ORDER NO. 30897 2007 AUDIT/COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE PERIOD ENDING SEPTEMBER 30, 2007 Came to be heard this the 23`d day of June, 2008 with a motion made by Commissioner Letz, seconded by Commissioner Williams, the Court unanimously approved by a vote of 4-0-0 to approve the 2007 Comprehensive Annual Financial Report for the period ending September 30, 2007. ~.rg COMMISSIONERS' COURT AGENDA REQUEST 3 ~ ~-9 ~ PLEASE FURNISH ONE ORIGINAL AND TEN (10) COPIES OF THIS REQUEST AND DOCUMENTS TO BE REVIEWED BY THE COURT MADE BY: Jeannie Hargis MEETING DATE: June 23, 2008 OFFICE: Auditor's Office TIME PREFERRED: 11:30 AM SUBJECT: Consider, Discuss and Take Appropriate Action to approve the 2007 Comprehensive Annual Financial Report for the period ending September 30, 2007. A 2007 Audit will be presented by Keith Neffendorf, of Neffendorf, Knopp, Horry & Doss, P. C. EXECUTIVE SESSION REQUESTED: (PLEASE STATE REASON) NAME OF PERSON ADDRESSING THE COURT: Keith Neffendorf ESTIMATED LENGTH OF PRESENTATION: 15 minutes IF PERSONNEL MATTER -NAME OF EMPLOYEE: Time for submitting this request for Court to assure that the matter is posted in accordance with Title 5, Chapter 551 and 552, Government Code, is as follows: Meeting scheduled for Mondays: THIS REQUEST RECEIVED BY: THIS RQUEST RECEIVED ON: 5:00 PM previous Tuesday @ .M. All Agenda Requests will be screened by the County Judge's Office to determine if adequate information has been prepared for the Court's formal consideration and action at time of Court Meetings. Your cooperation will be appreciated and contribute towards your request being addressed at the earliest opportunity. See Agenda Request Rules Adopted by Commissioners' Court. KERB COUNTY, TEXAS BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION SEPTEMBER 30, 2007 KERR COUNTY, TEXAS ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2007 TABLE OF CONTENTS Exhibit Page Independent Auditors' Report ................................................................................................ 1 Management's Discussion and Analysis ............................................................................... 2 Basic Financial Statements Government Wide Statements: A-1 Statement of Net Assets ......................................................................................................... 8 B-1 Statement of Activities ........................................................................................................... 9 Governmental Fund Financial Statements: C-1 Balance Sheet ......................................................................................................................... 11 C-2 Reconciliation for C-1 ........................................................................................................... 12 C-3 Statement of Revenues, Expenditures and Changes in Fund Balance ................................. 13 C-4 Reconciliation for C-3 ........................................................................................................... 14 Fiduciary Funds: E-1 Statement of Fiduciary Net Assets ........................................................................................ 15 Notes to the Financial Statements ......................................................................................... 16 Required Supplementary Information C-5 Budgetary Comparison Schedule -General Fund ................................................................. 32 C-6 Budgetary Comparison Schedule -Road and Bridge Fund .................................................. 33 NEFFENDORF, KNOPP, HORRY £~ DOSS, P.C. Certified Public Accountants P.O. BOX 874.736 S. WASHINGTON ST. FREDERICKSBLTRG,TEXRS 78624-0874 (830) 997-3348 MEMBER FAX: (830) 997-3333 MEMBER AMERICAN INSTITUTE OF Email: nkhd@austin,rr.com TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR'S REPORT Honorable Judge and County Commissioners Kerr County, Texas Kerrville, TX 78028 CERTIFIED PUBLIC ACCOUNTANTS We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Kerr County, Texas, as of and for the year ended September 30, 2007, which collectively comprise the County's basic financial statements as listed in the table of contents. These financial statements are the responsibility of Kerr County, Texas's management. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Kerr County, Texas, as of September 30, 2007, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. The management's discussion and analysis (pages 2 through 7) and budgetary comparison information (pages 32 and 33) are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. In accordance with Government Auditing Standards, we have also issued our report dated June 17, 2008 on our consideration of the County's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. NEFFENDORF, KNOPP, HORRY AND DOSS, P.C. Fredericksburg, Texas June 17, 2008 KERR COUNTY, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE YEAR ENDED SEPTEMBER 30, 2007 MANAGEMENT'S DISCUSSION AND ANALYSIS As management of Kerr County, Texas, we offer readers of the County's financial statements this narrative overview and analysis of the fmancial statements of the County for the year ended September 30, 2007. Please read it in conjunction with the independent auditors' report on page 1, and County's Basic Financial Statements which begin on page 8. FINANCIAL HIGHLIGHTS - The assets of the County exceeded its liabilities at the close of the most recent fiscal year by $47,987,296 (net assets). Of this amount, $4,299,804 (unrestricted net assets) may be used to meet the County's ongoing obligations to citizen's and creditors. - The County's net assets increased by $35,247,013; $60,925 as a result of this year's operations and $35,186,088 as a result of prior period adjustments. - At September 30, 2007, the County's governmental funds reported combined ending fund balances of $4,558,156, a decrease of $392,988 in comparison with the prior year. - At September 30, 2007, the unreserved fund balance of the general fund was $2,343,974, or 17.5 percent of total general fund expenditures. - Operations of the Kerr County Juvenile Detention Facility greatly improved through restructuring of the operations at the facility. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The government-wide financial statements include the Statement of Net Assets and the Statement of Activities (on pages 8 and 9). These provide information about the activities of the County as a whole and present alonger-term view of the County's property and debt obligations and other financial matters. They reflect the flow of total economic resources in a manner similar to the financial reports of a business enterprise. Fund fmancial statements (on pages 11 & 13) report the County's operations in more detail than the government-wide statements by providing information about the County's most significant funds. For govemmental activities, these statements tell how services were financed in the short term as well as what resources remain for future spending. They reflect the flow of current financial resources, and supply the basis for tax levies and the appropriations budget. The notes to the fmancial statements (starting on page 16) provide narrative explanations or additional data needed for full disclosure in the government-wide statements or the fund financial statements. The Budgetary Comparison Schedules (operating fund) are presented as required supplementary information on pages 32 and 33. Reporting the County as a Whole The Statement ofNetAssets and the Statement ofActivities The analysis of the County's overall financial condition and operations begins on page 8. Its primary purpose is to show whether the County is better off or worse off as a result of the year's