$6,720,000 FORREST COUNTY, MISSISSIPPI GENERAL OBLIGATION REFUNDING BONDS, SERIES 2016

Transcription

1 NEW ISSUE - BOOK ENTRY ONLY Rating: Moody's "Aa3" (See "RATING" herein) In the opinion of Butler Snow LLP, Ridgeland, Mississippi ("Bond Counsel"), assuming compliance by Forrest County, Mississippi with certain tax covenants, interest on the Bonds (as defined herein) is excludable from gross income for federal income tax purposes under existing statutes, regulations, rulings and court decisions. Interest on the Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, interest on the Bonds is taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax imposed on corporations. See "TAX EXEMPTION" herein for a description of certain other federal tax consequences of ownership of the Bonds. Bond Counsel is further of the opinion that under and pursuant to the Act (as hereinafter defined), the Bonds and interest thereon are exempt from all income taxes imposed by the State of Mississippi. Dated: Date of Delivery $6,720,000 FORREST COUNTY, MISSISSIPPI GENERAL OBLIGATION REFUNDING BONDS, SERIES 2016 Due: March 1, as shown on inside front cover Interest on the Bonds is payable from the date thereof, semiannually on March 1 and September 1 of each year (each an "Interest Payment Date"), commencing September 1, The Board of Supervisors of Forrest County has designated Trustmark National Bank, Jackson, Mississippi, as paying agent, transfer agent and registrar of the Bonds (in such capacity, the "Paying Agent"). The Bonds will be issued as fully registered bonds in denominations of $5,000 or any integral multiple thereof and registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), New York, New York, which will act as securities depository for the Bonds under a book-entry-only system, as described herein. So long as the Bonds are held in book-entry form, Beneficial Owners (as hereinafter defined) of Bonds will not receive physical delivery of bond certificates. The principal of, and interest on, the Bonds will be payable by the Paying Agent to DTC, which will in turn remit such principal and interest to its Direct Participants (as defined herein) and Indirect Participants (as defined herein), which will in turn remit such principal, and interest to the Beneficial Owners of the Bonds. If the date for payment is not a business day, then the payment shall be made on the next succeeding business day with the same force and effect as if made on the payment date. See "SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION Book-Entry- Only System" herein. The Bonds are not subject to redemption prior to their stated dates of maturity. The Bonds will be issued under and in conformity with the Constitution and Laws of the State of Mississippi and pursuant to the Bond Resolution adopted by the Board of Supervisors of Forrest County, Mississippi on January 19, The Bonds are secured by the full faith, credit and resources of the County and are payable from the proceeds of an unlimited, continuing, direct, annual ad valorem tax levied on taxable property within the County; provided, however, that such tax levy for any year shall be abated pro tanto to the extent the County on or prior to September 1 of that year has transferred money to the 2016 Bond Fund of the Bonds, or has made other provisions for funds, to be applied toward the payment of the principal of and interest on the Bonds due during the ensuing fiscal year of the County, in accordance with the provisions of the Bond Resolution. The Bonds have been designated by the County as "qualified tax exempt obligations" for purposes of Section 265(b)(3)(c) of the Internal Revenue Code of 1986, as amended. The Bonds are being offered for delivery when, as and if issued and received by the Underwriter, subject to the final approving opinion of Butler Snow LLP, Ridgeland, Mississippi, Bond Counsel. Certain legal matters will be passed upon for the County by Michael J. Shemper PLLC, Hattiesburg, Mississippi, as Special Counsel. It is expected that the Bonds will be available for delivery on or about March 16, The date of this Official Statement is February 17, Raymond James

2 MATURITY SCHEDULE Year of Maturity Principal Amount Interest Rate Yield CUSIP ** 2017 $65, % 0.600% QB , QC , QD ,240, QE ,265, QF ,300, QG ,335, QH ,375, QJ4 ** CUSIP numbers have been assigned by an organization not affiliated with the County and are included for the convenience of the owners of the Bonds. The County is not responsible for the selection or uses of these CUSIP numbers, nor is any representation made as to their correctness on the Bonds or as indicated above. A CUSIP number for a specific maturity may be changed after the issuance date. CUSIP is a registered trademark of the American Bankers Association.

3 THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFERING OF ANY SECURITY OTHER THAN THE ORIGINAL OFFERING OF THE BONDS IDENTIFIED ON THE COVER HEREOF. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THAT CONTAINED IN THIS OFFICIAL STATEMENT, AND IF GIVEN OR MADE SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, AND THERE SHALL NOT BE ANY SALE OF THE BONDS BY ANY PERSON, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. THE INFORMATION AND EXPRESSION OF OPINIONS HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE AND NEITHER THE DELIVERY OF THIS OFFICIAL STATEMENT NOR THE SALE OF ANY OF THE BONDS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THE UNDERWRITER SHOWN ON THE COVER OF THIS OFFICIAL STATEMENT HAS PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT. THE UNDERWRITER HAS REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS A PART OF, ITS RESPONSIBILITIES UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCES OF THIS TRANSACTION, BUT THE UNDERWRITER DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. INFORMATION HEREIN HAS BEEN OBTAINED FROM THE COUNTY AND OTHER SOURCES BELIEVED TO BE RELIABLE, BUT THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION IS NOT GUARANTEED BY THE UNDERWRITER. UPON ISSUANCE, THE BONDS WILL NOT BE REGISTERED BY THE COUNTY UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND WILL NOT BE LISTED ON ANY STOCK OR OTHER SECURITIES EXCHANGE. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL, STATE OR OTHER GOVERNMENTAL ENTITY OR AGENCY, OTHER THAN THE COUNTY (TO THE EXTENT DESCRIBED HEREIN), WILL HAVE PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT OR APPROVED THE BONDS FOR SALE. THIS OFFICIAL STATEMENT IS NOT TO BE CONSTRUED AS A CONTRACT OR AGREEMENT BETWEEN THE COUNTY AND THE UNDERWRITER OR HOLDERS OF THE BONDS. ALL ESTIMATES AND ASSUMPTIONS CONTAINED HEREIN ARE BELIEVED TO BE REASONABLE, BUT NO REPRESENTATION IS MADE THAT SUCH ESTIMATES OR ASSUMPTIONS ARE CORRECT OR WILL BE REALIZED. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

4 [THIS PAGE LEFT BLANK INTENTIONALLY]

5 FORREST COUNTY, MISSISSIPPI BOARD OF SUPERVISORS DAVID HOGAN CHARLES MARSHALL BURKETT ROSS RODERICK "ROD" WOULLARD CHRIS BOWEN JIMMY C. HAVARD CLERK, BOARD OF SUPERVISORS DAVID MILLER, ESQUIRE HATTIESBURG, MISSISSIPPI ATTORNEY, BOARD OF SUPERVISORS BUTLER SNOW LLP RIDGELAND, MISSISSIPPI BOND COUNSEL MICHAEL J. SHEMPER, PLLC UNDERWRITER'S COUNSEL RAYMOND JAMES & ASSOCIATES, INC. MEMPHIS, TENNESSEE UNDERWRITER

6 [THIS PAGE LEFT BLANK INTENTIONALLY]

7 TABLE OF CONTENTS Page INTRODUCTION... 1 THE BONDS... 1 Definitions... 1 Purpose and Authorization... 4 Security... 4 Form of the Bonds... 5 Redemption Provisions... 5 Bond Fund... 5 Sources and Uses of Funds... 5 SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION... 6 Ownership of the Bonds... 6 Registration, Transfer and Exchange of the Bonds... 6 Book-Entry Only System... 7 Bond Resolution a Contract... 9 PLAN OF REFUNDING VERIFICATION OF MATHEMATICAL COMPUTATIONS UNDERWRITING TAX EXEMPTION General Certain Federal Tax Information TAX TREATMENT OF ORIGINAL ISSUE PREMIUM CONTINUING DISCLOSURE RATING MISCELLANEOUS AND LEGAL INFORMATION No Default on Securities No Bond Proceeds for Current Operating Expenses Pension Plan Legal Proceedings Validation Approval of Legal Proceedings Bankruptcy Miscellaneous APPENDIX A - INFORMATION ON THE COUNTY APPENDIX B - AUDIT APPENDIX C - SCHEDULE OF REFUNDED BONDS APPENDIX D - FORM OF CONTINUING DISCLOSURE AGREEMENT APPENDIX E - FORM OF BOND COUNSEL OPINION i

8 [THIS PAGE LEFT BLANK INTENTIONALLY]

9 OFFICIAL STATEMENT $6,720,000 FORREST COUNTY, MISSISSIPPI GENERAL OBLIGATION REFUNDING BONDS, SERIES 2016 INTRODUCTION The purpose of this Official Statement is to set forth certain information in connection with the sale of the $6,720,000 General Obligation Refunding Bonds, Series 2016, to be dated the date of delivery thereof (the "Bonds"), of Forrest County, Mississippi (the "County"). The County is a political subdivision incorporated under the laws of the State of Mississippi. Reference is made to the Act as hereinafter defined, the Bond Resolution as hereinafter defined and any and all modifications and amendments thereof for a description of the authority of the County to issue the Bonds, the nature and extent of the security of, the principal of and interest on the Bonds and the terms and conditions under which the Bonds are issued. Definitions THE BONDS In addition to any words and terms elsewhere defined herein, the following words and terms shall have the following meanings, unless some other meaning is plainly intended: "Act" shall mean Sections et seq., Mississippi Code of 1972, as amended. "Bank" shall mean the Mississippi Development Bank, as issuer of the 2009 Bank Bonds. "Bond" or "Bonds" shall mean the $6,720,000 General Obligation Refunding Bonds, Series 2016, of the County authorized and directed to be issued under the Bond Resolution. "Bond Counsel" shall mean Butler Snow LLP, Ridgeland, Mississippi. "Bond Resolution" shall mean the Bond Resolution adopted by the Governing Body on January 19, 2016, as the same may be amended or supplemented from time to time. "Callable Bonds" shall mean together the Callable 2009 Bank Bonds and the Callable 2009 County Bond. "Callable 2009 Bank Bonds" shall mean the 2009 Bank Bonds maturing March 1 in the years 2020 through 2024, both inclusive. "Callable 2009 County Bond" shall mean $6,435,000 of the outstanding amount of the 2009 County Bond maturing March 1 in the years 2020 through 2024, which corresponds with the amount of the Callable 2009 Bank Bonds as contemplated in the 2009 Bond Resolution. "Clerk" shall mean the Chancery Clerk of the County.

10 "Code" shall mean the Internal Revenue Code of 1986, as amended, supplemented or superseded and the regulations promulgated thereunder. "County" shall mean Forrest County, Mississippi. "Escrow Agent" shall mean Trustmark National Bank, Jackson, Mississippi, in its capacity as escrow agent under the Escrow Agreement, and any successor or assign in such capacity. "Escrow Agreement" shall mean that Escrow Deposit Trust Agreement, dated the delivery of the Bonds, among the Bank, the County and the Escrow Agent, providing for the refunding of the Refunded Bonds. "Escrow Fund" shall mean the 2009 Escrow Deposit Trust Fund established pursuant to the Escrow Agreement to pay the principal of and interest on the Refunded Bonds. "Escrow Requirement" shall mean the sale proceeds deposited in the Escrow Fund to be invested and used to refund the Refunded Bonds as provided in the Escrow Agreement. "Governing Body" shall mean the Board of Supervisors of the County. "Paying Agent" shall mean any bank, trust company or other institution whether designated by the Bond Resolution or hereafter designated by the Governing Body to make payments of the principal of and interest on the Bonds, and to serve as registrar and transfer agent for the registration of owners of the Bonds, and for the performance of other duties as may be specified by the Bond Resolution or hereafter specified by the Governing Body. Trustmark National Bank has been designated by the Governing Body as the initial Paying Agent. "Person" shall mean an individual, partnership, corporation, trust or unincorporated organization and a government or agency or political subdivision thereof. "Refunded Bonds" shall mean, together, the Refunded Bank Bonds and the Refunded County Bond. "Refunded Bank Bonds" shall mean the 2009 Bank Bonds which mature March 1 in the years 2020 through 2024, both inclusive. "Refunded County Bond" shall mean $6,435,000 of the outstanding amount of the 2009 County Bond maturing March 1 in the years 2020 through 2024, which corresponds with the amount of the Refunded Bank Bonds as contemplated in the 2009 Bond Resolution. "Refunding Project" shall mean using a portion of the proceeds of the Bonds to provide funds for the advanced refunding of the Refunded Bonds, including funds for the redemption price of the Callable Bonds. "Record Date" shall mean, as to interest payments, the 15th day of the calendar month preceding the dates set for payment of interest on the Bonds and, as to payments of principal, the 15th day of the calendar month preceding the maturity date thereof. 2

11 "Record Date Registered Owner" shall mean the registered owner of a Bond as of the Record Date. "Registered Owner" shall mean the Person whose name shall appear in the registration records of the County maintained by the Paying Agent. "Securities Depository" means The Depository Trust Company and any substitute for or successor to such securities depository that shall maintain a Book-Entry System with respect to the Bonds. "Securities Depository Nominee" means the Securities Depository or the nominee of such Securities Depository in whose name there shall be registered on the registration records the Bonds to be delivered to such Securities Depository during the continuation with such Securities Depository of participation in its Book-Entry System. "Transfer Agent" shall mean any bank, trust company or other institution hereafter designated by the Governing Body for the registration of owners of the Bonds and for the performance of such other duties as may be herein or hereafter specified by the Governing Body and shall initially be Trustmark National Bank, Jackson, Mississippi. "2009 Bank Bonds" shall mean the Mississippi Development Bank Special Obligation Bonds, Series 2009 (Forrest County, Mississippi General Obligation Public Improvement Bond Project), dated March 26, 2009, and issued in the aggregate principal amount of $24,085,000. "2009 Bond Resolution" shall mean the bond resolution of the Governing Body of the County dated January 8, 2009, which 2009 Bond Resolution secures the 2009 County Bond. "2009 County Bond" shall mean the Forrest County, Mississippi General Obligation Public Improvement Bond, Series 2009, dated March 26, 2009, issued in the aggregate principal amount of $24,085,000. "2009 Bonds Paying Agent" shall mean Trustmark National Bank, Jackson, Mississippi. "2009 Indenture" shall mean the Trust Indenture dated March 26, 2009, by and between the Bank and the 2009 Trustee, which 2009 Indenture secures the 2009 Bank Bonds. "2009 Trustee" shall mean Trustmark National Bank, Jackson, Mississippi, in its capacity as Trustee under the 2009 Indenture. "2016 Bond Fund" shall mean the Forrest County, Mississippi General Obligation Refunding Bonds, Series 2016, 2016 Bond Fund of the County provided for in the Bond Resolution. "2016 Costs of Issuance Fund" shall mean Forrest County, Mississippi General Obligation Refunding Bonds, Series 2016, 2016 Costs of Issuance Fund provided for in the Bond Resolution. "Underwriter" shall mean Raymond James & Associates, Inc., Memphis, Tennessee. 3

12 Purpose and Authorization The Bonds are being issued to provide funds for the purposes of (1) advance refunding the Refunded Bonds, including funds for the redemption price of the Callable Bonds, thereby reducing the debt service requirements of the County and resulting in an overall net present value savings of not less than two percent (2%) of the Refunded Bonds; and (2) paying the costs of issuing the Bonds. A schedule of the principal maturities of the Refunded Bonds is contained in APPENDIX D. Security The Bonds will be issued pursuant to the provisions of the Act and the Bond Resolution. The Bonds will be general obligations of the County payable as to principal and interest out of and secured by an irrevocable pledge of the avails of a direct and continuing tax to be levied annually without limitation as to rate or amount upon the taxable property within the geographical limits of the County; provided however that such tax levy for any year shall be abated pro tanto to the extent the County on or prior to September 1 of that year has transferred money to the 2016 Bond Fund for the Bonds, or has made other provisions for funds, to be applied toward the payment of the principal of and interest on the Bonds due during the ensuring fiscal year of the County, in accordance with the provisions of the Bond Resolution. The County, when necessary, will levy annually a special tax upon all taxable property within the geographical limits of the County adequate and sufficient to provide for the payment of the principal of and the interest on the Bonds as the same falls due. The qualified electors of the State of Mississippi voted in a general election held on November 7, 1995, to amend the Mississippi Constitution of 1890 (the "Constitution") to add the following new Section 172A (the "Amendment"): SECTION 172A. Neither the Supreme Court nor any inferior court of this state shall have the power to instruct or order the state or any political subdivision thereof, or an official of the state or any political subdivision, to levy or increase taxes. The Amendment does not affect the underlying obligation to pay the principal of and interest on the Bonds as they mature and become due, nor does it affect the obligation to levy a tax sufficient to accomplish that purpose. However, even though it appears that the Amendment was not intended to affect Bondholders' remedies in the event of a payment default, it potentially prevents Bondholders from obtaining a writ of mandamus to compel the levying of taxes to pay the principal of and interest on the Bonds in a court of the State of Mississippi. It is not certain whether the Amendment would affect the right of a federal court to direct the levy of a tax to satisfy a contractual obligation. Other effective remedies are available to the Bondholders in the event of a payment default with respect to the Bonds. For example, Bondholders can seek a writ of mandamus to compel the County to use any legally available moneys to pay the debt service on the Bonds, and if such writ of mandamus is issued and public officials fail to comply with such writ, then such public officials may be held in contempt of court. In addition, pursuant to 4

13 the Mississippi Constitution 175, all public officials who are guilty of willful neglect of duty may be removed from office. Certain information relating to the County is set forth in "APPENDIX A - INFORMATION ON THE COUNTY" and certain financial information on the County is included in "APPENDIX B - AUDIT." Form of the Bonds The Bonds shall be dated the date of delivery, shall be delivered in the denomination of Five Thousand Dollars ($5,000) each, or integral multiples thereof up to the amount of a single maturity, shall be numbered from one upward in the order of issuance, shall be issued in fully registered form, and shall bear interest from the date thereof at the rate or rates specified herein on March 1 and September 1 of each year (each an "Interest Payment Date"), commencing September 1, Redemption Provisions Bond Fund The Bonds are not subject to redemption prior to their stated date of maturity. In the Bond Resolution the County establishes the 2016 Bond Fund for the Bonds, said fund to be maintained at a qualified depository of the County. Money deposited in the 2016 Bond Fund shall be used solely for the purpose of paying the interest on and principal of the Bonds when and as due and the payment of the Agent's fees in connection therewith. Sources and Uses of Funds The following is a summary of the estimated sources and uses of proceeds of the Bonds and certain other funds: Sources Uses Par Amount $6,720, Original Issue Premium 541, Total Sources $7,261, Escrow Fund Deposit for Refunded Bonds $7,076, Underwriter's Discount 84, Deposit to 2016 Costs of Issuance Fund 101, Total Uses $7,261,

14 SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION The following is a summary of certain provisions of the Bond Resolution. This summary does not purport to be complete and is qualified in its entirety by reference to the complete document which is available from the Office of the Chancery Clerk, Forrest County Courthouse, 641 Main Street, Hattiesburg, Mississippi Telephone Number: (601) Ownership of the Bonds In the event the Underwriter shall fail to designate the names, addresses and social security or tax identification numbers of the Registered Owners of the Bonds within 30 days of the date of sale, or at such other later date as may be designated by the County, one Bond registered in the name of the Underwriter may be issued in the full amount for each maturity. Ownership of the Bonds shall be in the Underwriter until the initial Registered Owner has made timely payment and, upon request of the Underwriter within a reasonable time of the initial delivery of the Bonds, the Paying Agent shall re-register any such Bond upon its records in the name of the Registered Owner to be designated by the Underwriter in the event timely payment has not been made by the initial Registered Owner. Except as provided in the Bond Resolution, the Person in whose name any Bond shall be registered in the records of the County maintained by the Paying Agent may be deemed the absolute owner thereof for all purposes, and payment of or on account of the principal of or interest on any Bond shall be made only to or upon the order of the Registered Owner thereof, or his legal representative, but such registration may be changed as provided in the Bond Resolution. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond to the extent of the sum or sums so paid. Registration, Transfer and Exchange of the Bonds The Bond Resolution provides for the registration, transfer and exchange of the Bonds upon presentation and surrender at the principal corporate trust office of the Paying Agent. Every Bond presented or surrendered for transfer or exchange shall be duly endorsed, or be accompanied by other evidence of transfer acceptable to the Paying Agent. No service charge shall be made to the registered owner for any registration, transfer, or exchange for a different denomination of Bonds, but the County or the Paying Agent may require payment of a sum sufficient to cover any tax or other governmental charge that is authorized to be imposed in connection with the registration, transfer or exchange of a Bond. The County shall not be obligated to issue, exchange or transfer any Bond during the fifteen (15) day period next preceding any Interest Payment Date. For so long as a book-entry only system is used for determining beneficial ownership of the Bonds, such interest shall be payable to DTC or its nominee. Disbursement of such payments to the DTC Participants is the responsibility of DTC and disbursement of such payments to the beneficial owners of the Bonds is the responsibility of the DTC Participants or the Indirect Participants (see "Book-Entry Only System", herein). 6

