflow and outflow of cash. The footnotes provide information on unique accounting policies of the VCSSFA, such as discounting of claims reserves, development of estimates of incurred but not reported liabilities, and the provision for unallocated loss adjustment expenses. There were no significant accounting changes during the fiscal year. 4

9 MANAGEMENT'S DISCUSSION AND ANALYSIS CONDENSED FINANCIAL INFORMATION Statement of Net Position For the Years Ended June ASSETS Current assets $ 108,342,776 $ 103,314,374 Capital assets, net 12,917 12,049 Total Assets 108,355, ,326,423 DEFERRED OUTFLOWS OF RESOURCES 232,011 84,393 LIABILITIES Current liabilities 16,743,998 10,678,759 Unpaid claims and claims adjustment expenses 36,541,968 42,779,621 Net pension liability 802, ,545 Total Liabilities 54,088,115 54,243,925 DEFERRED INFLOWS OF RESOURCES 234, ,807 NET POSITION Net investment in capital assets 12,917 12,049 Net position, restricted and unrestricted 54,251,931 48,973,035 Total Net Position $ 54,264,848 $ 48,985,084 5

10 MANAGEMENT'S DISCUSSION AND ANALYSIS Statement of Revenues, Expenses and Changes in Net Position For the Years Ended June Operating Revenue: Member contributions, net $ 25,670,873 $ 25,416,765 Administrative fees 200, ,459 Other income 50,426 48,166 Total Operating Revenue 25,921,299 25,717,390 Operating Expenses: Claims and claims administration 14,391,109 11,116,768 Credit for claims and claims adjustment expenses (2,114,847) (3,085,809) Commercial excess insurance premiums 4,141,483 3,887,393 Contract services/administrative expenses 1,356,557 1,231,803 Pension expense 20,873 85,605 Safety credit program 1,385,328 1,252,153 Premium dividend 2,000,000 - Total Operating Expenses 21,180,503 14,487,913 Nonoperating Revenue: Interest income 539, ,825 Loss on retirement of fixed assets (705) (478) Total Nonoperating Revenue 538, ,347 Change in Net Position 5,279,764 11,531,824 Total Net Position, Beginning of Year 48,985,084 37,453,260 Total Net Position, End of Year $ 54,264,848 $ 48,985,084 6

11 MANAGEMENT'S DISCUSSION AND ANALYSIS ANALYSIS OF OVERALL FINANCIAL POSITION AND RESULTS OF OPERATIONS Current assets of the VCSSFA increased approximately $5,028,000 or 5 percent while total net positions increased approximately $5,280,000 or 10.8 percent from June 30, 2015 and June 30, The Workers' Compensation Program claims paid during the year decreased approximately 3.5 percent and the provision for loss reserves and claims adjustment expense decreased an additional $775,873. Property claims paid for the year decreased a huge 275 percent; however provision for loss reserves and claims adjustment expense in the Property Program increased $97,661. The Liability Program experienced a $3,942,000 increase in total claims paid for the year due mainly to payment for large claims from prior years. However on the bright side, the provision for loss reserves and claims adjustment expense decreased $1,260,000. The VCSSFA has maintained a stable financial position during the fiscal year ending June 30, 2016, and has managed to continue reducing the WC rates for the last 3 years. Workers' Compensation ANALYSIS OF BALANCES AND TRANSACTIONS OF INDIVIDUAL FUNDS The major increase in net position of $5,279,764 is due mainly to the $775,873 decrease in provision for loss reserves and claims adjustment expense and a decrease in claims. The Workers' Compensation fund ended fiscal year , with a net position of $43,858,883 and a cash balance of $86,594,788. For fiscal year , VCSSFA board members approved a decrease in the workers' compensation funding level from the rate of $2.89/$100 payroll to $2.60/$100 payroll. However, even due to the fact that district payrolls increased, workers' compensation contributions remained relatively the same due to the decrease in the workers compensation rate. Property Net position increased $174,300 from June 30, 2015 to June 30, Member contributions for the Property Program increased only 2 percent from the prior fiscal year to the current year ending June 30, The increase in net position for the Property Program for the year ended June 30, 2016, was 44.5 percent to an ending net asset position of $570,025. 7