activities. The Statement of Net Assets includes all the County's assets and liabilities at the end of the year while the Statement of Activities includes all the revenues and expenses generated by the County's operations during the year. These apply the accrual basis of accounting which is the basis used by private sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. All the County's assets are reported whether they serve the current year or future years. Liabilities are considered regardless of whether they must be paid in the current or future years. These two statements report the County's net assets and changes in them. The County's net assets (the difference between assets and liabilities) provide one measure of the County's financial health, or financial position. Over time, increases or decreases in the County's net assets are one indicator of whether its financial health is improving or deteriorating. To fully assess the overall health of the County, however, you should consider other factors as well, such as changes in the County's customers or its property tax base and the condition of the County's facilities. In the Statement of Net Assets and the Statement of Activities, the County has one kind of activity: - Governmental activity -Most of the County's basic services are reported here, including the public safety, streets and highways, justice system, juvenile services, health and human services, culture and recreation, conservation and development and administration. Property taxes, grants, fees of office, ~` automobile registration, sales tax and other taxes finance most of these activities. Reporting the County's Most Significant Funds Fund Financial Statements The fund financial statements on pages 11 & 13 provide detailed information about the most significant funds -not the County as a whole. - Governmental funds -All of the County's basic services are reported in governmental funds. These use modified accrual accounting (a method that measures the receipt and disbursement of cash and all other financial assets that can be readily converted to cash) and report balances that are available for future spending. The governmental fund statements provide a detailed short-term view of the County's general operations and the basic services it provides. We describe the differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in Note 2 to the financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net assets of the County's governmental activities increased from $12,740,283 to $47,987,296. Unrestricted net assets -the part of net assets that can be used to fmance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements -was $4,299,804 at September 30, 2007. This increase in governmental net assets was the result of five factors. First, the County's revenues exceeded the expenditures by $60,925. Second, the County acquired capital assets in the amount of $677,993. Third, the County issued other long-term debt in the amount of $369,277 and paid principal on long-term debt of $1,743,636. Fourth, the County recorded depreciation in the amounts of $1,521,895. Fifth, the County recorded a prior period adjustment of $35,186,088 which was the retroactive addition of infrastructure assets. Table I KERR COUNTY, TEXAS NET ASSETS in thousands Governmental Activities 2007 2006 Current and Other Assets $ 5,916 $ 5,531 rr~ Receivables 2,263 1,657 Other Noncurrent Assets 30 40 Capital Assets 46,680 13,271 Total Assets $ 54,889 $ 20,499 Long-Term Liabilities $ $ Accounts Payable 1,234 506 Other Liabilities and Deferred Revenue 516 2,351 Long-term Debt 5,152 4,901 Total Liabilities $ 6,902 $ 7,758 Net Assets: Invested in Capital Assets Net of Related Debt $ 41,473 $ 6,745 Restricted 2,214 2,322 Unrestricted 4,300 3,673 Total Net Assets $ 47,987 $ 12,740 4 Table II KERB COUNTY, TEXAS CHANGES IN NET ASSETS in thousands Governmental Acti vities 2007 2006 Revenues: Pro~?ram Revenue Charges for Services $ 3,244 $ 3,366 Operating Grants and Contributions 156 500 Capital Grants and Contributions 445 616 General Revenues Property Taxes 11,687 10,924 Other Taxes 2,902 2,706 Grants and Contributions - 73 Investment Earnings 371 271 Other General Revenues 1,627 1,818 Total Revenue $ 20,432 $ 20,274 Expenses: ,: General Government $ 3,287 $ 3,339 Administration of Justice 3,930 3,577 Public Safety 4,069 4,485 Corrections 3,048 4,292 Health and Human Services 1,425 1,412 Community & Economic Development 1,022 737 Infrastructure & Environmental Services 3,342 1,898 Long-term Debt Expenditures 248 286 Total Expenses $ 20,371 $ 20,026 Increase in Net Assets Before Transfers $ 61 $ 248 Net Assets -Beginning 12,740 12,492 Prior Period Adjustment 35,186 - NetAssets -Ending $ 47,987 $ 12,740 5 The cost of all governmental activities this year was $20,371,185. However, the amount that our taxpayers ultimately financed for these activities through County taxes was only $11,686,817 because the other costs were paid by other taxes ($2,902,581), operating and capital grants and contributions ($601,267), user charges ($3,243,792) investment earnings ($370,648) and other miscellaneous ($1,627,005). THE COUNTY'S FUNDS As the County completed the year, its governmental funds (as presented in the balance sheet on page 11) reported a combined fund balance of $4,558,156, which is less than last year's total of $4,951,144. Included in this year's total change in fund balance is a decrease of $285,094 in the County's General Fund. The primary reason for the General Fund's decrease is the use of prior year surplus funds. The Commissioner's Court adopted the General Fund Budget. Actual revenues and expenditures were less than the budgeted amounts. CAPITAL ASSET AND DEBT ADMI1~iISTRATION At September 30, 2007, the County had the following amounts invested in capital assets, net of depreciation: CAPITAL ASSETS in thousands 2007 2006 Land $ 497 $ 497 Buildings & Improvements 15,081 15,072 Machinery & Equipment 8,313 9,024 Infrastructure 38,680 - Total Capital Assets $ 62,571 $ 24,593 Accumulated Depreciation 15,891 11,322 Capital Assets, Net $ 46,680 $ 13,271 This year's major additions included: (4) 2007 Ford Crown Victorias $ 105,206 2006 GMC Dumptruck 55,639 Software 75,000 Printer 17,600 2007 Chev. 2500 Pickup 28,533 2007 Chev. 1500 Pickup 23,304 Mobile Office - R & B Department 9,000 Other Equipment & Furniture 363,711 TOTALS $ 677,993 More detailed information about the County's capital assets is presented in Note 3.D. to the financial statements. 6 DEBT At September 30, 2007, the County had the following outstanding debt: OUTSTANDING DEBT in thousands Certificates of Obligation Notes Payable Capital Leases Total Outstanding Debt 2007 2006 3,770 $ 4,760 786 1,030 596 736 $ 5,152 $ 6,526 For governmental activities, the County had $5,151,966 in certificates of obligation and other long-term debt outstanding, a decrease of 21 percent. The County paid $1,743,636 in principal on the outstanding long- term debt, and issued $369,277 in capital lease obligations. More detailed information about the County's long-term liabilities is presented in Note 3.F. to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The County's elected and appointed officials considered many factors when setting the fiscal-year 2008 budget and tax rates. The major factors are the economy, population growth, and assessed property valuation. These indicators were taken into account when adopting the General Fund budget for 2008. Amounts available for appropriation in the General Fund budget are $14,315,307 and expenditures are estimated to be $14,757,736. If these estimates are realized, the County's budgetary General fund balance is expected to decrease $442,429 by the close of 2008 (use of prior year surplus). The total budget for capital expenditures is $272,194 for fiscal-year 2008. The expenditures include vehicles and equipment for the Sheriffls Department, Road and Bridge Department, Environmental Health Department and Animal Control Department. Also included are improvements to the Kerr County Courthouse grounds and the Hill Country Youth Exhibit Center. CONTACTING THE COUNTY'S FINANCIAL MANAGEMENT This fmancial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the County's finances and to show the County's accountability for the money it receives. If you have questions about this report or need additional fmancial information, contact the County Auditor or Commissioners' Court, at Kerr County, Texas, Kerrville, Texas. BASIC FINANCIAL STATEMENTS KERB COUNTY STATEMENT OF NET ASSETS SEPTEMBER 30, 2007 Primary Government Governmental Activities ASSETS Cash and Cash Equivalents Receivables (net of allowance for uncollectibles) Court Fines and Fees Receivable Capitalized Debt Issuance Costs Capital Assets: Land Infrastructure, net Buildings, net Machinery and Equipment, net Total Assets LIABILITIES Accounts Payable Compensated Absences Payable Accrued Interest Payable Deferred Revenues Noncurrent Liabilities Due Within One Year Due in More Than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for: Special Revenue Debt Service Capital Projects Unrestricted Net Assets Total Net Assets $ 5,916,170 781,404 1,482,124 29,764 497,457 34,745,479 9,574,474 1,862,503 54,889,375 1,234,491 384,831 54,638 76,154 1,403,851 3,748,114 6,902,079 41,473,310 2,031,695 172,723 9,764 4,299,804 $ 47,987,296 EXHIBIT A-1 The notes to the Financial Statements are an integral part of this statement. 8 KERB COUNTY STATEMENT OF ACTNITIES FOR THE YEAR ENDED SEPTEMBER 30, 2007 Program Revenues Operating Charges for Grants and Expenses Services Contributions Primary Government: GOVERNMENTAL ACTIVITIES: General Government Administration of Justice Public Safety Corrections Health and Human Services Community and Economic Development Infrastructure and Environmental Debt Interest Fiscal Agent's Fees Issuance Costs TOTAL PRIMARY GOVERNMENT: $ 3,287,175 $ 1,109,318 $ 204 3,929,491 1,403,773 62,110 4,068,996 217,852 40,181 3,048,371 396,883 9,525 1,424,764 18,210 - 1,021,596 - - 3,342,396 97,756 44,452 236,294 - - 2,181 - - 9,921 - - $ 20,371,185 $ 3,243,792 $ 156,472 General Revenues: Taxes: Property Taxes, Levied for General Purposes Property Taxes, Levied for Debt Service Other Taxes Miscellaneous Revenue Investment Earnings Transfers In (Out): Total General Revenues and Transfers Change in Net Assets Net Assets--Beginning Prior Period Adjustment Net Assets--Ending The notes to the Financial Statements are an integral part of this statement. 9 EXHIBIT B-1 Net (Expense) Revenue and Changes in Net Assets Capital Primary Government Grants and Governmental Contributions $ - $ (2,177,653) - (2,463,608) - (3,810,963) - (2,641,963) - (1,406,554) - (1,021,596) 444,795 (2,755,393) - (236,294) - (2,181) - (9,921) $ 444,795 (16,526,126) 10,373,219 1,313,598 2,902,581 1,599,382 370,648 27,623 16.587.051 60,925 12,740,283 35,186,088 $ 47,987,296 10 KERB COUNTY BALANCE SHEET GOVERNMENTALFUNDS SEPTEMBER 30, 2007 EXHIBIT C-1 Total General Road & Other Governmental Fund Bridge Fund Funds Funds ASSETS Cash and Cash Equivalents $ 3,265,876 $ 826,279 $ 1,824,015 $ 5,916,170 Taxes Receivable 301,971 44,092 143,633 489,696 Allowance for Uncollectible Taxes (credit) (12,154) (2,028) (5,781) (19,963) Receivables (net of allowance for uncollectibles) 280,010 1,781 29,880 311,671 Total Assets $ 3,835,703 $ 870,124 $ 1,991,747 $ 6,697,574 LIABILITIES AND FUND BALANCES Liabilities: Accounts Payable $ 831,354 $ 231,522 $ 171,614 $ 1,234,490 Compensated Absences Payable 320,027 40,421 24,384 384,832 Deferred Revenues 340,348 41,896 137,852 520,096 Total Liabilities 1,491,729 313,839 333,850 2,139,418 Fund Balances: Unreserved and Undesignated: Reported in the General Fund 2,343,974 - - 2,343,974 Reported in the Special Revenue Fund - 556,285 1,475,410 2,031,695 Reported in the Debt Service Fund - - 172,723 172,723 Reported in the Capital Projects Fund - - 9,764 9,764 Total Fund Balances 2,343,974 556,285 1,657,897 4,558,156 Total Liabilities and Fund Balances $ 3,835,703 $ 870,124 $ 1,991,747 $ 6,697,574 The notes to the Financial Statements are an integral part of this statement. 11 KERR COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE ,; STATEMENT OF NET ASSETS SEPTEMBER 30, 2007 EXHIBIT C-2 Total Fund Balances -Governmental Funds Capital assets used in governmental activities are not financial resources and therefore are not reported in governmental funds. At the beginning of the year, the cost of these assets was $24,594,016 and the accumulated depreciation was $11,322,792. Inaddition, long-term liabilities, includingbonds payable, arenotdueand payable in the current period, and, therefore are not reported as liabilities in the funds. The net effect of including the beginning balances for capital assets (net of depreciation) and long-term debt in the governmental activities is to increase (decrease) net assets. Current year capital outlays and long-term debt principal payments are expenditures in the fund financial statements,but they should be shown as increases in capital assets and reductions inlong-term debt in the government-wide financial statements. The net effect of including the 2007 capital outlays and debt principal payments is to increase (decrease) net assets. The 2007 depreciation expense increases accumulated depreciation. The net effect of the current year's depreciation is to decrease net assets. Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, eliminating interfund transactions, reclassifying the proceeds of bond sales as an increase in bonds payable, and recognizingthe liabilities associated with maturing long-term debt and interest. The net effect of these reclassifications and recognitions is to increase (decrease) net assets. Net Assets of Governmental Activities 4,558,156 6,725,170 36,299,799 (1,521,895) 1,926,066 $ 47,987,296 The notes to the Financial Statements are an integral part of this statement. 12 KERR COUNTY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTALFUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2007 General Road & Other Fund Bridge Fund Funds EXHIBIT C-3 Total Governmental Funds REVENUES: Taxes: Property Taxes Other Taxes Automobile Registration Intergovernmental Revenue and Grants Fees of Office Fines and Forfeitures Investment Earnings Other Revenue Total Revenues EXPENDITURES: Current: General Government Administration of Justice Public Safety Corrections Health and Human Services Community and Economic Development Infrastructure and Environmental Debt Service: Debt Principal Debt Interest Fiscal Agent's Fees Capital Outlay: General Government Administration of Justice Public Safety Community and Economic Development Infrastructure and Environmental Total Expenditures Excess (Deficiencvl of Revenues Over (Under) Expenditures OTHERFINANCING SOURCES (USES): Proceeds from Capital Leases Transfers In Transfers Out (Use) Total Other Financing Sources (Uses) Net Change in Fund Balances Fund Balance -October 1 (Beginning) Fund Balance -September 30 (Ending) $ 7,113,744 $ 945,130 $ 3,394,431 $ 11,453,305 2,936,460 - - 2,936,460 - 1,008,094 - 1,008,094 194,397 29,091 1,291,763 1,515,251 1,892,035 311,653 220,479 2,424,167 321,367 2,350 925 324,642 197,523 41,054 132,071 370,648 336,851 66,475 39,994 443,320 12,992,377 2,403,847 5,079,663 20,475,887 3,015,335 - 170,591 3,185,926 3,478,104 - 404,533 3,882,637 3,330,007 - 333,587 3,663,594 2,163,969 - 811,898 2,975,867 532,365 - 882,832 1,415,197 434,534 - 564,587 999,121 195,900 2,147,045 72,683 2,415,628 90,059 419,768 1,233,809 1,743,636 2,506 26,216 212,349 241,071 _ - 2,181 2,181 4,091 - 8,817 12,908 4,144 - 39,638 43,782 129,688 - 41,452 171,140 1,975 - - 1,975 - 116,476 394,636 511,112 13,382,677 2,709,505 5,173,593 21,265,775 (390,300) (305,658) (93,930) (789,888) 105,206 264,071 - 369,277 _ _ 103,000 103,000 _ - (75,377) (75,377) 105,206 264,071 27,623 396,900 (285,094) (41,587) (66,307) (392,988) 2,629,068 597,872 1,724,204 4,951,144 $ 2,343,974 $ 556,285 $ 1,657,897 $ 4,558,156 The notes to the Financial Statements are an integral part of this statement. 