15 Book-Entry Only System The County has determined that it will be beneficial to have the Bonds held by a central depository system and to have transfers of the Bonds affected by book-entry on the records of DTC as such central depository system. Unless and until the book-entry-only system has been discontinued, the Bonds will be available only in book-entry form in principal amounts of $5,000 or any integral multiple thereof. DTC will initially act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's nominee). One fully-registered Bond will be issued for each maturity of the Bonds, and will be deposited with DTC. DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York banking law, a "banking organization" within the meaning of the New York banking law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions, in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a whollyowned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for such Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond (a "Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct or Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. 7

16 To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds. DTC's records reflect only the identity of the Direct Participants to whose accounts the Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices are to be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Paying Agent as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds and principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detailed information from the County or the Paying Agent, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC nor its nominee, the Paying Agent or the County, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds and principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the County or the Paying Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 8

17 DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the County or the Paying Agent. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The County may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bonds in definitive form will be printed and delivered. THE COUNTY CANNOT AND DOES NOT GIVE ANY ASSURANCE THAT THE DIRECT PARTICIPANTS OR THE INDIRECT PARTICIPANTS WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE BONDS (a) PAYMENTS OF PRINCIPAL OR INTEREST ON THE BONDS; (b) CERTIFICATES REPRESENTING AN OWNERSHIP INTEREST OR OTHER CONFIRMATION OF BENEFICIAL OWNERSHIP INTERESTS IN THE BONDS; OR (c) REDEMPTION OR OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS NOMINEE, AS THE REGISTERED OWNER OF THE BONDS, OR THAT THEY WILL DO SO ON A TIMELY BASIS, OR THAT DTC OR DIRECT OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CURRENT "RULES" APPLICABLE TO DTC ARE ON FILE WITH THE SEC AND THE CURRENT "PROCEDURES" OF DTC TO BE FOLLOWED IN DEALING WITH DTC PARTICIPANTS ARE ON FILE WITH DTC. THE COUNTY AND THE UNDERWRITER (AS DEFINED HEREIN) WILL NOT HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO SUCH DTC PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO (a) THE BONDS; (b) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT; (c) THE PAYMENT BY ANY DTC PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OF AND INTEREST ON THE BONDS; (d) THE DELIVERY BY ANY DTC PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE RESOLUTIONS TO BE GIVEN TO HOLDERS OF THE BONDS; OR (e) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS HOLDER OF THE BONDS. Bond Resolution a Contract In consideration of the purchase and acceptance of any and all of the Bonds by the Registered Owners thereof, the Bond Resolution shall constitute a contract between the County and the Registered Owners from time to time of the Bonds. The pledge made in the Bond Resolution and the covenants and agreements set forth in the Bond Resolution to be performed on behalf of the County for the benefit of the Registered Owners shall be for the equal benefit, protection and security of the Registered Owners of any and all of the Bonds, all of which, regardless of the time or times of their authentication and delivery or maturity, shall be of equal rank without preference, priority or distinction. 9

18 PLAN OF REFUNDING The Bonds are being issued to finance the Escrow Requirement and to pay the costs of issuance of the Bonds. The Escrow Requirement will be sufficient to advance refund the Refunded Bonds. Upon delivery of the Bonds, the Bank and the County will enter into the Escrow Agreement to provide for the advanced refunding of the Refunded Bonds. The refunding of the Refunded Bonds will result in an overall net present value savings to maturity to the County of at least two percent (2%) of the Refunded Bonds being refunded, as required by the Act. In the Escrow Agreement, the Bank and the County create the Escrow Fund which is to be held by the Escrow Agent and is to be applied solely for the payment of the principal of and interest on the Refunded Bonds. Upon receipt of the proceeds of the Bonds, the Bank and the County will cause the Escrow Requirement to be deposited with the Escrow Agent for further deposit to the Escrow Fund. Except for an initial cash deposit, the Escrow Agent shall invest such proceeds in United States Government Securities and/or United States Treasury Securities - State and Local Government Series (the "Escrow Securities"), maturing in amounts and bearing interest at rates sufficient (a) to pay, when due, the principal and interest accruing and due on the Refunded Bonds from the date of closing for the Bonds through and including March 1, 2019, and (b) to pay the principal of the Callable Bonds being redeemed on March 1, 2019, representing the redemption price of par on such date (see "VERIFICATION OF MATHEMATICAL COMPUTATIONS" herein). The Escrow Fund, including the investment income thereon, is irrevocably pledged solely for the benefit of the holders of the Refunded Bonds. The Escrow Agent will hold and administer the Escrow Fund and will apply the maturing principal of and interest on the Escrow Securities to payments of principal of and interest on the Refunded Bonds as and when such amounts become due. The owners of the Refunded Bonds will be entitled to a preferred claim and first lien upon the applicable Escrow Securities, the proceeds thereof and all other assets of the Escrow Fund. The amounts received by the Escrow Agent will not be considered as a banking deposit by the Bank or by the County. The amounts received by the Escrow Agent under the Escrow Agreement will not be subject to warrants, drafts or checks drawn by the Bank or the County, or except to the extent expressly provided in the Escrow Agreement, be a place of payment for the Refunded Bonds. The 2009 Bank Bonds were issued to provide funds for the purchase by the Bank of the 2009 County Bond. The County utilized the proceeds from the sale of the 2009 County Bond for the purpose of providing funds for purchasing or erecting, equipping, repairing, reconstructing, remodeling, and enlarging County buildings, courthouses, office buildings, jails, and related facilities, and the purchase of land therefor; and for other authorized purposes under the Act and Sections et seq. VERIFICATION OF MATHEMATICAL COMPUTATIONS The arithmetical accuracy of certain computations included in the schedules provided by the Underwriter, on behalf of County relating to (a) computation of forecasted receipts of principal and interest on the Escrow Securities and the forecasted payments of principal and 10

19 interest to redeem the Refunded Bonds, and (b) computation of the yields on the Bonds and the Escrow Securities was examined by The Arbitrage Group, Inc., certified public accountants (the "Verification Agent"). Such computations were based solely on assumptions and information supplied by Underwriter, on behalf of the Bank and the County. The Verification Agent has restricted its procedures to examining the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information upon which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. UNDERWRITING The Bonds are being purchased for reoffering by the Underwriter shown on the cover hereof at a purchase price of $7,177, ($6,720, par amount of Bonds, less $84, for an Underwriter's discount, and plus $541, original issue premium). The bond purchase agreement pursuant to which the Underwriter has agreed to purchase the Bonds provides that the Underwriter will purchase all the Bonds if any are purchased. The obligation of the Underwriter to accept delivery of the Bonds is subject to various conditions stated in such bond purchase agreement. The Underwriter may offer and sell the Bonds to other dealers and other purchasers at prices lower than the public offering prices stated on the cover page hereof. The initial public offering prices may be changed from time to time by the Underwriter. General TAX EXEMPTION The Internal Revenue Code of 1986, as amended (the "Code"), establishes certain requirements which must be met subsequent to delivery of the Bonds in order that the interest on the Bonds not be included in gross income of the registered owners for federal income tax purposes under Section 103 of the Code. The certificate as to non-arbitrage and other tax matters of the County, which will be delivered concurrently with the delivery of the Bonds, will contain provisions and procedures relating to compliance with such requirements of the Code. The County agrees, covenants and represents in the Bond Resolution that it will not make any use of the gross proceeds of the Bonds or amount that may be treated as proceeds of the Bonds or do or take or omit to take any other action that would cause: (i) the Bonds to be "arbitrage bonds" as such term is defined in Section 148(a) of the Code and the Regulations promulgated thereunder; (ii) the interest on the Bonds to be included in the gross income of the registered owners for federal income taxation purposes; or (iii) the interest on the Bonds to be treated as an item of tax preference under Section 57(a)(5) of the Code. Except as expressly stated in the following two paragraphs of this section, Bond Counsel will express no opinion as to any federal or state consequences of the ownership of, receipt of interest on, or disposition of the Bonds. In the opinion of Butler Snow LLP, Ridgeland, Mississippi, Bond Counsel, under existing law, interest on the Bonds is not included in gross income of the owners thereof for federal income tax purposes pursuant to Section 103 of the Code and interest on the Bonds is not 11

20 treated as a preference item in calculating the alternative minimum tax that may be imposed on individuals and corporations. Such interest, however, is includable in the "adjusted current earnings" of certain corporations for purposes of computing the alternative minimum tax (see "Certain Federal Tax Information Alternative Minimum Tax"). In rendering the foregoing opinion, Bond Counsel has assumed the compliance by the County with the tax covenants and representations in the Bond Resolution and the representations in the certificate as to nonarbitrage and other tax matters. These requirements relate to, inter alia, the use and investment of the gross proceeds of the Bonds, the Refunding Project, the use of any facility, equipment or improvement financed or refinanced directly or indirectly with the proceeds of the Refunded Bonds and rebate to the United States Treasury of specified arbitrage earnings, if any. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds have resulted in a failure of the County to comply with its covenants. Failure of the County to comply with such covenants could result in the interest on the Bonds becoming subject to federal income tax from the date of issue. For federal tax information, see "Certain Federal Tax Information" herein. Under existing law, Bond Counsel is of the opinion that, interest on the Bonds is exempt from all present taxes imposed by the State of Mississippi and any county, municipality or other political subdivision of the State of Mississippi. Certain Federal Tax Information General. The following discussion of certain federal income tax matters is a summary of possible collateral tax consequences. It does not purport to deal with all aspects of federal taxation that may be relevant to particular registered owners. Further, the following discussion should not be construed as expressing an opinion of Bond Counsel as to any such matters, not specifically addressed in their opinion. Prospective purchasers of the Bonds should be aware that ownership of the Bonds may result in collateral federal income tax consequences in certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S corporations with "excess net passive income," foreign corporations subject to the branch profits tax, life insurance companies and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry or have paid or incurred certain expenses allocable to the Bonds. Bond Counsel does not express any opinion regarding such collateral tax consequences. Prospective purchasers of the Bonds should consult their tax advisors regarding collateral federal income tax consequences. Alternative Minimum Tax. The Code imposes an alternative minimum tax with respect to individuals and corporations on alternative minimum taxable income. A twenty percent (20%) alternative corporate minimum tax is imposed on corporations (other than S corporations, regulated investment companies, real estate investment trusts or real estate mortgage investment conduits, as such terms are defined in the Code). Interest on the Bonds is not treated as a preference item in calculating alternative minimum taxable income. The Code provides, however, that the corporation's alternative minimum taxable income is increased by 75 percent of the excess (if any) of (i) the "adjusted current earnings" of a corporation over (ii) its alternative 12

21 minimum taxable income (determined without regard to this adjustment and the alternative tax net operating loss deduction). Interest on tax-exempt obligations, including the interest on the Bonds, would generally be included in computing a corporation's "adjusted current earnings." Accordingly, a portion of any interest on the Bonds received or accrued by a corporate registered owner will be included in computing such corporation's alternative minimum taxable income for such year. Financial Institutions. Section 265(b)(1) of the Code provides that commercial banks, thrift institutions and other financial institutions may not deduct the portion of their otherwise allowable interest expense allocable to tax exempt obligations acquired after August 7, 1986 (other than "qualified tax-exempt obligations" as defined in Section 265(b)(3) of the Code). The County has designated the Bonds as "qualified tax-exempt obligations" pursuant to Section 265(b)(3)(B) of the Code. Changes in Federal and State Tax Laws. From time to time, there are legislative proposals introduced and regulatory actions proposed or announced at the federal or state level that, if enacted, could alter or amend directly or indirectly relevant federal and state tax matters, including, without limitation, those mentioned hereinabove or could adversely affect the market value of the Bonds. It cannot be predicted whether or when or in what form any such legislative or regulatory proposal might be enacted or implemented or whether if enacted or implemented it would apply to tax exempt obligations issued prior to enactment or implementation. In addition, from time to time litigation is threatened or commenced which, if concluded in a particular manner, could adversely affect relevant tax matters or the market value of the Bonds. It cannot be predicted how any particular litigation or judicial action will be resolved or whether the Bonds or the market value thereof would be impacted thereby. Purchasers of the Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Bonds and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending or proposed legislation, regulatory initiatives or litigation. TAX TREATMENT OF ORIGINAL ISSUE PREMIUM The Bonds maturing on March 1 in the years 2017 through 2024 (the "Premium Bonds") have an issue price that is greater than the amount payable at maturity of such Premium Bonds. A purchaser of a Premium Bond must amortize any premium over such Premium Bond's term using constant yield principles, based on the Premium Bond's yield to maturity. As premium is amortized, the purchaser's basis in such Premium Bond and the amount of tax-exempt interest received will be reduced by the amount of amortizable premium properly allocable to such purchaser. This will result in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes on sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser's basis is reduced, no federal income tax deduction is allowed. Purchasers of any Premium Bond, whether at the time of initial issuance or subsequent thereto, should consult their tax advisors with respect to the determination and treatment of premium for federal income tax purposes, and with respect to state and local tax consequences of owning such Premium Bonds. 13

22 CONTINUING DISCLOSURE The County has covenanted for the benefit of the owners of the Bonds to provide certain financial information and operating data relating to the County within twelve months after the end of each fiscal year of the County ending in or after September 30, 2016 (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, in certain cases if deemed material under federal laws. The Annual Report and notices of material events will be filed by the County with (a) the Municipal Securities Rulemaking Board (the "MSRB") through MSRB's Electronic Municipal Market Assess system at ("EMMA") in the electronic format then prescribed by the Securities and Exchange Commission (the "SEC") pursuant to SEC Rule15c2-12(b)(5) (the "Rule"), and with (b) any public or private repository or entity designated by the State as a State repository, if any, for the purposes of the Rule. This information will be made available free to securities brokers and the general public through EMMA. For the procedures for all filings and notices due to the MSRB, instructions will be provided on the following website for MSRB: The specific nature of the information to be contained in the Annual Report or the notices of material events is summarized in APPENDIX D to this Official Statement. These covenants have been made in order to assist the Underwriter in complying with the Rule. There have been instances in each of the last five years in which the County has failed to file certain annual financial information as required by its prior continuing disclosure undertakings. In addition, there have been instances in which the County has failed to post required annual information to all required CUSIPS and has failed to file notice of failures to file in connection with certain annual financial information. A summary of past filing failures, dated February 10, 2016, is available on EMMA. On January 19, 2016, the County hired a dissemination agent to file the County's required annual report for fiscal year RATING Moody's Investors Service has assigned a rating of "Aa3" to the Bonds. Information on the rating may be obtained from the Clerk. Such rating reflects only the view of such organization, and an explanation of the significance of the rating may be obtained only from said rating agency. The rating may be changed, suspended or withdrawn as a result of changes in, or unavailability of, information. Any downward revision, suspension or withdrawal of such rating may have an adverse effect on the market price of the Bonds. Such rating is not a recommendation to buy, sell or hold the Bonds. No Default on Securities MISCELLANEOUS AND LEGAL INFORMATION No securities of the County have been in default as to principal or interest payments or in any other material respect at any time in at least the last 25 years. No principal or interest on any obligation of the County is past due. 14

23 No Bond Proceeds for Current Operating Expenses No proceeds from the sale of securities (except tax anticipation notes issued against revenues of a current fiscal year) have been used for current operating expenses at any time in at least the last ten years. Pension Plan The County has no pension plan or retirement plan for employees. The County employees are members of and contribute to the Mississippi Public Employees' Retirement System ("PERS"), a cost-sharing, multiple-employer, defined benefit pension plan. PERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. The PERS Board of Trustees authority to determine contribution rates is established Section et seq. of the Mississippi Code of 1972 and may be amended only by the State Legislature. The Governmental Accounting Standards Board ("GASB") approved two (2) new standards on June 25, 2012 that will substantially improve the accounting and financial reporting of public employee pensions by state and local governments, including the State. Statement No. 67, Financial Reporting for Pension Plans, revises existing guidance for the financial reports of most pension plans. Statement No. 68, Accounting and Financial Reporting for Pensions as amended by Statement No. 71, revises and establishes new financial reporting requirements for most governments that provide their employees with pension benefits. The Provisions in Statement 67 are effective for financial statements for period beginning after June 15, The provisions in Statement 68 and Statement 71 are effective for fiscal years beginning after June 15, PERS is compliant with Statement 67 and is making plans to fully comply with Statements 68 and 71. The PERS employer contribution rate was 9.75 percent in fiscal year 2005 with an increase in fiscal year 2006 to percent. Beginning in fiscal year 2007, the employer contribution rate increased from percent in.55 percent increments until the target rate of 11.85% was met in fiscal year Use of the phased-in employer contribution rate increase resulted in an annual contribution deficit for fiscal year The purposes of the phased-in approach was to moderate the impact to the State of a contribution rate increase. A slight increase in the employer contribution rate was implemented in fiscal year 2010, from percent to 12.0 percent. In fiscal year 2010, the actuary's recommended employer contribution rate was to increase from 12.0 percent to a projected percent for fiscal year In lieu of the employer contribution rate increase, the member contribution rate was increased from 7.25 to 9.0 percent for fiscal year 2011, which produced a decrease in employer normal cost. The reduction in normal cost, coupled with favorable investment experience, resulted in a revised recommended employer contribution rate decreased from percent to percent, which became effective January 1, The employer contribution rate increased in fiscal year 2013 to percent and in fiscal year 2014, the Board implemented a revised funding policy aimed at stabilizing the employer contribution rate, which was set at percent, and established a goal for the Plan to be 80.0 percent funded by At June 30, 2014, PERS employers' total pension liability was $27.0 billion. The plan fiduciary net position was $24.9 billion resulting in 15

24 a net pension liability of $12.1 billion. The plan fiduciary net position as a percentage of the total pension liability was 67.2 percent using measurements established by GASB Statement No. 67, Financial Reporting for Pension Plans. PERS latest publicly available financial report for 2014 is available on the PERS website located at At September 30, 2013, PERS members were required to contribute 9% of their annual covered salary, and the County is required to contribute at an actuarially determined rate. The rate at September 30, 2013 was 15.75% of annual covered payroll. The County's contributions (employer share only) to PERS for the years ending September 30, 2014, 2013 and 2012 were $1,855,270, $1,768,026 and $1,342,313, respectively, equal to the required contributions for each year. As of June 30, 2014, the County's employer contribution and employer allocation percentage was $1,983,948 and %. Legal Proceedings There are no pending legal proceedings which might be expected to affect the County's ability to perform its obligations to the registered owners of the Bonds. In Willow Bend, et al v. Humphreys County Board of Supervisors, et al., Case No IA SCT, the Mississippi Supreme Court held that the value of certain multifamily housing developments for ad valorem property tax valuation purposes is based on the property's actual net operating income. As a result, in order to determine the value of these particular multifamily housing developments for ad valorem tax purposes, county tax assessors in the State must exclude the value of federal tax credits received by owners of such properties. In construing Section (4)(d) of the Mississippi Code of 1972, the Court ordered several counties in the State, including the County, to refund all ad valorem taxes previously collected by such counties based on what was determined by the Court in as excessive ad valorem assessments. The County has created and funded a special fund in its 2015 Fiscal Year budget in order to comply with the Court's order and to provide a means to facilitate the refunding of such previously collected ad valorem taxes to the owners of such multifamily housing developments within the County. According to current information known to the County, the County reasonably expects to meet its ad valorem tax refund obligations from the budgeted amounts. Validation Prior to issuance, the Bonds may be validated before the Chancery Court of Forrest County as provided by Sections to , Mississippi Code of 1972, as amended. Approval of Legal Proceedings All legal matters in connection with the authorization and issuance of the Bonds are subject to the final approval of the legality thereof by Butler Snow LLP, Bond Counsel. The form of the opinion of Bond Counsel is attached hereto as APPENDIX F and will be available in final form at the time of delivery of the Bonds. No representation is made to the registered owners of the Bonds that Bond Counsel has verified the accuracy, completeness or fairness of the statements in the Official Statement and Bond Counsel assumes no responsibility to the registered owners of the Bonds except for the matters set forth in such opinion. 16

