MIDDLE PENINSULA REGIONAL JAIL AUTHORITY SALUDA, VIRGINIA FINANCIAL REPORT YEAR ENDED JUNE 30, 2015

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1 SALUDA, VIRGINIA FINANCIAL REPORT YEAR ENDED JUNE 30, 2015

2 A regional jail organized and existing pursuant to provisions of Chapter 7.1 of Title 53 of the Code of Virginia (1950), as amended. BOARD MEMBERS County of Essex Sidney N. Johnson Stanley S. Clarke, Sheriff County of King and Queen Thomas Swartzwelder, Chairman J.R. Charboneau, Sheriff County of King William Otto O. Williams Jeffery S. Walton, Sheriff County of Mathews Jack White Larry M. Barrick, Sheriff County of Middlesex Elizabeth B. Hurd David P. Bushey, Sheriff ADMINISTRATOR Timothy P. Doss FINANCIAL DIRECTOR Andy Scales

3 Table of Contents Page Organization Chart I Independent Auditors Report Management s Discussion and Analysis Basic Financial Statements: Statement of Net Position... 8 Statement of Revenues, Expenses and Changes in Net Position... 9 Statement of Cash Flows Statement of Fiduciary Net Position Agency Funds Notes to Financial Statements Required Supplementary Information: Schedule of Components of and Changes in Net Pension Liability and Related Ratios Schedule of Employer Contributions - VRS Notes to Required Supplementary Information Other Supplementary Information: Combining Statement of Fiduciary Net Position Agency Funds Schedule of Changes in Assets and Liabilities Agency Funds Statistical Information: Table 1 Net Position by Component Last Ten Fiscal Years Table 2 Inmate Population Statistics Last Ten Fiscal Years Table 3 Full-Time Equivalent Employees By Function Last Five Fiscal Years Table 4 Miscellaneous Statistical Data Independent Auditors 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

4 Middle Peninsula Regional Security Center Organization Chart T. Doss Superintendent Major T. Proctor Assistant Superintendent Information Technology Lieutenant of Programs / Support Medical Supervisor Maintenance Captain Of Security Finance Director Sergeant Of Records / LIDS EIP/Work Release Food Service Supervisor Medical Staff (5) Maintenance Officer Lieutenant of Security (2) Administrative Assistant Records Officer EIP / Work Release Officer Volunteers Security Sergeants (4) Officer Classification Codes and Compliance Officer (2) Lobby Officer Security Corporals (4) Corporal Of Transportation PREA Officer GED Teacher Security Officers (28) Transportaion Officers (2) I

5 ROBINSON, FARMER, COX ASSOCIATES CERTIFIED PUBLIC ACCOUNTANTS A PROFESSIONAL LIMITED LIABILITY COMPANY To the Board of Directors Middle Peninsula Regional Jail Authority Saluda, Virginia Report on the Financial Statements INDEPENDENT AUDITORS REPORT We have audited the accompanying financial statements of the business-type activities and the aggregate remaining fund information of Middle Peninsula Regional Jail Authority, as of and for the year ended June 30, 2015, 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. Auditors Responsibility Our responsibility is to express our 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 standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Specifications for Audits of Authorities, Boards, and Commissions, issued by the Auditor of Public Accounts of the Commonwealth of Virginia. 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 auditors 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. 1

6 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the aggregate remaining fund information of Middle Peninsula Regional Jail Authority, as of June 30, 2015, 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. Change in Accounting Principle As described in Note 2 to the financial statements, in 2015, the Authority adopted new accounting guidance, GASB Statement Nos. 68 Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27 and 71, Pension Transition for Contributions Made Subsequent to the Measurement Date an amendment of GASB Statement No. 68. Our opinion is not modified with respect to this matter. Other Matters Comparative Information As described in Note 2 to the financial statements, GASB Statement Nos. 68 and 71 were implemented prospectively resulting in a restatement of beginning net position. In the year of implementation, comparative information for the net pension liability and related items was unavailable. Therefore, the 2014 amounts related to pensions have not been restated to reflect the requirements of GASB Statement Nos. 68 and 71. Our opinion is not modified with respect to this matter. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis on pages 4-7, and schedules related to pension funding on pages 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 Middle Peninsula Regional Jail Authority s basic financial statements. The other supplementary information and statistical information are presented for purposes of additional analysis and are not a required part of the basic financial statements. 2

7 The other supplementary 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. Such 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 other supplementary information is fairly stated in all material respects in relation to the basic financial statements as a whole. The statistical information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. Report on Summarized Comparative Information We have previously audited Middle Peninsula Regional Jail Authority s 2014 financial statements, and we expressed an unmodified audit opinion in our report dated November 5, In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 2014, is consistent, in all material respects, with the audited financial statements from which it has been derived. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 17, 2015, on our consideration of Middle Peninsula Regional Jail 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 Middle Peninsula Regional Jail Authority s internal control over financial reporting and compliance. Fredericksburg, Virginia December 17,