13 EXHIBIT C-4 KERB COUNTY RECONCILIATION OF THE GOVERNMENTAL FUND S STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES 1N FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2007 Total Net Change in Fund Balances -Governmental Funds Current year capital outlays and long-term debt principal payments are expenditures in the fund financial statements, but they should be shown as increases in capital assets and reductions inlong-term debt in the government-wide financial statements. The net effect of removing the 2007 capital outlays and debt principal payments is to increase (decrease) net assets. Depreciation is not recognized as an expense in governmental funds since it does not require the use of current financial resources. The net effect of the current year's depreciation is to decrease net assets. Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, adjusting current year revenue to show the revenue earned from the current year's tax levy, eliminating interfund transactions, reclassifying the proceeds ofbond sales, and recognizing the liabilities associated with maturing long-term debt and interest. The net effect of these reclassifications and recognitions is to increase (decrease) net assets. Change in Net Assets of Governmental Activities (392,988) 1,113,711 (1,521,895) 862,097 $ 60,925 The notes to the Financial Statements are an integral part of this statement. 14 KERB COUNTY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS SEPTEMBER 30, 2007 Agency Fund ASSETS Cash and Cash Equivalents Total Assets LIABILITIES Due to Other Governmental Units Total Liabilities $ 990,759 $ 990,759 $ 990,759 $ 990,759 EXHIBIT E-1 The accompanying notes are an integral part of this statement. 15 KERB COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2007 NOTE 1 - SUNIMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of Kerr County have been prepared in conformity with Generally Accepted Accounting Principles (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the government's accounting policies are described below: 1.A. REPORTING ENTITY The County has developed criteria to determine if the activities of any outside agencies or organizations should be included within its financial statements. The criteria includes the amount of oversight responsibility exercised by the County over the activities of an agency or organization, the scope of public service of an agency or organization, and the nature of any special fmancing relationships which may exist between the County and an agency or organization. Oversight responsibility includes financial interdependency, selection of the governing authority, designation of management, the ability to significantly influence operations, and accountability for fiscal matters. The County's financial statements include all funds over which the County exercises oversight responsibility. Also, the County is not included as a part of any other reporting entity. 1.B. BASIS OF PRESENTATION Government-wide Financial Statements: The Statement of Net Assets and Statement of Activities display information about the reporting government as a whole. They include all funds of the reporting entity except for fiduciary funds. The statements distinguish between governmental and business-type activities. Governmental activities generally are fmanced through taxes, intergovernmental revenues, and other nonexchange revenues. Business-type activities are financed in whole or in part by fees charged to external parties for goods or services. Fund Financial Statements: Fund financial statements of the reporting entity 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 expenditure/expenses. Funds are organized into three major categories: governmental, proprietary, and fiduciary. An emphasis is placed on major funds within the governmental and proprietary categories. A fund is considered major if it is the primary operating fund of the County or meets the following criteria. a. Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise fund are at least 10 percent of the corresponding total for all funds of that category or type; and b. Total assets, liabilities, revenues, or expenditure/expenses of the individual governmental fund or enterprise fund are at least 5 percent of the corresponding total for all governmental and enterprise funds combined. 16 The funds of the financial reporting entity aze described below: Governmental Funds General Fund The General Fund, the primary operating fund of the County, is always classified as a major fund. It is the basic fund of the County and covers all activities for which a sepazate fund has not been established. Special Revenue Funds Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes. Debt Service Funds The Debt Service Fund accounts for the accumulation of financial resources for and the payment of principal and interest on general long-term debt of the County other than debt service payments made by enterprise funds. Ad valorem taxes are used for the payment of principal and interest on the County's debt. Capital Projects Fund The Capital Projects Fund is used to account for proceeds of general long-term debt and other revenues. Expenditures are restricted to the construction and acquisition of major capital facilities. Fiduciary Funds (Not included in government-wide statements) Agenc~ds Agency funds account for assets held by the County in a purely custodial capacity. Since agency funds are custodial in nature (i.e., assets equal liabilities), they do not involve the measurement of results of operations. Major and Nonmajor Funds The funds aze further classified as major or nonmajor. The major funds are as follows: Major Fund Brief Description General See above for description. Special Revenue Fund: Accounts for all road and bridge construction and Road and Bridge maintenance activity. Nonmajor funds consist of special revenue funds, debt service funds, and capital project funds. 17 1.C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING Measurement focus is a term used to describe "which" transactions are recorded within the various financial statements. Basis of accounting refers to "when" transactions are recorded regardless of the measurement focus applied. Measurement Focus On the government-wide Statement of Net Assets and the Statement of Activities, both governmental and business-like activities are presented using the economic resources measurement focus as defined below. In the fund fmancial statements, the "current financial resources" measurement focus or the "economic resources" measurement focus is used as appropriate: a. All governmental funds utilize a "current financial resources" measurement focus. Only current financial assets and liabilities are generally included on their balance sheets. Their operating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable financial resources at the end of the period. b. Agency and Permanent Trust Funds are not involved in the measurement of results of operations; therefore, measurement focus is not applicable to them. Basis of Accounting In the government-wide Statement of Net Assets and Statement of Activities, governmental activities are presented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expense, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. In the fund financial