25 Bankruptcy The County is a "Municipality" as that term is defined in Title 11 of the United States Code (the "Bankruptcy Code"). 1 Section 109(c) of the Bankruptcy Code prescribes the conditions and circumstances under which a Municipality may file a petition for relief under the Bankruptcy Code. As a debtor, a Municipality may only file for relief pursuant to Chapter 9 of the Bankruptcy Code ("Chapter 9"). Pursuant to Section 303(a) of the Bankruptcy Code, no creditor or judgment holder of a Municipality may file a Chapter 9 petition on behalf of a Municipality. Pursuant to Section 109(c)(2) of the Bankruptcy Code, before a municipality may file a petition under Chapter 9 of the Bankruptcy Code, a municipality must be specifically authorized by (a) state law or (b) a governmental officer or organization empowered to authorize such a filing. Accordingly, before a Municipality in the State of Mississippi (the "State") may file for Chapter 9 protection, it must have specific authority granted to it. Currently, there is no State statute that prescribes, authorizes or otherwise contains authorization for any Municipality to file for Chapter 9 protection, or delegates such authority to a governmental officer or organization. As such, in order for a State Municipality, including the County, to file for Chapter 9 relief, the Municipality must obtain specific authority from the State Legislature. The State Legislature is comprised of the Senate and the House of Representatives. The Senate is composed of 52 members, and the House of Representatives consists of 122 members. Each member of each chamber is elected to a four-year term. In the State, the Legislature convenes annually on the first Tuesday after the first Monday each January. Regular sessions of the State Legislature last 90 days in all years of an administration except for the first session after a new governor has been elected, when a 125-day session is held. In order to obtain specific authority from the State Legislature to file for relief pursuant to Chapter 9, a Municipality would have to request both houses during the annual session of the State Legislature to approve a bill authorizing the Municipality to file for relief pursuant to Chapter 9 and such bill would have to be signed into law by the Governor of the State. There is no appeal process or any other proceeding under current State law that the Municipality may pursue if such requested specific authority is not granted by the State Legislature Miscellaneous The references, excerpts and summaries of all documents referred to herein do not purport to be complete statements of the provisions of such documents, and reference is directed to all such documents for full and complete statements of all matters of fact relating to the Bonds, the security for the payment of the Bonds and the rights and obligations of the registered owners thereof. The information contained in this Official Statement has been taken from sources considered reliable, but is not guaranteed. To the best of our knowledge, information in this Official Statement does not include any untrue statement of material fact; nor does the 1 Section 101(40) of the Bankruptcy Code provides that [t]he term municipality means political subdivision or public agency or instrumentality of a state. 11 U.S.C. 101(40). 17

26 information omit the statement of any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Underwriter has agreed to file the Official Statement with a nationally recognized municipal securities information repository (a "Repository") at the earliest practicable date after the date of delivery of the Bonds. The end of the underwriting period shall mean the earlier of (a) the date of the closing unless the County has been notified in writing to the contrary by the representative of the Underwriter on or prior to such date, or (b) the date on which the "end of the underwriting period" for the Bonds has occurred under SEC Rule 15c2-12. The Underwriter has agreed to notify the County of the date which is the "end of the underwriting period" within the meaning of SEC Rule 15c2-12. FORREST COUNTY, MISSISSIPPI /s/ David Hogan PRESIDENT, BOARD OF SUPERVISORS /s/ Jimmy C. Havard CLERK, BOARD OF SUPERVISORS 18

27 APPENDIX A INFORMATION ON THE COUNTY

28 [THIS PAGE LEFT BLANK INTENTIONALLY]

29 General Description ECONOMIC AND DEMOGRAPHIC INFORMATION Forrest County, Mississippi is located in the southeastern portion of the State of Mississippi (the "State"), approximately 85 miles south of Jackson, Mississippi, the State capital. The City of Hattiesburg, the County seat, is located approximately 375 miles west of Atlanta, Georgia; approximately 300 miles south of Memphis, Tennessee; and approximately 115 miles northwest of New Orleans, Louisiana. Population The population of the County has been recorded as follows: ,018 68,314 72,604 74,935 SOURCE: Census data at website: January Government The governing body of the County is the Board of Supervisors, which consists of five members, each of whom is elected from a separate district. The current members of the Board of Supervisors, elected for concurrent four-year terms, are as follows: Name Occupation Position Held Since David Hogan Supervisor 2008 Charles Marshall Supervisor 1996 Burkett Ross Supervisor 2012 Roderick Woullard Supervisor 2001 Chris Bowen Supervisor 2008 A-1

30 Per Capita Income 2 Year County Mississippi United States County as % Of U.S $35,024 $34,431 $46,049 76% ,928 33,629 44, ,913 33,127 44, ,649 31,976 42, ,371 30,783 40, SOURCE: Bureau of Economic Analysis: Regional Economic Accounts at website: ; January Per capita personal income was computed using Census Bureau midyear population estimates. Estimates for reflect county population estimates available as of April, A-2

31 Major Employers The following is a partial listing of major employers in the County, their products or services and their approximate number of employees: Employer Employees Product/Service Camp Shelby 2,200 Military Forrest General Hospital 3,021 Hospitals Schools-Universities & Colleges University of Southern Mississippi 2,300 Academic Hattiesburg Clinic 2,218 Clinic Lamar County School District 1,300 Education Wesley Medical Center 1,222 Hospital General Dynamics Information Tech. 1,000 Technology Wal-Mart Supercenter 844 Department Stores Hattiesburg Public School 750 Education City of Hattiesburg 717 Public Service Petal School District 535 Education Regions Bank 420 Banking SOURCE: The Area Development Partnership; January The Area Development Partnership s employment figures are as of January A-3

32 Unemployment Statistics January 7.3% 7.8% 10.0% 10.0% 10.4% February March April May June July August September October November December Annual Average 6.3% 7.5% 8.5% 9.0% 10.2% SOURCE: Mississippi Department of Employment Security: Labor Market Data at website: February A-4

33 Employment Statistics RESIDENCE BASED EMPLOYMENT I. Civilian Labor Force 32,470 33,090 34,480 35,120 35,040 II. Unemployed 2,430 2,810 3,110 3,570 3,360 Rate 7.5% 8.5% 9.0% 10.2% 9.6 III. Employed 30,040 30,280 31,370 31,550 31,680 ESTABLISHMENT BASED EMPLOYMENT I. Manufacturing 3,230 3,100 3,180 2,680 2,180 II. Non-manufacturing 36,770 35,840 35,450 35,560 36,020 A. Agriculture, Forestry, Fishing & Hunting B. Mining C. Utilities D. Construction 1,490 1,380 1,380 1,270 1,350 E. Wholesale Trade 1,330 1,290 1,260 1,230 1,240 F. Retail Trade 4,050 4,160 4,150 4,200 4,170 G. Transportation & Warehousing 1,520 1,510 1,400 1,300 1,210 H. Information I. Finance & Insurance 1,180 1,170 1,200 1,090 1,090 J. Real Estate, Rental & Leasing K. Prof., Scientific & Technical Service L. Management of Companies & Entertainment M. Administrative Support & Waste Management 2,430 1,820 1,680 1,730 1,820 N. Educational Services O. Health Care & Social Assistance 5,340 5,150 4,940 4,890 4,780 P. Arts, Entertainment & Recreation Q. Accommodation & Food Service 3,590 3,580 3,660 3,810 3,930 R. Other Services (except Public Administration) S. Government 11,320 11,160 11,030 11,230 11,450 Education 4,850 4,860 4,870 4,890 4,970 III.Total Nonagricultural Employment 40,000 38,940 38,630 38,240 38,200 SOURCE: Mississippi Department of Employment Security: Annual Averages: Labor Force and Establishment Based Employment and 2011 Forward, Labor Market Information Department at website: January A-5

34 Retail Sales State Fiscal Year Ended June 30 Amount 2015 $1,426,199, ,442,295, ,399,538, ,376,533, ,328,532,812 SOURCE: Annual Reports for years indicated, Mississippi Department of Revenue's website: January Educational Facilities Four (4) separate school districts serve the County. The Hattiesburg Public School District (the "Hattiesburg District") serves the entire City of Hattiesburg and consists of six (6) elementary schools, one (1) middle school, one (1) high school and one (1) attendance center. The Forrest County School District (the "Forrest County District") serves the entire area of the County outside the Petal District and the Hattiesburg District and consists of five schools. The Petal School District (the "Petal District") serves the entire City of Petal and all parts of Forrest County east of the Leaf River. The Petal District consists of two (2) elementary schools, one (1) middle school and one (1) high school. The Forrest County Agricultural High School (the "Agricultural High School") serves the entire County and consists of one (1) high school. Enrollment figures for each school district for the current scholastic year and the four preceding years are as follows: School District Hattiesburg District 4,452 4,688 4,552 4,608 4,605 Petal District 4,091 4,137 4,035 3,999 4,024 Agricultural High School Forrest County District 2,325 2,409 2,417 2,352 2,389 SOURCE: Hattiesburg Public School District, Petal School District, Forrest County School District, Forrest County Agricultural High School and Office of Research and Statistics, Mississippi Department of Education, Office of Research and Statistics website: January A-6

35 TAX INFORMATION Assessed Valuation 4 Assessment Year Real Property Personal Property 5 Public Utility Property Total 2015 $372,642,518 $205,404,343 $64,761,210 $642,808, ,058, ,224,032 64,761, ,043, ,191, ,837,350 60,366, ,395, ,725, ,436,963 62,934, ,097, ,152, ,728,473 40,582, ,463,216 SOURCE: Forrest County Tax Assessor; January Assessed valuations are based upon the following assessment ratios: (a) (b) (c) Real and personal property (excluding single-family owner-occupied residential real property and motor vehicles, respectively), fifteen percent (15%) of true value; Single-family owner-occupied residential real property, ten percent (10%) of true value; Motor vehicles and public utility property, thirty percent (30%) of true value. The 1986 Session of the Mississippi Legislature adopted House Concurrent Resolution No. 41 (the "Resolution"), pursuant to which there was proposed an amendment to the Mississippi Constitution of 1890 (the "Amendment"). The Amendment provided, inter alia, that the assessment ratio of any one class of property shall not be more than three times the assessment ratio on any other class of property. The Amendment set forth five classes of property and the assessment ratios which would be applicable thereto upon the adoption of the Amendment. The assessment ratios set forth in the Amendment are identical to those established by Section , Mississippi Code of 1972, as it existed prior to the Amendment, except that the assessment ratio for single-family, owneroccupied residential real property under the Amendment is set at ten percent (10%) of true value as opposed to fifteen percent (15%) of true value under previously existing law. 4 The total assessed valuation is approved in September preceding the fiscal year of the County represents the value of real property, personal property and public utility property for the year indicated on which taxes are assessed for the following fiscal year s budget. For example, the taxes for the assessed valuation figures for 2015 are collected starting in January, 2016 for the fiscal year budget of the County. 5 Personal property, includes mobile homes, automobiles and gray roll. A-7

36 Procedure for Property Assessments Real and personal property valuations other than motor vehicles and property owned by public utilities are determined by the County Tax Assessor. All taxable real property situated in the County is assessed each year and taxes thereon paid for the ensuing year. Assessment rolls of such property subject to taxation are prepared by the County Tax Assessor and are delivered to the Board of Supervisors of the County on the first Monday in July. Thereafter, the assessments are equalized by the Board of Supervisors and notice is given to the taxpayers that the Board of Supervisors will meet to hear objections to the assessments. After objections are heard, the Board of Supervisors adjusts the rolls and submits them to the Mississippi Department of Revenue, which examines them on receipt. The Mississippi Department of Revenue may then accept the rolls or, if it finds a roll incorrect in any particular, return the rolls to the Board of Supervisors to be corrected in accordance with the recommendations of the Mississippi Department of Revenue. If the Board of Supervisors has any objections to the order of the Mississippi Department of Revenue, it may arrange a hearing before the Commission. Otherwise, the assessment roll is finalized and submitted to the County Tax Collector for collection. The assessed value of motor vehicles is determined by an assessment schedule prepared each year by the Mississippi Department of Revenue. With minor exceptions the property of public utilities is assessed each year by the Mississippi Department of Revenue. A-8

37 Tax Levy Per $1,000 Valuation General County Road and Bridge Operation and Maintenance Bridge and Culvert SE Mississippi Air Ambulance Pat Harrison Waterway Commission Pearl River Community College Support Pearl River Community College Note (Health Center) Pearl River Community College Note (Career Technical Center) Pearl River Community College Note (Nursing School) Pearl River Community College Enlargement and Improvement Forrest Co. Agricultural High School (Expenses and Support) Special Reappraisal Levy Fire District Levy Rubbish Landfill Library Support and Maintenance Forrest County Schools (Support & Maint.) Forrest County Negotiable Note Series Forrest County Agricultural High School Bonds (1998) Forrest County School Bonds (Building Loan) Forrest County School Bonds (Shortfall Loan) Multi-Purpose Center BI&S Public Improvement Bonds Forrest County Public Improvement Bonds, Tax levy figures are given in mills. A-9

38 Forrest County Public Improvement Refunding Bonds, Series 2009B Forrest County Agricultural high School Bonds, Series TOTAL SOURCE: Office of the Chancery Clerk; January Ad Valorem Tax Collections Fiscal Year Ended September 30 Amount Budgeted A-10 Amount Collected Difference Over/(Under) 2015 $26,101,150 $26,943,826 $842, ,251,736 26,188, , ,955,573 23,410,836 1,455, ,852,727 22,965,980 1,113, ,671,309 21,984,427 (686,882) SOURCE: Office of the Forrest County Tax Collector; January Procedure for Tax Collections The Board of Supervisors is required, when necessary, under the Act and the Bond Resolution to levy annually a special tax upon all taxable property within the County sufficient to provide for the payment of the principal of and the interest on the Bonds. If any taxpayer neglects or refuses to pay his taxes on the due date thereof, the unpaid taxes will bear interest at the rate of one percent (1%) per month or fractional part thereof from the delinquent date to the date of payment of such taxes. When enforcement officers take action to collect delinquent taxes, other fees, penalties and costs may accrue. Both real property and personal property are subject to public tax sale. Ad valorem taxes on personal property are payable at the same time and in the same manner as on real property. Section , Mississippi Code of 1972, provides that upon failure of the taxpayer to make timely payment, the tax collector of each county is authorized to sell any personal property liable for unpaid taxes at the courthouse door of the county unless the property is too cumbersome to be removed. Five days' notice of the sale in an advertisement posted in three public places in the county, one of which must be the courthouse, is required. Municipal tax collectors are required to follow any special ordinance adopted by a municipality on personal property sales. Interest, fees, costs and expenses of sale are recoverable in addition to the taxes delinquent. If sufficient personal property cannot be found, the tax collector may

39 make a list of debts due the taxpayer by other persons and sell such debts and is further directed to distrain and sell sufficient other properties of the taxpayer to pay the delinquent taxes. Debts sold may be redeemed within six months from the sale in the same manner as redemption of land from tax sales. Section , Mississippi Code of 1972, as amended, provides that after the fifth day of August in each year, the tax collector for each county shall advertise and sell all land in the county on which all taxes due and in arrears have not been paid, as well as all land liable for other matured taxes. The sale is held at the door of the courthouse of the county or any place within the courthouse that the tax collector deems suitable to hold such sale, provided that the place of such sale shall be designated by the tax collector in the advertisement of the notice of tax sale on the last Monday of August following. The owner, or any person with an interest in the land sold for taxes, may redeem the land at any time within two years after the day of sale by paying all taxes, costs, interest and damages due to the Chancery Clerk. A valid tax sale will mature two years after the date of sale unless the land is redeemed and title will vest in the purchaser on such date. At the option of the tax collector, advertisement for the sale of such county lands may be made after the fifteenth day of February in each year with the sale of such lands to be held on the first Monday of April following. All provisions which relate to the tax sale held in August of each year shall apply to the tax sale if held in April. County and municipal taxes, assessed upon lands or personal property, are entitled to preference over all judgments, executions, encumbrances or liens however created. Reappraisal of Property and Limitation on Ad Valorem Levies Senate Bill No. 2672, General Laws of Mississippi, Regular Session 1980, codified in part as Sections and , Mississippi Code of 1972 (the "Reappraisal Act"), provides that all real and personal property in the State shall be appraised at true value and assessed in proportion to true value. To insure that property taxes do not increase dramatically as the counties complete reappraisals, the Reappraisal Act provides for the limit on increase in tax revenues discussed below. The statute limits ad valorem tax levies by the County subsequent to October 1, 1980, to a rate which will result in an increase in total receipts of not greater than ten percent (10%) over the previous year's receipts, excluding revenue from ad valorem taxes on any newly constructed properties, any existing properties added to the tax rolls or any properties previously exempt which were not assessed in the next preceding year. This limitation does not apply to levies for the payment of the principal of and the interest on general obligation bonds issued by the County or to certain other specified levies. The limitation may be increased only if the proposed increase is approved by a majority of those voting in an election held on such question. On August 20, 1980, the Mississippi Supreme Court rendered its decision in State Tax Commission v. Fondren, 387 So.2d 712, affirming the decree of the Chancery Court of the First Judicial District of Hinds County, Mississippi, wherein the Mississippi Department of Revenue (formerly the State Tax Commission) was enjoined from accepting and approving assessment A-11

40 rolls from any county in the State for the tax year 1983 unless the Mississippi Department of Revenue equalized the assessment rolls of all of the counties. Due to the intervening passage of the Reappraisal Act, the Supreme Court reversed that part of the lower court's decree ordering the assessment of property at true value (although it must still be appraised at true value), holding instead that assessed value may be expressed as a percentage of true value. Pursuant to the Supreme Court modification of the Chancellor's decree, on November 15, 1980, the Mississippi Department of Revenue filed a master plan to assist counties in determining true value. On February 7, 1983, the Chancery Court granted an extension until July 1, 1984, of its previous deadline past which the Mississippi Department of Revenue could not accept and approve tax rolls from counties which had not yet reappraised. The County has completed reappraisal. Homestead Exemption The Mississippi Homestead Exemption Law of 1946 reduces the local tax burden on homes qualifying by law and substitutes revenues from other sources of taxation on the State level as a reimbursement to the local taxing units for such tax loss. Provisions of the homestead exemption law determine qualification, define ownership and limit the amount of property that may come within the exemption. The exemption is not applicable to taxes levied for the payment of the Bonds, except as hereinafter noted. Those homeowners who qualify for the homestead exemption and who have reached the age of sixty-five (65) years on or before January 1 of the year for which the exemption is claimed, service-connected, totally disabled American veterans who were honorably discharged from military service and those qualified as disabled under the federal Social Security Act are exempt from any and all ad valorem taxes on qualifying homesteads not in excess of $7,500 of assessed value thereof. The tax loss resulting to local taxing units from properly qualified homestead exemptions is reimbursed by the Mississippi Department of Revenue. Beginning with the 1984 supplemental ad valorem tax roll and for each roll thereafter, no taxing unit shall be reimbursed an amount in excess of one hundred six percent (106%) of the total net reimbursement made to such taxing unit in the next proceeding year. A-12

41 Ten Largest Taxpayers The ten largest taxpayers in the County for fiscal year 2015 are as follows: Taxpayer Assessed Valuation Taxes Collected MISSISSIPPI POWER COMPANY $20,686, $2,886, PETAL GAS STORAGE 21,940, ,327, BELLSOUTH COMMUNICATIONS 5,383, , KOHLER 4,888, ,230, WESTERN CONTAINER 6,877, , HATTIESBURG CLINIC 4,002, , ENTERPRISE PRODUCTS 4,070, , BP REX CLOSURES 6,651, , WALMART 4,056, , TENNESSEE GAS PIPELINE 4,311, , TOTALS: $78,468, $11,465, SOURCE: Office of the Forrest County Tax Assessor, January A-13

42 DEBT INFORMATION Legal Debt Limit Statement (As of January 1, 2016) 15% Limit 20% Limit Authorized Debt Limit (Last Completed Assessment for Taxation - $642,808,071) $96,421,210 $128,561,614 Present Debt Subject to Debt Limits 7 19,275,000 19,275,000 Margin for Further Debt Under Debt Limits $77,146,210 $109,286,614 Less This Offering 6,720,000 6,720,000 Margin For Further Debt After Issuance of Bonds $70,426,210 $102,566,614 Statutory Debt Limits Section , Mississippi Code of 1972, as amended, provides that the board of supervisors of any county of said county to aid in the building, equipping and in other ways, the establishing and developing of agricultural high schools. Said bonds may be issued in an amount which, added to all its bond indebtedness, shall not exceed ten percent (10%) of the assessed value of the taxable property of the county. In computing general obligation bonded indebtedness for purposes of this fifteen percent (15%) limitation, there may be deducted all bonds or other evidences of indebtedness issued for the construction of hospitals, ports or other capital improvements payable primarily from the net revenues to be generated from such hospital, port or other capital improvements in cases where such revenue is pledged to the retirement of the indebtedness, together with the full faith and credit of such county. However, in no case shall any county contract any indebtedness payable in whole or in part from proceeds of ad valorem taxes when added to all of the outstanding general obligation indebtedness, both bonded and floating, which shall exceed twenty percent (20%) of the assessed value of all taxable property within such county, but bonds issued for school purposes and bonds issued under Sections through are specifically excluded from both the fifteen percent (15%) limitation and the twenty percent (20%) limitation (but are subject to statutory limits applicable to bonds of each type, respectively). Bonds issued for washed-out or collapsed bridges apply only against the twenty percent (20%) limitation. Industrial development revenue bonds are excluded from all limitations on indebtedness, as are contract obligations subject to annual appropriations. 7 Does not include the Refunded Bonds. A-14