8 Management s Discussion and Analysis Year Ended June 30, 2015 This management s discussion and analysis of Middle Peninsula Regional Jail Authority s (MPRJA) financial performance provides an overview of financial activities for the fiscal year ended June 30, Please read this information in conjunction with the financial statements. OVERVIEW OF THE FINANCIAL STATEMENTS The MPRJA presents three basic financial statements, including a Statement of Net Position, Statement of Revenues, Expenses and Changes in Net Position, and Statement of Cash Flows. Financial position is measured in terms of resources (assets and deferred outflows of resources) we own and obligations (liabilities and deferred inflows of resources) we owe on a given date. This information is reported on the Statement of Net Position, which reflects MPRJA s assets in relation to its debts to its creditors, employees and bondholders. The excess of our assets and deferred outflows of resources over liabilities and deferred inflows of resources is our equity, or net position. Information regarding the results of operations during the year is reported on the Statement of Revenues, Expenses and Changes in Net Position. This statement shows how much our overall net position increased or decreased during the year as a result of our operations and other factors. Our Statement of Cash Flows discloses the flow of cash resources into and out of MPRJA during the year (from operations, financing and other sources) and how we applied those funds (payment of expenses, repayment of debt, etc.). MPRJA also presents Agency Fund statements. These are used to account for resources held for the benefit of other parties. Agency Fund statements are not reflected in the facility s basic financial statements because the resources of these funds are not available to support the facility s own programs. FINANCIAL SUMMARY A summary of MPRJA s Statement of Net Position for fiscal years 2015, 2014 and 2013 is presented below: Condensed Statement of Net Position Current assets $ 3,692,561 $ 3,601,005 $ 3,192,425 Noncurrent assets 9,220,212 8,957,636 7,423,470 Total assets $ 12,912,773 $ 12,558,641 $ 10,615,895 Deferred outflows of resources $ 449,945 $ 93,508 $ 128,255 Current liabilities $ 939,783 $ 954,574 $ 787,872 Noncurrent liabilities 3,369,802 3,672,536 2,370,000 Total liabilities $ 4,309,585 $ 4,627,110 $ 3,157,872 Deferred inflows of resources $ 521,607 $ - $ 128,255 Net Position: Net investment in capital assets $ 5,611,052 $ 4,833,803 $ 4,741,725 Unrestricted 2,920,474 3,191,236 2,844,553 Total net position $ 8,531,526 $ 8,025,039 $ 7,586,278 4

9 Management s Discussion and Analysis Year Ended June 30, 2015 (continued) FINANCIAL SUMMARY (continued) The financial position of Middle Peninsula Regional Jail Authority is strong. This is evidenced by our strong liquidity, with a Quick Ratio (Current Assets/Current Liabilities) of 3.93:1 (fiscal year 2015), 3.77:1 (fiscal year 2014), and 4.05:1 (fiscal year 2013). Fiscal year 2015 noncurrent assets increased by $262,576 and $1,534,166 for fiscal year 2014, while fiscal year 2013 noncurrent assets decreased by $350,456. This increase is due to capital asset acquisitions which exceeded depreciation expense on capital assets. The decrease is due to depreciation expense on capital assets which exceeded capital asset acquisitions. Significant capital asset acquisitions for fiscal year 2013 included an OMS upgrade. Significant capital asset acquisitions for fiscal year 2014 included the addition of Bathrooms to the Indoor Recreation area to allow additional housing, the start of a Security System upgrade, and the start and financing of an Energy Savings Project. Significant capital asset acquisitions for fiscal year 2015 included the completion of the Security System upgrade and the completion of the Energy Savings Project. Fiscal year 2015 current liabilities decreased by $14,791 due primarily to the decrease in compensated absences. CHANGE IN NET POSITION A summary of MPRJA s Statement of Revenues, Expenses and Changes in Net Position for fiscal years 2015, 2014 and 2013 is presented below: Condensed Statement of Revenues, Expenses and Changes in Net Position Operating revenues $ 5,200,485 $ 4,728,740 $ 4,500,491 Operating expenses 5,743,922 5,914,920 6,128,272 Net operating income (loss) $ (543,437) $ (1,186,180) $ (1,627,781) Net nonoperating revenues 1,537,948 1,624,941 1,489,465 Change in net position $ 994,511 $ 438,761 $ (138,316) Net position, beginning of year, as restated 7,537,015 7,586,278 7,724,594 Net position, end of year $ 8,531,526 $ 8,025,039 $ 7,586,278 Operating revenues are defined as charges for services to participant localities, outside localities and the Commonwealth based upon inmate days. Operating revenues also include other outside revenue sources. Operating expenses are comprised of the direct expenses of operating the MPRJA. These include salaries and benefits, contractual services and other inmate related jail operating costs. 5

