FRANKLIN COUNTY SOLID WASTE MANAGEMENT DISTRICT. Report on Examination of Basic Financial Statements And Additional Information

Transcription

1 FRANKLIN COUNTY SOLID WASTE MANAGEMENT DISTRICT Report on Examination of Basic And Additional Information Year Ended June 30, 2017 Report on Internal Control Over Financial Reporting and On Compliance and Other Matters Year Ended June 30, 2017

2 FRANKLIN COUNTY SOLID WASTE MANAGEMENT DISTRICT TABLE OF CONTENTS JUNE 30, 2017 Page(s) INDEPENDENT AUDITORS' REPORT 1-2 MANAGEMENT S DISCUSSION AND ANALYSIS 3-6 BASIC FINANCIAL STATEMENTS: Statement of Net Position 7 Statement of Revenues, Expenses and Changes in Net Position 8 Statement of Cash Flows 9 Notes to Basic REQUIRED SUPPLEMENTARY INFORMATION: Schedule of the District s Proportionate Share of Net Pension Liability 21 Schedule of the District s Contributions to Pension Plan 21 Notes to Required Supplementary Information 22 OTHER SUPPLEMENTARY INFORMATION: Schedule of Revenues and Expenses Actual Versus Budget OTHER REPORTS: Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Performed in Accordance with Government Auditing Standards 25-26

3 Board of Representatives Franklin County Solid Waste Management District Greenfield, Massachusetts INDEPENDENT AUDITORS REPORT Report on the We have audited the accompanying financial statements of the activities of the Franklin County Solid Waste Management District (the District), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District s basic financial statements as listed in the table of contents. Management s Responsibility for the Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments the auditor considers internal control relevant to the 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 financial position of the District as of June 30, 2017, and the respective changes in financial position and, cash flows thereof, for the year then ended in accordance with accounting principles generally accepted in the United States of America. Franklin County Solid Waste Management District Page 1 of 26

4 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management s discussion and analysis, and the schedules of the District s proportionate share of net pension liability as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The Schedule of Revenues and Expenses Actual versus Budget is presented for purposes of additional analysis and is not a required part of the basic financial statements. The Schedule of Revenues and Expenses Actual versus Budget is the responsibility of management and was derived from and relate 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 Schedule of Revenues and Expenses Actual versus Budget financial statement is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required By Government Auditing Standards In accordance with Government Auditing Standards, we have also issued a report dated October 24, 2017, on our consideration of the District 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 consideration of the District s internal control over financial reporting and compliance. Roselli, Clark & Associates Certified Public Accountants Woburn, Massachusetts October 24, 2017 Franklin County Solid Waste Management District Page 2 of 26

5 MANAGEMENT S DISCUSSION AND ANALYSIS Our discussion and analysis of the Franklin County Solid Waste Management District s (the District) financial performance provides an overview of the District's financial activities for the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with their review of the basic financial statements, notes to the basic financial statements and required supplementary information. FINANCIAL HIGHLIGHTS The assets and deferred outflows of resources of the District exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $2,473 (total net position). The District s total net position decreased by $576. This was due to operating expenses of $1,557,528 exceeding operating service charge revenues of $1,543,584 and other revenues of $13,368. OVERVIEW OF THE FINANCIAL STATEMENTS This report consists of two parts: management s discussion and analysis and the basic financial statements. The financial statements also include notes that explain information in the financial statements in more detail. The District is a self-supporting entity that follows enterprise fund reporting. Accordingly, the financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Enterprise fund statements offer short-term and long-term financial information about the activities and operations of the District. These statements are presented in a manner similar to a private business. The statement of net position presents information on all of the District s assets and deferred outflows of resources and its liabilities and deferred inflows of resources, with the difference between them reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial condition of the District is improving or deteriorating. The statement of revenues, expenses and changes in net position presents information showing how the District s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected receivables and earned but unused vacation leave.) The statement of cash flows presents information on the District s cash receipts, cash payments and changes in cash resulting from operations, investments and financing activities. Notes to the The notes provide additional information that is essential to a full understanding of the data provided in the government-wide statements. Franklin County Solid Waste Management District Page 3 of 26

