BERKS COUNTY EARNED INCOME TAX COLLECTION BUREAU

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1 BERKS COUNTY EARNED INCOME TAX COLLECTION BUREAU FINANCIAL STATEMENTS Year Ended

2 TABLE OF CONTENTS INDEPENDENT AUDITOR S REPORT FINANCIAL STATEMENTS Statement of Net Position - Modified Cash Basis - All Fund Types... 3 Statement of Revenues, Expenses, and Changes in Net Position - Modified Cash Basis - Proprietary Fund... 4 Statement of Cash Flows - Modified Cash Basis - Proprietary Fund... 5 Notes to Financial Statements SUPPLEMENTARY INFORMATION Schedule of Undistributed Taxes - Modified Cash Basis - Agency Fund Schedule of Reported Monthly Local Earned Income Tax Distributions - Modified Cash Basis - Agency Fund Schedule of Local Earned Income Tax Distributions and Fees - Modified Cash Basis - Agency Fund Schedule of 511 Tax Distributions and Fees - Modified Cash Basis - Agency Fund Schedule of Payments to Tax Collectors for Other Jurisdictions - Modified Cash Basis - Agency Fund Schedule of Collection Fees Charged - Earned Income Tax Modified Cash Basis - Agency Fund Schedule of Bonding Analysis - Earned Income Tax Modified Cash Basis - Agency Fund INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS INDEPENDENT AUDITOR S REPORT ON COMPLIANCE WITH PENNSYLVANIA ACT 32 OF Schedule of Findings and Responses Page

3 Herbein + Company, Inc Century Boulevard Reading, PA P: F: INDEPENDENT AUDITOR'S REPORT To the Board of Directors Berks County Earned Income Tax Collection Bureau Wyomissing, Pennsylvania Report on the Financial Statements We have audited the accompanying modified cash basis financial statements of the business-type activities and the aggregate remaining funds of Berks County Earned Income Tax Collection Bureau (the Bureau), as of and for the year ended, and the related notes to the financial statements, which collectively comprise the Bureau 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 the modified cash basis of accounting described in Note 1; this includes determining that the modified cash basis of accounting is an acceptable basis for the preparation of the financial statements in the circumstances. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards required 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 entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective modified cash basis financial position of the business-type activities and aggregate remaining fund information of the Bureau as of, and the respective changes in modified cash basis financial position and cash flows thereof for the year then ended in conformity with the basis of accounting described in Note 1. Succeed With Confidence 1

4 Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements as a whole that collectively comprise Bureau s basic financial statements. The supplementary information such as the schedule of undistributed taxes - modified cash basis - agency fund, schedule of reported monthly local earned income tax distributions - modified cash basis - agency fund, schedule of local earned income tax distribution and fees - modified cash basis - agency fund, schedule of 511 tax distributions and fees - modified cash basis - agency fund, schedule of payments to tax collectors for other jurisdictions - modified cash basis - agency fund, schedule of collection fees charged - earned income tax - modified cash basis - agency fund, and schedule of bonding analysis - earned income tax - modified cash basis - agency fund are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of undistributed taxes - modified cash basis - agency fund, schedule of reported monthly local earned income tax distributions - modified cash basis - agency fund, schedule of local earned income tax distribution and fees - modified cash basis - agency fund, schedule of 511 tax distributions and fees - modified cash basis - agency fund, schedule of payments to tax collectors for other jurisdictions - modified cash basis - agency fund, schedule of collection fees charged - earned income tax - modified cash basis - agency fund, schedule of bonding analysis - earned income tax - modified cash basis - agency fund are the responsibility of management and were derived from, and relate 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 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 as a whole on the basis of accounting described in Note 1. Basis of Accounting We draw attention to Note 1 of the financial statements that describes the basis of accounting. The financial statements are prepared on the modified cash basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America. Our opinions are not modified with respect to this matter. Change in Accounting Method As discussed in Note 11 of the financial statements, the Bureau has elected to change its method of accounting from accrual basis to modified cash basis of accounting. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 29, 2016 on our consideration of the Bureau s internal control over financial reporting and 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 in considering the Bureau s internal control over financial reporting and compliance. Reading, Pennsylvania September 29, 2016 Succeed With Confidence 2

5 STATEMENT OF NET POSITION MODIFIED CASH BASIS ALL FUND TYPES ASSETS Proprietary Fund Type Fiduciary Fund Type CURRENT ASSETS Cash and cash equivalents $ 645,113 $ 13,854,936 Interfund receivables 449,717 TOTAL CURRENT ASSETS 645,113 14,304,653 NONCURRENT ASSETS Capital assets not being depreciated: Construction in progress 239,724 Capital assets being depreciated: Furniture and fixtures 40,938 Office equipment 7,250 Computer equipment 311,165 Computer software 301,540 Less: accumulated depreciation (475,374) TOTAL NONCURRENT ASSETS 425,243 TOTAL ASSETS $ 1,070,356 $ 14,304,653 LIABILITIES CURRENT LIABILITIES Interfund payables $ 449,717 $ Undistributed taxes 14,006,251 Other current liabilities 298,402 Payroll tax deductions and withholdings 13,159 TOTAL LIABILITIES 462,876 14,304,653 NET POSITION Net investment in capital assets 425,243 Unrestricted 182,237 TOTAL NET POSITION $ 607,480 $ See accompanying notes. 3