10 Management s Discussion and Analysis Year Ended June 30, 2015 (continued) CHANGE IN NET POSITION (continued) Nonoperating revenues (expenses) consist of Commonwealth of Virginia State Compensation Board personnel cost reimbursements, as well as interest and investment earnings, and interest expense. Operating revenues increased by $471,745 in fiscal year 2015 and $228,249 in fiscal year 2014 relative to the prior year. Operating expenses decreased by $170,998 in fiscal year 2015 and $213,352 in fiscal year 2014 relative to the prior year. The decrease in fiscal year 2015 was primarily attributable to decreases in personnel, and fringe benefit expenses. Net nonoperating revenues decreased $86,993 in fiscal year 2015 and increased $135,476 in fiscal year 2014 from the prior year. The decrease in fiscal year 2015 was primarily attributable to a decrease in compensation board revenues. CASH FLOWS A summary of MPRJA s Statement of Cash Flows for fiscal years 2015, 2014 and 2013 is presented below: Condensed Statement of Cash Flows Cash flows from (to) operating activities $ (94,929) $ (1,096,040) $ (1,214,099) Cash flows from noncapital and related financing activities 1,670,977 1,748,939 1,602,429 Cash flows from (to) capital and related financing activities (2,617,489) 720,918 (512,149) Cash flows from investing activities 4,203 3,276 4,773 Net increase (decrease) in cash and cash equivalents $ (1,037,238) $ 1,377,093 $ (119,046) Cash and cash equivalents, beginning of year 4,223,529 2,846,436 2,965,482 Cash and cash equivalents, end of year $ 3,186,291 $ 4,223,529 $ 2,846,436 Cash flows from (to) operating activities are comprised of operating revenues combined with expenditures for personnel, benefits and payments to operating suppliers. Cash flows from noncapital transactions are comprised of funds received from the Compensation Board and nonoperating sources. Cash flows from (to) capital and related financing activities include the purchase and disposal of capital assets and principal and interest paid on capital debt. Cash flows from investing activities include interest and investment earnings. The change in cash and cash equivalents from the beginning to the end of the year was a net decrease of $1,037,238 in fiscal year 2015, increase of $1,377,093 in fiscal year 2014, and decrease of $119,046 in fiscal year

11 Management s Discussion and Analysis Year Ended June 30, 2015 (continued) LONG-TERM DEBT Long-term debt, which was issued on March 26, 2008 and refinanced in 2012, mature in various annual installments through July 1, 2019, and contain interest at 2.45%. The principal balance of these bonds is $1,920,000. A capital lease in the amount of $1,847,341 was issued in The principal balance on the lease is $1,752,536. Please refer to Note 7 of the notes to financial statements for more detail on the Authority s longterm debt. SUMMARY As demonstrated above, the financial position of the Middle Peninsula Regional Jail Authority is measured in terms of resources (assets and deferred outflows of resources) we own and obligations (liabilities and deferred inflows of resources) we owe on a given date. Our strong liquidity and conservative management of debt shows our financial position to be strong and secure. Contacting the Authority s Financial Management This financial report is designed to provide a general overview of the Authority s finances for all those with an interest in the government s finances. Questions concerning any of the information provided in the report or requests for additional information should be directed to the Authority s Finance Director at P. O. Box 403, Saluda, VA

12 - Basic Financial Statements -

13 Statement of Net Position As of June 30, 2015 (With Comparative Totals for 2014) ASSETS Current assets: Cash and cash equivalents $ 3,186,291 $ 2,942,524 Accounts receivable 385, ,449 Security deposits 5,306 - Prepaid items 115,844 78,032 Total current assets $ 3,692,561 $ 3,601,005 Noncurrent assets: Temporarily restricted assets: Cash and cash equivalents in custody of others $ - $ 1,281,005 Capital assets: Land 179, ,040 Construction in progress - 570,023 Other capital assets, net of accumulated depreciation 9,041,172 6,927,568 Capital assets, net $ 9,220,212 $ 7,676,631 Total noncurrent assets $ 9,220,212 $ 8,957,636 Total assets $ 12,912,773 $ 12,558,641 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding $ 63,376 $ 93,508 Pension contributions subsequent to the measurement date 386,569 - Total deferred outflows of resources $ 449,945 $ 93,508 LIABILITIES: Current liabilities: Accounts payable $ 99,817 $ 71,872 Compensated absences 214, ,667 Interest payable 5,895 6,095 Unearned revenue 56,385 59,135 Capital lease, current portion 103,400 94,805 Bonds payable, current portion 460, ,000 Total current liabilities $ 939,783 $ 954,574 Long-term liabilities: Capital lease, less current portion $ 1,649,136 $ 1,752,536 Net pension liability 260,666 - Bonds payable, less current portion 1,460,000 1,920,000 Total long-term liabilities $ 3,369,802 $ 3,672,536 Total liabilities $ 4,309,585 $ 4,627,110 DEFERRED INFLOWS OF RESOURCES Items related to the measurment of the net pension liability $ 521,607 $ - NET POSITION: Net Investment in capital assets $ 5,611,052 $ 4,833,803 Unrestricted 2,920,474 3,191,236 Total net position $ 8,531,526 $ 8,025,039 The accompanying notes to financial statements are an integral part of this statement. 8