43 Outstanding General Obligation Bonded Debt (As of January 1, 2016) Issue Date of Issue Outstanding Principal General Obligation Public Improvement Bond 8 03/26/09 $10,715,000 General Obligation Refunding Bonds, Series 2009B 06/18/09 1,360,000 General Obligation Refunding Bonds 10/06/11 1,640,000 General Obligation Bonds (Qualified School Construction Bonds 9 08/01/12 2,525,000 General Obligation Refunding Bonds 11/29/12 610,000 General Obligation Refunding Bonds 10/21/14 8,860,000 Total $25,710,000 8 To be partially refunded with the Bonds. Purchased by the Mississippi Development Bank from the proceeds of the $24,085,000 Mississippi Development Bank, Special Obligation Bonds, Series 2009 (Forrest County, Mississippi General Obligation Public Improvement Bond Project), dated March 26, On August 1, 2012, the County issued G.O. Bonds, Series 2012 (Qualified School Construction Bonds) on behalf of Forrest County Agricultural High School in the amount of $3,000,000. The stated interest rate on the bonds is 0% with an applicable tax credit rate of 4.41%. A-15

44 Annual Debt Service Requirements FY Ending September 30 Existing Debt 10 New Debt Principal Interest Total Principal Interest Total Estimated Debt Service 2016 $2,640, $460, $3,100, $ 0.00 $79, $79, $3,180, ,730, , ,201, , , , ,440, ,175, , ,573, , , , ,815, ,255, , ,583, , , , ,824, , , , ,240, , ,398, ,341, , , , ,265, , ,397, ,990, , , , ,300, , ,400, ,989, , , , ,335, , ,396, ,983, , , , ,375, , ,395, ,979, ,701, , ,950, ,950, ,746, , ,949, ,949, ,796, , ,945, ,945, ,650, , ,738, ,738, ,705, , ,734, ,734, Total: $20,295, $3,778, $24,073, $6,720, $1,071, $7,791, $31,864, Does not include the Refunded Bonds. A-16

45 General Obligation Bonded Debt Fiscal Year Ended September 30 Issue G. O. School Bonds (3/1/98) ,000 G.O. Refunding Bonds, Series 2004 (4/1/04) ,000 3,445,000 G.O. Public Improvement Bonds (3/24/05) ,000 G.O. Public Improvement Bond (3/26/09) 10,715,000 19,770,000 20,705,000 21,600,000 22,460,000 G.O. Refunding Bonds, Series 2009A (6/18/09) ,030,000 G.O. Refunding Bonds, Series 2009B (6/18/09) 1,780,000 2,185,000 2,570,000 2,945,000 3,305,000 G.O. Refunding Bonds, Series 2011 (10/6/11) 1,640,000 1,940,000 2,235,000 2,520,000 2,530,000 G.O. Bonds (School Construction Bond), Series 2012 (8/1/12) 2,525,000 2,735,000 2,800,000 3,000, G.O. Refunding Bonds, Series 2012 (11/29/12) 1,210,000 1,800,000 2,375, G.O. Refunding Bonds, Series 2014 (10/21/14) 8,860, TOTAL $26,730,000 $28,430,000 $30,685,000 $30,610,000 $33,285,000 A-17

46 Debt Ratios FY Ended September 30 General Obligation Debt General Obligation Debt to Assessed Value 2015 $26,730, % ,430, ,685, ,610, ,285, A-18

47 APPENDIX B AUDIT

48 [THIS PAGE LEFT BLANK INTENTIONALLY]

49 FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2014

50 [THIS PAGE LEFT BLANK INTENTIONALLY]

51 The following document was not prepared by the Office of the State Auditor, but was prepared by and submitted to the Office of the State Auditor by a private CPA firm. The document was placed on this web page as it was submitted. The Office of the State Auditor assumes no responsibility for its content or for any errors located in the document. Any questions of accuracy or authenticity concerning this document should be submitted to the CPA firm that prepared the document. The name and address of the CPA firm appears in the document.

52

53 FORREST COUNTY, MISSISSIPPI AUDITED FINANCIAL STATEMENTS AND SPECIAL REPORTS Year Ended September 30, 2014

54 FORREST COUNTY, MISSISSIPPI TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT 1-4 MANAGEMENT S DISCUSSION AND ANALYSIS 5-13 FINANCIAL STATEMENTS Exhibit 1 - Statement of Net Position Exhibit 2 - Statement of Activities 16 Exhibit 3 - Balance Sheet - Governmental Funds 17 Exhibit Reconciliation of the Balance Sheet of Governmental Funds to the 18 Statement of Net Position Exhibit 4 - Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 19 Exhibit Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Exhibit 5 - Statement of Fiduciary Assets and Liabilities 22 NOTES TO FINANCIAL STATEMENTS REQUIRED SUPPLEMENTARY INFORMATION Schedule 1 - Budgetary Comparison Schedule - Budget and Actual (Non-GAAP Basis) - General Fund Schedule 2 - Budgetary Comparison Schedule - Budget and Actual (Non GAAP Basis) - Road and Bridge Maintenance Fund Notes to the Required Supplementary Information SUPPLEMENTAL INFORMATION Schedule 3 - Schedule of Expenditures of Federal Awards Notes to the Schedule of Expenditures of Federal Awards 55 OTHER INFORMATION Schedule 4 - Schedule of Surety Bonds for County Officials 56

55 FORREST COUNTY, MISSISSIPPI CONTENTS PAGE TWO PAGE SPECIAL REPORTS Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor's Report on Compliance for Each Major Federal Program and on Internal Control Over Compliance Required by OMB Circular A-133 Independent Auditor's Report on Central Purchasing System, Inventory Control System, and Purchase Clerk Schedules (Required by Section , Mississippi Code Annotated [1972]) Schedule 5 - Schedule of Purchases not Made from the Lowest Bidder 66 Schedule 6 - Schedule of Emergency Purchases 67 Schedule 7 - Schedule of Purchase Made Noncompetitively from A Sole 68 Source Limited Internal Control and Compliance Review Management Report SCHEDULE OF FINDINGS AND QUESTIONED COSTS AND RESPONSES AUDITEE S CORRECTIVE ACTION PLAN 77

56 FINANCIAL SECTION

57 CARL L. NICHOLSON, JR., CPA RICHARD D. HALBERT, CPA RICHARD G. TOPP, CPA FRANK H. McWHORTER, JR., CPA T. JOHN HARVEY, CPA WILLIAM T. KELLY, CPA/ABV, CVA SUSAN A. RILEY, CPA DAWN T. JONES, CPA MICHAEL W. DAVIS, CPA GREGORY L. FAIREY, CPA JEFFREY M. ALLEN, CPA JOHN S. HEATH, CPA PAIGE M. JOHNSON, CPA JANICE M. BATES, CPA JOE C. TRAVIS, CPA, CFF, Certified Forensic Accountant JOSEPH C. TOWNSEND, CPA STEPHEN W. GRAY, CPA ANNETTE P. HERRIN, CPA/ABV, CVA, CFE, CFF, MAFF LEIGH F. AGNEW, CPA SHELBY H. LOTT, CPA RENEE MOORE, CPA LACEY J. MILLER, CPA MICHAEL BRADLEY WOOD, CPA LESLIE C. BILANCIA, CPA/ABV, CVA ADAM K. SMITH, CPA MARY M. DENNIS, JD, CPA D. WHITNEY BRANCH, CPA WILLIAM JABE MILLS, CPA JEANA O. RICH, CPA JODY D. THORNTON, CPA CRAIG T. TAYLOR, CPA, CGMA REBECCA KING BAKER, CPA NICHOLSON & COMPANY, PLLC CERTIFIED PUBLIC ACCOUNTANTS 2 SOUTHERN POINTE PARKWAY, SUITE 100 HATTIESBURG, MISSISSIPPI POST OFFICE DRAWER HATTIESBURG, MISSISSIPPI TELEPHONE TOLL FREE FAX INDEPENDENT AUDITOR'S REPORT MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS MISSISSIPPI SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS OTHER OFFICES: 150 OLD HWY 98 EAST POST OFFICE BOX 609 COLUMBIA, MISSISSIPPI TELEPHONE: FAX rd AVENUE GULFPORT, MISSISSIPPI POST OFFICE BOX 1842 GULFPORT, MISSISSIPPI TELEPHONE: FAX Members of the Board of Supervisors Forrest County, Mississippi Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Forrest County, Mississippi, (the County) as of and for the year ended September 30, 2014, and the related notes to the financial statements, which collectively comprise the basic financial statements of the County s primary government as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

58 - 2 - Members of the Board of Supervisors Forrest County, Mississippi 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. Basis for Adverse Opinion on the Aggregate Discretely Presented Component Units The financial statements do not include financial data for the County s legally separate component units. Accounting principles generally accepted in the United States of America require the financial data for those component units to be reported with the financial data of the County s primary government unless the County also issues financial statements for the financial reporting entity that include the financial data for its component units. The County has not issued such reporting entity financial statements. The amount by which this departure would affect the assets, liabilities, net position, revenues and expenses of the aggregate discretely presented component units is not reasonably determinable. Adverse Opinion In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on the Aggregate Discretely Presented Component Units paragraph, the financial statements referred to above do not present fairly, the financial position of the aggregate discretely presented component units of Forrest County, Mississippi, as of September 30, 2014, or the changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

59 - 3 - Members of the Board of Supervisors Forrest County, Mississippi Unmodified Opinions In our opinion, the financial statements referred to previously present fairly, in all material respects, the respective financial position of the governmental activities, each major fund and the aggregate remaining fund information of Forrest County, Mississippi, as of September 30, 2014, and the respective changes in financial position, thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis and the Budgetary Comparison Schedules and corresponding notes 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. Supplementary and Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Forrest County, Mississippi s basic financial statements. The accompanying Schedule of Expenditures of Federal Awards as required by U. S. Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The Schedule of Expenditures of Federal Awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to

60 - 4 - Members of the Board of Supervisors Forrest County, Mississippi 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 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 Expenditures of Federal Awards is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The Schedule of Surety Bonds for County Officials 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 27, 2015, on our consideration of Forrest County, Mississippi s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Forrest County, Mississippi s internal control over financial reporting and compliance. Hattiesburg, Mississippi May 27, 2015

61 FORREST COUNTY, MISSISSIPPI MANAGEMENT S DISCUSSION AND ANALYSIS YEAR ENDED SEPTEMBER 30, 2014 INTRODUCTION This discussion and analysis of Forrest County s financial performance provides an overall narrative review of the County s financial activities for the year ended September 30, The intent of this discussion and analysis is to look at the County s performance as a whole; readers should also review the notes to the basic financial statements and the financial statements to enhance their understanding of the County s financial performance. Information contained in this section is qualified by the more detailed information contained elsewhere in the County s financial statements, notes to financial statements and any accompanying materials. To the extent this discussion contains any forward-looking statements of the County s plans, objectives, expectations and prospects, the actual results could differ materially from those discussed herein. This discussion and analysis is an element of the required supplementary information specified in the Governmental Accounting Standards Board s (GASB) Statement No Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments issued June Forrest County is located in the southern portion of the State of Mississippi approximately 85 miles south of Jackson, Mississippi, the State Capital. The population, according to the 2010 census, is 74,934. The local economic base is driven by diverse trade and service developments and a regional healthcare center of southeast Mississippi. Forrest County is also home to Camp Shelby, which serves as a National Guard training facility. The University of Southern Mississippi s presence within Forrest County also provides a large degree of economic stability to the County. FINANCIAL HIGHLIGHTS Forrest County is financially stable. The County has committed itself to financial management by using sound financial planning, budgeting and internal controls. The County is committed to maintaining sound fiscal management to meet the challenges of the future. Key financial highlights for 2014 were as follows: Total net position for 2014, $83,642,958 increased $1,902,132, or 2.33% from 2013, as restated, $81,740,826. Total assets of governmental activities for 2014, $147,010,599 decreased by $569,963 or 0.39% from 2013, $147,580,562. Total deferred outflows of resources for 2014, $72,790 increased by $72,790 or % from 2013, $-0-. Total liabilities for 2014, $37,339,281 decreased $3,158,895 or 7.80% from 2013, $40,498,176. Total deferred inflows of resources for 2014, $26,101,150 increased $720,883 or 2.84% from 2013, $25,380,267. In total, equity in cash and cash equivalents for 2014, $33,381,934 increased $591,557 or 1.80% from 2013, $32,790,

62 - 6 - Total assessed valuation for 2013 tax year (collected in fiscal year 2014 budget year) increased 19 million from the 2012 tax year (collected in fiscal year 2013 budget year). The 2013 assessed valuations (used to compute fiscal year 2014 collections) for the County also reflect a 69 million increase over the last seven-year period (2006 tax rolls used to compute the 2007 budget) establishing that Forrest County continues to have a healthy tax base for economic stability. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the County s basic financial statements. The County s basic financial statements comprise three components: 1) Government-wide financial statements, 2) Fund financial statements and 3) Notes to the basic financial statements. Required Supplementary information is included in addition to the basic financial statements. Government-Wide Financial Statements - The government-wide financial statements are designed to provide readers with a broad overview of the County s finances in a manner similar to private-sector businesses. The statement of net position presents information on all of the County s assets and liabilities with the difference between the two being reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the County is improving or deteriorating. The statement of activities presents information showing how net assets 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 the related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods. Both of these government-wide financial statements distinguish functions of the County that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or part of their costs through user fees and charges. The governmental activities of the County include general government, public safety, public works (roads and bridges), health and welfare, culture and recreation, conservation of natural resources, education, economic development, and interest on long-term debt. Component units are not included in our basic financial statements. Fund Financial Statements - A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The County uses fund accounting to ensure and demonstrate finance-related legal compliance. All of the funds of the County can be divided into two categories: governmental funds and fiduciary funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental funds financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the County s near-term financing requirements. Governmental funds include the general, special revenue, debt service, and capital projects funds.

63 - 7 - Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near term financial decisions. The Governmental Funds Balance Sheet and the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances both provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The County maintains individual governmental funds in accordance with the Mississippi County Financial Accounting Manual. Fiduciary funds are used to account for resources held for the benefit of parties outside the County government. These funds account for various taxes, deposits, and other monies collected or held by the County, acting in the capacity of an agent, for distribution to other governmental units or designated beneficiaries. The County adopts an annual operating budget for all governmental funds. A budgetary comparison statement has been provided for the General Fund and each additional major fund. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net Position - Net position may serve over time as a useful indicator of the government s financial position. In the case of Forrest County, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $83,642,958 as of September 30, The largest portion of the County s net position (66.7%) reflects its investment in capital assets (e.g., roads, bridges, land, buildings, mobile equipment, furniture and equipment, and construction in progress) less related outstanding debt used to acquire such assets. The County uses these capital assets to provide services to its citizens. The County s financial position is a product of several financial transactions including the net results of activities, the acquisition and payment of debt, the acquisition and disposal of capital assets, and the depreciation of capital assets. Table 1 presents a summary of the County s net position at September 30, 2014, as compared to net position at September 30, (See Table 1 on Next Page)

64 - 8 - Table 1 Net Position Total Governmental Activities Percentage Change ASSETS Current and other assets $ 61,845,484 $ 60,260, % Land and construction in progress 2,137,059 2,137, % Other capital assets, net 83,028,056 85,183, % Total assets 147,010, ,580, % DEFERRED OUTFLOWS OF RESOURCES Deferred charges - bond issuance costs 72, % Total deferred outflow of resources 72, % LIABILITIES Long-term liabilities, outstanding 32,998,445 35,956, % Other liabilities 4,340,836 4,541, % Total liabilities 37,339,281 40,498, % DEFERRED INFLOWS OF RESOURCES Unearned revenues - property taxes 26,101,150 25,380, % Total deferred inflow of resources 26,101,150 25,380, % NET POSITION Net investment in capital assets 55,748,069 54,929, % Restricted 14,187,052 13,779, % Nonexpendable 222, , % Unrestricted 13,485,286 12,833, % Total net position $ 83,642,958 $ 81,702, % The following are significant current year transactions that have had an impact on the Statement of Net Position: the County had less long-term liabilities at the end of fiscal year 2014, accounting for most of the increase in net position for fiscal year ending September 30, Changes in Net Position - Forrest County s total program and general revenues for the fiscal year ended September 30, 2014 were $37,609,435. The total cost of all services provided was $35,707,303. The increase in net position was $1,902,132. Table 2 presents a summary of the changes in net position for the fiscal year ended September 30, 2014, as compared to the fiscal year ended September 30, (See Table 2 on Next Page)

65 - 9 - REVENUES Program revenues: Charges for services 4,262,791 Table 2 Changes in Net Position Total Governmental Activities Percentage Change $ $ 4,442, % Operating grants and contributions 2,806,633 3,035, % Capital grants and contributions 792,524 1,141, % Total program revenues 7,861,948 8,619, % General revenues: Property taxes 27,260,544 23,079, % Other taxes 783, , % Other general revenues 1,703, , % Total general revenues 29,747,487 24,573, % Payments to component unit - - Total 37,609,435 33,192, % PROGRAM EXPENSES General government 13,054,074 12,668, % Public safety 11,585,893 12,478, % Public services 6,187,109 5,670, % Health/Welfare/Education 902,834 1,024, % Economic development 675, , % Culture and recreation 1,606,034 1,745, % Conservation natural resources 629, , % Interest and fiscal charges 1,066,405 1,199, % Total program expenses 35,707,303 35,447, % Increase (Decrease) in net position 1,902,132 (2,255,326) % Transfers - - Increase (Decrease) in net assets after inclusion of transfers 1,902,132 (2,255,326) % Net Position - Beginning 81,702,119 84,454, % Prior period adjustment 38,707 (497,118) % Net Position - Beginning, as restated 81,740,826 83,957, % Net Position - Ending $ 83,642,958 $ 81,702, %

66 WHERE THE COUNTY GETS ITS REVENUE Revenue Amt necessary to be raised by taxes Charges for services Operating grants and contributions Capital grants and contributions Grants and contributions Unrestricted investment income Miscellaneous FINANCIAL ANALYSIS OF THE COUNTY S FUNDS As noted earlier, the County uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental funds - The focus of the County s governmental funds is to provide information on current inflows, outflows and balances of spendable resources. Such information is useful in assessing the County s financing requirements. In particular, unassigned fund balance may serve as a useful measure of the County s net resources available for spending at the end of the year. The financial performance of the County as a whole is reflected in its governmental funds. As the County completed the year, its governmental funds reported a combined fund balance of $29,867,890, an increase of $1,002,745. BUDGETARY HIGHLIGHTS OF MAJOR FUNDS During the year, Forrest County revised its annual operating budget on several occasions. Budget revisions were made to address and correct the original budgets to reflect more accurately the sources and uses of funding for the County. Expenditure budgets were revised as projects were approved for funding in the County with these projects being mainly capital projects and/or awarded grants.