6 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION MODIFIED CASH BASIS PROPRIETARY FUND For the Year Ended Proprietary Fund Type OPERATING REVENUES EIT commissions $ 2,355, commissions 309,533 Distribution of excess operating revenue (778,917) TOTAL OPERATING REVENUES 1,886,084 OPERATING EXPENSES Bank fees 246 Depreciation 170,376 Education 2,117 Equipment and computer costs 2,655 Forms and printing 20,349 Insurance and bonds 180,836 Machine rentals 10,186 Miscellaneous 8,667 Office rent 71,234 Office supplies and expenses 29,938 Payroll taxes 55,001 Postage 90,477 Professional fees 168,502 Repairs and maintenance 146,615 Salaries and wages 902,336 State retirement contribution 68,180 Telephone 5,952 Travel 967 TOTAL OPERATING EXPENSES 1,934,634 OPERATING LOSS CHANGE IN NET POSITION (48,550) NET POSITION BEGINNING RESTATED 656,030 NET POSITION ENDING $ 607,480 See accompanying notes. 4

7 STATEMENT OF CASH FLOWS MODIFIED CASH BASIS PROPRIETARY FUND For the Year Ended CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $ 1,938,701 Cash payments to suppliers for goods and services (806,921) Cash payments to employees for services (944,506) NET CASH PROVIDED BY OPERATING ACTIVITIES 187,274 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and construction of capital assets (435,046) NET DECREASE IN CASH (247,772) CASH AT BEGINNING OF YEAR 892,885 CASH AT END OF YEAR $ 645,113 RECONCILIATION OF OPERATING LOSS CHANGE IN NET POSITION TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating loss change in net position $ (48,550) Adjustments to reconcile operating loss change in net position to net cash provided by operating activities: Depreciation 170,376 Changes in: Interfund payables 52,617 Payroll deductions and withholdings 12,831 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 187,274 See accompanying notes. 5

8 NOTES TO BASIC FINANCIAL STATEMENTS The Berks County Earned Income Tax Collection Bureau (the Bureau ) is an agency appointed by the Berks County Tax Collection Committee ( TCC ) to serve as the sole tax collector to collect income and certain other taxes throughout Berks County as required by Act 32. Effective January 1, 2015, the TCC acquired all assets and operations of the Bureau. The TCC now has its own tax collection operations for Berks County operating under the name of The Berks County Earned Income Tax Collection Bureau. The Bureau jurisdiction is comprised of all the school districts and municipalities of Berks County, as well as part of Douglass Township, New Hanover Township, and Upper Frederick Township of Montgomery County located within the Boyertown Area School District. The TCC is comprised of representatives from each taxing jurisdiction. All action of the TCC is approved by the representatives using a weighted voting system based on each taxing jurisdiction s percentage of earned income tax revenue and population. The weighted votes of the representatives shall remain fixed, unless and until, the executive committee decides to reweight the votes. The TCC is responsible for overseeing the collection and distribution of earned income and net profit taxes within the Tax Collection District. Day-to-day operations are supervised by an executive director. Members of the Tax Collection District ( TCD ) are comprised of all school districts and municipalities within the geographic boundaries of the TCD. Non-members are entities not included within the geographic boundaries of the TCD. NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Financial Reporting Entity As required by generally accepted accounting principles, the financial statements of the reporting entity include those of the Bureau and its component units. The Bureau used guidance contained in generally accepted accounting principles to evaluate the possible inclusion of related entities (authorities, boards, etc.) within its reporting entity. The criteria used by the Bureau for inclusion are financial accountability and the nature and significance of the relationships. In determining financial accountability in a given case, the Bureau reviews the applicability of the following criteria. The Bureau is financially accountable for: Organizations that make up the legal Bureau entity. Legally separate organizations if Bureau officials appoint a voting majority of the organizations governing body and the Bureau is able to impose its will on the organization, or if there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the Bureau as defined below. 6

9 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED A. Financial Reporting Entity - continued Impose its will - If the Bureau can significantly influence the programs, projects, or activities of, or the level of services performed or provided by, the organization. Financial benefit or burden - exists if the Bureau (1) is entitled to the organization s resources; (2) is legally obligated or has otherwise assumed the obligation to finance the deficits of, or provide support to, the organization; or (3) is obligated in some manner for the debt of the organization. Organizations that are fiscally dependent on the Bureau. Fiscal dependency is established if the organization is unable to adopt its budget, levy taxes, set rates or changes, or issue bonded debt without approval by the Bureau. Based on the foregoing criteria, the Bureau has determined it has no component units. B. Basis of Presentation - Fund Accounting Proprietary Fund - All activities of the Bureau are accounted for within a single proprietary (enterprise) fund and are classified as a business-type activity. Proprietary funds are used to account for operations that are (a) financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the cost (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. Fiduciary Fund - The focus of the fiduciary fund measurement is to account for assets held in a trustee capacity for Bureau members. The fund financial statements are provided even though they are excluded from the Bureau s activities. This fund is an agency fund which is used to account for assets held by the Bureau as an agent for the member school districts and municipalities related to earned income and other 511 tax collections. C. Measurement Focus and Basis of Accounting Measurement focus is a term used to describe what transactions or events are recorded within the various financial statements. Basis of accounting refers to when and how transactions or events are resolved, regardless of the measurement focus applied. 7