14 Statement of Revenues, Expenses and Changes in Net Position Year Ended June 30, 2015 (With Comparative Totals for 2014) Operating revenues: Care of inmates: Local charges and other per diems $ 3,872,072 $ 3,593,269 Commonwealth of Virginia jail costs 691, ,444 Other operating revenues 636, ,027 Total operating revenues $ 5,200,485 $ 4,728,740 Operating expenses: Personnel $ 2,773,777 $ 2,827,491 Fringe benefits 1,009,587 1,216,388 Contractual 611, ,379 Other charges 926, ,832 Depreciation 421, ,830 Total operating expenses $ 5,743,922 $ 5,914,920 Net operating income (loss) $ (543,437) $ (1,186,180) Nonoperating revenues (expenses): Commonwealth of Virginia State Compensation Board $ 1,670,977 $ 1,748,939 Federal grant revenue 15,213 - Federal grant expenses (15,213) - Interest and investment income 4,203 3,276 Interest and fiscal charges (137,232) (109,687) Capital lease issuance costs - (17,587) Net nonoperating revenues (expenses) $ 1,537,948 $ 1,624,941 Change in net position $ 994,511 $ 438,761 Net position, beginning of year, as restated 7,537,015 7,586,278 Net position, end of year $ 8,531,526 $ 8,025,039 The accompanying notes to financial statements are an integral part of this statement. 9

15 Statement of Cash Flows Year Ended June 30, 2015 (With Comparative Totals for 2014) Cash flows provided from operating activities: Receipts from customers $ 5,393,064 $ 4,548,137 Payments to suppliers (1,553,928) (1,591,847) Payments to and for employees (3,934,065) (4,052,330) Net cash flows provided by (used for) operating activities $ (94,929) $ (1,096,040) Cash flows from noncapital and related financing activities: Government grants $ 1,670,977 $ 1,748,939 Cash flows provided from capital and related financing activities: Purchase of capital assets $ (1,965,384) $ (599,991) Payment of long-term debt (450,000) (440,000) Payment of capital lease (94,805) - Issuance of capital lease - 1,847,341 Bond issuance costs - (17,587) Interest expense (107,300) (68,845) Net cash provided by (used for) capital and related financing activities $ (2,617,489) $ 720,918 Cash flows provided from investing activities: Interest income $ 4,203 $ 3,276 Net increase (decrease) in cash and cash equivalents $ (1,037,238) $ 1,377,093 Cash and cash equivalents, beginning of year 4,223,529 2,846,436 Cash and cash equivalents, end of year $ 3,186,291 $ 4,223,529 Cash flows provided by (used for) operating activities: Operating income (loss) $ (543,437) $ (1,186,180) Adjustments to reconcile net operating income (loss) to net cash provided by (used for) operating activities: Depreciation 421, ,830 Changes in: Accounts receivable 195,329 (239,738) Security deposits (5,306) - Prepaid items (37,812) (72,754) Deferred outflows - pension contributions subsequent to the measurement date 79,707 - Accounts payable 27,945 5,118 Unearned revenue (2,750) 59,135 Net pension liability (693,634) - Deferred inflows - items related to measurement of the net pension liability 521,607 - Compensated absences (58,381) (8,451) Net cash provided by (used for) operating activities $ (94,929) $ (1,096,040) The accompanying notes to financial statements are an integral part of this statement. 10

16 Statement of Fiduciary Net Position Agency Funds As of June 30, 2015 (With Comparative Totals for 2014) Agency Funds ASSETS Cash and cash equivalents $ 131,758 $ 113,618 LIABILITIES Accounts payable $ 107 $ 3,742 Amounts held for inmate benefits 131, ,876 Total liabilitites $ 131,758 $ 113,618 The accompanying notes to financial statements are an integral part of this statement. 11