statement, governmental funds and agency funds are presented on the modified accrual basis of accounting. Under this modified accrual basis of accounting, revenues are recognized revenues when both "measurable and available." Measurable means knowing or being able to reasonably estimate the amount. Available means collectable within the current period or within 60 days after year end. Also under the modified accrual basis of accounting, expenditures (including capital outlay) are recorded when the related fund liability is incurred, except for general obligation bond principal and interest which are reported as expenditures in the year due. 1.D. ASSETS, LIABILITIES AND EQUITY Cash and Cash Investments For the purpose of the Statement of Net Assets, "Cash and Cash Equivalents" includes demand deposit accounts and government investment pools. All amounts are considered available upon demand and are considered to be "cash equivalents." Several funds may be invested in an investment account and each fund has an equity interest therein. Interest earned on the Investment of these monies is allocated based upon relative equity at month end. 18 Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the noncurrent portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds." All trade and property tax receivables are shown net of an allowance for uncollectibles. Trade accounts receivable in excess of 60 days comprise the trade accounts receivable allowance for uncollectibles. Ad valorem property taxes attach as enforceable liens as of January 1. Taxes are levied prior to September 30, payable on October 1, and are delinquent on February 1. The majority of the County's property tax collections occur during December and early January each year. To the extent that County property tax revenue results in current receivables as defined by the Governmental Accounting Standards Boazd (GASB), they are recognized when levied. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g. roads, bridges, sidewalks and similar items) aze reported in the governmental activities column in the government- wide financial statements. The County defines capital assets as assets with an initial, individual cost of more than $1,000 (amount not rounded) and an estimated useful life in excess of one yeaz. Such assets aze recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives aze not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Property, plant and equipment is depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings and Improvements 25 - 50 Improvements 10 - 50 Furniture and Equipment 3 - 20 Infrastructure 25 - 50 19 Compensated Absences Full time and regular part time employees who work 20 hours per week or more are granted vacation benefits in varying amounts to specified maximums depending on tenure with the County. Sick leave accrues to full time and regular part time employees to specified maximums. Accumulated vacation time may be taken in pay upon termination or retirement up to a maximum of twenty (20) days; however, this policy does not apply to accumulated sick leave. In the fund financial statements, governmental funds report only the compensated absence liability payable from expendable available resources. Long-term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds. 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. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs during the current period. The face amount of debt issued is reported as other fmancing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other fmancing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for the use for specific purposes. Designations of fund balance represent tentative management plans that are subject to change. Net Assets Net assets represent the difference between assets and liabilities. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets, and adding back unspent proceeds. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislations adopted by the County or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Use of Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts could differ from those estimates. 20 1.E. REVENUES, EXPENDITURES AND EXPENSES Property Taxes Property taxes are levied by October 1, in conformity with Subtitle E, Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent if not paid before February 1, of the year following the year in which imposed. On January 1, of each year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. For the 2006 tax roll, the total assessed valuation was $3,092,943,887 and the taxes assessed amounted to $.3149. The total tax rate was $.3896 per $100 valuation and allocated $.3149 to the General Fund and $.0438 to the Debt Service Funds and .0309 to the Road and Bridge Fund. The maximum tax levy allowed by State law for the above purposes is $.80 per $100 valuation. In the fund financial statements, property taxes are recorded as revenue in the period levied to the extent they are collected within 60 days of year-end. Due to the immaterial amount of additional property taxes receivable after the 60-day period, no additional accrual is made in the government- wide financial statements. Expenditures/Expenses In the government-wide financial statements, expenses are classified by function for governmental activities. In the fund financial statements, expenditures are classified as follows: Governmental Funds - by Character: Current (further classified by function) Debt Service Capital Outlay In the fund financial statements, governmental funds report expenditures of fmancial resources. Interfund Transfers Permanent reallocation of resources between funds of the reporting entity are classified as interfund transfers. For the purposes of the Statement of Activities, all interfund transfers between individual governmental funds have been eliminated. NOTE 2 -STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Information The County Judge and staff prepare the proposed budget, using revenue estimates furnished by the County Auditor. The proposed budget is then submitted to Commissioners Court for a public hearing. Before determining the final budget, Commissioners Court may increase or decrease the amounts requested by the various departments. In the fmal budget, which is usually adopted in September, expenditures for current operating funds cannot exceed the estimated available cash balances in such funds on October 1, plus the estimate of revenues for the ensuing year. At any time during the year, Commissioners Court may increase the budget for unexpected revenues. Commissioners Court may transfer amounts among individual budget line items within major expenditure categories during the year, but no such transfer may increase the overall total of the budget. Formal budgetary integration is employed for the General, Special Revenue, Debt Service and Capital Projects Funds. Budgets for these funds are prepared on a cash basis. Unused appropriations lapse at the end of each year. 21 NOTE 3 -DETAILED NOTES ON ALL FUNDS 3.A. DEPOSITS AND INVESTMENTS The funds of the County must be deposited and invested under the terms of a contract, contents of which are set out in the Depository Contract Law. The depository bank places approved pledged securities for safekeeping and trust with the County's agent bank in an amount sufficient to protect County funds on a day-to-day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository bank's dollar amount of Federal Deposit Insurance Corporation ("FDIC") insurance. At September 30, 2007, the carrying amount of the County's deposits was $5,812,640 and the bank balance was $7,175,142. The County's cash deposits held at Security State Bank and Trust at September 30, 2007 and during the year ended September 30, 2007 were entirely