67 A schedule showing the original and final budget amounts compared to the County s financial activity for the General Fund and other major funds is provided in this report as required supplemental information. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets - As of September 30, 2014, Forrest County s total capital assets, net was $85,165,115. This includes roads, bridges, other infrastructure, land, buildings, mobile equipment, and furniture and equipment. Total accumulated depreciation as of September 30, 2014, was $63,850,694. The balance in total net capital assets was $85,165,115 at year-end. Table 3 provides an overview of the County s capital assets net of accumulated depreciation. Table 3 Capital Assets (Net of Depreciation) Total Percentage Change Land and construction in progress $ 2,137,059 $ 2,137, % Buildings and improvements 50,758,153 51,933, % Infrastructure 27,257,051 28,105, % Machinery and equipment 5,012,852 5,144, % Total $ 85,165,115 $ 87,320, % Debt Administration - At September 30, 2014, Forrest County had $32,998,445 in long-term debt outstanding. This includes general obligation bonds and other loans. Of this debt $3,138,459 is due within one year. The State of Mississippi limits the amount of debt a county can issue to generally 15.00% of total assessed value of property. The County s outstanding debt as of September 30, 2014 was equal to 4.47% of the latest property assessments. Table 4 is a summary of the total outstanding long-term debt obligations of the County. (See Table 4 on Next Page)

68 Table 4 Outstanding Bonds, Notes and Long-Term Obligations at Year End Total Percentage Change General obligation bonds $ 32,325,568 $ 35,375, % Other loans 91, , % Compensated absences 581, , % Total bonded debt and compensated absences $ 32,998,445 $ 36,047, % CURRENT ISSUES Forrest County continues to commit itself to financial excellence, making every effort to assure that its financial planning, budgeting, and internal financial controls are in keeping with sound financial management practices in meeting the challenges of the future. This is the cornerstone of Forrest County s pursuit of excellence in County Government. In fiscal year 2014, Forrest County has continued to meet the challenges of current day financial obstacles. The County operates a new Regional Detention Center. During fiscal year 2014, the Sheriff and County officials secured more contracts for housing federal and state prisoners. This, in addition to our being a regional facility for those several counties in our area, enhances our abilities to recover much of the operating costs of the facility with billings to outside counties for housing their inmates. The County has started building a new service center at the site of the jail detention facility. This will house the Sheriff s service center that maintains and services the Forrest County Sheriff Department vehicle fleet. With the County s sound financial planning efforts, most of the work for the construction of the center is being completed by county staff enabling us to keep our costs to a minimum. The County continues working with the Area Development Partnership (ADP) in developing plans for a new industrial park in the southwest area of the county, located at a major intersection of Interstate 59 and Highway 98. This project has potential and interests of major concerns for our area. We are now in the beginning stages with enormous insight to the area s future growth and development. This new industrial park will keep the County in a position for continued development. The ADP and the County are working with a five-year campaign called Competitive Edge. The plan is designed to create 2,780 new jobs, bringing in $100 million in new capital investments and $103 million in additional payroll throughout the duration of the program. This is our vision for a bright future.

69 We have already secured a new company, Green Bay Converting, in the current Industrial Park. This company is a converter of specialty paper and tissue products. They are well into their construction phase of a facility that will bring 300 new jobs to this area over the next five years. The company will invest about $48 million in the venture. It is anticipated that 150 new hires will be made in the first phase of employment with an average annual salary of $38,000 for each of these new employees. The 400,000 square foot facility will be the second largest industrial building in Hattiesburg. We are excited to have Green Bay Converting in Forrest County. The County continues the Kansas City Southern Railway expansion plans to make major expansion at the Port of Gulfport and a massive project of shipping containers by rail to the Hattiesburg area as a distribution point. This would be implemented in phases over several years. The County feels we are continuing on the right track in financial management as noted by our recent assignment rate of Aa3 by Moody s Investors to Forrest County. This assignment was made on our Refunding Bonds, Series The strengths of this rating noted our moderately sized tax base and regional presence of large healthcare facilities and university. Also noted, was our historically strong financial management that has resulted in high reserves, which allows the County strength in continuous planning developments. Forrest County officials have historically been strong in their concerns of the public dollars and their management of those funds in a conservative, yet progressive nature. Forrest County reflects on the past and looks to the future. That philosophy has kept this County strong. CONTACTING THE COUNTY S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the County s finances and to demonstrate the County s accountability for the funds it received. If you have questions about this report or need additional financial information, please contact the Forrest County Chancery Clerk at Post Office Box 951, Hattiesburg, MS

70 FINANCIAL STATEMENTS

71 EXHIBIT 1 FORREST COUNTY, MISSISSIPPI STATEMENT OF NET POSITION SEPTEMBER 30, 2014 Governmental Activities ASSETS Cash and cash equivalents $ 33,381,934 Cash with fiscal agents 310,192 Property tax receivable 26,101,150 Fines receivable, net of allowance for uncollectibles of $6,202,990 1,526,989 Intergovernmental receivables 343,586 Other receivables 31,872 Prepaid bond insurance 149,761 Capital assets: Land 2,137,059 Other capital assets, net 83,028,056 Total assets 147,010,599 DEFERRED OUTFLOWS OF RESOURCES Deferred amount on refunding 72,790 Total deferred outflows of resources 72,790 LIABILITIES Claims payable 2,976,376 Intergovernmental payables 703,478 Accrued interest payable 141,142 Other payables 519,840 Long-term liabilities: Due within one year: Capital debt 3,138,459 Due in more than one year: Capital debt 26,278,587 Non-capital debt 3,581,399 Total liabilities 37,339,281 DEFERRED INFLOWS OF RESOURCES Unearned revenues - property taxes 26,101,150 Total deferred inflows of resources 26,101,150 The notes to the financial statements are an integral part of this statement.

72 EXHIBIT 1 PAGE TWO FORREST COUNTY, MISSISSIPPI STATEMENT OF NET POSITION SEPTEMBER 30, 2014 Governmental Activities NET POSITION Net investment in capital assets $ 55,748,069 Restricted for: Expendable: General government 35,106 Debt service 2,738,719 Public safety 1,308,925 Public works 9,255,748 Culture and recreation 17,147 Conservation of natural resources 165,633 Unemployment compensation 115,485 Capital projects 550,289 Nonexpendable 222,551 Unrestricted 13,485,286 Total net position $ 83,642,958 The notes to the financial statements are an integral part of this statement.

73 EXHIBIT 2 FORREST COUNTY, MISSISSIPPI STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30, 2014 Program Revenues Net (Expense) Revenue and Changes in Net Position Charges for Operating Grants Capital Grants Governmental Functions / Programs Expenses Services and Contributions and Contributions Activities Primary Government: Governmental activities: General government $ 13,054,074 $ 1,543,474 $ 619,036 $ 33,658 $ (10,857,906) Public safety 11,585,893 2,495, , ,117 (8,152,824) Public works 6,187,109-1,285,871 - (4,901,238) Health and welfare 894, ,072 - (724,234) Culture and recreation 1,606, , ,749 (829,266) Education 8, (8,528) Conservation of natural resources 629, (629,776) Economic development and assistance 675, (675,178) Interest on long-term debt 1,066, (1,066,405) Total governmental activities 35,707,303 4,262,791 2,806, ,524 (27,845,355) Total primary government $ 35,707,303 $ 4,262,791 $ 2,806,633 $ 792,524 (27,845,355) General revenues: Property taxes 27,260,544 Road and bridge privilege taxes 783,366 Unrestricted interest income 45,404 Loss on sale of capital assets (12,885) Miscellaneous 1,671,058 Total general revenues 29,747,487 CHANGES IN NET POSITION 1,902,132 NET POSITION - BEGINNING, AS PREVIOUSLY REPORTED 81,702,119 Prior period adjustment 38,707 NET POSITION - BEGINNING, AS RESTATED 81,740,826 NET POSITION - ENDING $ 83,642,958 The notes to the financial statements are an integral part of this statement.

74 EXHIBIT 3 FORREST COUNTY, MISSISSIPPI BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2014 Major Funds Road and Bridge Other Total General Fund Maintenance Fund Governmental Funds Governmental Funds ASSETS Cash and cash equivalents $ 18,720,823 $ 7,396,578 $ 7,264,533 $ 33,381,934 Cash with fiscal agents 43, , ,192 Property tax receivable 18,684,970 2,243,241 5,172,939 26,101,150 Fines receivable (net of allowance for uncollectibles of $5,507,922) 1,526, ,526,979 Intergovernmental receivables 343, ,586 Other receivables 31, ,872 Due from other funds - 100,717 69, ,425 Total assets $ 39,351,324 $ 9,740,536 $ 12,774,278 $ 61,866,138 LIABILITIES Claims payable $ 2,181,167 $ 283,740 $ 511,469 $ 2,976,376 Intergovernmental payables 692, ,919 Due to other funds 180, ,984 Other payables 519, ,840 Total liabilities 3,574, , ,469 4,370,119 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - property taxes 18,684,970 2,243,241 5,172,939 26,101,150 Unavailable revenue - fines 1,526, ,526,979 Total deferred inflows of resources 20,211,949 2,243,241 5,172,939 27,628,129 FUND BALANCES Restricted for: General government ,106 35,106 Public safety - - 1,765,019 1,765,019 Public works - 7,213,555 2,042,183 9,255,738 Conservation of natural resources , ,633 Debt service - - 2,879,861 2,879,861 Unemployment compensation , ,485 Committed to: Public safety ,195 94,195 Culture and recreation ,147 17,147 Unassigned 15,564,465 - (24,759) 15,539,706 Total fund balances 15,564,465 7,213,555 7,089,870 29,867,890 Total liabilities and fund balances $ 39,351,324 $ 9,740,536 $ 12,774,278 $ 61,866,138 The notes to the financial statements are an integral part of this statement.

75 EXHIBIT 3-1 FORREST COUNTY, MISSISSIPPI RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION SEPTEMBER 30, 2014 Amount Total fund balance - governmental funds (Exhibit 3) $ 29,867,890 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets are used in governmental activities and are not financial resources and, therefore, are not reported in the funds, net of accumulated depreciation of $63,850, ,165,115 Other long-term assets are not available to pay for current period expenditures and, therefore, are deferred in the funds. 1,526,989 Long-term liabilities are not due and payable in the current period and, therefore are not reported in the funds. (32,998,445) Accrued interest payable is not due and payable in the current period and, therefore, is not reported in the funds. (141,142) Deferred outflows - refunding 72,790 Prepaid bond insurance 149,761 Total net position - governmental activities (Exhibit 1) $ 83,642,958 The notes to the financial statements are an integral part of this statement.

76 EXHIBIT 4 FORREST COUNTY, MISSISSIPPI STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED SEPTEMBER 30, 2014 Major Funds Road and Bridge Other Total General Fund Maintenance Fund Governmental Funds Governmental Funds REVENUES Property taxes $ 18,706,569 $ 3,151,991 $ 5,401,977 $ 27,260,537 Road and bridge privilege taxes 16, , ,366 Licenses, commissions and other revenue 1,524,080-19,309 1,543,389 Fines and forfeitures 668, , ,701 Intergovernmental revenues 1,992, , ,168 3,599,157 Charges for services 1,874, ,874,854 Interest income 27,839 7,072 10,493 45,404 Miscellaneous revenues 983,534 11, ,276 1,452,044 Total revenues 25,793,369 4,786,395 6,770,688 37,350,452 EXPENDITURES Current: General government 11,924, ,312 12,556,960 Public safety 9,935, ,103 10,763,820 Public works 222,618 3,179,062 1,969,342 5,371,022 Health and welfare 887, ,089 Culture and recreation 651, ,906 1,613,002 Education 8, ,528 Conservation of natural resources 532,112-76, ,902 Economic development and assistance 675, ,178 Debt Service: Principal - - 3,080,098 3,080,098 Interest - - 1,112,784 1,112,784 Other debt service costs - - 5,656 5,656 Total expenditures 24,836,986 3,179,062 8,666,991 36,683,039 Excess of revenues over (under) expenditures 956,383 1,607,333 (1,896,303) 667,413 OTHER FINANCING SOURCES (USES) Long-term capital debt issued ,418 57,418 Proceeds from sale of capital assets 54,224 3,491 7,683 65,398 Compensation for loss of capital assets 293, ,188 Transfers in 13, , ,000 Transfers out (560,000) - (63,000) (623,000) Other uses (80,672) - - (80,672) Total other financing sources and uses (280,260) 3, , ,332 Net changes in fund balances 676,123 1,610,824 (1,284,202) 1,002,745 FUND BALANCES - BEGINNING 14,888,342 5,602,731 8,374,072 28,865,145 FUND BALANCES - ENDING $ 15,564,465 $ 7,213,555 $ 7,089,870 $ 29,867,890 The notes to the financial statements are an integral part of this statement.

77 EXHIBIT 4-1 FORREST COUNTY, MISSISSIPPI RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2014 Amount Net changes in fund balances - governmental funds (Exhibit 4) $ 1,002,745 Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Thus, the change in net position differs from the change in fund balances by the amount that depreciation ($3,219,621) exceeded capital outlays ($1,097,361) in the current period. (2,122,260) In the Statement of Activities, only gains and losses from the sale of capital assets are reported, whereas in the governmental funds, proceeds from the sale of capital assets increase financial resources. Thus, the change in net position differs from the change in fund balances by the amount of the net loss $12,885 and the proceeds from the sale of $65,398 in the current period. (71,788) Fine revenue recognized on the modified accrual basis in the funds during the current year decreased because prior year recognition would have been required on the Statement of Activities using the full-accrual basis of accounting. 52,857 Debt proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the Statement of Net Position. Repayment of debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Position. Thus, the change in net position differs from the change in fund balances by the amount that debt repayments $3,080,098 exceeded debt proceeds of $57,418. 3,022,680

78 EXHIBIT 4-1 PAGE TWO FORREST COUNTY, MISSISSIPPI RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED SEPTEMBER 30, 2014 Under the modified accrual basis of accounting used in the governmental funds, expenditures are not recognized for transactions that are not normally paid with expendable available financial resources. However, in the Statement of Activities, which is presented on the accrual basis, expenses and liabilities are reported regardless of when financial resources are available. In addition, interest on long-term debt is recognized under the modified accrual basis of accounting when due, rather than as it accrues. Thus, the change in net position differs from the change in fund balances by a combination of the following items: Amount The amount of (increase) decrease in: Compensated absences $ (15,829) Accrued interest payable 19,553 Amortization of deferred charges (18,308) Amortization of prepaid insurance (9,984) Premium on refunding bond 42,466 Change in net position of governmental activities (Exhibit 2) $ 1,902,132 The notes to the financial statements are an integral part of this statement.

79 EXHIBIT 5 FORREST COUNTY, MISSISSIPPI STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES SEPTEMBER 30, 2014 Agency Funds ASSETS Cash and cash equivalents $ 940,169 Due from other funds 10,559 Total assets $ 950,728 LIABILITIES Amounts held in custody for others $ 196,647 Other liabilities 709,553 Intergovernmental payables 44,528 Total liabilities $ 950,728 The notes to the financial statements are an integral part of this statement.

80 NOTES TO FINANCIAL STATEMENTS

81 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Financial Reporting Entity - Forrest County is a political subdivision of the State of Mississippi. The County is governed by an elected five-member Board of Supervisors. Accounting principles generally accepted in the United States of America require Forrest County to present these financial statements on the primary government and its component units which have significant operational or financial relationships with the County. Management has chosen to omit from these financial statements the following component units which have significant operational or financial relationships with the County. Accordingly, the financial statements do not include the data of all of the County s component units necessary for reporting in accordance with accounting principles generally accepted in the United States of America. Forrest General Hospital Rawls Springs Volunteer Fire Department North Forrest Fire Protection District Forrest County Agricultural High School State law pertaining to county government provides for the independent election of county officials. The following elected and appointed officials are all part of the County legal entity and therefore are reported as part of the primary government financial statements: Board of Supervisors Chancery Clerk Circuit Clerk Justice Court Clerk Purchase Clerk Tax Assessor Tax Collector Sheriff B. Individual Component Unit Disclosure: Blended Component Units Certain component units, although legally separate from the primary government, are nevertheless so intertwined with the primary government that they are, in substance, the same as the primary government. Therefore, these component units are reported as if they are part of the primary government. The following component unit s balances and transactions are blended with the balances and transactions of the primary government:

82 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE TWO YEAR ENDED SEPTEMBER 30, 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Forrest County Public Improvement Corporation was incorporated as a nonprofit under Section , Miss. Code Ann. (1972), which allows counties to enter into lease agreements with any corporation. The corporation s three-member board of directors is appointed by the Board of Supervisors. Although legally separate from the primary government, the corporation s balances and transactions are blended with the balances and transactions of the primary government. The corporation produces a financial benefit through its ability to finance the construction, acquisition and renovation of capital facilities for the primary government and imposes a financial burden on the primary government by obligating funds to repay the debt pursuant to a lease agreement. See Note 10 for further disclosure concerning the issuance of certificates of participation (COPs) and related capital facilities construction, acquisition and renovation. C. Basis of Presentation - The County s basic financial statements consist of government-wide statements, including a Statement of Net Position and a Statement of Activities, fund financial statements, and accompanying note disclosures which provide a detailed level of financial information. Government-wide Financial Statements: The Statement of Net Position and Statement of Activities display information concerning the County as a whole. The statements include all nonfiduciary activities of the primary government and its blended component unit. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities are generally financed through taxes, intergovernmental revenues, and other nonexchange revenues. The Statement of Net Position presents the financial condition of the governmental activities of the County at year-end. The Government-wide Statement of Activities presents a comparison between direct expenses and program revenues for each function or program of the County s governmental activities. Direct expenses are those that are specifically associated with a service, program, or department and therefore, are clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program and grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Taxes and other revenues not classified as program revenues are presented as general revenues of the County, with certain limited exceptions. The comparison of direct expenses with program revenues identifies the extent to which each governmental function is self-financing or draws from the general revenues of the County.

83 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE THREE YEAR ENDED SEPTEMBER 30, 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Fund Financial Statements: Fund financial statements of the County are organized into funds, each of which is considered to be separate accounting entities. Each fund is accounted for by providing a separate set of self-balancing accounts that constitute its assets, liabilities, fund equity, revenues and expenditures. Funds are organized into governmental and fiduciary. Major individual Governmental Funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and presented in a single column as Other Governmental Funds. D. Measurement Focus and Basis of Accounting - The Government-wide and Fiduciary Funds (excluding agency funds) financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used, regardless of when the related cash flows take place. Property taxes are recognized as revenue in the year for which they are levied. Shared revenues are recognized when the provider government recognizes the liability to the County. Grants are recognized as revenues as soon as all eligibility requirements have been satisfied. Agency funds have no measurement focus, but use the accrual basis of accounting. Governmental financial statements are presented using a current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized in the accounting period when they are both measurable and available to finance operations during the year or to liquidate liabilities existing at the end of the year. Available means collected in the current period or within 60 days after year end to liquidate liabilities existing at the end of the year. Measurable means knowing or being able to reasonably estimate the amount. Expenditures are recognized in the accounting period when the related fund liabilities are incurred. Debt service expenditures and expenditures related to compensated absences and claims and judgments, are recognized only when payment is due. Property taxes, state appropriations and federal awards are all considered to be susceptible to accrual and have been recognized as revenues of the current fiscal period. The County reports the following major Governmental Funds: General Fund - This fund is used to account for and report all financial resources not accounted for and reported in another fund. Road and Bridge Maintenance Fund - This fund is used to account for monies from specific revenue sources that are restricted for road and bridge maintenance.

84 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE FOUR YEAR ENDED SEPTEMBER 30, 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Additionally, the County reports the following fund types: GOVERNMENTAL FUND TYPES Special Revenue Funds - These funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. Debt Service Funds - These funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest. Capital Projects Funds - These funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. FIDUCIARY FUND TYPES Agency Funds - These funds account for various taxes, deposits and other monies collected or held by the County, acting in the capacity of an agent, for distribution to other governmental units or designated beneficiaries. E. Account Classifications - The account classifications used in the financial statements conform to the broad classifications recommended in Governmental Accounting, Auditing and Financial Reporting as issued in 2012 by the Government Finance Officers Association. F. Deposits and Investments - State law authorizes the County to invest in interest bearing time certificates of deposit for periods of fourteen days to one year with depositories and in obligations of the U.S. Treasury, State of Mississippi, or any county, municipality or school district of this state. Further, the County may invest in certain repurchase agreements. Cash includes cash on hand, demand deposits, all certificates of deposit and cash equivalents, which are short-term highly liquid investments that are readily convertible to cash (generally three months or less). Investments in governmental securities are stated at fair value. However, the County did not invest in any governmental securities during the fiscal year.