12 MANAGEMENT'S DISCUSSION AND ANALYSIS Liability The operating expenses of the liability program decreased approximately $113,000, however were still $70,000 more than the budgeted amount of $475,000. The liability program ended year , with a net position of $10,117,507 an increase of $481,495 (5 percent) over the fiscal year due to excess insurance recoveries totaling over $8,500,000. Request for Information This financial report is designed to provide a general overview of the VCSSFA finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the VCSSFA, 5189A Verdugo Way, Camarillo, California

13 STATEMENT OF NET POSITION ASSETS Current Assets Deposits and investments $ 108,017,501 Prepaid expenses 19,416 Receivables 305,859 Capital Assets Equipment, net of accumulated depreciation of $51,629 12,917 Total Assets 108,355,693 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows of resources related to pension 232,011 LIABILITIES Current Liabilities Accounts payable 4,343,998 Current portion of unpaid claims and claim adjustment expenses 12,400,000 Unpaid claims and claim adjustment expenses, non-current portion 36,541,968 Net pension liability 802,149 Total Liabilities 54,088,115 DEFERRED INFLOWS OF RESOURCES Deferred inflows of resources related to pension 234,741 NET POSITION Net investment in capital assets 12,917 Net position, restricted and unrestricted 54,251,931 Total Net Position $ 54,264,848 The accompanying notes are an integral part of these financial statements. 9

14 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED OPERATING REVENUES Contributions $ 25,670,873 Excess insurance (4,141,483) Administrative fees 200,000 Other income 50,426 Total Operating Revenues 21,779,816 OPERATING EXPENSES Claims expense 12,437,315 Credit for loss reserves (2,028,083) Claims administration 1,953,794 Credit for claims adjustment expenses (86,764) Administration expenses 1,355,784 Pension expense 20,873 Safety credit program 1,385,328 Depreciation 773 Premium dividend 2,000,000 Total Operating Expenses 17,039,020 Operating Income 4,740,796 NON-OPERATING REVENUES Interest 539,673 Loss on retirement of fixed assets (705) Total Non-Operating Revenues 538,968 CHANGE IN NET POSITION 5,279,764 BEGINNING NET POSITION 48,985,084 ENDING NET POSITION $ 54,264,848 The accompanying notes are an integral part of these financial statements. 10

15 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED CASH FLOWS FROM OPERATING ACTIVITIES Cash received from members and others $ 25,917,709 Cash paid for claims and claims administration (14,213,915) Cash paid for excess insurance (4,141,483) Cash paid to suppliers for goods and services (291,757) Cash paid to employees for services (610,722) Cash paid to pension plan (98,953) Cash paid to members (2,000,000) Net Cash Provided in Operating Activities 4,560,879 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Payments for equipment (2,346) CASH FLOWS FROM INVESTING ACTIVITIES Interest income 539,673 NET INCREASE IN CASH AND CASH EQUIVALENTS 5,098,206 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 102,919,295 CASH AND CASH EQUIVALENTS, END OF YEAR $ 108,017,501 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 4,740,796 Adjustment to reconcile operating income to net cash provided by operating activities: Depreciation 773 Changes in assets and liabilities: Increase in receivables (3,615) Decrease in prepaid expenses 73,419 Increase in deferred outflows of resources (147,618) Increase in accounts payable 1,765,239 Decrease in claims and ULAE liabilities (1,937,653) Increase in net pension liability 16,604 Increase in deferred inflows of resources 52,934 Total Adjustments (179,917) Net Cash Provided by Operating Activities $ 4,560,879 SUPPLEMENTAL DISCLOSURE Noncash capital and related financing activity Loss on retirement of fixed assets $ 705 The accompanying notes are an integral part of these financial statements. 11