6 FINANCIAL ANALYSIS The comparative condensed statements of net position are as follows: June 30, June 30, Assets Current and other assets $ 372,126 $ 335,075 Capital assets, net 32,732 38,371 Total assets 404, ,446 Deferred Outlflows of Resources 42,989 37,067 Liabilities Current and other liabilities 226, ,481 Long-term liabilities 218, ,983 Total liabilities 444, ,464 Deferred Inflows of Resources Net Position Net investment in capital assets 32,732 38,371 Unrestricted (30,259) (35,322) Net Position $ 2,473 $ 3,049 As noted earlier, net position may serve over time as a useful indicator of the District s financial condition. In the case of the District, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $2,473 at the close of the most recent fiscal year. This was a decrease of $576 year over year because of expenses exceeding revenues; a significant component of which relates of approximately $19,000 of accrued pension liability costs being recognized in the current period above the budgeted and paid required pension assessment. The District s net position is classified as either unrestricted or net investment in capital assets. The vast majority of the District s net position is classified as net investment in capital assets. This includes the historical cost or donated value of land, buildings, infrastructure, vehicles, machinery and equipment less any related debt used to acquire those assets outstanding at year end. The District uses these assets to serve its customers and consequently these assets are not available for future spending. Unrestricted net position shows a negative $30,259 resulting from the recognition of approximately $219,000 of net pension liability with the implementation of GASB 68 for pension liability reporting. Franklin County Solid Waste Management District Page 4 of 26

7 The condensed statements of changes in net position are as follows: Year Ended June 30, Revenues Program revenues: Charges for services $ 1,543,584 $ 1,506,727 Intergovernmental grants 2,000 15,093 Investment income and other 11,368 10,247 Total revenues 1,556,952 1,532,067 Expenses Program expenses: Program direct expenses 1,292,530 1,256,051 Integrated waste management 8,324 9,448 Salaries and benefits 218, ,079 Administrative and other 32,107 34,143 Depreciation 5,639 5,639 Total expenses 1,557,528 1,507,360 Change in net position (576) 24,707 Net position - beginning of year 3,049 (21,658) Net position - end of year $ 2,473 $ 3,049 The District relies significantly on charges for service to fund operations which mainly consist of sludge and solid waste hauling. During 2017, this made up 99.1% of total revenues which is consistent with prior year of 98.4%. No other revenues were greater than 10% of total revenues in 2017 or Major expenditures were for sludge, solid waste and recycling hauling, which continues to be an area that the District devotes significant personnel and financial resources. Program direct expenses represent approximately 83.0% of total expenses, down slightly from prior year of 83.3%. Salaries and benefits represent approximately 14.1% of total expenses, up slightly from prior year of 13.4%. No other expense types were greater than 10% of total expenses in 2017 or CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The District s investment in capital assets for its business-type activities as of June 30, 2017, amounts to approximately $32,732 (net of accumulated depreciation). This investment in capital assets includes buildings and improvements, office equipment and vehicles and reflects a decrease of approximately $5,639 from annual depreciation recognition. There were no capital asset increases for the fiscal year. Additional information on the District capital assets can be found in Note II, Section C. of this report. As of June 30, 2017, the District did not have any outstanding debt. Franklin County Solid Waste Management District Page 5 of 26

8 ECONOMIC FACTORS AND NEXT YEAR ACTIVITY The District s budget is based on assessments to member towns for various services it provides. These assessments act as funding sources and are based on various calculations, using expenses as the driver. As a result, the budget is typically in balance each year without need for further funding sources unless there are capital additions that are necessary. In November 2016, the budget for fiscal 2018 was adopted by the Board of Representatives and was in balance. REQUEST FOR INFORMATION This financial report is designed to provide a general overview of the District s finances for all those with an interest in the District s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to Executive Director, Franklin County Solid Waste Management District, 50 Miles Street, Greenfield, MA Franklin County Solid Waste Management District Page 6 of 26

9 FRANKLIN COUNTY SOLID WASTE MANAGEMENT DISTRICT STATEMENT OF NET POSITION JUNE 30, 2017 Assets: Current assets: Cash and cash equivalents $ 153,995 Accounts receivable 214,548 Prepaid expense 3,067 Inventory 516 Total current assets 372,126 Noncurrent assets: Capital assets, net of accumulated depreciation 32,732 Total noncurrent assets 32,732 Total Assets 404,858 Deferred Outflows of Resources Pensions 42,989 Liabilities: Current liabilities: Accounts payable 226,344 Total current liabilities 226,344 Noncurrent liabilities: Net pension liability 218,278 Total noncurrent liabilities 218,278 Total Liabilities 444,622 Deferred Inflows of Resources Pensions 752 Net Position Net investment in capital assets 32,732 Unrestricted (30,259) Total Net Position $ 2,473 See accompanying notes to basic financial statements. Franklin County Solid Waste Management District Page 7 of 26

10 FRANKLIN COUNTY SOLID WASTE MANAGEMENT DISTRICT STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2017 Operating Revenues: Town assessments $ 165,140 Program revenues 1,370,623 Contract service revenue 9,596 Sharps boxes 2,071 Transfer station inspection 5,750 Other income 1,614 Total Operating Revenues 1,554,794 Operating Expenses: Program direct expenses 1,292,530 Salaries and benefits 218,928 Integrated waste management 8,324 Administrative 32,107 Depreciation 5,639 Total Operating Expenses 1,557,528 Operating Income (Loss) (2,734) Nonoperating Revenues: Intergovernmental grants 2,000 Investment income 158 Total Nonoperating Revenues 2,158 Change in Net Position (576) Total Net Position - Beginning of year 3,049 Total Net Position - End of year $ 2,473 See accompanying notes to basic financial statements. Franklin County Solid Waste Management District Page 8 of 26