85 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE FIVE YEAR ENDED SEPTEMBER 30, 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) G. Receivables - Receivables are reported net of allowances for uncollectible accounts, where applicable. H. Interfund Transactions and Balances - Transactions between funds that are representative of short-term lending/borrowing arrangements and transactions that have not resulted in the actual transfer of cash at the end of the fiscal year are referred to as "due to/from other funds." Interfund receivables and payables between funds within governmental activities are eliminated in the Statement of Net Position. I. Prepaid Items - Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Prepaid items, such as prepaid insurance, are not reported for Governmental Fund Types since the costs of such items are accounted for as expenditures in the period of acquisition. J. Capital Assets - Capital acquisition and construction are reflected as expenditures in Governmental Fund statements and the related assets are reported as capital assets in the governmental activities column in the government-wide financial statements. All purchased capital assets are stated at historical cost where records are available and at an estimated historical cost where no records exist. Capital assets include significant amounts of infrastructure which have been valued at estimated historical cost. The estimated historical cost was based on replacement cost multiplied by the consumer price index implicit price deflator for the year of acquisition. The extent to which capital asset costs have been estimated and the methods of estimation are not readily available. Donated capital assets are recorded at estimated fair market value at the time of donation. The costs of normal maintenance and repairs that do not add to the value of assets or materially extend their respective lives are not capitalized; however, improvements are capitalized. Interest expenditures are not capitalized on capital assets. Capitalization thresholds (dollar value above which asset acquisitions are added to the capital asset accounts) and estimated useful lives are used to report capital assets in the government-wide statements. Depreciation is calculated on the straight-line basis for all assets, except land. A full year s depreciation expense is taken for all purchases and sales of capital assets during the year. The following schedule details those thresholds and estimated useful lives: (See Table on Next Page)

86 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE SIX YEAR ENDED SEPTEMBER 30, 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Capitalization Thresholds Estimated Useful Life Land $ - N/A Infrastructure years Buildings 50, years Improvements other than buildings 25, years Mobile equipment 5, years Furniture and equipment 5, years Leased property under capital leases * * * Leased property capitalization policy and estimated useful life will correspond with the amounts for the asset classification, as listed above. K. 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. For fiscal year 2014, deferred outflows of resources consist of deferred charges on refunding. 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. For fiscal year 2014, deferred inflows of resources consist of unearned revenues from property taxes. L. Long-Term Liabilities - Long-term liabilities are the unmatured principal of bonds, loans, notes or other forms of noncurrent or long-term general obligation indebtedness. Long-term liabilities are not limited to liabilities from debt issuances, but may also include liabilities on lease-purchase agreements and other commitments. In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the governmental activities in the Statement of Net Position. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt.

87 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE SEVEN YEAR ENDED SEPTEMBER 30, 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) M. Equity Classifications Government-wide Financial Statements: Equity is classified as Net Position and displayed in three components: Net investment in capital assets - Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, notes or other borrowings attributable to the acquisition, construction or improvement of those assets. Restricted net position - Consists of net position with constraints placed on the use either by external groups such as creditors, grantors, contributors, or laws and regulations of other governments; or law through constitutional provisions or enabling legislation. Unrestricted net position - All other net position not meeting the definition of restricted or net investment in capital assets. Fund Financial Statements: Fund balances for governmental funds are reported in classifications that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. Governmental fund balance is classified as nonspendable, restricted, committed, assigned or unassigned. The following are descriptions of fund classifications used by the County: Restricted fund balance includes amounts that have constraints placed upon the use of the resources either by an external party or imposed by law through a constitutional provision or enabling legislation. Committed fund balance includes amounts that can be used only for specific purposes pursuant to constraints imposed by a formal action of the Board of Supervisors, the County s highest level of decisionmaking authority. This formal action is an order of the Board of Supervisors as approved in the board minutes.

88 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE EIGHT YEAR ENDED SEPTEMBER 30, 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Unassigned fund balance is the residual classification for the General Fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed or assigned to specific purposes within the general fund. The general fund should be the only fund that reports a positive unassigned fund balance amount. In other governmental funds if expenditures incurred for specific purposes exceeded the amounts restricted, committed or assigned to those purposes, it may be necessary to report a negative unassigned fund balance. When an expenditure is incurred for purposes for which both restricted and unrestricted (committed, assigned or unassigned) resources are available, it is the County s general policy to use restricted resources first. When expenditures are incurred for purposes for which unrestricted (committed, assigned and unassigned) resources are available, and amounts in any of these unrestricted classifications could be used, it is the County s general policy to spend committed resources first, followed by assigned amounts, and then unassigned amounts. N. Property Tax Revenues - Numerous statutes exist under which the Board of Supervisors may levy property taxes. The selection of authorities is made based on the objectives and responsibilities of the County. Restrictions associated with property tax levies vary with the statutory authority. The amount of increase in certain property taxes is limited by state law. Generally, this restriction provides that these tax levies shall produce no more than 110% of the amount which resulted from the assessments of the previous year. The Board of Supervisors, each year at a meeting in September, levies property taxes for the ensuing fiscal year which begins on October 1. Real property taxes become a lien on January 1 of the current year, and personal property taxes become a lien on March 1 of the current year. Taxes on both real and personal property, however, are due on or before February 1 of the next succeeding year. Taxes on motor vehicles and mobile homes become a lien and are due in the month that coincides with the month of original purchase. Accounting principles generally accepted in the United States of America require property taxes to be recognized at the levy date if measurable and available. All property taxes are recognized as revenue in the year for which they are levied. Motor vehicle and mobile home taxes do not meet the measurability and collectability criteria for property tax recognition because the lien and due date cannot be established until the date of original purchase occurs.

89 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE NINE YEAR ENDED SEPTEMBER 30, 2014 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) O. Intergovernmental Revenues in Governmental Funds - Intergovernmental revenues, consisting of grants, entitlements, and shared revenues, are usually recorded in Governmental Funds when measurable and available. However, the "available" criterion applies for certain federal grants and shared revenues when the expenditure is made because expenditure is the prime factor for determining eligibility. Similarly, if cost sharing or matching requirements exist, revenue recognition depends on compliance with these requirements. P. Compensated Absences - The County has adopted a policy of compensation for accumulated unpaid employee personal leave. No payment is authorized for accrued major medical leave. Accounting principles generally accepted in the United States of America require accrual of accumulated unpaid employee benefits as long-term liabilities in the government-wide financial statements. In fund financial statements, Governmental Funds report the compensated absence liability payable only if the payable has matured, for example an employee resigns or retires. NOTE 2 - FUND RECLASSIFICATION For the year ended September 30, 2014, the Negotiable Note Proceeds, 2013 Fund was reclassified from a Major Fund to Other Governmental Funds. This resulted in an increase to the Other Governmental Funds beginning fund balance of $1,432,941. NOTE 3 - PRIOR PERIOD ADJUSTMENT A summary of the significant fund equity adjustment is as follows: Exhibit 2 - Statement of Activities Explanation Amount To adjust beginning balances of capital assets $ 38,707 Total prior period adjustment $ 38,707

90 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE TEN YEAR ENDED SEPTEMBER 30, 2014 NOTE 4 - DEPOSITS Deposits - The carrying amount of the County s total deposits with financial institutions at September 30, 2014, was $34,299,476, and the bank balance was $34,385,361. The collateral for public entities deposits in financial institutions is held in the name of the State Treasurer under a program established by the Mississippi State Legislature and is governed by Section , Miss. Code Ann. (1972). Under this program, the entity s funds are protected through a collateral pool administered by the State Treasurer. Financial institutions holding deposits of public funds must pledge securities as collateral against those deposits. In the event of failure of a financial institution, securities pledged by that institution would be liquidated by the State Treasurer to replace the public deposits not covered by the Federal Deposit Insurance Corporation (FDIC). Cash with Fiscal Agents - The carrying amount of the County s cash with fiscal agents held by financial institutions was $310,192 at September 30, Included in this amount is $267,098 in County s 2012 Qualified School Construction Bond Sinking Fund. Custodial Credit Risk - Deposits - Custodial credit risk is the risk that in the event of the failure of a financial institution, the County will not be able to recover deposits or collateral securities that are in the possession of an outside party. The County does not have a formal policy for custodial credit risk. However, the Mississippi State Treasurer manages that risk on behalf of the County. Deposits above FDIC coverage are collateralized by the pledging financial institution s trust department or agent in the name of the Mississippi State Treasurer on behalf of the County. NOTE 5 - INTERFUND TRANSACTIONS AND BALANCES The following is a summary of interfund balances at September 30, 2014: A. Due From/To Other Funds: Receivable Fund Payable Fund Amount Road and Bridge Maintenance Fund General Fund $ 100,717 Other Governmental Funds General Fund 69,708 Agency Funds General Fund 10,559 Total $ 180,984 The receivables represent the tax revenue collected but not settled until October All interfund balances are expected to be repaid within one year from the date of the financial statements.

91 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE ELEVEN YEAR ENDED SEPTEMBER 30, 2014 NOTE 5 - INTERFUND TRANSACTIONS AND BALANCES (cont.) B. Transfers In/Out: Transfer In Transfer Out Amount General Fund Other Governmental Funds $ 13,000 Other Governmental Funds General Fund 560,000 Other Governmental Funds Other Governmental Funds 50,000 Total $ 623,000 The principal purpose of interfund transfers was to provide funds to pay for capital outlay and debt service. All interfund transfers were routine and consistent with the activities of the fund making the transfer. NOTE 6 - INTERGOVERNMENTAL RECEIVABLES Intergovernmental receivables at September 30, 2014, consisted of the following: Description Amount Governmental Activities: Legislative tag credit $ 343,586 Total governmental activities $ 343,586

92 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE TWELVE YEAR ENDED SEPTEMBER 30, 2014 NOTE 7 - OTHER RECEIVABLES Other receivables at September 30, 2014, consisted of the following: Description Amount Governmental Activities: General Fund: Tax Collector bad checks $ 31,872 Total general fund 31,872 Total governmental activities $ 31,872

93 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE THIRTEEN YEAR ENDED SEPTEMBER 30, 2014 NOTE 8 - CAPITAL ASSETS The following is a summary of capital assets activity for the year ended September 30, 2014: Balance Balance Oct. 1, 2013 Additions Deletions Adjustments Sep. 30, 2014 Non-depreciable capital assets: Land $ 2,137,059 $ - $ - $ - $ 2,137,059 Total non-depreciable capital assets 2,137, ,137,059 Depreciable capital assets: Infrastructure 64,085, ,085,169 Buildings 65,518,903-89,000 89,000 65,518,903 Improvements other than buildings 1,396, , ,501,637 Mobile equipment 13,051, , ,443 33,446 13,507,155 Furniture and equipment 2,191, , ,430-2,265,886 Total depreciable capital assets 146,242,816 1,097, , , ,878,750 Less accumulated depreciation for: Infrastructure 35,980, , ,828,118 Buildings 14,442,241 1,224,192 55,069 53,400 15,664,764 Improvements other than buildings 539,324 58, ,623 Mobile equipment 8,533, , ,014 30,339 9,224,748 Furniture and equipment 1,564, , ,002-1,535,441 Total accumulated depreciation 61,059,419 3,219, ,085 83,739 63,850,694 Total depreciable capital assets, net 85,183,397 (2,122,260) 71,788 38,707 83,028,056 Governmental activities capital assets, net $ 87,320,456 $ (2,122,260) $ 71,788 $ 38,707 $ 85,165,115 The adjustments to capital assets are due to the reclassification made between capital asset categories and to adjust for understatement of prior year balances as contained in the detailed subsidiary records.

94 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE FOURTEEN YEAR ENDED SEPTEMBER 30, 2014 NOTE 8 - CAPITAL ASSETS (Cont.) Depreciation expense was charged to the following functions: Governmental Activities: Amount General government $ 815,792 Public safety 1,081,218 Public works 1,193,089 Health and welfare 7,269 Culture and recreation 101,379 Conservation of natural resources 20,874 Total governmental activities depreciation expense $ 3,219,621 NOTE 9 - CLAIMS AND JUDGMENTS Risk Financing - The County finances its exposure to risk of loss related to workers compensation for injuries to its employees through the Mississippi Public Entity Workers Compensation Trust, a public entity risk pool. The County pays premiums to the pool for its workers' compensation insurance coverage, and the participation agreement provides that the pool will be self-sustaining through member premiums. The retention for the pool is $1,000,000 for each accident and completely covers statutory limits set by the Workers' Compensation Commission. Risk of loss is remote for claims exceeding the pool's retention liability. However, the pool also has catastrophic reinsurance coverage for statutory limits above the pool s retention, provided by Safety National Casualty Corporation, effective from January 1, 2014, to January 1, The pool may make an overall supplemental assessment or declare a refund depending on the loss experience of all the entities it insures.

95 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE FIFTEEN YEAR ENDED SEPTEMBER 30, 2014 NOTE 10 - LONG-TERM DEBT Debt outstanding as of September 30, 2014, consisted of the following: Description and Purpose Amount Outstanding Interest Rate Final Maturity Date Governmental Activities: A. General obligation bonds: Multi-purpose center project refinancing, Series 2012 $ 1,800, % 12/2016 G.O. refunding bond, Series ,940, % % 03/2020 Public improvement bond, Series ,770, % 03/2029 G.O. refunding bond, Series 2009B 2,185, % 01/2019 G.O. negotiable notes, Series ,383, % 12/2017 G.O. bond, Series 2012 (Qualified School Construction Bond) 3,000, % 08/2027 Total general obligation bonds $ 32,078,030 B. Other loans: Brooklyn Volunteer Fire Department $ 12, % 02/2015 Dixie Volunteer Fire Department 21, % 02/2015 Carnes Volunteer Fire Department 57, % 12/2018 Total other loans $ 91,478

96 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE SIXTEEN YEAR ENDED SEPTEMBER 30, 2014 NOTE 10 - LONG-TERM DEBT (Cont.) Annual debt service requirements to maturity for the following debt reported in the Statement of Net Position are as follows: Governmental Activities: General Obligation Bonds Year Ending September 30, Principal Interest 2015 $ 3,093,326 $ 1,033, ,174, , ,271, , ,728, , ,945, , ,780,000 2,702, ,085,000 * 1,041,622 Total $ 32,078,030 $ 8,100,154 *Includes $3,000,000 principal due on Qualified School Construction Bonds. Other Loans Year Ending September 30, Principal Interest 2015 $ 45,133 $ 2, , , , , Total $ 91,478 $ 4,269

97 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE SEVENTEEN YEAR ENDED SEPTEMBER 30, 2014 NOTE 10 - LONG-TERM DEBT (Cont.) As more fully explained in Note 11, debt has been issued by the County that qualifies as Qualified School Construction bonds. Debt currently outstanding is as follows: Description and Purpose Interest Rate Issue Date Maturity Date Amount Issued Amount Outstanding G.O. bond, series 2012 (Qualified school construction bonds payable) 0% 8/1/2012 8/1/2027 $ 3,000,000 $ 3,000,000 Certificates of Participation (COPs) designated as qualified tax exempt obligations for purposes of Section 265 of the Internal Revenue Code of 1986, as amended, were issued during the fiscal year ended September 30, 1995, for the purpose of financing the construction of a youth detention facility and for the acquisition and renovations of a shopping center to be used for a welfare building. The COPs are not general obligations of the County and, therefore, are not secured by the County s full faith and credit. However, the County, as lessee, is obligated as the sole source of payment pursuant to a 15-year lease purchase agreement for the youth detention facility and a 20-year lease purchase agreement for the public facilities project with the lessor, Forrest County Public Improvements Corporation, a blended component unit of Forrest County. Because the County s obligation to make lease payments is also the sole source of payment for the COPs, the lease obligation is not recorded. Instead the COPs are considered, in substance, limited debt obligations of the County, and accordingly, are reflected in the Statement of Net Position. The COPs are being retired by General Fund revenues, and title to the property will transfer to the County upon satisfactory performance of the lease terms. Legal Debt Margin The amount of debt, excluding specific exempted debt that can be incurred by the County is limited by state statute. Total outstanding debt during a year can be no greater than 15% of assessed value of the taxable property within the County, according to the then last completed assessment for taxation. However, the limitation is increased to 20% whenever a County issues bonds to repair or replace washed out or collapsed bridges on the public roads of the County. As of September 30, 2014, the amount of outstanding debt was equal to 4.47% of the latest property assessments.

98 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE EIGHTEEN YEAR ENDED SEPTEMBER 30, 2014 NOTE 10 - LONG-TERM DEBT (Cont.) The following is a summary of changes in long-term liabilities and obligations for the year ended September 30, 2014: Balance Balance Amount Due Oct. 1, 2013 Additions Reductions Sep. 30, 2014 Within One Year Governmental Activities: Compensated absences $ 565,570 $ 15,829 $ - $ 581,399 $ - General obligation bonds 32,085,000-3,006,970 29,078,030 3,093,326 General obligation bonds - qualified school construction bond 3,000, ,000,000 - Add: Premiums 290,004-42, ,538 - Total general obligation bonds 35,375,004-3,049,436 32,325,568 3,093,326 Other loans 107,188 57,418 73,128 91,478 45,133 Total governmental activities $ 36,047,762 $ 73,247 $ 3,122,564 $ 32,998,445 $ 3,138,459 Compensated absences will be paid from the fund from which the employees salaries were paid which are generally the General Fund and the Road and Bridge Maintenance Fund.

99 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE NINETEEN YEAR ENDED SEPTEMBER 30, 2014 NOTE 11 - QUALIFIED SCHOOL CONSTRUCTION BONDS Section 1521 of the American Recovery and Reinvestment Act (ARRA) of 2009 provides for a source of capital at no or at nominal interest rates for costs incurred by certain public schools in connection with the construction, rehabilitation or repair of a public school facility or for the acquisition of land where a school will be built. Investors receive Federal income tax credits at prescribed tax credit rates in lieu of interest, which essentially allows state and local governments to borrow without incurring interest costs. The current maturity limit of tax credit bonds is 17 years, per the U.S. Treasury Department. Under this program, ten percent of the proceeds must be subject to a binding commitment to be spent within six months of issuance and 100% must be spent within three years. Up to two percent of bond proceeds can be used to pay costs of issuance. On August 1, 2012, the County issued G.O. Bond, Series 2012 (Qualified School Construction Bonds) on behalf of Forrest County Agricultural High School (FCAHS) in the amount of $3,000,000. The stated interest rate on the bonds is 0% with an applicable tax credit rate of 4.41%. The County remitted the entire amount of the bond proceeds, net of $26,494 issuance costs, to FCAHS for capital improvement projects. Pursuant to the bond documents, these bonds are to be repaid in full on August 1, 2027, from the proceeds of the annual minimum sinking fund deposit schedule. The County was originally scheduled to make 15 equal annual payments of $200,000 into a sinking fund, with a maximum permitted yield of 3.34%. These sinking fund requirements were adjusted during fiscal year 2013 to reflect annual payments of $210,000 for years and $211,000 for years The amount accumulated in the sinking fund at the end of the 15-year period will be sufficient to retire the debt. The amount on deposit at September 30, 2014 was $267,098. The following schedule reports the projected annual deposits required for the sinking fund. (Actual annual funding could be reduced by accumulated interest earned). Year Ending September 30, Amount 2015 $ 210, , , , , ,052, ,000 Total $ 2,735,000

100 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE TWENTY YEAR ENDED SEPTEMBER 30, 2014 NOTE 12 - DEFICIT FUND BALANCES OF INDIVIDUAL FUNDS The following fund reported a deficit in net position at September 30, 2014: Fund Deficit Amount Multipurpose Center $ 24,759 NOTE 13 - CONTINGENCIES Federal Grants - The County has received federal grants for specific purposes that are subject to audit by the grantor agencies. Entitlements to these resources are generally conditional upon compliance with the terms and conditions of grant agreements and applicable federal regulations, including the expenditure of resources for allowable purposes. Any disallowance resulting from a grantor audit may become a liability of the County. No provision for any liability that may result has been recognized in the County s financial statements. Litigation - The County is a defendant in a case that has been filed in the United States District Court for the Southern District of Mississippi that involves claims against the County by three former inmates, their families, and/or estates for wrongful arrest, conviction, and incarceration in connection with a capital murder committed in A companion case has also been filed to determine the duties of the County s former insurer to defend and/or indemnify the County against the plaintiffs claims in the abovenoted wrongful arrest, conviction, and incarceration litigation. Both cases are in the preliminary, prediscovery stage, and their respective outcomes are considered to be uncertain as of May 27, 2015, which is the date the financial statements were available to be issued. Legal counsel also noted that both cases will involve significant defense costs that may be recoverable depending upon the resolution of the case involving the County s former insurer. To the extent that the wrongful arrest, conviction, and incarceration case may also involve a substantial settlement or judgment, the amount and structure of the same would be determined by several currently unknown factors, including but not limited to the resolution of the case involving the County s former insurer. The County is party to other legal proceedings, many of which occur in the normal course of governmental operations. It is not possible at the present time to estimate ultimate outcome or liability, if any, of the County with respect to the various proceedings. However, the County's legal counsel believes that ultimate liability resulting from these lawsuits will not have a material adverse effect on the financial condition of the County.