16 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General Description Ventura County Schools Self-Funding Authority (the Authority) was formed July 1, 1982, under the provisions of Title 1, Division 7, Chapter 5, Article 1, (Sections 6500 et seq.) of the California Government Code. The Authority was established to provide the services necessary for the establishment, operation, and maintenance of a self-insurance program for claims against the member public educational agencies. The Authority is governed by an elected board and maintains its own paid operational staff. Board members are elected by the participating local educational agencies' governing boards and have decision-making authority, the power to designate management, the ability to significantly influence operations, and primary accountability for fiscal matters. The annual deposit premium for each member is calculated based upon factors normally used to calculate annual insurance premiums and as approved by the Board of Directors. In the event of the dissolution of the Authority, the participating members would receive a pro-rata share of any fund equity or be liable for a pro-rata share of any debts and liabilities based upon the contributions of such members. The Authority includes all funds that are controlled by or dependent on VCSSFA's governing board for financial reporting purposes. The Authority has considered all potential component units in determining how to define the reporting entity, using criteria set forth in accounting principles generally accepted in the United States of America. The Authority determined that there are no potential component units that meet the criteria for inclusion within the reporting entity. B. Basis of Accounting The accompanying financial statements are presented as a proprietary fund on the accrual basis of accounting in accordance with Governmental Generally Accepted Accounting Principles (GAAP). Under the accrual basis, revenues and the related assets are recognized when earned, and expenses and related liabilities are recognized when the obligation is incurred. Operating revenues include member contributions net of any applicable rate credits. Operating expenses include the provision for claims and claims adjustment expenses, insurance premiums, premium rebates, and general and administrative expenses. All other revenues and expenses are considered non-operating. Under GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That use Proprietary Fund Accounting, the Authority has elected to apply all applicable Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board Opinions and Accounting Research Bulletins issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The Authority has elected not to apply FASB pronouncements issued after November 30, 1989, when preparing the financial statements. 12

17 NOTES TO FINANCIAL STATEMENTS C. Accounts Receivable Accounts receivable generally includes investment earnings from deposits with the county treasury, member contributions and insurance recoveries. Management has analyzed these accounts and believes all amounts are fully collectible. D. Capital Assets Equipment is recorded at cost and depreciated over its estimated useful life of 10 years using the straight-line method. Depreciation expense amounted to $773 for the year ended June 30, E. Member Contribution Premiums Each member's contribution premium is determined based upon their respective average daily attendance, loss history, unusual exposures, total insured values, information relative to providing coverage, payrolls, and other costs as determined by the Authority. If the total obligations of the Authority would exceed the total assets of the Authority, the members may be assessed a pro-rata share of an additional contribution as determined by the Authority. F. Unpaid Claims Liabilities The Authority establishes claims liabilities based on estimates of the ultimate cost of claims (including future claim adjustment expenses) that have been reported but not settled, and of claims that have been incurred but not reported. The length of time for which such costs must be estimated varies depending on the coverage involved. Estimated amounts of salvage and subrogation and excess insurance recoverable on unpaid claims are deducted from the liability for unpaid claims. Because actual claims costs depend on such complex factors as inflation, changes in doctrines of legal liability, and damage awards, the process used in computing claims liabilities does not necessarily result in an exact amount, particularly for coverage's such as general liability. Claims liabilities are recomputed periodically using a variety of actuarial and statistical techniques to produce current estimates that reflect recent settlements, claim frequency, and other economic and social factors. A provision for inflation in the calculation of estimated future claims costs is implicit in the calculation because reliance is placed both on actual historical data that reflects past inflation and on other factors that are considered to be appropriate modifiers of past experience. Adjustments to claims liabilities are charged or credited to expense in the periods in which they are made. Unpaid claims liability for workers' compensation claims and liability claims have been discounted for future investment earnings at a rate of five percent. Effective December 31, 2010, the Authority obtained a loss portfolio transfer (reinsurance) policy to effectively closeout all outstanding claims for years through A loss portfolio transfer can be defined as a financial transaction in which loss obligations that are already incurred and which are expected to ultimately be paid are ceded to a reinsurer. Administrative costs of servicing the claims remain with the Authority. As part of this transaction, the estimated claims liability for these claims is no longer included in the Authority's outstanding obligations. 13