covered by FDIC insurance or by pledged collateral held by the County's agent bank in the County's name. The Public Funds Investment Act (Government Code Chapter 2256) contains specific provisions in the areas of investment practices, management reports and establishment of appropriate policies. Among other things, it requires the County to adopt, implement, and publicize an investment policy. That policy must address the following areas: (1) safety of principal and liquidity, (2) portfolio diversification, (3) allowable investments, (4) acceptable risk levels, (5) expected rates of return, (6) maximum allowable stated maturity of portfolio investments, (7) maximum average dollar-weighted maturity allowed based on the stated maturity date for the portfolio, (8) investment staff quality and capabilities, (9) and bid solicitation preferences for certificates of deposit. Statutes authorize the County to invest in (1) obligations of the U.S. Treasury, certain U.S. agencies, and the State of Texas, (2) certificates of deposit, (3) certain municipal securities, (4) money market savings accounts, (5) repurchase agreements, (6) bankers acceptances, (7) Mutual funds, (8) Investment pools and guaranteed investment contracts. 'The Act also requires the County to have independent auditors perform test procedures related to investment practices as provided by the Act. The County's deposits and temporary investments at September 30, 2007 are shown below: Carrying Market FDIC Pledged Credit Fiduciary/Type of Deposit Amount Value Coverage Securities Risk Security State Bank & Trust Depository Bank Demand Deposit Accounts Banc of America Securities, LLC Money Market Obligations Trust Gov't Obligations Morgan Stanley Money Market -Active Asset Gov't Securities Trust LOGIC Liquid Asset Portfolio Total Governmental Activities $ 5,812,640 $ 5,812,640 $ 200,000 $ 16,948,461 3,439 3,439 99,814 99,814 277 277 $ 5,916,170 $ 5,916,170 $ 200,000 $ 16,948,461 22 * The investment in Logic is considered a government pool investment. Government pool investments are not categorized in accordance with GASB Statement No. 3, because they are not evidenced by securities that exist in physical or book entry form. Also, investments in goverrunent investment pools are not required to disclose custodial credit risk, concentration of credit risk and interest rate risk in accordance with GASB Statement No. 40. Policies Governing Deposits and Investments In compliance with the Public Funds Investment Act, the County has adopted a deposit and investment policy. That policy does address the following risks: Custodial Credit Risk -Deposits: This is the risk that in the event of bank failure, the County's deposits may not be returned to it. The County was not exposed to custodial credit risk since its deposits at year-end were covered by depository insurance or by pledged collateral held by the County's agent bank in the County's name. Custodial Credit Risk -Investments: This is the risk that, in the event of the failure of the counterparty, the County will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The County's investments (certificates of deposit) were secured by FDIC insurance and pledged securities. Other Credit Risk: There is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. At September 30, 2007, the County was not exposed to concentration of credit risk, interest rate risk or foreign currency risk. For the year ended September 30, 2007, the County complied in all material respects with the requirements of the Public Funds Investment Act and with local policies. 3.B. RECEIVABLES Receivables as of year-end for the government's individual major funds and nonmajor funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Governmental Funds Road Other and Governmental General Bridee Funds TOTAL Receivables: Property Taxes $ 301,971 $ 44,092 $ 143,633 $ 489,696 Other 280,010 1,781 29,880 311,671 Gross Receivables $ 581,981 $ 45,873 $ 173,513 $ 801,367 Less: Allowance for Uncollectibles 12,154 2,028 5,781 19,963 Net Total Receivables $ 569,827 $ 43,845 $ 167,732 $ 781,404 23 Governmental funds report deferred revenue in connection with receivables for revenue that is not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, deferred revenues reported in the governmental funds were as follows: General Fund - Delinquent Property Taxes Receivable $ 289,817 Other Receivables 50,531 Special Road and Bridge Fund - Delinquent Property Taxes Receivable 41,896 Other Governmental Funds - Delinquent Property Taxes Receivable 137,852 TOTAL DEFERRED REVENUES $ 520,096 3.C. COURT FINES AND FEES RECEIVABLE The County has determined the amount of court fines and fees receivable at September 30, 2007 to be $1,482,124 which represents amounts owed and outstanding for the last 10 years. This receivable is included on the government wide statement of net assets and is net of an allowance for uncollectible court fines and fees based on historical collection rates for the various courts. 3.D. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2007, was as follows: Primary Government Balance Balance 10/1/06 Increases Decreases 9/30/07 Governmental Activities: Capital Assets, Not Being Depreciated: Land $ 497,457 $ - $ - $ 497,457 Capital Assets, Being Depreciated: Buildings and Improvements 15,072,321 9,000 - 15,081,321 Furniture and Equipment 9,024,238 668,993 1,380,044 8,313,187 Infrastructure - 38,679,333 - 38,679,333 Total Capital Assets Being Depreciated 24,096,559 39,357,326 1,380,044 62,073,841 Less Accumulated Depreciation: Buildings and Improvements (5,139,574) (367,273) - (5,506,847) Furniture and Equipment (6,183,218) (575,262) 307,796 (6,450,684) Infrastructure - (3,933,854) - (3,933,854) Total Accumulated Depreciation (11,322,792) (4,876,389) 307,796 (15,891,385) Total Capital Assets Being Depreciated, Net 12,773,767 34,480,937 1,072,248 46,182,456 Governmental Activities Capital Assets, Net $ 13,271,224 $ 34,480,937 $ 1,072,248 $ 46,679,913 24 Depreciation expense was charged to functions/programs of the County as follows: Governmental Activities: General Government $ 189,299 Public Safety 405,402 Administration of Justice 15,685 Community & Economic Development 22,475 Health and Human Services 9,567 Corrections 72,504 Infrastructure & Environmental 806,963 Total Depreciation Expense - Governmental Activities $ 1,521,895 3.E. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS Interfund Transfers Transfer In: Nonmajor Governmental Transfer Out: Funds Total Nonmajor Governmental Funds Agency Fund $ 75,377 $ 75,377 27,623 27,623 TOTAL $ 103,000 $ 103,000 Transfers are used to 1) move revenues from the fund with collection authorization to the debt service fund as debt service principal and interest payments become due, 2) move restricted amounts from borrowings to the debt service fund to establish mandatory reserve accounts, 3) move unrestricted general fund revenues to finance various programs that the government must account for in other funds in accordance with budgetary authorizations, including amounts provided as subsidies or matching funds for various grant programs. 