10 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED C. Measurement Focus and Basis of Accounting - continued 1. Measurement Focus The accounting and financial reporting treatment applied to the Bureau is determined by its measurement focus. The proprietary fund utilizes an economic resources measurement focus within the limitations of the modified cash basis of accounting. The accounting objectives of this measurement focus are the determination of operating income, changes in net position (or cost recovery), net financial position, and cash flows. All assets and liabilities (whether current or noncurrent or financial or nonfinancial) associated with their activities are generally reported within the limitations of the modified cash basis of accounting. Operating revenues and expenses are distinguished from nonoperating items in the statement of revenues, expenses, and changes in net position. Operating revenues and expenses generally result from providing services in connection with the Bureau s principal ongoing operations. The principal operating revenues of the Bureau are commissions from the collection of taxes. Operating expenses include the cost of tax collection and distribution, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. There were no nonoperating revenues or expenses at. The fiduciary fund utilizes an economic resources measurement focus within the limitations of the modified cash basis of accounting. All assets and liabilities (whether current or noncurrent or financial or nonfinancial) associated with their activities are generally reported within the limitations of the modified cash basis of accounting. 2. Basis of Accounting The financial statements are presented on a modified cash basis of accounting, which is a basis of accounting other than GAAP as established by GASB. The modified cash basis of accounting involves modifications to the cash basis of accounting to report in the statement of net position cash transactions or events that provide a benefit or result in an obligation that covers a period greater than the period in which the cash transaction or event occurred. Such reported balances include capital assets arising from cash transactions or events, interfund accounts, undistributed taxes (including current year excess operating revenue), other liabilities, and payroll tax deductions and withholdings. 8

11 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED C. Measurement Focus and Basis of Accounting - continued 2. Basis of Accounting - continued This modified cash basis of accounting differs from GAAP primarily because certain assets and their related revenues (such as accounts receivable and revenue for billed or provided services not yet collected and other accrued revenue and receivables) and certain liabilities and their related expenses or expenditures (such as accounts payable and expenses for goods or services received, but not yet paid and other accrued expenses and liabilities) are not recorded in these financial statements, except as further described. In addition, other economic assets, deferred outflows, liabilities, and deferred inflows that do not arise from cash transactions or events are not reported, and the measurement of reported assets and liabilities does not involve adjustment to fair value. If the Bureau utilized the basis of accounting recognized as generally accepted in the United States of America, the financial statements would use the accrual basis of accounting. D. Budgetary Accounting Although not legally required, each year the executive director shall develop a proposed annual budget for the following year and shall provide the proposed budget to the finance committee for review and input. After doing so, the executive director and the finance committee shall present the budget to the executive committee for approval at a meeting that occurs prior to the first day of the year being budgeted. In advance of such presentation, the executive director shall provide a copy of the proposed annual budget to the executive committee at least fifteen (15) days prior to the meeting at which the budget will be presented. The executive committee may amend the annual budget at any time. E. Financial Position 1. Cash The Bureau s reporting entity considers all highly-liquid investments with a maturity of three months or less when purchased to be cash equivalents. 9

12 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED E. Financial Position - continued 2. Capital Assets The business-type fund uses modified cash basis of accounting for capital assets. Capital assets resulting from cash transactions are set up as assets and depreciation is reported as necessary. All business-type capital assets are valued at historical cost. Major improvements are capitalized, while maintenance and repairs of property and equipment and infrastructure costs are charged to operations. Upon retirement, sale, or other disposition of property and equipment, the cost and accumulated depreciation are eliminated from the amounts and a gain or loss is included in operations. Depreciation expense is recorded as an allocated expense to the appropriate function using the straight-line method of depreciation. A capitalization threshold of $1,000 is used to report capital assets. The Bureau has not yet established a capitalization policy. Estimated useful lives are as follows: Furniture and fixtures Office equipment Computer equipment Computer software 7 years 5 years 3-10 years 3 years 3. Interfund Receivables/Payables Interfund receivables and payables arise from interfund transactions and are recorded by all funds affected in the period in which transactions are executed. Interfund receivables and payables exist due to original funding of accounts and excess operating revenue distribution at year end. 4. Undistributed Taxes Undistributed taxes primarily consist of earned income tax, local service tax, and other 511 taxes collected that have not yet been distributed to the appropriate members of the tax collection district or other collectors. 5. Net Position Net position is classified into three categories, as applicable, as follows: Net investment in capital assets consists of capital assets, net of accumulated depreciation and related debt. Restricted net position is an amount that has externally imposed restrictions on how the funds can be spent. Unrestricted net position is an amount that does not meet the definitions of net investment in capital assets or restricted and is available for Bureau operations. The Bureau has established a minimum unrestricted net position policy of $250,000. The unrestricted net position was below this amount at due to the timing of certain revenues. The deficit was replenished in the 2016 fiscal year. 10