17 NOTE 1 FINANCIAL REPORTING ENTITY: MIDDLE PENINSULA REGIONAL JAIL AUTHORITY Notes to Financial Statements As of June 30, 2015 Middle Peninsula Regional Jail Authority was organized pursuant to provisions of Chapter 7.1. of Title 53 of the Code of Virginia (1950), as amended. The Authority serves as a regional jail for the Counties of Essex, King and Queen, King William, Mathews and Middlesex. The Authority s Board of Directors is comprised of 2 representatives from each County. The Board shall select a chairman from among its membership, or the board; at its option may select an administrator from one of the participating jurisdictions as chairman. Determination of the Reporting Entity: The Authority has determined that it is a related organization to the participating localities, in accordance with Governmental Accounting Standards Board (GASB) Statement No. 39. The Authority is a legally separate organization whose Board members are appointed by the governing bodies of the participating localities. Since none of the participating localities can impose its will on the Authority and since there is no potential financial benefit or burden in the relationship, the participating localities are not financially accountable for the Authority. Accordingly, the Authority is not considered a component unit of any of the participating localities. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Financial Statement Presentation: 1. Enterprise Fund Accounting: Middle Peninsula Regional Jail Authority is a governmental entity and is required to follow the accounting and reporting practices of the Governmental Accounting Standards Board. For financial reporting purposes, the Authority utilizes the enterprise fund method of accounting whereby revenues and expenses are recognized on the accrual basis. Substantially all revenues and expenses are subject to accrual. 2. Fiduciary Funds: Fiduciary funds account for assets held by the Authority in a trustee capacity or as an agent or custodian for individuals, private organizations, other governmental units, or other funds. These funds include Agency Funds, which consist of the Commissary Account and the Inmate Account. 3. Cash and Cash Equivalents: For the purpose of cash flow presentation, the Authority considers all cash in bank (including certificates of deposit) and on hand and short-term investments with an original maturity of less than three months to be cash equivalents. 4. Investments: Investments are reported at fair value. 12

18 Notes to Financial Statements As of June 30, 2015 (continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) 5. Receivables: All receivables at year-end were due from the Commonwealth of Virginia and other governmental entities. No allowance for uncollectible accounts has been established because historical collection data indicates that any uncollectible accounts would not be material. 6. Prepaid Items: Prepaid items are reported on the consumption method. 7. Capital Assets: Capital assets with costs of $2,500 or more are reported at cost which includes interest expense on construction debt less interest earned on unexpended bond proceeds. Depreciation is provided on a straight line basis over the following ranges of estimated useful lives: Buildings Land improvements Equipment Computer software 10 to 30 years 15 years 5 to 10 years 5 years Maintenance, repairs, and minor equipment are charged to operations when incurred. Expenses that materially change capacities or extend useful lives are capitalized. Upon sale or retirement of land, buildings, and equipment, the cost and related accumulated depreciation, if applicable, are eliminated from the respective accounts and any resulting gain or loss is included in the results of operations. 8. Revenue Recognition: Revenues from bed rentals and other charges are recorded when earned. Federal and state grants are recorded on the basis of allowable reimbursable grant expenditures. The Commonwealth of Virginia provides operating grants and funding for state inmates held on a per diem basis. 9. Operating Revenues and Expenses: Operating revenues and expenses result from the providing of services and include all transactions and other events that are not defined as capital and related financing, non-capital financing or investing activities. 10. Comparative Totals: Comparative totals are presented for informational purposes only. Certain reclassifications of the prior year amounts have been made to present such financial data with the current financial reporting presentation. 13

19 Notes to Financial Statements As of June 30, 2015 (continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) 11. Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 12. Pensions: For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Authority Retirement Plan and the additions to/deductions from the Authority Retirement Plan s net fiduciary position have been determined on the same basis as they were reported by the Virginia Retirement System (VRS). For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. 13. Deferred Outflows/Inflows of Resources: In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until then. The Authority has two items that qualify for reporting in this category. One item is the deferred charge on refunding reported in the government-wide statement of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. The Authority also reports contributions to the pension plan made during the current year and subsequent to the net pension asset or liability measurement date, which will be recognized as a reduction of the net pension asset or liability next fiscal year. For more detailed information on these items, reference the pension note. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Authority has one item that qualifies for reporting in this category. Certain items related to the measurement of the net pension liability are reported as deferred inflows of resources. These include differences between expected and actual experience, change in assumptions, and the net difference between projected and actual earnings on pension plan investments. For more detailed information on these items, reference the pension note. 14