3.F. LONG-TERM LIABILITIES The following is a summary of the long-term liability transactions of the County for the year ended September 30, 2007. Balance Balance Due Within Type of Debt 10/01/06 Issued Retired 9/30/07 One Year Governmental Activities: Notes & Bonds Payable $ 5,790,000 $ - $ 1,233,808 $ 4,556,192 $ 1,232,742 Capital Lease Obligations 736,325 369,277 509,828 595,774 171,109 TOTAL $ 6,526,325 $ 369,277 $ 1,743,636 $ 5,151,966 $ 1,403,851 25 Certificates of Obligation and Notes Payable Limited Tax General Obligation Bonds, Series 1994 Original issue amount $5,900,000, interest rates of 4.25% to 6.25%, with final maturity February 15, 2012 Certificates of Obligation, Series 2005 Original issue amount $2,000,000, interest rates of 3.25% to 3.50%, with final maturity date February 15, 2010 Public Property Finance Contractual Obligations, Series 2001 Original issue amount $900,000, interest rates of 2.80% to 4.10%, with final maturity date February 15, 2008 160,000 160,000 Bank of America Note for purchase of computer software dated May 1, 2006, principal and interest payment of $231,463, interest rate is 4.015%, final maturity date of March 16, 2011 786,192 197,742 TOTAL CERTIFICATES OF OBLIGATION AND NOTES PAYABLE $ 4,556,192 1,232,742 The annual requirements for principal and interest on the outstanding certificates of obligation and notes payable are as follows: Year Ending Annual September 30, Principal Interest Requirements 2008 $ 1,232,742 $ 163,741 $ 1,396,483 2009 1,035,681 119,077 1,154,758 2010 1,083,939 78,050 1,161,989 2011 673,830 42,192 716,022 2012 530,000 11,262 541,262 TOTAL $ 4,556,192 $ 414,322 $ 4,970,514 Capital Lease Obligations Balance at Due Within 9/30/07 One Year $ 2,405,000 $ 435,000 1,205,000 440,000 Balance at Due Within 9/30/07 One Year Securi_,_yt State Bank & Trust: Capital lease obligation for Etnyre Chip Spreader, dated March 1, 2005, principal and interest of $66,101.43 payable annually, effective annual interest rate of 4.30%, final payment due March 1, 2008. $ 63,376 $ 63,376 Capital lease obligation for Asphalt Distributor, dated March 1, 2005, principal and interest of $17,938.91 payable annually, effective annual interest rate of 4.30%, final payment due March 1, 2008. 17,199 17,199 26 Capital lease obligation for a chip spreader, dated December 1, 2005, principal and interest payments of $28,988 payable annually, effective interest rate of 4.88%, final maturity date October 1, 2008. Capital lease obligation for (2) Motor Graders and (1) Wheel Loader dated December 27, 2006, principal and interest of $45,637 paid yearly, interest rate of 4.82%, final maturity date December 27, 2013. Caterpillar Financial Services: Capital lease obligation for a Caterpillar Backhoe Loader dated June 15, 2004, principal and interest of $786 paid monthly, interest rate of 4.73%, final payment August 1, 2009. Capital lease obligation for (2) Caterpillar 420D Baclchoe Loaders dated April 28, 2006, annual principal and interest payments of $23,368, interest rate of 5.35%, final maturity April, 2011. Ford Motor Credit Corporation: Capital lease obligation for four (4) 2007 Crown Victoria Police Sedans dated March 9, 2007, annual principal and interest payments of $37,332, interest rate of 6.60%, fmal maturity date March 9, 2009. TOTAL CAPITAL LEASE OBLIGATIONS 26,789 264,071 32,433 35,143 7,938 121,322 17,310 67,874 32,853 $ 595,774 171,109 A summary of the future minimum lease payments under the lease along with the present value of the minimum lease payments as of September 30, 2007 follows: Year Ended September 30 2008 $ 199,809 2009 162,659 2010 69,002 2011 114,019 2012 45,637 2013 45,637 2014 45,637 Total Minimum Lease Payments $ 682,400 Less Amount Representing Interest 86,626 Present Value of Lease Payments $ 595,774 27 3.G. EMPLOYEE RETIREMENT PLAN Plan Description Kerr County provides retirement, disability, and death benefits for all of its full-time employees through a nontraditional defined benefit pension plan in the statewide Texas County and District Retirement System (TCDRS). The Board of Trustees of TCDRS is responsible for the administration of the statewide agent multiple-employer public employee retirement system consisting of 573 nontraditional defined benefit pension plans. TCDRS in the aggregate issues a comprehensive annual financial report (CAFR) on a calendar year basis. The CAFR is available upon written request from the TCDRS Board of Trustees at P.O. Box 2034, Austin, Texas 78768- 2034. The plan provisions are adopted by the governing body of the employer, within the options available in the Texas state statutes governing TCDRS (TCDRS Act). Members can retire at ages 60 and above with 8 or more years of service, with 30 years of service regardless of age, or when the sum of their age and years of service equals 75 or more. Members are vested after 8 years of service but must leave their accumulated contributions in the plan to receive any employer-financed benefit. Members who withdraw their personal contributions in a lump sum prior to retirement are not entitled to any amounts contributed by their employer. Partial lump sum distributions are allowed at retirement. Benefit amounts are determined by the sum of the employee's contributions to the plan, with interest, and employer-financed monetary credits. The level of these monetary credits is adopted by the governing body of the employer within the actuarial constraints imposed by the TCDRS Act so that the resulting benefits can be expected to be adequately financed by the employer's commitment to contribute. At retirement, death, or disability, the benefit is calculated by converting the sum of the employee's accumulated contributions and the employer-fmanced monetary credits to a monthly annuity using annuity purchase rates prescribed by the TCDRS Act. Funding Policy The County has elected the annually determined contribution rate (variable rate) plan provisions of the TCDRS Act. T'he plan is funded by monthly contributions from both employee members and the employer based on the covered payroll of employee members. Under the TCDRS Act, the contribution rate of the employer is actuarially determined annually. The County contributed using the actuarially determined rate of 8.51 % for the months of the accounting year in 2007 and 7.60% for the months of the accounting year in 2006. The contribution rate payable by the employee members for calendar year 2006 is the rate of 7%, as adopted by the County. For calendar year 2007, the employee contribution rate was 7%. The employee and the employer contribution rate may be changed by the governing body of the County within the options available in the TCDRS Act. 28 Annual Pension Cost For the County's accounting year ended September 30, 2007, the annual pension cost for the TCDRS plan for its employees was $800,621, and the actual contributions were $800,621. The annual required contributions were actuarially determined as a percent of the covered payroll of the participating employees, and was in compliance with the GASB Statement No. 27 parameters based on the actuarial valuation as of December 31, 2005 and December, 2006, the basis for determining the contribution rate for calendar years 2007 & 2008. The December 31, 2006 actuarial valuation is the most recent valuation. ACTUARIAL VALUATION INFORMATION Actuarial valuation date 12/31/06 12/31/05 12/31/04 Actuarial cost method entry age entry age entry age Amortization method level percentage level percentage level percentage of payroll, closed of payroll, open of payroll, open Amortization period 15 20 20 Asset valuation method SAF: 10-yr long-term long-term smoothed value appreciation appreciation ESF: Fund value with adjustment with adjustment Actuarial Assumptions: Investment return' 8% 8% 8% Projected salary increases' S.3% 5.3% 5.5% Inflation 3.5% 3.5% 3.5% Cost-of-living adjustments 0.0% 0.0% 0.0% 'Includes inflation at the stated rate TREND INFORMATION FOR THE RETIREMENT PLAN FOR TAE EMPLOYEE S OF KERR COUNTY Accounting Annual Percentage Net Year Pension of APC Pension Ending Cost (APC) Contributed Obligation 9/30/06 $ 741,520 100% -0- 9/30/07 800,621 100% -0- 29 SCHEDULE OF FUNDING PROGRESS FOR THE RETIREMENT PLAN FOR THE EMPLOYEES OF KERR COUNTY Actuarial Actuarial Value Accrued Actuarial of Assets Liability (AAL) Valuation Date (a) (b) 12/31/03 $ 13,000,396 $ 15,187,317 12/31/04 14,260,964 16,668,166 12/31/OS 16,152,206 18,786,439 12/31 /06 18,402,6 81 20,440,673 Annual Covered Unfunded AAL Funded Ratio Payrol]' (UAAL) (b-a) (a/b) (c) $ 2,186,921 85.60% $ 8,020,926 2,407,202 85.56% 8,870,350 2,634,233 85.98% 9,247,537 2,037,992 90.03% 9,320,152 UAAL as a Percentage of Covered Payroll 27.27% 27.14% 28.49% 21.87% The annual covered payroll is based on the employee contributions received by TCDRS for the year ending with the valuation date. Revised economic and demographic assumptions due to an experience review were reflected in this valuation. 