18 NOTES TO FINANCIAL STATEMENTS G. Deferred Outflows/Inflows of Resources In addition to assets, the Statement of Net Position also reports deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an expense or expenditure until then. The Authority reports deferred outflows of resources for current year pension contributions, the net change in proportionate share of net pension liability, the difference between projected and actual earnings on pension plan investments specific to the net pension liability, and the difference between expected and actual experience in the measurement of the total pension liability. In addition to liabilities, the Statement of Net Position reports a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period and so will not be recognized as revenue until then. The Authority reports deferred inflows of resources for the net change in proportionate share of net pension liability, the difference between projected and actual earnings on pension plan investments specific to the net pension liability, the difference between expected and actual experience in the measurement of the total pension liability, and the changes of assumptions. H. Accumulated Vacation Accumulated unpaid employee vacation benefits are not recognized as liabilities. As of year-end, this amount was not material to the financial statements. I. Excess Insurance The Authority uses excess insurance agreements to reduce its exposure to large losses on all types of insured events. Excess insurance permits recovery of a portion of losses from excess insurance carriers, although it does not discharge the primary liability of the Authority as direct insurer of the risks insured. The Authority does not report excess insurance risks as liabilities unless it is probable that those risks will not be covered by excess insurance carriers. J. Budget and Budgetary Accounting Annually, the Board of Directors adopts a budget that is subject to amendment throughout the year to give consideration to unanticipated revenue and expenses primarily resulting from events unknown at the time of budget adoption. K. Statement of Cash Flows For purposes of this statement, the Authority considers interest on investments to be an integral part of operations and relies on it to meet claim payments and administrative expense obligations. For purposes of this statement, the Authority considers deposits with county treasurer to be cash equivalents. 14

19 NOTES TO FINANCIAL STATEMENTS L. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at June 30, Actual results could differ from those estimates. M. Income Taxes The Authority's income is exempt from Federal and State income taxes under Internal Revenue Code Section 115 and the corresponding section of the California Revenue and Taxation Code. N. Change in Accounting Principles In February 2015, the GASB issued Statement No. 72, Fair Value Measurement and Application. This Statement addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Statement provides guidance for determining a fair value measurement for financial reporting purposes. This Statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The Authority has implemented the provisions of this Statement as of June 30, In June 2015, the GASB issued Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and No. 68. The objective of this Statement is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for Pensions, as well as for the assets accumulated for purposes of providing those pensions. In addition, it establishes requirements for defined contribution pensions that are not within the scope of Statement No. 68. It also amends certain provisions of Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68 for pension plans and pensions that are within their respective scopes. The provisions in this Statement effective as of June 30, 2016, include the provisions for assets accumulated for purposes of providing pensions through defined benefit plans and the amended provisions of Statements No. 67 and No. 68. The Authority has implemented these provisions as of June 30, The provisions in this Statement related to defined benefit pensions that are not within the scope of Statement No. 68 are effective for periods beginning after June 15,