101 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE TWENTY-ONE YEAR ENDED SEPTEMBER 30, 2014 NOTE 14 - JOINT VENTURES The County participates in the following joint ventures: Forrest County is a participant with the City of Hattiesburg in a joint venture, authorized by Chapter 956, House Bill 1865, of the Local and Private Laws of 1994, to operate the Forrest County Industrial Park Commission. The joint venture was created to develop and operate an industrial park complex for the citizens of Forrest County and the City of Hattiesburg. The Forrest County Board of Supervisors appoints five of ten members of the board. By contractual agreement, the County s appropriation to the joint venture was $130,000 in fiscal year Complete financial statements for the Forrest County Industrial Park Commission can be obtained from Post Office Box 1898, Hattiesburg, Mississippi Forrest County is a participant with Jones County, the Cities of Hattiesburg and Laurel, and the State of Mississippi in a joint venture, authorized by Section , Miss. Code Ann. (1971), to operate the Hattiesburg-Laurel Regional Airport Authority. The joint venture was created to develop and maintain the airport for the members of the authority. The Forrest County Board of Supervisors appoints one of the five members of the board of commissioners. By contractual agreement, the County s appropriation to the joint venture was $220,369 in fiscal year Complete financial statements for the Hattiesburg-Laurel Regional Airport Authority can be obtained from 1002 Terminal Drive, Moselle, Mississippi Forrest County is a participant with the Cities of Hattiesburg and Petal in a joint venture, authorized by Section , Miss. Code Ann. (1972), to operate the Library of Hattiesburg, Petal and Forrest County. The joint venture was created to provide free public library service to the citizens of Forrest County and the Cities of Hattiesburg and Petal. The Forrest County Board of Supervisors appoints six of the fifteen members of the board of directors. By contractual agreement, the County s appropriation to the joint venture was $733,053 in fiscal year Complete financial statements for the Library of Hattiesburg, Petal and Forrest County can be obtained from 329 Hardy Street, Hattiesburg, Mississippi NOTE 15 - JOINTLY GOVERNED ORGANIZATIONS The County participates in the following jointly governed organizations: Pearl River Community College operates in a district composed of the Counties of Forrest, Hancock, Jefferson Davis, Lamar, Marion and Pearl River. The Forrest County Board of Supervisors appoints two of the sixteen members of the college board of trustees. The County appropriated $1,256,292 for maintenance and support of the college in fiscal year 2014.

102 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE TWENTY-TWO YEAR ENDED SEPTEMBER 30, 2014 NOTE 15 - JOINTLY GOVERNED ORGANIZATIONS (Cont.) Southeast Mississippi Air Ambulance District provides air ambulance service to the Counties of Covington, Forrest, Greene, Jefferson Davis, Lamar, Marion, Pearl River, Perry and Walthall. The Forrest County Board of Supervisors appoints one of the nine members of the board of directors. There is no ongoing financial interest or responsibility for the appointing authorities. The County contributed $269,317 for support of the district in fiscal year Southern Mississippi Planning and Development District operates in a district composed of the Counties of Covington, Forrest, George, Greene, Hancock, Harrison, Jackson, Jefferson Davis, Jones, Lamar, Marion, Pearl River, Perry, Stone, and Wayne. The Forrest County Board of Supervisors appoints one of the twenty-seven members of the board of directors. The County contributes a small percentage of the district s total revenue. The County appropriated $59,827 to the agency in fiscal year Pearl River Valley Opportunity, Inc. operates in a district composed of the Counties of Covington, Forrest, Jefferson Davis, Jones, Lamar, Marion, Pearl River, and Perry. The entity was created to administer programs conducted by community action agencies, limited purpose agencies and related programs authorized by federal law. The Forrest County Board of Supervisors appoints one of the twentyfour members of the board of directors. The primary source of funding for the entity is derived from federal funds. Each County provides a modest amount of financial support when matching funds are required for federal grants. Contributions for fiscal year 2014 totaled $25,000. Pine Belt Mental Health Care Resources operates in a district composed of the Counties of Covington, Forrest, Greene, Jefferson Davis, Jones, Lamar, Marion, Perry and Wayne. The Forrest County Board of Supervisors appoints one of the nine members of the board of commissioners. The County appropriated $16,562 for support of the agency in fiscal year Mississippi Regional Housing Authority VIII operates in a district composed of the Counties of Covington, Forrest, George, Greene, Hancock, Harrison, Jackson, Jones, Lamar, Marion, Pearl River, Perry, Stone and Wayne. The governing body is a fifteen member board of commissioners, one appointed by the Board of Supervisors of each of the member counties and one appointed at large. The counties generally provide no financial support to the organization. Pearl and Leaf Rivers Rails-to-Trails Recreational District operates in a district composed of the Counties of Forrest, Jefferson Davis and Lamar and the Cities of Bassfield, Hattiesburg, Prentiss and Sumrall. The Forrest County Board of Supervisors appoints one of seven members of the board of directors. The County appropriated $132,021 for the support of the district in fiscal year 2014.

103 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE TWENTY-THREE YEAR ENDED SEPTEMBER 30, 2014 NOTE 15 - JOINTLY GOVERNED ORGANIZATIONS (Cont.) The City of Hattiesburg - Forrest County Emergency Management District operates in a district composed of Forrest County and the City of Hattiesburg. The Forrest County Board of Supervisors appoints three of the six members of the council. Operating funds are provided by state grants, E-911 charges and direct contributions. NOTE 16 - DEFINED BENEFIT PENSION PLAN Plan Description - Forrest County, Mississippi, contributes to the Public Employees' Retirement System of Mississippi (PERS), a cost-sharing, multiple-employer, defined benefit pension plan. PERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. Benefit provisions are established by state law and may be amended only by the State of Mississippi Legislature. PERS issues a publicly available financial report that includes financial statements and required supplementary information. That information may be obtained by writing to Public Employees' Retirement System, PERS Building, 429 Mississippi Street, Jackson, Mississippi or by calling PERS. Funding Policy - At September 30, 2014, PERS members were required to contribute 9% of their annual covered salary, and the County is required to contribute at an actuarially determined rate. The rate at September 30, 2014 was 15.75% of annual covered payroll. The contribution requirements of PERS members are established and may be amended only by the State of Mississippi Legislature. The County's contributions (employer share only) to PERS for the years ended September 30, 2014, 2013, and 2012 were $1,855,270, $1,768,026, and $1,342,313 respectively, equal to the required contributions for each year. NOTE 17 - SUBSEQUENT EVENTS Events that occur after the Statement of Net Position date but before the financial statements are available to be issued must be evaluated for recognition or disclosure. The effects of subsequent events that provide evidence about conditions that existed at the Statement of Net Position date are recognized in the accompanying financial statements. Subsequent events which provide evidence about conditions that existed after the Statement of Net Position date require disclosure in the accompanying notes. Management of Forrest County evaluated the activity of the County through May 27, 2015, (the date the financial statements were available to be issued), and determined that the following subsequent events have occurred requiring disclosure in the notes to the financial statements.

104 FORREST COUNTY, MISSISSIPPI NOTES TO FINANCIAL STATEMENTS PAGE TWENTY-FOUR YEAR ENDED SEPTEMBER 30, 2014 NOTE 17 - SUBSEQUENT EVENTS (Cont.) The County is involved in litigation regarding Phillip Bivens, et al. vs. Forrest County, et al. (S.D.Miss. No. 2:13-CV-8), which involves claims against the County by three former inmates, their families, and/or their estates for wrongful arrest, conviction, and incarceration in connection with a capital murder committed in A companion case, the Travelers Indemnity Company, et al. vs. Forrest County, et al. (S.D.Miss. No. 214-CV-22) has been filed to determine the duties of the County s former insurer to defend and/or indemnify the County against the Bivens plaintiff s claims. Both cases are in the preliminary, pre-discovery stage, and their respective outcomes are uncertain. Both cases will involve significant defense costs that may be recoverable depending upon the resolution of the Travelers case. To the extent that the Bivens case may also involve a substantial settlement or judgment, the amount and structure of the same would be determined by several currently unknown factors, including but not limited to the resolution of the Travelers case. In October, 2014 the County closed on an $8,960,000, General Obligation Refunding Bond, Series 2014 (dated October 21, 2014) for the purpose of providing funds for the refunding of certain outstanding maturities of the County s General Obligation Public Improvement Bonds, Series 2009, dated March 26, The Series 2014 bonds are to be amortized with interest only payments payable on the first of March and September beginning on March 1, 2015 and continuing through September 1, Principal payments begin on March 1, 2025 and continue through the final payment due on March 1, The average coupon rate on the bonds is approximately 5.00%. The MDA Development Infrastructure Program ( Project SPOKE ) will be completed in fiscal year This is a grading and erosion control project at the Industrial Park with a total cost of $762,000. This is the site area for the new Green Bay Converting Plant in the Industrial Park. The County received federal funding for the Transportation Alternatives Program (TAP) Grant for Rawls Springs Recreation Center Walking Path Expansion through the Mississippi Department of Transportation. The total cost of the project is $871,451 of which $625,161 will be federally funded. The Board of Supervisors has made a commitment of $1,000,000 to a TIGER grant in support of the Mid-Town Project with the City of Hattiesburg. They have made an additional $1,000,000 commitment to a TIGER grant in support of the Over Pass Project with the City of Hattiesburg. Both of these grants are subject to Federal approval of the grants.

105 REQUIRED SUPPLEMENTARY INFORMATION

106 SCHEDULE 1 FORREST COUNTY, MISSISSIPPI BUDGETARY COMPARISON SCHEDULE - BUDGET AND ACTUAL (NON-GAAP BASIS) GENERAL FUND YEAR ENDED SEPTEMBER 30, 2014 Original Budget REVENUES Property taxes $ 17,945,013 Licenses, commissions and other revenue 1,294,900 Fines and forfeitures 507,500 Intergovernmental revenues 1,469,500 Charges for services 1,700,000 Interest income 28,285 Miscellaneous revenues 681,000 Total revenues 23,626,198 EXPENDITURES Current: General government 13,218,504 Public safety 10,265,503 Public works 220,369 Health and welfare 1,013,351 Culture and recreation 1,530,869 Education 8,528 Conservation of natural resources 101,250 Economic development and assistance 260,109 Debt service 102,912 Total expenditures 26,721,395 Excess of revenues over (under) expenditures (3,095,197) OTHER FINANCING SOURCES (USES) Transfers in 534,000 Transfers out (339,000) Other financing sources - Other financing uses 5,000 Total other financing sources and uses 200,000 NET CHANGE IN FUND BALANCES (2,895,197) Fund balances - beginning 16,059,346 Fund balances - ending $ 13,164,149 The accompanying notes to the required supplemental information are an integral part of this statement.

107 Variance with Final Actual Final Budget Budget (Budgetary Basis) Positive (Negative) $ 18,092,691 $ 18,662,761 $ 570,070 1,307,900 1,528, , , ,657 62,657 2,113,000 2,018,563 (94,437) 1,935,000 1,874,854 (60,146) 28,405 28,360 (45) 990, ,238 (9,147) 25,063,381 25,753, ,694 14,369,934 11,874,249 2,495,685 10,815,850 9,855, , , ,369-1,017, , ,956 1,574,112 1,206, ,341 8,528 8, , ,723 (9,473) 1,187, , , ,912 5,210 97,702 29,398,240 24,876,808 4,521,432 (4,334,859) 876,267 5,211, ,000 13,000 (549,000) (373,729) (74,975) 298, , ,412 (12,588) 6,025 (13,008) (19,033) 554, ,429 (281,867) (3,780,563) 1,148,696 4,929,259 16,213,283 16,213,283 - $ 12,432,720 $ 17,361,979 $ 4,929,259

108 SCHEDULE 2 FORREST COUNTY, MISSISSIPPI BUDGETARY COMPARISON SCHEDULE - BUDGET AND ACTUAL (NON-GAAP BASIS) ROAD AND BRIDGE MAINTENANCE FUND YEAR ENDED SEPTEMBER 30, 2014 Original Budget REVENUES Property taxes $ 2,879,484 Road and bridge privilege taxes 530,000 Intergovernmental revenues 540,000 Interest income 3,000 Miscellaneous revenues 100 Total revenues 3,952,584 EXPENDITURES Current: Public works 4,444,487 Total expenditures 4,444,487 Excess of revenues over (under) expenditures (491,903) OTHER FINANCING SOURCES (USES) Other financing sources - Total other financing sources and uses - NET CHANGE IN FUND BALANCES (491,903) Fund balances - beginning 5,100,000 Fund balances - ending $ 4,608,097 The accompanying notes to the required supplemental information are an integral part of this statement.

109 Variance with Final Actual Final Budget Budget (Budgetary Basis) Positive (Negative) $ 2,879,484 $ 3,148,554 $ 269, , ,268 (232) 858, ,735 (9,390) 7,150 7,072 (78) 14,760 11,234 (3,526) 4,523,019 4,778, ,844 4,519,487 3,238,764 1,280,723 4,519,487 3,238,764 1,280,723 3,532 1,540,099 1,536,567-3,491 3,491-3,491 3,491 3,532 1,543,590 1,540,058 5,852,946 5,852,946 - $ 5,856,478 $ 7,396,536 $ 1,540,058

110 FORREST COUNTY, MISSISSIPPI NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED SEPTEMBER 30, 2014 NOTE 1 - BUDGETARY INFORMATION Statutory requirements dictate how and when the County s budget is to be prepared. Generally, in the month of August, prior to the ensuing fiscal year beginning each October 1, the Board of Supervisors of the County, using historical and anticipated fiscal data and proposed budgets submitted by the Sheriff, the Tax Assessor and the Tax Collector for his or her respective department, prepares an original budget for each of the Governmental Funds for said fiscal year. The completed budget for the fiscal year includes for each fund every source of revenue, each general item of expenditure, and the unencumbered cash and investment balances. When during the fiscal year it appears to the Board of Supervisors that budgetary estimates will not be met, it may make revisions to the budget. The County s budget is prepared principally on the cash basis of accounting. All appropriations lapse at year end, and there are no encumbrances to budget because state law does not require that funds be available when goods or services are ordered, only when payment is made. NOTE 2 - BASIS OF PRESENTATION The Budgetary Comparison Schedule - Budget and Actual (Non-GAAP Basis) presents the original legally adopted budget, the final legally adopted budget, actual amounts on a budgetary (Non-GAAP) basis and variances between the final budget and the actual amounts. The schedule is presented for the General Fund and each major Special Revenue Fund. The Budgetary Comparison Schedule - Budget and Actual (Non-GAAP Basis) is a part of required supplemental information. NOTE 3 - BUDGET/GAAP RECONCILIATION The major differences between the budgetary basis and the GAAP basis are: 1. Revenues are recorded when received in cash (budgetary) as opposed to when susceptible to accrual (GAAP). 2. Expenditures are recorded when paid in cash (budgetary) as opposed to when susceptible to accrual (GAAP).

111 FORREST COUNTY, MISSISSIPPI NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION PAGE TWO YEAR ENDED SEPTEMBER 30, 2014 NOTE 3 - BUDGET/GAAP RECONCILIATION (Cont.) The following schedule reconciles the budgetary basis schedules to the GAAP basis financial statements for the General Fund and each major special revenue fund: Governmental Fund Types Road and Bridge Maintenance General Fund Fund Budget (cash basis) $ 1,148,696 $ 1,543,590 Increase (decrease): Net adjustments for revenue accruals 40,294 7,532 Net adjustments for expenditure accruals (520,178) 59,702 GAAP Basis $ 668,812 $ 1,610,824

112 SUPPLEMENTAL INFORMATION

113 SCHEDULE 3 FORREST COUNTY, MISSISSIPPI SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED SEPTEMBER 30, 2014 Federal Grantor/Pass-Through Grantor/Program Title Federal CFDA Number Pass Through Entity Identifying Number Federal Expenditures U.S. Department of Agriculture: Passed-through Mississippi Office of State Treasurer Schools and Roads - Grants to States N/A $ 205,535 U.S. Department of Housing and Urban Development: Passed-through the Mississippi Development Authority HOME Investment Partnerships Program DSR ,000 U.S. Department of the Interior: Payments in Lieu of Taxes (Direct Program) N/A 18,327 U.S. Department of Justice: Passed-through the Mississippi Department of Public Safety Edward Byrne Memorial Justice Assistance Grant Program NM1181 5,775 Edward Byrne Memorial Justice Assistance Grant Program NM ,174 Total U.S. Department of Justice 18,949 U.S. Department of Transportation: Federal Highway Administration/Passed-through the Mississippi Department of Transportation: Highway Planning and Construction N/A 44,462

114 SCHEDULE 3 PAGE TWO FORREST COUNTY, MISSISSIPPI SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED SEPTEMBER 30, 2014 Federal Grantor/Pass-Through Grantor/Program Title Federal CFDA Number Agency or Pass Through Number Federal Expenditures U.S. Department of Health and Human Services: Substance Abuse and Mental Health Services Administration Substance Abuse and Mental Health Services - Projects of Regional and National Significance (Direct Program) N/A $ 115,209 Passed-through the Mississippi Department of Public Safety Substance Abuse and Mental Health Services - Projects of Regional and National Significance (Indirect Program) N/A 70,515 Total U.S. Department of Justice 185,724 Mississippi Department of Public Safety High Intensity Drug Trafficking Areas Program N/A 16,059 U.S. Department of Homeland Security: Passed-through the Mississippi Emergency Management Agency Hazard Mitigation Grant N/A 69,666 Total Expenditures of Federal Awards $ 608,722

115 FORREST COUNTY, MISSISSIPPI NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED SEPTEMBER 30, 2014 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES The accompanying Schedule of Expenditures of Federal Awards is prepared on the modified accrual basis of accounting. NOTE 2 - CFDA SCHOOL AND ROADS - GRANTS TO STATES Of the federal expenditures presented in the schedule, the County provided federal awards totaling $129,630 to subreceipients during the year ended September 30, 2014.

116 OTHER INFORMATION

117 SCHEDULE 4 SCHEDULE OF SURETY BONDS FOR COUNTY OFFICIALS - UNAUDITED Year Ended September 30, 2013 Position Company Bond Supervisor District 1 Brierfield Insurance Company $ 100,000 Supervisor District 2 Brierfield Insurance Company 100,000 Supervisor District 3 Brierfield Insurance Company 100,000 Supervisor District 4 Western Surety Company 100,000 Supervisor District 5 Brierfield Insurance Company 100,000 County Administrator Brierfield Insurance Company 100,000 Chief Financial Officer Brierfield Insurance Company 100,000 Chancery Clerk Brierfield Insurance Company 100,000 Purchase Clerk Brierfield Insurance Company 75,000 Receiving Clerk Brierfield Insurance Company 75,000 Assistant Receiving Clerks, each Brierfield Insurance Company 50,000 Inventory Control Clerk Brierfield Insurance Company 75,000 Road Manager Brierfield Insurance Company 100,000 Constables, each Brierfield Insurance Company 50,000 Circuit Clerk Brierfield Insurance Company 100,000 Deputy Circuit Clerks Brierfield Insurance Company 50,000 Sheriff Brierfield Insurance Company 100,000 Sheriff's Deputies, each Brierfield Insurance Company 50,000 Justice Court Judges, each Brierfield Insurance Company 50,000 Deputy Justice Court Clerks, each Brierfield Insurance Company 50,000 Tax Collector Brierfield Insurance Company 100,000 Tax Assessor Brierfield Insurance Company 100,000 Deputy Tax Collectors, each Brierfield Insurance Company 50,000 Deputy Tax Assessors, each Brierfield Insurance Company 25,000

118 SPECIAL REPORTS

119 CARL L. NICHOLSON, JR., CPA RICHARD D. HALBERT, CPA RICHARD G. TOPP, CPA FRANK H. McWHORTER, JR., CPA T. JOHN HARVEY, CPA WILLIAM T. KELLY, CPA/ABV, CVA SUSAN A. RILEY, CPA DAWN T. JONES, CPA MICHAEL W. DAVIS, CPA GREGORY L. FAIREY, CPA JEFFREY M. ALLEN, CPA JOHN S. HEATH, CPA PAIGE M. JOHNSON, CPA JANICE M. BATES, CPA JOE C. TRAVIS, CPA, CFF, Certified Forensic Accountant JOSEPH C. TOWNSEND, CPA STEPHEN W. GRAY, CPA ANNETTE P. HERRIN, CPA/ABV, CVA, CFE, CFF, MAFF LEIGH F. AGNEW, CPA SHELBY H. LOTT, CPA RENEE MOORE, CPA LACEY J. MILLER, CPA MICHAEL BRADLEY WOOD, CPA LESLIE C. BILANCIA, CPA/ABV, CVA ADAM K. SMITH, CPA MARY M. DENNIS, JD, CPA D. WHITNEY BRANCH, CPA WILLIAM JABE MILLS, CPA JEANA O. RICH, CPA JODY D. THORNTON, CPA CRAIG T. TAYLOR, CPA, CGMA REBECCA KING BAKER, CPA NICHOLSON & COMPANY, PLLC CERTIFIED PUBLIC ACCOUNTANTS 2 SOUTHERN POINTE PARKWAY, SUITE 100 HATTIESBURG, MISSISSIPPI POST OFFICE DRAWER HATTIESBURG, MISSISSIPPI TELEPHONE TOLL FREE FAX MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS MISSISSIPPI SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS OTHER OFFICES: 150 OLD HWY 98 EAST POST OFFICE BOX 609 COLUMBIA, MISSISSIPPI TELEPHONE: FAX rd AVENUE GULFPORT, MISSISSIPPI POST OFFICE BOX 1842 GULFPORT, MISSISSIPPI TELEPHONE: FAX Members of the Board of Supervisors Forrest County, Mississippi We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Forrest County, Mississippi, as of and for the year ended September 30, 2014, and the related notes to the financial statements, which collectively comprise the County s basic financial statements and have issued our report thereon dated MAY 27, Our report includes an adverse opinion on the aggregate discretely presented component units due to the omission of the discretely presented component units which are required by accounting principles generally accepted in the United States of America to be reported with the financial data of the County s primary government unless the County also issues financial statements for the financial reporting entity that include the financial data for its component units. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Forrest County, Mississippi 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 County s internal control. Accordingly, we do not express an opinion on the effectiveness of the County s internal control

120 Members of the Board of Supervisors Forrest County, Mississippi Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying Schedule of Findings and Questioned Costs, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described in the accompanying Schedule of Findings and Questioned Costs as to be a material weakness. 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. We consider the deficiency described in the accompanying Schedule of Findings and Questioned Costs as to be a significant deficiency. Compliance and Other Matters As part of obtaining reasonable assurance about whether Forrest County, Mississippi's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. However, we noted certain matters that we reported to the management of Forrest County, Mississippi, in the Independent Auditor s Report on Central Purchasing System, Inventory Control System and Purchase Clerk Schedules, and the Limited Internal Control and Compliance Review Management Report dated MAY 27, 2015, included within this document.