11 FRANKLIN COUNTY SOLID WASTE MANAGEMENT DISTRICT STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2017 Cash Flows from Operating Activities: Receipts from users $ 1,543,592 Payments to vendors (1,163,787) Payments for wages and benefits (199,803) Payment to members (158,791) Net cash used for operating activities 21,211 Cash Flows from Capital and Related Financing Activities: Intergovernmental grants 2,000 Net cash provided by capital and related financing activities 2,000 Cash Flows from Investing Activities: Investment income 158 Net cash provided by investing activities 158 Net Change in Cash and Cash Equivalents 23,369 Cash and Cash Equivalents Beginning of year 130,626 End of year $ 153,995 Reconciliation of Operating Income to Net Cash Provided By Operating Activities: Operating income $ (2,734) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation expense 5,639 Changes in assets, deferred outflows, liabilities, and deferred inflows: Accounts receivable (11,202) Prepaid expense (2,824) Deferred outflows (5,922) Inventory 344 Accounts payable 19,659 Custodial escrow funds (6,796) Deferred inflows 752 Pension liability 24,295 Net cash provided by operating activities $ 21,211 See accompanying notes to basic financial statements. Franklin County Solid Waste Management District Page 9 of 26

12 FRANKLIN COUNTY SOLID WASTE MANAGEMENT DISTRICT NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 I. Summary of Significant Accounting Policies The basic financial statements of the District have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to state and local governments. GAAP is prescribed by the Governmental Accounting Standards Board (GASB), which is the primary standard-setting body for state and local governmental entities. The following is a summary of the more significant policies and practices used by the District: A. Reporting Entity The Franklin County Solid Waste Management District (the District) was established by an act of the Massachusetts legislature and by vote of the original twenty member towns on June 30, The District is organized under the provisions of Massachusetts General Law (MGL) Chapter 40, Sections 44A 44L. As of June 30, 2017, the District is comprised of twenty-two member towns; each member community annually appoints a representative to the District s Board of Representatives. Since inception membership has adjusted to reflect three towns having joined individually in fiscal years 1994, 2001, and 2011; and one town having withdrawn its membership in fiscal year B. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The accounting policies of the District conform to accounting principles generally accepted in the United States of America as applicable to governmental units. Following are the accounting and reporting policies of the District: Basis of Presentation The District s financial statements are reported using the economic resources measurement focus and the accrual basis of accounting as specified by the Governmental Accounting Standards Board s ( GASB ) requirements for an enterprise fund. The District s operations are accounted for as an enterprise fund, which is a proprietary fund type. Proprietary funds distinguish operating revenues and expenses from nonoperating revenues and expenses. Operating revenues and expenses results from the day-to-day operation of the District. Operating revenues and expenses result from the administering of solid waste management activities within the member towns. All other revenues and expenses are reported as nonoperating revenues and expenses. Revenue Recognition Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Major revenue sources include fixed, quarterly assessments to each member town and user charges for collection services most commonly based on a calculation of rate multiplied by weight. Taxes The District is exempt from all federal and state income taxes and local property taxes. Franklin County Solid Waste Management District Page 10 of 26

13 Use of Estimates The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the fiscal year. Actual results could vary from estimates that were used. C. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position Cash and Cash Equivalents Cash and cash equivalents include cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Investments are carried at fair value. Investments are recorded at fair value in accordance with GASB Statement No. 72, Fair Value Measurement and Application. Accordingly, the change in fair value of investments is recognized as an increase or decrease to investment assets and investment income. Accounts Receivable Accounts receivable are presented net of the allowance for uncollectible accounts. Management s periodic evaluation of the adequacy of the allowance is based on its past experience. Accounts receivable are written off when deemed uncollectible. Prepaid Expenses Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. Inventory Inventory is stated at the lower of cost or market, with cost being determined on the first-in, first-out method. Inventory comprised of compost bins held for sale by the District and are reported at purchase cost. Capital Assets Capital assets are recorded at historical cost or estimated historical cost if purchased or constructed. All purchases and construction costs in excess of $1,000 and with useful lives exceeding one year are capitalized at the date of acquisition or construction. The costs of normal repairs and maintenance that do not add to the value of the asset or materially extend assets lives are not capitalized. Capital assets (excluding land) are depreciated by the District on a straight-line-basis. Custodial Funds Custodial funds represent an agency relationship between the District and the member towns. Certain recyclable materials collections within each town are tracked from time of pickup until delivery to the District s contracted recyclable materials buyers who purchase the items. Payments specific to each member town for value of the scrap metal purchased is received by the District and subsequently paid out on a quarterly basis to the applicable member towns. These funds represent payments awaiting distribution to the towns. 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/expenditure) until then. 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. Franklin County Solid Waste Management District Page 11 of 26