13 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED E. Financial Position - continued 5. Net Position - continued Flow Assumption - When both restricted and unrestricted resources are available for use, it is the Bureau s policy to use restricted resources first, then unrestricted resources as they are needed. F. Revenues and Expenses 1. Source of Earned Income Collections The earned income tax imposed is currently.5 percent to 2.1 percent per year, depending on the municipality. Collections are shared among the applicable taxing jurisdictions within the Bureau. The Bureau services the following taxing jurisdictions: School Districts City Townships Boroughs Antietam Reading Albany Heidelberg Pike Bally Mohnton Boyertown Area Alsace Jefferson Richmond Bechtelsville Mt. Penn Brandywine Heights Area Amity Longswamp Rockland Bernville Robesonia Conrad Weiser Bern Lower Alsace Ruscombmanor Birdsboro Shillington Daniel Boone Area Bethel Lower Heidelberg South Heidelberg Boyertown Shoemakersville Exeter Township Brecknock Maidencreek Spring Centerport Sinking Spring Fleetwood Area Centre Marion Tilden Fleetwood St. Lawrence Governor Mifflin Colebrookdale Maxatawny Tulpehocken Hamburg Strausstown Hamburg Area Cumru Muhlenberg Union Kenhorst Topton Kutztown Area District New Hanover * Upper Bern Kutztown Wernersville Muhlenberg Township Douglass, Berks North Heidelberg Upper Frederick * Laureldale West Reading Oley Valley Douglass, Mont. * Oley Upper Tulpehocken Leesport Womelsdorf Reading Earl Ontelaunee Washington Lenhartsville Wyomissing Schuylkill Valley Exeter Penn Windsor Lyons Tulpehocken Area Greenwich Perry Wilson Wyomissing Area * Only portions of the municipality within Boyertown Area School District. 2. Distribution of Receipts and Expenses Beginning with the 2012 tax year, all distributions to member school districts and municipalities of tax receipts are made monthly in compliance with Commonwealth of Pennsylvania Act 32 Local Earned Income Tax (Act 32). A collection fee is deducted from these distributions. The expenses are allocated in accordance with Act 32 and the by-laws of the Bureau as amended, with municipalities sharing the expenses on the same basis as the school districts. 11

14 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED G. Use of Estimates The preparation of financial statements in conformity with the modified cash basis of accounting requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 - CASH Deposits Custodial Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the government s deposits may not be returned. The Bureau does not have a policy for custodial credit risk on deposits. At, the carrying amount of the Bureau s deposits was $14,500,049 and the bank balance was $14,622,850. Of the bank balance, $250,000 was covered by federal depository insurance, and $14,372,850 was exposed to custodial credit risk but covered by collateralization requirements in accordance with Act 72. The fiduciary cash balance consists of collections held, in escrow, pending receipt of monthly, quarterly, or annual reports identifying amounts due to the appropriate member of the Bureau or other Tax Collection Districts. NOTE 3 - BONDING The Bureau carries a Pennsylvania tax officer bond in the aggregate amount of $10,000,000 for the use of the tax collection committee and any other political subdivisions or tax collection districts for which taxes shall be collected or distributed in case of a breach of the obligations of the Bureau and its employees or appointees. Such obligations are the (i) faithful execution of duties required of the Bureau in its capacity as the tax officer under applicable law, (ii) completion of just and faithful accounting and payment over of all moneys and balances paid to, received, or held by the Bureau in its capacity as the tax officer in accordance with applicable law, and (iii) completion of the delivery of all tax records or other official items held in right by the Bureau in its capacity as the tax collector to its successor in office. The amount of the bond is determined annually by the Bureau s Board Officers and Members. Tax collections in custody at the Bureau exceed the amount of the bond from time to time throughout the year. In addition, the Bureau has purchased other general, automobile, umbrella, cyber liability, and property liability coverage subject to terms, deductibles, and limits as outlined in the insurance policies. 12

15 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 4 - INTERFUND ACCOUNTS Interfund receivable and payable balances at, are as follows: Fund Interfund Receivables Interfund Payables Proprietary fund $ - $ 449,717 Fiduciary fund 449,717 - Interfund accounts exist due to timing of transfers between the proprietary and agency fund accounts. NOTE 5 - CHANGES IN CAPITAL ASSETS Changes in capital assets for the proprietary fund for the year ended are as follows: Balance Balance January 1 December Additions Deletions 2015 Capital assets not being depreciated: Construction in progress $ - $ 239,724 $ - $ 239,724 Total not being depreciated - 239, ,724 Capital assets being depreciated: Leasehold improvements 7,977 - (7,977) - Furniture and fixtures 85,021 40,938 (85,021) 40,938 Office equipment 145,542 7,250 (145,542) 7,250 Computer equipment 446,759 34,744 (170,338) 311,165 Computer software 189, , ,540 Total being depreciated 874, ,322 (408,878) 660,893 Less: accumulated depreciation 713, ,376 (408,878) 475,374 Total capital assets being depreciated, net 160,573 24, ,519 Total capital assets, net $ 160,573 $ 264,670 $ - $ 425,243 13