20 NOTES TO FINANCIAL STATEMENTS In June 2015, the GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of this Statement is to identify in the context of the current governmental financial reporting environment the hierarchy of generally accepted accounting principles (GAAP). The "GAAP hierarchy" consists of the sources of accounting principles used to prepare financial statements of state and local governmental entities in conformity with GAAP and the framework for selecting those principles. This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and non-authoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. This Statement supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The Authority has implemented the provisions of this Statement as of June 30, In December 2015, the GASB issued Statement No. 79, Certain External Investment Pools and Pool Participants. This Statement addresses accounting and financial reporting for certain external investment pools and pool participants. Specifically, it establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. An external investment pool qualifies for that reporting if it meets all of the applicable criteria established in this Statement. The specific criteria address (1) how the external investment pool transacts with participants; (2) requirements for portfolio maturity, quality, diversification, and liquidity; and (3) calculation and requirements of a shadow price. Significant noncompliance prevents the external investment pool from measuring all of its investments at amortized cost for financial reporting purposes. Professional judgment is required to determine if instances of noncompliance with the criteria established by this Statement during the reporting period, individually or in the aggregate, were significant. If an external investment pool does not meet the criteria established by this Statement, that pool should apply the provisions in paragraph 16 of Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, as amended. If an external investment pool meets the criteria in this Statement and measures all of its investments at amortized cost, the pool's participants also should measure their investments in that external investment pool at amortized cost for financial reporting purposes. If an external investment pool does not meet the criteria in this Statement, the pool's participants should measure their investments in that pool at fair value, as provided in paragraph 11 of Statement No. 31, as amended. This Statement establishes additional note disclosure requirements for qualifying external investment pools that measure all of their investments at amortized cost for financial reporting purposes and for governments that participate in those pools. Those disclosures for both the qualifying external investment pools and their participants include information about any limitations or restrictions on participant withdrawals. The Authority has implemented the provisions of this Statement as of June 30,

21 NOTES TO FINANCIAL STATEMENTS O. New Accounting Pronouncements In June 2015, the GASB issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. The objective of this Statement is to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple- Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement No. 43, and Statement No. 50, Pension Disclosures. The requirements of this Statement are effective for financial statements for periods beginning after June 15, Early implementation is encouraged. In June 2015, the GASB issued Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pension. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans. The requirements of this Statement are effective for financial statements for periods beginning after June 15, Early implementation is encouraged. 17

22 NOTES TO FINANCIAL STATEMENTS In August 2015, the GASB issued Statement No. 77, Tax Abatement Disclosures. This Statement requires governments that enter into tax abatement agreements to disclose the following information about the agreements: Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients The gross dollar amount of taxes abated during the period Commitments made by a government, other than to abate taxes, as part of a tax abatement agreement The requirements of this Statement are effective for financial statements for periods beginning after December 15, Early implementation is encouraged. In December 2015, the GASB issued Statement No. 78, Pensions Provided Through Certain Multiple- Employer Defined Benefit Pension Plans. The objective of this Statement is to address a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This issue is associated with pensions provided through certain multiple-employer defined benefit pension plans and to state or local governmental employers whose employees are provided with such pensions. Prior to the issuance of this Statement, the requirements of Statement No. 68 applied to the financial statements of all state and local governmental employers whose employees are provided with pensions through pension plans that are administered through trusts that meet the criteria in paragraph 4 of that Statement. This Statement amends the scope and applicability of Statement No. 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2) is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). This Statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above. The requirements of this Statement are effective for reporting periods beginning after December 15, Early implementation is encouraged. In January 2016, the GASB issued Statement No. 80, Blending Requirements for Certain Component Units - amendment of GASB Statement No. 14. The objective of this Statement is to improve financial reporting by clarifying the financial statement presentation requirements for certain component units. This Statement amends the blending requirements established in paragraph 53 of Statement No. 14, The Financial Reporting Entity, as amended. The additional criterion requires blending of a component unit incorporated as a not-forprofit corporation in which the primary government is the sole corporate member. The additional criterion does not apply to component units included in the financial reporting entity pursuant to the provisions of Statement No. 39, Determining Whether Certain Organizations Are Component Units. 18