14 The District reports deferred outflows and inflows of resources related to its net pension liability, which will be recognized in pension expense in future years as more fully described in Note III, subsection A. Net Position Within the financial statements, net position is reported as invested in capital assets includes capital assets, net of accumulated depreciation, less the principal balance of outstanding debt used to acquire capital assets. Unspent proceeds of capital related debt are not considered to be capital related debt. Net position is reported as restricted when amounts are not available for appropriation or are legally restricted by outside parties for a specific use. There were no amounts that qualified for restricted classification within net position. Net position that does not meet the definition of invested in capital assets or restricted is reported as unrestricted net position. When both restricted and unrestricted resources are available for use, the District s policy is to use restricted resources first, then unrestricted resources, as needed. D. Budgetary Data GAAP requires a budgetary comparison schedule to be presented for funds with a legally adopted budget. The District is not required to and does not have a legally adopted budget. The District does have an operating budget approved by the Board of Representatives; however, the budget serves primarily as a guideline for operations and is not legally restricting. At its discretion, the District presented a Schedule of Revenues and Expenses Actual Versus Budget as supplementary information within these financial statements, as listed within the table of contents. II. Detailed Notes to A. Deposits and Investments A cash and investment pool is maintained that is available for use with all activities of the District. The amount of which is displayed on the balance sheet as cash and cash equivalents. Custodial Credit Risk: Deposits In the case of deposits, this is the risk that in the event of a bank failure, the government's deposits may not be returned to it. The District does have a deposit policy for custodial credit risk relative to cash withholdings. At year-end, the carrying amount of the District s deposits was $153,995 and the bank balance was $155,499. The District carries deposits that are fully insured by the Federal Deposit Insurance Corporation, or FDIC, as well as the Savers Insurance Fund (SIF). Fair Value of Investments The District maintains no financial holdings that are considered to be investments at June 30, 2017; therefore, no fair value measurements within the fair value hierarchy established by GAAP is reportable. Interest Rate Risk Risk can be managed by limiting investment maturities as a way of limiting its exposure to fair value losses arising from rising interest rates. However, such risk is presently reduced by the fact that the District maintains its funds within highly liquid bank accounts; thereby, allowing for timely re-allocation of such holdings should the need arise. Concentration of Credit Risk The District maintains no financial holdings that are considered to be investments at June 30, 2017; therefore, no credit risk existed at that time. Franklin County Solid Waste Management District Page 12 of 26

15 Credit Risk Statutes and regulations require the District to invest funds only in pre-approved investment instruments, which include but are not necessarily limited to bank deposits, money markets, certificates of deposit, U.S. obligations, repurchase agreements, and state treasurer investment pools. In addition, the statutes impose various limitations on the amount and length of investments and deposits. Repurchase agreements cannot be for a period over ninety days and the underlying security must be a United States obligation. During the fiscal year, the District did not enter into any repurchase agreements. B. Receivables District receivables as of June 30, 2017, including any applicable allowances were as follows: Gross Allowance for Net Classification Amount Uncollectibles Amount Fee-for-service charges $ 208,859 $ - $ 208,859 Members' grant reimbursement 3,386-3,386 Blue bins and compost pails 1,897-1,897 Other Totals $ 214,548 $ - $ 214,548 User and Service Charges A vast majority of the District s revenues are derived from billings for user and service charges. This is the District s primary operating activity. Intergovernmental Receivables The District periodically receives operational and activity funding from state agencies in the form of grants. Some of these funds may be earned but not received at year-end and therefore would be recognized as receivables. C. Capital Assets Capital asset activity for the year ended June 30, 2017, was as follows: Beginning Ending Balance Increases Decreases Balance Capital assets being depreciated: Improvements and equipment $ 56,378 $ - $ - $ 56,378 Office equipment 1, ,374 Vehicles 4, ,895 Total capital assets being depreciated 62, ,647 Less accumulated depreciation for: Improvements and equipment (18,007) (5,639) - (23,646) Office equipment (1,374) - - (1,374) Vehicles (4,895) - - (4,895) Total accumulated depreciation (24,276) (5,639) - (29,915) Total capital assets being depreciated, net $ 38,371 $ (5,639) $ - $ 32,732 Franklin County Solid Waste Management District Page 13 of 26