16 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 6 - OPERATING LEASES For the year ended, the Bureau leased office space for its operations. The lease payments included a base rent and a proportionate share of the common area maintenance. Total lease expense for the year ended was $71,234. The terms of the lease expired on and were not renewed. On September 17, 2015, the Bureau signed a 20-year operating-type lease agreement with Hough/Loew Associates, Inc. commencing on November 1, 2015, and expiring on October 31, In the event of any judicial action taken that would affect the Bureau s ability to sustain its current operating manner, the Bureau may terminate the lease by giving 30-days written notice. Lease payments are payable the first of each month. Associated with the lease, the Bureau will receive up to $213,220 as a contribution toward the cost of renovating the property for its use. The Bureau received the contribution in full subsequent for year end in February Minimum future lease payments under this operating lease having remaining terms in excess of one year as of, are as follows: 2016 $ 62, , , , , ,147,246 Total minimum future rental payments $ 1,472,193 NOTE 7 - CONTRACTS A. Earned Income Tax The Bureau collects local earned income tax (EIT) for municipalities and school districts in its jurisdiction who pay a fee to the Bureau for collection, distribution, and processing of returns in the amount of 2.0 percent of gross EIT receipts. B. 511 taxes The Bureau collects a local services tax (LST) as well as other Act 511 taxes for several municipalities and school districts who agreed to pay a fee to the Bureau for collection, distribution, and processing of returns in the amount of 2.5 percent of gross receipts. 14

17 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 8 - EXCESS OPERATING REVENUE The amount of operating revenue that remains after the Bureau has paid all expenses and liabilities that were due and payable before the end of 2015 is considered excess operating revenue. On or before May 31, 2016, the Bureau shall determine how much excess operating revenue it has retained. Within 30 days of making this determination, all excess operating revenue left over from 2015 shall be refunded to the taxing authorities, except to the extent that the executive committee determines it is necessary to retain excess operating revenue to fund a capital or operating reserve. Each taxing authority s share of a distribution of excess operating revenue shall be in direct proportion to the tax revenue (EIT, LST, BPT, and all fines penalties and interest) collected for the taxing authority by the Bureau during 2015 as compared to the total amount of tax revenue collected by the Bureau for all taxing authorities during Excess operating revenue for the year ended is as follows: EIT commissions $ 2,355, commissions 309,533 Total commissions 2,665,001 Operating expenses (1,934,634) Depreciation expense 170,376 Purchase of capital assets (435,046) Landlord contribution to renovations 213,220 * Prior year excess operating revenue withheld for capital 100,000 ** Total operating costs (1,886,084) Excess operating revenue $ 778,917 * Under the current lease agreement, the landlord shall provide an allowance to the Bureau in the amount of $213,220 as a contribution towards the costs of the Bureau s work on the premises. This amount was not received until 2016, however was included above to offset the associated renovation costs. ** For the year ended December 31, 2014, the board withheld $100,000 from the excess operating revenue calculation to be used for the furnishing of and incidental build-out costs of the new office. 15

18 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 9 - DEFINED BENEFIT PENSION PLAN Plan Description The Bureau contributes to a governmental cost-sharing, multiple-employer, defined benefit pension plan administered by the Commonwealth of Pennsylvania Public School Employees Retirement System (PSERS). Benefit provisions of the Plan are established under the provisions of the PSERS Code ( the Code ) and may be amended by an act of the Pennsylvania State Legislature. The Plan provides retirement, disability, and death benefits, legislatively mandated ad hoc cost-of-living adjustments, and healthcare insurance premium assistance to qualifying plan members and beneficiaries. It also provides for refunds of a member s accumulated contribution upon termination of a member s employment in the public school sector. PSERS issues a publicly available financial report that includes financial statements for the Plan. That report may be obtained by writing to PSERS, PO Box 125, Harrisburg, PA The publication is also available on the PSERS website at Funding Policy The contribution policy is set by State Statute and requires contributions by active employees and by participating employers. Active members who joined the System prior to July 22, 1983, contribute at 5.25 percent (Membership Class TC) or at 6.50 percent (Membership Class TD) of the member s qualifying compensation. Members joining PSERS on or after July 22, 1983 and who were active or inactive as of July 1, 2001, contribute at 6.25 percent (Membership Class TC) or at 7.50 percent (Membership Class TD) of the member s qualifying compensation. Members joining PSERS after June 30, 2001 and who were active or inactive as of June 30, 2011 contribute at 7.50 percent (automatic Membership Class TD). For all new hires and for members who elected Class TD membership, the higher contribution rates began with service rendered on or after January 1, Members joining PSERS on or after July 1, 2011 contribute at 7.50 percent (Membership Class TE) or at percent (Membership Class TF). Both membership classes TE and TF contain a shared risk which allows for an increase in the contribution percentage up to an additional 2.00 percent based on market results. The contributions required of participating employers are based on an actuarial valuation and are expressed as a percentage of annual covered payroll during the period for which the amount is determined. The Bureau qualifies as a special funding situation and therefore is only required to pay 50 percent at the certified rate of percent. For the fiscal year ended, the rate of Bureau contributions was percent of covered payroll. The percent rate is composed of a pension contribution, percent of pension benefits and 0.45 percent of healthcare insurance premium assistance. The Bureau s contributions to PSERS for the years ended, 2014, and 2013 were $68,180, $63,068, and $60,720, respectively. 16