20 Notes to Financial Statements As of June 30, 2015 (continued) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) 14. Net Position: Net position is the difference between a) assets and deferred outflows of resources and b) liabilities and deferred inflows of resources. Net investment in capital assets represents capital assets, less accumulated depreciation, less any outstanding debt related to the acquisition, construction or improvement of those assets. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt are also included in this component of net position. 15. Net Position Flow Assumption: Sometimes the Authority will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Authority s policy to consider restricted net position to have been depleted before unrestricted net position is applied. 16. Adoption of Accounting Principles: Governmental Accounting Standards Board Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27 and Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date an amendment of GASB Statement No. 68: The Authority implemented the financial reporting provisions of the above Statements for the fiscal year ended June 30, These Statements establish standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures related to pensions. Note disclosure and required supplementary information requirements about pensions are also addressed. The requirements of these Statements will improve financial reporting by improving accounting and financial reporting by state and local governments for pensions. The implementation of these Statements resulted in the following restatement of net position: Net position June 30, 2014, as previously reported $ 8,025,039 Implementation of GASB 68 (488,024) Net position June 30, 2014, as restated $ 7,537,015 15

21 Notes to Financial Statements As of June 30, 2015 (continued) NOTE 3 - DEPOSITS AND INVESTMENTS: The general operating accounts of Middle Peninsula Regional Jail Authority include a checking account and a demand money trust account. Deposits: Deposits with banks are covered by the Federal Deposit Insurance Corporation (FDIC) and collateralized in accordance with the Virginia Security for Public Deposits Act (the Act ) Section et. seq. of the Code of Virginia. Under the Act, banks and savings institutions holding public deposits in excess of the amount insured by the FDIC must pledge collateral to the Commonwealth of Virginia Treasury Board. Financial Institutions may choose between two collateralization methodologies and depending upon that choice, will pledge collateral that ranges in the amounts from 50% to 130% of excess deposits. Accordingly, all deposits are considered fully collateralized. Investments: Statutes authorize the Authority to invest in obligations of the United States or agencies thereof, obligations of the Commonwealth of Virginia or political subdivisions thereof, obligations of the International Bank for Reconstruction and Development (World Bank), the Asian Development Bank, the African Development Bank, prime quality commercial paper and certain corporate notes, banker s acceptances, repurchase agreements, and the State Treasurer s Local Government Investment Pool (LGIP). The Authority does not have an investment policy. Credit Risk of Debt Securities: The Authority s rated debt investments as of June 30, 2015 were rated by Standard and Poor s and the ratings are presented below using the Standard and Poor s rating scale. Rated Debt Investments Fair Quality Rated Debt Investments Value Ratings AAAm Virginia Local Government Investment Pool $ 2,723,874 Total $ 2,723,874 Concentration of Credit Risk: At June 30, 2015, the Authority had no investments with credit risk. 16

22 Notes to Financial Statements As of June 30, 2015 (continued) NOTE 3 - DEPOSITS AND INVESTMENTS: (CONTINUED) Interest Rate Risk: At June 30, 2015, the Authority had no investments with interest rate risk. External Investment Pool: The fair value of the positions in the external investment pool (Local Government Investment Pool) is the same as the value of the pool shares. As this pool is not SEC registered, regulatory oversight of the pool rests with the Virginia State Treasury. LGIP maintains a policy to operate in a manner consistent with SEC Rule 2a-7. Summary of Cash, Deposits and Investments: Cash in banks $ 462,417 $ 1,502,700 Investments 2,723,874 2,720,829 Total $ 3,186,291 $ 4,223,529 Cash and in banks: Restricted $ - $ 1,281,005 Unrestricted 462, ,695 Investments: Unrestricted 2,723,874 2,720,829 Total $ 3,186,291 $ 4,223,529 NOTE 4 ACCOUNTS RECEIVABLE: Accounts receivable at June 30, were as follows: Commonwealth of Virginia: Compensation Board $ 146,033 $ 148,263 Department of Corrections - State inmates 221, ,324 Federal Government 4,895 Other 12,714 67,862 Total $ 385,120 $ 580,449 17

23 Notes to Financial Statements As of June 30, 2015 (continued) NOTE 5 - CAPITAL ASSETS: The following is a summary of changes in capital assets during the fiscal year: June 30, 2014 June 30, 2015 Beginning Ending Balances Increases Decreases Balances Capital assets not being depreciated: Land $ 179,040 $ - $ - $ 179,040 Construction in progress 570, ,023 - Total capital assets not being depreciated $ 749,063 $ - $ 570,023 $ 179,040 Capital assets being depreciated: Building and improvements $ 11,632,698 $ 1,829,342 $ - $ 13,462,040 Land improvements 103,832 15, ,384 Equipment 900, , ,676 1,288,161 Computer software 45, ,063 Total capital assets being depreciated $ 12,681,917 $ 2,535,407 $ 302,676 $ 14,914,648 Accumulated depreciation: Building and improvements $ 4,817,970 $ 342,067 $ - $ 5,160,037 Land improvements 87,492 4,190-91,682 Equipment 830,861 66, , ,718 Computer software 18,026 9,013-27,039 Total accumulated depreciation $ 5,754,349 $ 421,803 $ 302,676 $ 5,873,476 Net capital assets being depreciated $ 6,927,568 $ 2,113,604 $ - $ 9,041,172 Net capital assets $ 7,676,631 $ 2,113,604 $ 570,023 $ 9,220,212 18