16 D. Assessments The District charged each member a fixed assessment based upon its proportionate share of the overall base membership fee necessary to maintain operations. These amounts are annually determined using a 50% population and 50% property valuation formula. Those amounts by town for the year ended June 30, 2017 were: Administrative Member Assessment Bernardston $ 6,500 Buckland 6,014 Charlemont 3,848 Colrain 5,044 Conway 6,524 Deerfield 17,652 Erving 11,900 Gill 4,464 Hawley 1,216 Heath 2,348 Leverett 6,754 Leyden 2,328 Montague 24,488 New Salem 3,114 Northfield 10,640 Orange 19,688 Rowe 4,390 Shelburne 6,352 Sunderland 10,824 Warwick 2,380 Wendell 2,676 Whately 5,996 Totals $ 165,140 III. Other Information A. Retirement System Pension Plan Description The District contributes to the Franklin Regional Retirement System (the System), a cost-sharing multiple-employer defined benefit pension plan. There are 38 participating employers within the Plan. The System was established under Chapter 32 of Massachusetts General Laws. The System is administered by the District and is part of the reporting entity. Stand-alone financial statements for the year ended December 31, 2016 were issued and are available at the Retirement Office, 278 Main Street, Suite 311, Greenfield, Massachusetts Franklin County Solid Waste Management District Page 14 of 26

17 Current membership in the System for all employers as of December 31, 2016 was as follows: Retirees and beneficiaries currently receiving benefits 581 Inactive members 557 Active members 987 Total 2,125 Benefit Terms Membership in the Retirement System is mandatory for all full-time employees and non-seasonal, part-time employees who, in general, regularly work more than twenty hours per week. Members of the System do not participate in the federal Social Security retirement system. Massachusetts contributory retirement system benefits are uniform from retirement system to retirement system. The System provides for retirement allowance benefits up to a maximum of 80% of a participant s highest three-year or five-year average annual rate of regular compensation, depending on the participant s date of hire. Benefit payments are based upon a participant s age, length of creditable service, level of compensation and job classification. The most common benefits paid by the System include normal retirement, disability retirement and survivor benefits. Normal retirement generally occurs at age 65. However, participants may retire after twenty years of service or at any time after attaining age 55, if hired prior to April 2, 2012 or at any time after attaining age 60 if hired on or after April 2, Participants with hire dates subsequent to January 1, 1978 must have a minimum of ten years creditable service in order to retire at age 55. Participants become vested after ten years of service. Benefits commencing before age 65 are provided at a reduced rate. Members working in certain occupations may retire with full benefits earlier than age 65. Ordinary disability retirement is where a participant is permanently incapacitated from a cause unrelated to employment. Accidental disability retirement is where the disability is the result of an injury or illness received or aggravated in the performance of duty. The amount of benefits to be received in such cases is dependent upon several factors, including the age at which the disability retirement occurs, the years of service, average compensation and veteran status. Survivor benefits are extended to eligible beneficiaries of participants whose death occurs prior to or following retirement. Cost-of-living adjustments granted to members of Massachusetts retirement systems granted between 1981 and 1997 and any increases in other benefits imposed by the Commonwealth during those years have been the financial responsibility of the Commonwealth. Beginning in 1998, the funding of cost-of-living amounts became the responsibility of the participating units like the Retirement System. Contributions Requirements The Retirement System has elected provisions of Chapter 32, Section 22D (as amended) of Massachusetts General Laws, which require that a funding schedule be established to fully fund the pension plan by June 30, Under provisions of this law, participating employers are assessed their share of the total retirement cost based on the entry age, normal actuarial cost method. Franklin County Solid Waste Management District Page 15 of 26

18 The District contributed $24,412 to the System in fiscal year 2017, which equaled the actuariallydetermined contribution requirement for the fiscal year. The District s contributions as a percentage of covered payroll was approximately 17.47% in fiscal year Net Pension Liability At June 30, 2017, the District reported a liability of $218,278 for its proportionate share of the net pension liability. The net pension liability was measured as of January 1, 2016 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. These figures were updated by the independent actuary to December 31, There were no material changes made in this update to the actuarial assumptions (see below) nor were there any material changes to the System s benefit terms since the actuarial valuation. The District s proportion of the net pension liability is based on a projection of the District s long-term share of contributions to the System relative to the projected contributions of all employers. The District s proportion was approximately 0.42% at December 31, 2016, which was consistent with the 0.42% at December 31, Pension Expense The District recognized $43,537 in pension expense in the statement of activities in fiscal year Deferred Outflows of Resources and Deferred Inflows of Resources At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows Inflows of Resources of Resources Net difference between projected and actual earnings on pension plan investments $ 18,785 $ - Change in assumptions 18,584 - Changes in proportion and differences between District contributions and proportionate share of contributions 5, Difference between expected and actual experience Totals $ 42,989 $ 752 The deferred outflows of resources and deferred inflows of resources are expected to be recognized in the District s pension expense as follows: Pension System Year Amount 2017 $ 13, , , ,944 Total $ 42,237 Franklin County Solid Waste Management District Page 16 of 26