19 NOTES TO BASIC FINANCIAL STATEMENTS NOTE 10 - RISK MANAGEMENT The Bureau is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Significant losses are covered by commercial insurance for all areas for which the Bureau retains risk of loss. Subsequent to year end, the Bureau reduced its tax officer bond from $10,000,000 to $5,000,000. NOTE 11 - CHANGE IN ACCOUNTING METHOD The Bureau has elected to change its method of accounting from accrual basis to modified cash basis of accounting. Although the modified cash basis of accounting is a basis other than generally accepted accounting principles, the Bureau believes it more accurately presents the financial position of the entity. This change required a restatement of beginning net position by ($8,755) from the previously reported balance of $664,

20 SUPPLEMENTARY INFORMATION

21 SCHEDULE OF UNDISTRIBUTED TAXES MODIFIED CASH BASIS AGENCY FUND For the Year Ended UNDISTRIBUTED TAXES January 1, 2015 $ 6,501,259 RECEIPTS Earned income tax individuals 8,106,293 Earned income tax employers 95,810,801 Earned income tax other collectors 41,553,373 Local service tax 7,132,202 Business privilege tax 4,476,863 Other 511 taxes 805,038 Interest income and penalties 59,744 TOTAL RECEIPTS 157,944,314 DISTRIBUTIONS Earned income tax distributions 116,154, tax distributions 12,092,711 Refunds 2,053,292 Payments to tax collectors for other jurisdictions 18,127,614 Earned income tax collection fee 2,355, tax collection fee 309,533 Excess revenue distribution (to be distributed in 2016) (778,917) Other distributions, net 124,873 TOTAL DISTRIBUTIONS 150,439,322 UNDISTRIBUTED TAXES $ 14,006,251 18

22 SCHEDULE OF REPORTED MONTHLY LOCAL EARNED INCOME TAX DISTRIBUTIONS MODIFIED CASH BASIS AGENCY FUND For the Year Ended Date of Distribution Report Local Earned Income Taxes Collected and Allocated for Municipalities and School Districts within the Tax Collection District Interest and Penalties Excess Revenue Total Collection Fee Withheld Net Total Local Earned Income Taxes Distributed to Municipalities and School Districts within the Tax Collection District January 2015 $ 3,246,413 $ 6,644 $ $ 64,928 $ 3,188,129 February ,332,962 6, ,659 19,932,810 March ,721, ,424 8,546,784 April ,295,968 2,943 85,919 4,212,992 May ,245,227 12, ,905 20,832,554 June ,160,917 6, , ,218 7,701,598 July ,742,218 6,038 54,844 2,693,412 August ,087,593 4, ,752 19,690,711 September ,820,459 4, ,409 7,668,975 October ,800,503 3,436 56,010 2,747,929 November ,319,912 5, ,400 18,938,854 Total $ 117,773,380 $ 59,744 $ 677,092 $ 2,355,468 $ 116,154,748 * Due to Berks County Tax Collection Committee merging with the Berks Earned Income Tax Bureau, the December 2014 distribution was made in December 2014, therefore there were only 11 distributions for the year ended. 19

23 SCHEDULE OF LOCAL EARNED INCOME TAX DISTRIBUTIONS AND FEES MODIFIED CASH BASIS AGENCY FUND For the Year Ended Municipality or School District Local EIT Collections Total Amount of Interest and Penalties Excess Revenue Included in the June 2015 Distribution Collection Fee Withheld Net Local EIT Distribution Antietam School District $ 786,442 $ 344 $ 4,090 $ 15,729 $ 775,147 Lower Alsace Township 482, ,613 9, ,264 Mount Penn Borough 308, ,955 6, ,278 Boyertown Area School District 5,772,226 3,238 32, ,445 5,692,598 Bechtelsville Borough 98, ,975 97,454 Borough of Bally 124, , ,333 Borough of Boyertown 418, ,742 8, ,285 Colebrookdale Township 615, ,072 12, ,478 Douglass Township Berks 404, ,349 8, ,794 Douglass Township Montgomery 1,406, ,600 28,132 1,387,946 Earl Township 387, ,060 7, ,893 New Hanover Township 1,946,910 1,096 11,113 38,938 1,920,181 Upper Frederick Township 475, ,968 9, ,764 Washington Township 461, ,795 9, ,084 Brandywine Heights Area School District 1,485, ,364 29,715 1,465,194 District Township 178, , ,949 Longswamp Township 568, ,548 11, ,047 Rockland Township 521, ,838 10, ,696 Topton Borough 219, ,506 4, ,015 Conrad Weiser School District 2,206,920 1,034 11,603 44,138 2,175,419 Heidelberg Township 193, ,536 3, ,884 Marion Township 160, , ,636 North Heidelberg Township 147, , ,263 Robesonia Borough 211, ,143 4, ,334 South Heidelberg Township 976, ,871 19, ,465 Wernersville Borough 261, ,326 5, ,894 Womelsdorf Borough 267, ,455 5, ,163 Daniel Boone Area School District 2,703,166 1,453 15,041 54,063 2,665,597 Amity Township 1,775,153 1,046 10,551 35,503 1,751,247 Birdsboro Borough 547, ,326 10, ,928 Union Township 424, ,390 8, ,013 Exeter Township School District 3,410,289 1,870 21,193 68,206 3,365,146 Exeter Township 3,295,736 1,933 21,586 65,915 3,253,340 St Lawrence Borough 195, ,194 3, ,071 Fleetwood Area School District 1,990, ,009 39,816 1,962,958 Fleetwood Borough 487, ,830 9, ,489 Maidencreek Township 1,173, ,151 23,477 1,158,131 Richmond Township 355, ,443 7, ,427 Governor Mifflin School District 4,225,509 1,921 21,878 84,510 4,164,798 Brecknock Township 649, ,441 12, ,233 Cumru Township 2,404,219 1,206 13,267 48,084 2,370,608 Kenhorst Borough 288, ,491 5, ,266 Mohnton Borough 380, ,105 7, ,640 Shillington Borough 607, ,345 12, ,056 Hamburg Area School District 1,950, ,029 39,010 1,922,454 Hamburg Borough 435, ,595 8, ,359 Perry Township 268, ,391 5, ,778 Shoemakersville Borough 164, , ,189 Strausstown Borough 31, ,662 Tilden Township 438, ,179 8, ,288 Upper Bern Township 188, , ,978 Upper Tulpehocken Township 186, , ,851 Windsor Township 275, ,475 5, ,993 20