24 Notes to Financial Statements As of June 30, 2015 (continued) NOTE 6 PENSION PLAN: Plan Description All full-time, salaried permanent employees of the Authority are automatically covered by VRS Retirement Plan upon employment. This is an agent multiple-employer plan administered by the Virginia Retirement System (the System) along with plans for other employer groups in the Commonwealth of Virginia. Members earn one month of service credit for each month they are employed and for which they and their employer pay contributions to VRS. Members are eligible to purchase prior service, based on specific criteria as defined in the Code of Virginia, as amended. Eligible prior service that may be purchased includes prior public service, active military service, certain periods of leave, and previously refunded service. The System administers three different benefit structures for covered employees Plan 1, Plan 2, and, Hybrid. Each of these benefit structures has a different eligibility criteria. The specific information for each plan and the eligibility for covered groups within each plan are set out in the table below: RETIREMENT PLAN PROVISIONS PLAN 1 PLAN 2 HYBRID RETIREMENT PLAN About Plan 1 Plan 1 is a defined benefit plan. The retirement benefit is based on a member s age, creditable service and average final compensation at retirement using a formula. Employees are eligible for Plan 1 if their membership date is before July 1, 2010, and they were vested as of January 1, About Plan 2 Plan 2 is a defined benefit plan. The retirement benefit is based on a member s age, creditable service and average final compensation at retirement using a formula. Employees are eligible for Plan 2 if their membership date is on or after July 1, 2010, or their membership date is before July 1, 2010, and they were not vested as of January 1, About the Hybrid Retirement Plan The Hybrid Retirement Plan combines the features of a defined benefit plan and a defined contribution plan. Most members hired on or after January 1, 2014 are in this plan, as well as Plan 1 and Plan 2 members who were eligible and opted into the plan during a special election window. (see Eligible Members ) The defined benefit is based on a member s age, creditable service and average final compensation at retirement using a formula. The benefit from the defined contribution component of the plan depends on the member and employer contributions made to the plan and the investment performance of those contributions. 19

25 Notes to Financial Statements As of June 30, 2015 (continued) NOTE 6 PENSION PLAN: (CONTINUED) Plan Description (Continued) RETIREMENT PLAN PROVISIONS (CONTINUED) PLAN 1 PLAN 2 HYBRID RETIREMENT PLAN About Plan 1 (Cont.) About Plan 2 (Cont.) About the Hybrid Retirement Plan (Cont.) In addition to the monthly benefit payment payable from the defined benefit plan at retirement, a member may start receiving distributions from the balance in the defined contribution account, reflecting the contributions, investment gains or losses, and any required fees. Eligible Members Employees are in Plan 1 if their membership date is before July 1, 2010, and they were vested as of January 1, Hybrid Opt-In Election VRS non-hazardous duty covered Plan 1 members were allowed to make an irrevocable decision to opt into the Hybrid Retirement Plan during a special election window held January 1 through April 30, The Hybrid Retirement Plan s effective date for eligible Plan 1 members who opted in was July 1, If eligible deferred members returned to work during the election window, they were also eligible to opt into the Hybrid Retirement Plan. Eligible Members Employees are in Plan 2 if their membership date is on or after July 1, 2010, or their membership date is before July 1, 2010, and they were not vested as of January 1, Hybrid Opt-In Election Eligible Plan 2 members were allowed to make an irrevocable decision to opt into the Hybrid Retirement Plan during a special election window held January 1 through April 30, The Hybrid Retirement Plan s effective date for eligible Plan 2 members who opted in was July 1, If eligible deferred members returned to work during the election window, they were also eligible to opt into the Hybrid Retirement Plan. Eligible Members Employees are in the Hybrid Retirement Plan if their membership date is on or after January 1, This includes: Political subdivision employees* School division employees Members in Plan 1 or Plan 2 who elected to opt into the plan during the election window held January 1-April 30, 2014; the plan s effective date for opt-in members was July 1, *Non-Eligible Members Some employees are not eligible to participate in the Hybrid Retirement Plan. They include: Political subdivision employees who are covered by enhanced benefits for hazardous duty employees. 20