19 Actuarial Valuation The measurement of the Retirement System s total pension liability is developed by an independent actuary. The latest actuarial valuation was performed as of January 1, The significant actuarial assumptions used therein included: Actuarial cost method: Amortization method: Entry Age Normal Unfunded Actuarial Accrued Liability (UAAL): Increasing dollar amount at 4% to reduce the unfunded actuarial accrued liability to zero on or before June 30, Investment rate of return: 7.75% Early Retirement Incentive Programs (ERI): Level dollar amount over three years (2002 ERI) and four years (2003 ERI). Asset valuation method: The actuarial value of assets is the market value of assets as of the valuation date reduced by the sum of: a) 75% of gains and losses from the prior year, b) 50% of gains and losses from the second prior year, and c) 25% of gains and losses from the third prior year Investment gains and losses are determined by the excess or deficiency of the expected return over the actual return on the market value. The actuarial valuation of assets is further constrained to be not less than 90% or more than 110% of market value. Inflation Salary increases: 2.20% per year Groups 1 & 2: 6% %, based on service Group 4: 7% %, based on service Cost of living adjustments: 3% of first $17,000 of retirement income capped at $510. Mortality rates: Disabled life mortality: RP-2000 Mortality Table (base year 2009) with full generational mortality improvement using Scale BB. RP-2000 Mortality Table (base year 2012) with full generational mortality improvement using Scale BB. It is assumed that 55% of pre-retirement deaths are job-related for group 1and 2 members and 90% are job-related for group 4 members. The investment return assumption is a long-term assumption based on capital market expectations by asset class, historical returns and professional judgment. Analysis by PRIM s investment advisor using a building block approach and using the target asset allocation, expected returns by asset class and risk analysis to determine a long-term expected average annual rate of return. Franklin County Solid Waste Management District Page 17 of 26

20 The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Long-Term Target Expected Asset Real Rate Asset Class Allocation of Return PRIT Core 45.00% 5.30% Domestic Equity 27.00% 6.60% International Equity 5.00% 3.70% Real Estate 10.00% 7.00% Fixed Income 13.00% 5.40% Discount Rate The discount rate used to measure the total pension liability in the January 1, 2016 actuarial valuation report was 7.75%, which was a reduction from the previous discount rate of 7.825%. The projection of cash flows used to determine the discount rate assumed plan member contributions were made at the current contribution rate and that employer contributions will be made at rates equal to the actuarially-determined contribution rates and the member rate. Based on those assumptions, the Retirement System s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity Analysis The following presents the District s proportionate share of the net pension liability calculated using the discount rate of 7.75% as well as the District s proportionate share of the net pension liability using a discount rate that is one percentage point lower (6.75%) or one percentage point higher (8.75%) than the current rate: Current 1% Decrease Discount 1% Increase (6.75%) (7.75%) (8.75%) District's proportionate share of the net pension liability $ 304,105 $ 218,278 $ 145,670 B. Risk Financing The District is exposed to various risks of loss related to torts: theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the District carries commercial insurance. The amount of claim settlements has not exceeded insurance coverage in any of the previous three years. The District participates in a health insurance risk pool administered by the Hampshire County Group Insurance Trust (the Trust). The Trust offers a variety of premium based health insurance plans to its members with each participating governmental unit charged a premium for coverage based on rates established by the Trust. In the event the Trust is terminated, the District would be obligated to pay its proportionate share of a deficit, should one exist. Franklin County Solid Waste Management District Page 18 of 26

21 C. Commitments and Contingencies The District is party to certain legal claims, which are subject to many uncertainties, and the outcome of individual litigation matters is not always predictable with assurance. Although the amount of liability, if any, at June 30, 2017, cannot be ascertained, management believes that any resulting liability, if any, should not materially affect the basic financial statements of the District at June 30, Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal and state governments. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time, although the District expects such amounts, if any, to be immaterial. IV. Implementation of New GASB Pronouncements Current Year Implementations In June 2015, the GASB issued GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans. GASB 74 s objective was to improve the usefulness of information about postemployment benefits other than pensions included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. The provisions of this Statement became effective for the District in fiscal year The adoption of GASB No. 74 did have an effect on the District. In August 2015, the GASB issued GASB Statement No. 77, Tax Abatement Disclosures. GASB 77 requires the disclosure of the terms of certain tax abatement agreements entered into by a government with individuals or entities. The provisions of this Statement became effective for the District in fiscal year The adoption of GASB No. 77 did not have an effect on the District. In December 2015, the GASB issued GASB Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans. The provisions of GASB 78 were applicable to certain government pension plans that (i) are not administered as a trust by a state or local governmental pension plan, (ii) are shared between governmental and nongovernmental employees, and (iii) have not predominant state of local governmental employer. The provisions of this Statement became effective for the District in fiscal year The adoption of GASB No. 78 did not have a material effect on the District. In January 2016, the GASB issued GASB Statement No. 80, Blending Requirements for Certain Component Units. The provisions of GASB 80 apply to component units that are organized as notfor-profit corporations in which the primary government is the sole corporate member. Such component units should be included in the reporting entity financial statements using the blending method. The provisions of this Statement became effective for the District in fiscal year The adoption of GASB No. 80 did not have a material effect on the District. In March 2016, the GASB issued GASB Statement No. 82, Pension Issues an amendment of GASB Statements No. 67, No. 68, and No. 73. The objective of GASB 73 was to address issues raised with respect to previously issued statements related to pensions. The provisions of this Statement became effective for the District in fiscal year The adoption of GASB No. 82 did not have a material effect on the District. Franklin County Solid Waste Management District Page 19 of 26