23 NOTES TO FINANCIAL STATEMENTS The requirements of this Statement are effective for reporting periods beginning after June 15, Early implementation is encouraged. In March 2016, the GASB issued Statement No. 81, Irrevocable Split-Interest Agreements. The objective of this Statement is to improve accounting and financial reporting for irrevocable split-interest agreements by providing recognition and measurement guidance for situations in which a government is a beneficiary of the agreement. This Statement requires that a government that receives resources pursuant to an irrevocable split-interest agreement recognize assets, liabilities, and deferred inflows of resources at the inception of the agreement. Furthermore, this Statement requires that a government recognize assets representing its beneficial interests in irrevocable split-interest agreements that are administered by a third party, if the government controls the present service capacity of the beneficial interests. This Statement requires that a government recognize revenue when the resources become applicable to the reporting period. The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2016, and should be applied retroactively. Early implementation is encouraged. In March 2016, the GASB issued Statement No. 82, Pension Issues - An Amendment of GASB Statements No. 67, No. 68, and No. 73. The objective of this Statement is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statements No. 67 and No. 68. Specifically, this Statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. The requirements of this Statement are effective for reporting periods beginning after June 15, 2016, except for the requirements of this Statement for the selection of assumptions in a circumstance in which an employer's pension liability is measured as of a date other than the employer's most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, Early implementation is encouraged. 19

24 NOTES TO FINANCIAL STATEMENTS NOTE 2 - DEPOSITS AND INVESTMENTS A. Summary of Deposits and Investments Deposits and investments as of June 30, 2016, consist of the following: Cash on hand and deposits $ 300 Cash in trust accounts 1,700,000 Investments 106,317,201 Total Deposits and Investments $ 108,017,501 B. Policies and Practices The Authority is authorized under California Government Code to make direct investments in local agency bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper; certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by diversified management companies, certificates of participation, obligations with first priority security; and collateralized mortgage obligations. C. Investment in County Treasury The Authority is considered to be an involuntary participant in an external investment pool as the Authority is required to deposit all receipts and collections of monies with their County Treasurer (Education Code Section 41001). The fair value of the Authority's investment in the pool is reported in the accounting financial statements at amounts based upon the Authority's pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis. 20

25 NOTES TO FINANCIAL STATEMENTS D. General Authorizations Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are indicated in the schedules below: Maximum Maximum Maximum Authorized Remaining Percentage Investment Investment Type Maturity of Portfolio in One Issuer Local Agency Bonds, Notes, Warrants 5 years None None Registered State Bonds, Notes, Warrants 5 years None None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% None Repurchase Agreements 1 year None None Reverse Repurchase Agreements 92 days 20% of base None Medium-Term Corporate Notes 5 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass-Through Securities 5 years 20% None County Pooled Investment Funds N/A None None Local Agency Investment Fund (LAIF) N/A None None Joint Powers Authority Pools N/A None None E. Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The Authority manages its exposure to interest rate risk by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. 21

26 NOTES TO FINANCIAL STATEMENTS F. Specific Identification The Authority maintains an investment of $ with the Ventura County Investment Pool which has an average weighted maturity of 328 days. Amount Average Days Investment Type Reported to Maturity Ventura County Investment Pool $ 106,317, G. Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The Authority's investments in the Ventura County Investment Pool is rated AAA by Standards and Poor's. H. Custodial Credit Risk - Deposits This is the risk that in the event of a bank failure, the Authority's deposits may not be returned to it. The Authority does not have a policy for custodial credit risk for deposits. However, the California Government Code requires that a financial institution secure deposits made by State or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under State law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agency. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. As of June 30, 2016, the Authority's bank balance of $486,689 was exposed to custodial credit risk because it was uninsured and collateralized with securities held by the pledging financial institution's trust department or agent, but not in the name of the Authority. NOTE 3 - FAIR VALUE MEASUREMENTS The Authority categorizes the fair value measurements of its investments based on the hierarchy established by generally accepted accounting principles. The fair value hierarchy, which has three levels, is based on the valuation inputs used to measure an asset's fair value. The following provides a summary of the hierarchy used to measure fair value: Level 1 - Quoted prices in active markets for identical assets that the Authority has the ability to access at the measurement date. Level 1 assets may include debt and equity securities that are traded in an active exchange market and that are highly liquid and are actively traded in over-the-counter markets. 22