24 SCHEDULE OF LOCAL EARNED INCOME TAX DISTRIBUTIONS AND FEES MODIFIED CASH BASIS AGENCY FUND For the Year Ended Municipality or School District Local EIT Collections Total Amount of Interest and Penalties Excess Revenue Included in the June 2015 Distribution Collection Fee Withheld Net Local EIT Distribution Kutztown Area School District 1,388, ,734 27,778 1,369,577 Albany Township 187, ,086 3, ,498 Greenwich Township 410, ,228 8, ,934 Kutztown Borough 364, ,024 7, ,008 Lenhartsville Borough 24, ,600 Lyons Borough 38, ,620 Maxatawny Township 397, ,251 7, ,486 Muhlenberg Township School District 2,544,337 1,633 18,203 50,887 2,513,286 Laureldale Borough 356, ,893 7, ,451 Muhlenberg Township 2,259,800 1,782 19,462 45,196 2,235,848 Oley Valley School District 1,724, ,293 34,487 1,699,982 Alsace Township 424, ,279 8, ,782 Oley Township 481, ,814 9, ,082 Pike Township Road Board 202, ,354 4, ,657 Ruscombmanor Township 621, ,161 12, ,641 Reading School District 12,916,672 5,527 66, ,333 12,730,727 City of Reading 20,770,495 8, , ,410 20,479,587 Schuylkill Valley School District 1,822, ,130 36,451 1,796,002 Bern Township 843, ,524 16, ,457 Centerport Borough 33, ,913 Centre Township 525, ,675 10, ,176 Leesport Borough 241, ,278 4, ,799 Ontelaunee Township 285, ,656 5, ,906 Tulpehocken Area School District 1,380, ,076 27,602 1,360,270 Bernville Borough 93, ,879 92,673 Bethel Township 418, ,163 8, ,569 Jefferson Township 297, ,491 5, ,807 Penn Township 276, ,443 5, ,306 Tulpehocken Township 311, ,560 6, ,412 Wilson School District 5,534,511 2,507 29, ,690 5,455,573 Lower Heidelberg Township 1,112, ,872 22,250 1,096,651 Sinking Spring Borough 532, ,710 10, ,939 Spring Township 3,836,881 2,064 22,370 76,738 3,784,577 Wyomissing Area School District 2,198,623 1,259 13,664 43,972 2,169,574 West Reading Borough 532, ,183 10, ,882 Wyomissing Borough 2,438,246 1,470 15,587 48,765 2,406,538 Total $ 117,773,380 $ 59,744 $ 677,092 $ 2,355,468 $ 116,154,748 21

25 SCHEDULE OF 511 TAX DISTRIBUTIONS AND FEES MODIFIED CASH BASIS AGENCY FUND For the Year Ended Municipality or School District 511 Taxes Collected and Allocated for Municipalities and School Districts within the Tax Collection District Total Collection Fee Withheld Net 511 Taxes Distributed to Municipalities and School Districts within the Tax Collection District Amity Township $ 149,710 $ 3,747 $ 145,963 Bechtelsville Borough 4, ,770 Bern Township 291,353 7, ,054 Bernville Borough 7, ,675 Birdsboro Borough 39, ,682 Borough of Bally 34, ,289 Borough of Boyertown 63,628 1,592 62,036 Boyertown Area School District 62,171 1,558 60,613 Brandywine Heights Area School District 18, ,877 City of Reading 1,794,792 45,078 1,749,715 Colebrookdale Township 131,704 3, ,406 Cumru Township 276,737 6, ,762 District Township Douglass Township Berks 37, ,016 Douglass Township Montgomery 129,584 3, ,341 Earl Township 2, ,600 Exeter Township 792,897 19, ,137 Exeter Township School District 608,515 15, ,282 Fleetwood Area School District 55,417 1,387 54,030 Fleetwood Borough 56,218 1,407 54,811 Governor Mifflin School District 133,337 3, ,992 Hamburg Borough 64,079 1,606 62,472 Heidelberg Township 91,624 2,295 89,329 Kenhorst Borough 20, ,895 Kutztown Area School District 6, ,456 Laureldale Borough 6, ,306 22