121 Members of the Board of Supervisors Forrest County, Mississippi Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. However, this report is a matter of public record and its distribution is not limited. Hattiesburg, Mississippi May 27, 2015

122 CARL L. NICHOLSON, JR., CPA RICHARD D. HALBERT, CPA RICHARD G. TOPP, CPA FRANK H. McWHORTER, JR., CPA T. JOHN HARVEY, CPA WILLIAM T. KELLY, CPA/ABV, CVA SUSAN A. RILEY, CPA DAWN T. JONES, CPA MICHAEL W. DAVIS, CPA GREGORY L. FAIREY, CPA JEFFREY M. ALLEN, CPA JOHN S. HEATH, CPA PAIGE M. JOHNSON, CPA JANICE M. BATES, CPA JOE C. TRAVIS, CPA, CFF, Certified Forensic Accountant JOSEPH C. TOWNSEND, CPA STEPHEN W. GRAY, CPA ANNETTE P. HERRIN, CPA/ABV, CVA, CFE, CFF, MAFF LEIGH F. AGNEW, CPA SHELBY H. LOTT, CPA RENEE MOORE, CPA LACEY J. MILLER, CPA MICHAEL BRADLEY WOOD, CPA LESLIE C. BILANCIA, CPA/ABV, CVA ADAM K. SMITH, CPA MARY M. DENNIS, JD, CPA D. WHITNEY BRANCH, CPA WILLIAM JABE MILLS, CPA JEANA O. RICH, CPA JODY D. THORNTON, CPA CRAIG T. TAYLOR, CPA, CGMA REBECCA KING BAKER, CPA NICHOLSON & COMPANY, PLLC CERTIFIED PUBLIC ACCOUNTANTS 2 SOUTHERN POINTE PARKWAY, SUITE 100 HATTIESBURG, MISSISSIPPI POST OFFICE DRAWER HATTIESBURG, MISSISSIPPI TELEPHONE TOLL FREE FAX MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS MISSISSIPPI SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY OMB CIRCULAR A-133 OTHER OFFICES: 150 OLD HWY 98 EAST POST OFFICE BOX 609 COLUMBIA, MISSISSIPPI TELEPHONE: FAX rd AVENUE GULFPORT, MISSISSIPPI POST OFFICE BOX 1842 GULFPORT, MISSISSIPPI TELEPHONE: FAX Members of the Board of Supervisors Forrest County, Mississippi Report on Compliance for Each Major Federal Program We have audited Forrest County, Mississippi s compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended September 30, Forrest County, Mississippi s major federal programs are identified in the summary of auditor s results section of the accompanying Schedule of Findings and Questioned Costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of Forrest County, Mississippi s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the

123 Members of the Board of Supervisors Forrest County, Mississippi Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Forrest County, Mississippi s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Forrest County, Mississippi s compliance. Opinion on Each Major Federal Program In our opinion, Forrest County, Mississippi, complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended September 30, Other Matters The results of our auditing procedures disclosed an instance of noncompliance, which is required to be reported in accordance with OMB Circular A-133 and which is described in the accompanying Schedule of Findings and Questioned Costs as item Our opinion on each major federal program is not modified with respect to these matters. Report on Internal Control Over Compliance Management of Forrest County, Mississippi is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Forrest County, Mississippi s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the County s internal control over compliance.

124 Members of the Board of Supervisors Forrest County, Mississippi A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly this report is not suitable for any other purpose. However, this report is a matter of public record and its distribution is not limited. Hattiesburg, Mississippi May 27, 2015

125 CARL L. NICHOLSON, JR., CPA RICHARD D. HALBERT, CPA RICHARD G. TOPP, CPA FRANK H. McWHORTER, JR., CPA T. JOHN HARVEY, CPA WILLIAM T. KELLY, CPA/ABV, CVA SUSAN A. RILEY, CPA DAWN T. JONES, CPA MICHAEL W. DAVIS, CPA GREGORY L. FAIREY, CPA JEFFREY M. ALLEN, CPA JOHN S. HEATH, CPA PAIGE M. JOHNSON, CPA JANICE M. BATES, CPA JOE C. TRAVIS, CPA, CFF, Certified Forensic Accountant JOSEPH C. TOWNSEND, CPA STEPHEN W. GRAY, CPA ANNETTE P. HERRIN, CPA/ABV, CVA, CFE, CFF, MAFF LEIGH F. AGNEW, CPA SHELBY H. LOTT, CPA RENEE MOORE, CPA LACEY J. MILLER, CPA MICHAEL BRADLEY WOOD, CPA LESLIE C. BILANCIA, CPA/ABV, CVA ADAM K. SMITH, CPA MARY M. DENNIS, JD, CPA D. WHITNEY BRANCH, CPA WILLIAM JABE MILLS, CPA JEANA O. RICH, CPA JODY D. THORNTON, CPA CRAIG T. TAYLOR, CPA, CGMA REBECCA KING BAKER, CPA NICHOLSON & COMPANY, PLLC CERTIFIED PUBLIC ACCOUNTANTS 2 SOUTHERN POINTE PARKWAY, SUITE 100 HATTIESBURG, MISSISSIPPI POST OFFICE DRAWER HATTIESBURG, MISSISSIPPI TELEPHONE TOLL FREE FAX MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS MISSISSIPPI SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS OTHER OFFICES: 150 OLD HWY 98 EAST POST OFFICE BOX 609 COLUMBIA, MISSISSIPPI TELEPHONE: FAX rd AVENUE GULFPORT, MISSISSIPPI POST OFFICE BOX 1842 GULFPORT, MISSISSIPPI TELEPHONE: FAX INDEPENDENT AUDITOR'S REPORT ON CENTRAL PURCHASING SYSTEM, INVENTORY CONTROL SYSTEM, AND PURCHASE CLERK SCHEDULES (REQUIRED BY SECTION , MISSISSIPPI CODE ANNOTATED [1972]) Members of the Board of Supervisors Forrest County, Mississippi We have examined Forrest County, Mississippi s (the County) compliance with establishing and maintaining a central purchasing system and inventory control system in accordance with Sections through , Miss. Code Ann. (1972) and compliance with the purchasing requirements in accordance with the bid requirements of Section , Miss. Code Ann. (1972) during the year ended September 30, The Board of Supervisors of Forrest County, Mississippi is responsible for the County s compliance with those requirements. Our responsibility is to express an opinion on the County s compliance based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence about the County s compliance with those requirements and performing other procedures as we considered necessary in the circumstances. We believe our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the County s compliance with specified requirements. The Board of Supervisors of Forrest County, Mississippi, has established centralized purchasing for all funds of the County and has established an inventory control system. The objective of the central purchasing system is to provide reasonable, but not absolute, assurance that purchases are executed in accordance with state law

126 Members of the Board of Supervisors Forrest County, Mississippi Because of inherent limitations in any central purchasing system and inventory control system, errors or irregularities may occur and not be detected. Also, projection of any current evaluation of the system to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of compliance with the procedures may deteriorate. The results of our audit procedures disclosed a certain instance of noncompliance with the aforementioned code sections. This instance of noncompliance was considered in forming our opinion on compliance. Our finding and recommendation and your response is disclosed below: Purchase Clerk. 1. The lowest bid was not selected during the purchase of construction equipment. Finding According to the Mississippi Code subsection , purchases may be made from the lowest and best bidder. If any governing authority accepts a bid other than the lowest bid actually submitted, it shall place on its minutes detailed calculations and narrative summary showing that the accepted bid was determined to be the lowest and best bid, including the dollar amount of the accepted bid and the dollar amount of the lowest bid. No agency or governing authority shall accept a bid based on items not included in the specifications. Recommendation We recommend that in the case of the lowest bid not being selected, the County include detailed calculations and narrative summary in its minutes. Purchase Clerk s Response The County will ensure that detailed calculations and information is documented in the Board minutes in the event a lowest bid is not selected. The Board entered an order amending its original order nunc pro tunc to include detailed calculations and a narrative summary explaining that the bid accepted was in fact the lowest and best bid. Chancery Clerk. 2. The Chancery Clerk made purchases during the year for the County that circumvented the central purchasing system. Finding Central purchasing system, as prescribed by the Office of the State Auditor, should be utilized when making all County purchases. Recommendation We recommend that the central purchasing system be utilized when purchases are made for other County departments. Chancery Clerk s Response The central purchasing system will be utilized on all future purchases for the County.

127 Members of the Board of Supervisors Forrest County, Mississippi In our opinion, except for the noncompliance referred to in the preceding paragraph, Forrest County, Mississippi, complied, in all material respects, with state laws governing central purchasing, inventory and bid requirements for the year ended September 30, The accompanying schedules of (1) Purchases Not Made from the Lowest Bidder; (2) Emergency Purchases; and (3) Purchases Made Noncompetitively from a Sole Source are presented in accordance with Section , Miss. Code Ann. (1972). The information contained on these schedules has been subjected to procedures performed in connection with our aforementioned examination of the purchasing system and, in our opinion, is fairly presented when considered in relation to that examination. Forrest County, Mississippi s response to the finding included in this report was not audited, and accordingly, we express no opinion on it. This report is intended for use in evaluating the central purchasing system and inventory control system of Forrest County, Mississippi, and is not intended to be and should not be relied upon for any other purpose. However, this report is a matter of public record and its distribution is not limited. Hattiesburg, Mississippi May 27, 2015

128 SCHEDULE 5 FORREST COUNTY, MISSISSIPPI SCHEDULE OF PURCHASES NOT MADE FROM THE LOWEST BIDDER YEAR ENDED SEPTEMBER 30, 2014 Date Item Purchased Bid Accepted Vendor Lowest Bid Reason for Accepting Other than the Lowest Bid 7/7/2014 Backhoe $92,418 Puckett Machinery $81,600 Recommendation from Road Manager

129 Date Item Purchased Amount Paid Vendor Reasons for Emergency Purchase SCHEDULE 6 FORREST COUNTY, MISSISSIPPI SCHEDULE OF EMERGENCY PURCHASES YEAR ENDED SEPTEMBER 30, /18/13 Emergency repairs to Carnes VFD fire truck $ 4,885 Deep South Truck & Equipment The fire truck is the first line response truck for structure fires in the southern areas of Forrest County. The truck's pump had to be repaired immediately so it could be put back into service. 12/16/13 New Cassette Tape Recorder $ 87 Lewis Printing The commitment hearings are recorded in the Evaluation Center, so the tape recorder had to be purchase immediately so hearings could continue. 01/21/14 Registration fees for road and bridge employees $ 200 Retroreflectivity workshop Road and bridge employees are required to attend the MDOT workshop to stay certified. There was no board meeting before the event, so an emergency purchase had to be made for the registration fees. 07/21/14 Emergency repairs Carnes VFD Fire Truck $ 8,135 Deep South Truck & Equipment The fire truck is the first line response truck for structure fires in the southern areas of Forrest County. The truck suffered an electronic short and burned several wiring harnesses, putting the truck out of service. 07/21/14 Air conditioning unit $ 1,096 Coburns Supply Previous unit was stolen from Rawl Spring Community Center. 08/18/14 Car battery $ 93 NAPA Auto Battery died when employee was out of town in his county vehicle (2007 Chevy Impala). Battery had to be replaced immediately. 08/18/14 Laminator $ 138 Commercial Stationary Laminator quit working while preparing backstage passes for the Great Southern Stampede.

130 SCHEDULE 7 FORREST COUNTY, MISSISSIPPI SCHEDULE OF PURCHASES MADE NONCOMPETITIVELY FROM A SOLE SOURCE YEAR ENDED SEPTEMBER 30, 2014 Date Item Purchased Amount Paid Vendor 3/11/2014 Election Software $ 266, Election Systems & Software

131 CARL L. NICHOLSON, JR., CPA RICHARD D. HALBERT, CPA RICHARD G. TOPP, CPA FRANK H. McWHORTER, JR., CPA T. JOHN HARVEY, CPA WILLIAM T. KELLY, CPA/ABV, CVA SUSAN A. RILEY, CPA DAWN T. JONES, CPA MICHAEL W. DAVIS, CPA GREGORY L. FAIREY, CPA JEFFREY M. ALLEN, CPA JOHN S. HEATH, CPA PAIGE M. JOHNSON, CPA JANICE M. BATES, CPA JOE C. TRAVIS, CPA, CFF, Certified Forensic Accountant JOSEPH C. TOWNSEND, CPA STEPHEN W. GRAY, CPA ANNETTE P. HERRIN, CPA/ABV, CVA, CFE, CFF, MAFF LEIGH F. AGNEW, CPA SHELBY H. LOTT, CPA RENEE MOORE, CPA LACEY J. MILLER, CPA MICHAEL BRADLEY WOOD, CPA LESLIE C. BILANCIA, CPA/ABV, CVA ADAM K. SMITH, CPA MARY M. DENNIS, JD, CPA D. WHITNEY BRANCH, CPA WILLIAM JABE MILLS, CPA JEANA O. RICH, CPA JODY D. THORNTON, CPA CRAIG T. TAYLOR, CPA, CGMA REBECCA KING BAKER, CPA NICHOLSON & COMPANY, PLLC CERTIFIED PUBLIC ACCOUNTANTS 2 SOUTHERN POINTE PARKWAY, SUITE 100 HATTIESBURG, MISSISSIPPI POST OFFICE DRAWER HATTIESBURG, MISSISSIPPI TELEPHONE TOLL FREE FAX LIMITED INTERNAL CONTROL AND COMPLIANCE REVIEW MANAGEMENT REPORT MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS MISSISSIPPI SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS OTHER OFFICES: 150 OLD HWY 98 EAST POST OFFICE BOX 609 COLUMBIA, MISSISSIPPI TELEPHONE: FAX rd AVENUE GULFPORT, MISSISSIPPI POST OFFICE BOX 1842 GULFPORT, MISSISSIPPI TELEPHONE: FAX Members of the Board of Supervisors Forrest County, Mississippi In planning and performing our audit of the financial statements of Forrest County, Mississippi, for the year ended September 30, 2014, we considered Forrest County, Mississippi s internal control to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide assurance on internal control. In addition, for areas not considered material to Forrest County, Mississippi s financial reporting, we have performed some additional limited internal control and state legal compliance review procedures as identified in the state legal compliance audit program issued by the Office of the State Auditor. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the County s compliance with these requirements. Accordingly, we do not express such an opinion. This report does not affect our report dated May 27, 2015 on the financial statements of Forrest County, Mississippi. Due to the reduced scope, these review procedures and compliance tests cannot and do not provide absolute assurance that all state legal requirements have been complied with. Also, our consideration of internal control would not necessarily disclose all matters within the internal control that might be weaknesses. In accordance with Section , Miss. Code Ann. (1972), the Office of the State Auditor, when deemed necessary, may conduct additional procedures and tests of transactions for this or other fiscal years to ensure compliance with legal requirements

132 Members of the Board of Supervisors Forrest County, Mississippi The results of our review procedures and compliance tests identified certain areas that are opportunities for strengthening internal controls and operating efficiency. Our findings, recommendations, and your responses are disclosed below: Sheriff 1. Finding According to the Mississippi Code subsection , prisoner s meals are not to exceed $6.00 per day. The $6.00 must include the cost of the meals and wages paid to employees for preparing the meals. During fieldwork, it was noted that the prisoners meals exceed $6.00 per day. Recommendation We recommend that the meals be adjusted to meet the $6.00 per day maximum. Sheriff s Response On May 4, 2015, the Board, on the recommendation of the Sheriff, accepted proposals and awarded to CMB Managed Services the contract to furnish food services at the Law Enforcement Complex. 2. Finding According to the Mississippi Code subsection , all fees and charges for services heretofore collected by sheriffs shall be collected by said sheriff and paid monthly into the general fund of the concerned county. Recommendation The Sherriff s office should remit receipts to the Chancery Clerk on a monthly basis. Sheriff s Response The Sheriff will remit receipts to the Chancery Clerk on a monthly basis.

133 Members of the Board of Supervisors Forrest County, Mississippi 3. Finding According to the Mississippi Code subsection , each deputy clerk of the circuit court shall take the oath of office, and shall give bond, with sufficient surety, to be payable, conditioned and approved as provided by law, in a penalty equal to three percent (3%) of the sum of all the state and county taxes shown by the assessment rolls and the levies to have been collectible in the county for the year immediately preceding the commencement of the term of office for the circuit clerk. However, the amount of such bond shall not be less than Fifty Thousand Dollars ($50,000) nor more than One Hundred Thousand Dollars ($100,000). The bond shall cover all monies coming into the hands of the deputy clerk by law or order of the court. The board of supervisors, in its discretion, may pay the bond on behalf of the deputy clerk. Recommendation We recommend that the deputy clerk give bond upon date of employment. Response The Circuit Clerk will make sure that the County Administrator is made aware of new hires and that they are bonded upon date of hire. 4. Finding According to the Mississippi Code subsection , purchases may be made from the lowest and best bidder. If any governing authority accepts a bid other than the lowest bid actually submitted, it shall place on its minutes detailed calculations and narrative summary showing that the accepted bid was determined to be the lowest and best bid, including the dollar amount of the accepted bid and the dollar amount of the lowest bid. No agency or governing authority shall accept a bid based on items not included in the specifications. Recommendation We recommend that in the case of the lowest bid not being selected, the County include detailed calculations and narrative summary in its minutes. Response The County will ensure that detailed calculations and information is documented in the Board minutes in the event a lowest bid is not selected. The Board entered an order amending its original order nunc pro tunc to include detailed calculations and a narrative summary explaining that the bid accepted was in fact the lowest and best bid.

134 Members of the Board of Supervisors Forrest County, Mississippi 5. Finding According to the Mississippi Code subsection , with respect to ad valorem taxes levied for each fiscal year, no political subdivision may levy ad valorem taxes in any fiscal year which would render in total receipts from all levies an amount more than the receipts from that source during any one (1) of the immediately preceding three (3) fiscal years, as determined by the levying governing authority, plus, at the option of the taxing authority, an increase not to exceed ten percent (10%) of such receipts. Recommendation We recommend that the County does not levy ad valorem taxes in any fiscal year which would render in total receipts from all levies an amount more than the receipts from the previous three years, plus an increase not to exceed 10%. Response The County will make sure that the ad valorem taxes levied will not cause receipts to exceed the 10% cap. Forrest County, Mississippi s responses to the findings included in this report were not audited, and accordingly, we express no opinion on them. This report is intended solely for the information and use of management, the Board of Supervisors, and others within the entity and is not intended to be and should not be used by anyone other than these parties. However, this report is a matter of public record and its distribution is not limited. Hattiesburg, Mississippi May 27, 2015