26 Notes to Financial Statements As of June 30, 2015 (continued) NOTE 6 PENSION PLAN: (CONTINUED) Plan Description (Continued) RETIREMENT PLAN PROVISIONS (CONTINUED) PLAN 1 PLAN 2 HYBRID RETIREMENT PLAN Hybrid Opt-In Election (Cont.) Members who were eligible for an optional retirement plan (ORP) and had prior service under Plan 1 were not eligible to elect the Hybrid Retirement Plan and remain as Plan 1 or ORP. Retirement Contributions Employees contribute 5% of their compensation each month to their member contribution account through a pre-tax salary reduction. Some political subdivisions and school divisions elected to phase in the required 5% member contribution but all employees will be paying the full 5% by July 1, Member contributions are tax-deferred until they are withdrawn as part of a retirement benefit or as a refund. The employer makes a separate actuarially determined contribution to VRS for all covered employees. VRS invests both member and employer contributions to provide funding for the future benefit payment. Hybrid Opt-In Election (Cont.) Members who were eligible for an optional retirement plan (ORP) and have prior service under Plan 2 were not eligible to elect the Hybrid Retirement Plan and remain as Plan 2 or ORP. Retirement Contributions Employees contribute 5% of their compensation each month to their member contribution account through a pre-tax salary reduction. Some political subdivisions and school divisions elected to phase in the required 5% member contribution but all employees will be paying the full 5% by July 1, *Non-Eligible Members (Cont.) Those employees eligible for an optional retirement plan (ORP) must elect the ORP plan or the Hybrid Retirement Plan. If these members have prior service under Plan 1 or Plan 2, they are not eligible to elect the Hybrid Retirement Plan and must select Plan 1 or Plan 2 (as applicable) or ORP. Retirement Contributions A member s retirement benefit is funded through mandatory and voluntary contributions made by the member and the employer to both the defined benefit and the defined contribution components of the plan. Mandatory contributions are based on a percentage of the employee s creditable compensation and are required from both the member and the employer. Additionally, members may choose to make voluntary contributions to the defined contribution component of the plan, and the employer is required to match those voluntary contributions according to specified percentages. 21

27 Notes to Financial Statements As of June 30, 2015 (continued) NOTE 6 PENSION PLAN: (CONTINUED) Plan Description (Continued) RETIREMENT PLAN PROVISIONS (CONTINUED) PLAN 1 PLAN 2 HYBRID RETIREMENT PLAN Creditable Service Creditable service includes active service. Members earn creditable service for each month they are employed in a covered position. It also may include credit for prior service the member has purchased or additional creditable service the member was granted. A member s total creditable service is one of the factors used to determine their eligibility for retirement and to calculate their retirement benefit. It also may count toward eligibility for the health insurance credit in retirement, if the employer offers the health insurance credit. Creditable Service Same as Plan 1. Creditable Service Defined Benefit Component: Under the defined benefit component of the plan, creditable service includes active service. Members earn creditable service for each month they are employed in a covered position. It also may include credit for prior service the member has purchased or additional creditable service the member was granted. A member s total creditable service is one of the factors used to determine their eligibility for retirement and to calculate their retirement benefit. It also may count toward eligibility for the health insurance credit in retirement, if the employer offers the health insurance credit. Defined Contributions Component: Under the defined contribution component, creditable service is used to determine vesting for the employer contribution portion of the plan. 22

28 Notes to Financial Statements As of June 30, 2015 (continued) NOTE 6 PENSION PLAN: (CONTINUED) Plan Description (Continued) RETIREMENT PLAN PROVISIONS (CONTINUED) PLAN 1 PLAN 2 HYBRID RETIREMENT PLAN Vesting Vesting is the minimum length of service a member needs to qualify for a future retirement benefit. Members become vested when they have at least five years (60 months) of creditable service. Vesting means members are eligible to qualify for retirement if they meet the age and service requirements for their plan. Members also must be vested to receive a full refund of their member contribution account balance if they leave employment and request a refund. Members are always 100% vested in the contributions that they make. Vesting Same as Plan 1. Vesting Defined Benefit Component: Defined benefit vesting is the minimum length of service a member needs to qualify for a future retirement benefit. Members are vested under the defined benefit component of the Hybrid Retirement Plan when they reach five years (60 months) of creditable service. Plan 1 or Plan 2 members with at least five years (60 months) of creditable service who opted into the Hybrid Retirement Plan remain vested in the defined benefit component. Defined Contributions Component: Defined contribution vesting refers to the minimum length of service a member needs to be eligible to withdraw the employer contributions from the defined contribution component of the plan. Members are always 100% vested in the contributions that they make. 23