22 Future Implementations In June 2015, the GASB issued GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pension Plans. GASB 75 establishes new accounting and financial reporting requirements for governments whose employees are provided with OPEB, as well as for certain non-employer governments that have a legal obligation to provide financial support for OPEB provided to the employees of other entities. The provisions of this Statement are effective for financial reporting periods beginning after June 15, 2017 (fiscal year 2018). The District is currently evaluating whether adoption will have a material impact on the financial statements; however, presently, the District offers no such benefits to retirees and as such does not anticipate any impact. In March 2016, the GASB issued GASB Statement No. 81, Irrevocable Split-Interest Agreements. The objective of the Statement is to improve accounting and financial reporting for irrevocable splitinterest agreements by providing recognition and measurement guidance for situations in which a government is a beneficiary of the agreement. The provisions of this Statement are effective for financial reporting periods beginning after December 15, 2016 (fiscal year 2018) and should be applied retroactively. The District is currently evaluating whether adoption will have a material impact on the financial statements. In November 2016, the GASB issued GASB Statement No. 83, Certain Asset Retirement Obligations. The objective of the Statement is to address accounting and financial reporting for certain asset retirement obligations that have legally enforceable liability associated with the retirement of a tangible capital asset. The provisions of this Statement are effective for financial reporting periods beginning after June 15, 2018 (fiscal year 2019). The District is currently evaluating whether adoption will have a material impact on the financial statements. In January 2017, the GASB issued GASB Statement No. 84, Fiduciary Activities. The objective of the Statement is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how these activities should be reported. The provisions of this Statement are effective for financial reporting periods beginning after December 15, 2018 (fiscal year 2020). The District is currently evaluating whether adoption will have a material impact on the financial statements. In May 2017, the GASB issued GASB Statement No. 86, Certain Debt Extinguishment Issues. The objective of the Statement is to improve consistency in accounting and financial reporting for insubstance defeasance of debt. The provisions of this Statement are effective for financial reporting periods beginning after June 15, 2017 (fiscal year 2018). The District is currently evaluating whether adoption will have a material impact on the financial statements. In June 2017, the GASB issued GASB Statement No. 87, Leases. This Statement redefines the manner in which long-term leases are accounted and reported. The provisions of this Statement are effective for financial reporting periods beginning after December 15, 2019 (fiscal year 2021). The District is currently evaluating whether adoption will have a material impact on the financial statements. * * * * * * Franklin County Solid Waste Management District Page 20 of 26

23 FRANKLIN COUNTY SOLID WASTE MANAGEMENT DISTRICT REQUIRED SUPPLEMENTARY INFORMATION - PENSIONS YEAR ENDED JUNE 30, 2017 SCHEDULE OF THE DISTRICT'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY Year Ended December 31, District's proportion of the net pension liability (asset) 0.42% 0.42% 0.39% District's proportionate share of the net pension liability (asset) $ 218,278 $ 193,983 $ 146,384 District's covered-employee payroll * $ 139,714 $ 133,605 $ 120,333 District's proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll 156.2% 145.2% 121.6% Plan fiduciary net position as a percentage of the total pension liability 70.8% 71.7% 76.0% SCHEDULE OF DISTRICT CONTRIBUTIONS Year Ended December 31, Actuarially determined contribution $ 24,412 $ 23,505 $ 22,253 Contributions in relation to the actuarially determined contribution 24,412 23,505 22,253 Contribution deficiency (excess) $ - $ - $ - District's covered-employee payroll * $ 139,714 $ 133,605 $ 120,333 Contributions as a percentage of covered-employee payroll 17.47% 17.59% 18.49% * Covered employee payroll as reported in the actuarial valuation report. This schedule is presented to illustrate the requirement to show information for ten years. However, until a full ten-year trend is compiled, information is presented for those years in which information is available. See accompanying independent auditor's report. Franklin County Solid Waste Management District Page 21 of 26