26 SCHEDULE OF 511 TAX DISTRIBUTIONS AND FEES MODIFIED CASH BASIS AGENCY FUND For the Year Ended Municipality or School District 511 Taxes Collected and Allocated for Municipalities and School Districts within the Tax Collection District Total Collection Fee Withheld Net 511 Taxes Distributed to Municipalities and School Districts within the Tax Collection District Longswamp Township 66,685 1,672 65,013 Lower Alsace Township 24, ,540 Lower Heidelberg Township 35, ,239 Lyons Borough 27, ,996 Maidencreek Township 155,025 3, ,148 Mohnton Borough 23, ,255 Mt Penn Borough 74,722 1,847 72,875 Muhlenberg Township 1,743,884 42,543 1,701,341 Muhlenberg Township School District 1,134,922 28,562 1,106,360 New Hanover Township 10, ,587 Oley Valley School District 57,382 1,437 55,944 Ontelaunee Township 214,335 5, ,975 Reading School District 127,007 3, ,811 Richmond Township 310,599 7, ,825 Robesonia Borough 5, ,641 Shillington Borough 240,956 5, ,969 Sinking Spring Borough 64,015 1,601 62,414 South Heidelberg Township 124,135 3, ,025 Spring Township 570,221 14, ,898 St Lawrence Borough 25, ,498 Topton Borough 49,381 1,236 48,146 Upper Frederick Township 27, ,340 Washington Township 29, ,389 West Reading Borough 894,832 22, ,796 Wilson School District 117,419 2, ,472 Womelsdorf Borough 15, ,276 Wyomissing Area School District 520,347 13, ,333 Wyomissing Borough 830,203 21, ,146 Total $ 12,402,244 $ 309,533 $ 12,092,711 23

27 SCHEDULE OF PAYMENTS TO TAX COLLECTORS FOR OTHER JURISDICTIONS MODIFIED CASH BASIS AGENCY FUND For the Year Ended Tax Collectors Amount Paid Berkheimer Tax Administrator $ 8,731,455 Keystone Collections Group 5,606,085 Lancaster County Tax Collection Bureau 2,916,756 York Adams Tax Bureau 264,712 Cumberland County Tax Bureau 198,660 Jordan Tax Service 80,954 Capital Area Tax Collection Bureau 80,615 Williamsport Tax Office 78,567 Centre Tax Agency 38,740 Franklin County Area Tax Bureau 38,115 Blair County Tax Collection Bureau 33,035 Southwest Regional Tax Bureau 21,775 Miffco Tax Service 18,190 Danville Area EIT Office 9,243 Keystone Central Sd Eit 8,223 Municipal & School 1,145 Sharon School District 637 Coplay EIT Collector 225 Carlynton School District EIT Collector 345 Alburtis Borough 75 Single Tax Office 27 Cameron School District EIT Collector 22 Central Tax Bureau of PA 13 Total $ 18,127,614 24

28 SCHEDULE OF COLLECTION FEES CHARGED EARNED INCOME TAX MODIFIED CASH BASIS AGENCY FUND For the Year Ended Earned income tax collections current collections within the Tax Collection District $ 119,826,672 Less: Taxpayer refunds earned income taxes (2,053,292) Earned income tax collections, net $ 117,773,380 Authorized collection rate 2.00% Projected collection fees $ 2,355,468 Collection fees charged $ 2,355,468 25

29 SCHEDULE OF BONDING ANALYSIS EARNED INCOME TAX MODIFIED CASH BASIS AGENCY FUND For the Year Ended Earned income tax collections current collections within the Tax Collection District $ 119,826,672 Less: Taxpayer refunds earned income taxes (2,053,292) Earned income tax collections, net $ 117,773,380 Bonding amount as determined by TCC $ 10,000,000 Actual bond amount $ 10,000,000 Average monthly amount of tax collections in possession of the tax officer $ 10,706,671 26

30 Herbein + Company, Inc Century Boulevard Reading, PA P: F: INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors Berks County Earned Income Tax Collection Bureau Wyomissing, Pennsylvania We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the business-type activities and aggregate remaining funds of Berks County Earned Income Tax Collection Bureau (the Bureau) as of and for the year ended, and the related notes to the financial statements, which collectively comprise the Bureau s basic financial statements, and have issued our report thereon dated September 29, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Berks County Earned Income Tax Collection Bureau s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Bureau s internal control. Accordingly, we do not express an opinion on the effectiveness of Berks County Earned Income Tax Collection Bureau s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying schedule of findings and responses, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected, and corrected on a timely basis. We consider the deficiencies described in the accompanying schedule of findings and responses to be material weaknesses , , , and Succeed With Confidence 27