24 FRANKLIN COUNTY SOLID WASTE MANAGEMENT DISTRICT NOTES TO REQUIRED SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2017 Changes of Benefit Terms There were no changes to benefit terms for Changes of Assumptions There were no changes to assumptions for Franklin County Solid Waste Management District Page 22 of 26

25 FRANKLIN COUNTY SOLID WASTE MANAGEMENT DISTRICT SUPPLEMENTARY INFORMATION - REVENUE AND EXPENSES: ACTUAL VERSUS BUDGET COMPARISON YEAR ENDED JUNE 30, 2017 Final Variance Actual Budget Positive Account Amount Amount (Negative) Revenue Accounts Town Assessments $ 165,140 $ 165,141 $ (1) Program Revenue: HHW Collection 35,727 30,438 5,289 Recyclables Hauling 148, ,000 24,428 Sludge Hauling 700, , ,189 Solid Waste Hauling 459, ,000 (13,012) Super Site Revenue 3,609 4,500 (891) Clean Sweep 18,274-18,274 SF Composting 1,433 1,500 (67) Pellet Bag Program 2,975-2,975 Total Program Revenue 1,370,623 1,168, ,185 Contract Service Revenue: Greenfield Schools TA 9,596-9,596 Total Contract Service Revenue 9,596-9,596 Grants: Administrative Grants 2,000-2,000 Total Grants 2,000-2,000 Compost Bin Sales, net Sharps Boxes 2,071-2,071 Transfer Station Inspection 5,750 4,000 1,750 Interest: Money Market Account Bins Account 5-5 Total Interest Miscellaneous Total Revenues $ 1,556,952 $ 1,337,779 $ 219,173 Expense Accounts Program Direct Expenses: Equip Repairs & Maint $ 1,086 $ 750 $ (336) HHW Program 31,556 33,000 1,444 Super Sites 4,330 4,000 (330) Grant Expenses: DEP Expenses 2,024 - (2,024) Total Grant Expenses 2,024 - (2,024) Solid Waste Hauling: MSW 300,626 - (300,626) Bulky Waste 114,877 - (114,877) Scrap Metal 13,578 - (13,578) Solid Waste Hauling - Other - 437, ,000 Total Solid Waste Hauling 429, ,000 7,919 Franklin County Solid Waste Management District Page 23 of 26

26 FRANKLIN COUNTY SOLID WASTE MANAGEMENT DISTRICT SUPPLEMENTARY INFORMATION - REVENUE AND EXPENSES: ACTUAL VERSUS BUDGET COMPARISON YEAR ENDED JUNE 30, 2017 Final Variance Actual Budget Positive Account Amount Amount (Negative) Recycling Hauling 131, ,000 (19,480) Sludge Hauling 672, ,000 (172,966) SF Composting 1,353 1, Pellet Bag Program (754) Clean Sweep 17, (17,151) Total Program Direct Expenses 1,292,531 1,089,000 (203,531) Salaries & Benefits: Executive Director 63,786 63,786 - Administrative Assistant 23,642 23, Program Director 49,735 49,735 - Temporary Staff 4,851 7,000 2,149 Fringe Benefits: Retirement * 24,412 25, Medicare 1,918 2, Health Insurance 31,317 32, Unemployment Total Salaries and Fringe Benefits 199, ,729 3,926 Integrated Waste Management: Education Programs 2,078 2,000 (78) Special Collections/TA: Sharps Program 5,982 - (5,982) Special Collections/TA - Other 263 8,000 7,737 Total Special Collections/TA 6,245 8,000 1,755 Total Integrated Waste Management 8,323 10,000 1,677 Administrative Expenses: Telephone 1,514 1,200 (314) Computer/Office Equipment Supplies 715 1, Copying Postage 1,197 1, Subscriptions Conferences/Dues Travel 4,065 4, Rent 9,300 9,000 (300) Professional Services 9,322 11,000 1,678 Insurance 4,847 5, Miscellaneous (65) Total Administrative Expenses 32,107 35,050 2,943 Depreciation Expense 5,639 - (5,639) Total Expenses $ 1,538,403 $ 1,337,779 $ (200,624) EXCESS OF REVENUES OVER EXPENSES $ 18,549 $ - * Retirement expense is presented on the cash basis, pay-as-you go retirement system assessment amount. See accompanying independent auditor's report. Franklin County Solid Waste Management District Page 24 of 26

27 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 Board of Representatives Franklin County Solid Waste Management District Greenfield, Massachusetts We have audited, 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, the financial statement activities of the Franklin County Solid Waste Management District (the District), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District s basic financial statements and have issued our report thereon dated October 24, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the District 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 District s internal control. Accordingly, we do not express an opinion on the effectiveness of the District s internal control. 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. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Franklin County Solid Waste Management District Page 25 of 26