3.H. RISK MANAGEMENT Workers Compensation, Unemployment, and Property and Liability Coverage The County is exposed to various risks of loss related to torts; damage to and theft or destruction of assets; errors and omissions; injuries to employees; automobile liability and natural disasters. To reduce the risk of exposure in these areas, the County contracts in the form of interlocal agreements with risk pools created by the Texas Association of Counties (TAC). The County is a member of workers compensation, unemployment, and property and liability risk pools. The pools are public entity risk pools and were created based on the general objectives of formulating, developing and administering a program of self-insurance for the membership and obtaining lower costs for coverage. The pools have the power to establish fees, contributions and methods for establishing rates. Under contract with the pools, the TAC provides for such services as claims administration and management, underwriting, loss control services and training, and financial reporting for its members. The pools are governed by a board of directors made up of employees or officials of counties which are members of the pool. Member counties make contributions to the pools, and the pools provide insurance coverage and applicable reinsurance or stop loss coverage. Contributions are set annually and the interlocal agreements carry various deductibles and aggregate maximum loss totals. Liability by the County is generally limited to the amounts calculated by the County interlocal agreements. The by-laws and audited financial statements of the pools are detailed in separate documents and can be obtained from the Texas Association of Counties, 1210 San Antonio Street, Austin, TX 78701. The County has had no significant reduction in insurance coverage from prior years and the County has had no settlements which exceeded insurance coverage in the current or prior years. Self Insured Group Medical Insurance The County has elected to provide group medical benefits to their employees on a partially self- funded basis. They have contracted with an outside plan supervisor to administer all claims payments. The County sets a specific amount of money aside each month and as claims are submitted to the plan supervisor the County reimburses them when notified. Under this plan, the County is limited to $50,000 per employee per calendar year with an aggregate amount of $2,000,000 per year. After the deductible and aggregate amount, the balance is paid by a third party carrier. 30 3.I. COMMITMENTS AND CONTINGENCIES Operating Leases 3.J. 3.K. 3.L. The reporting entity has entered into a number of operating leases, which contain cancellation provisions and are subject to annual appropriations. For the year ended September 30, 2007, rent expenditures approximated $155,291 for all types of operating leases. These expenditures were made primarily from the General Fund. Grant Program Involvement In the normal course of operations, the County participates in various federal or state grant programs. The grant programs are often subject to additional audits by agents of the granting or funding agency, the purpose of which is to ensure compliance with the specific conditions of the grant. Any liability for reimbursement that may arise as a result of these audits cannot be reasonably determined at this time, although it is believed the amount, if any, would not be material. RESTRICTED NET ASSETS Net assets restricted for debt service include the excess of assets over certain liabilities restricted for the debt service on revenue bonds. Net assets of governmental funds restricted by enabling legislation for the specific purpose of debt service total $172,723 at September 30, 2007. PRIOR PERIOD ADJUSTMENT The Government Wide Statement of Net Assets and the Government Wide Statement of Activities shows a net prior period adjustment of $35,186,088. This increase in Net Assets was due to a prior period adjustment made to furniture, machinery and equipment ($138,751) and the retroactive addition of Infrastructure assets ($38,679,333) and the corresponding accumulated depreciation ($3,354,494). CHANGE IN ACCOUNTING ESTIMATE After reviewing historical tax collection rates for the County, a change was made to the estimate used in the calculation of Allowance for Uncollectible Taxes. The external auditors concur with the change in estimate which is illustrated below. of Uncollectible Taxes Receivable Current Prior Year Year General Fund 4.025 41.870 Road & Bridge Fund 4.600 38.210 Other Nonmajor Special Revenue Funds 4.025 41.870 31 REQUIRED SUPPLEMENTARY INFORMATION KERR COUNTY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL -GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2007 EXHIBIT C-5 Actual Amounts Variance With (GAAP BASIS) Final Budget Budgeted Amounts Positive or Original Final (Negative) REVENUES: Taxes: Property Taxes Other Taxes Intergovernmental Revenue and Grants Fees of Office Fines and Forfeitures Investment Earnings Other Revenue Total Revenues EXPENDITURES: Current: General Government Administration of Justice Public Safety Corrections Health and Human Services Community and Economic Development Infrastructure and Environmental Debt Service: Debt Principal Debt Interest Capital Outlay: General Government Administration of Justice Public Safety Community and Economic Development Total Expenditures Excess (Deficiencv) of Revenues Over (Under) Expenditures OTHERFINANCING SOURCES (USES): Proceeds from Capital Leases Transfers Out (Use) Total Other Financing Sources (Uses) $ 7,260,030 $ 7,260,030 $ 7,113,744 $ (146,286) 2,830,366 2,830,366 2,936,460 106,094 282,646 290,412 194,397 (96,015) 1,838,510 1,838,510 1,892,035 53,525 326,000 326,000 321,367 (4,633) 200,000 200,000 197,523 (2,477) 297,369 318,535 336,851 18,316 13,034,921 13,063,853 12,992,377 (71,476) 3,177,827 3,137,206 3,015,335 121,871 3,410,289 3,639,613 3,478,104 161,509 3,801,567 3,791,703 3,330,007 461,696 2,320,971 2,154,605 2,163,969 (9,364) 550,404 539,637 532,365 7,272 424,411 460,076 434,534 25,542 199,039 206,539 195,900 10,639 - - 90,059 (90,059) _ - 2,506 (2,506) 15,668 8,013 4,091 3,922 12,214 9,227 4,144 5,083 13,919 31,919 129,688 (97,769) - 1,975 1,975 - 13,926,309 13,980,513 13,382,677 597,836 (891,388) (916,660) (390,300) 526,360 _ _ 105,206 105,206 (50,000) (50,000) - 50,000 (50,000) (50,000) 105,206 155,206 Net Change Fund Balance -October 1 (Beginning) Fund Balance -September 30 (Ending) (941,388) (966,660) (285,094) 681,566 2,629,068 2,629,068 2,629,068 - $ 1,687,680 $ 1,662,408 $ 2,343,974 $ 681,566 The accompanying notes are an integral part of this statement. 32 KERB COUNTY EXHIBIT C-6 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL -ROAD AND BRIDGE FUND FOR THE YEAR ENDED SEPTEMBER 30, 2007 Actual Vaziance With Final Budget Budgeted Amounts GAAP BASIS Positive or Original Final (See Note) (Negative) REVENUES: Taxes: Property Taxes $ 908,099 $ 908,099 $ 945,130 $ 37,031 Automobile Registration 979,500 979,500 1,008,094 28,594 Intergovernmental Revenue and Grants 29,200 29,200 29,091 (109) Fees of Office 325,500 325,500 311,653 (13,847) Fines and Forfeitures 3,100 3,100 2,350 (750) Investment Earnings 21,000 21,000 41,054 20,054 Other Revenue 1,000 69,340 66,475 (2,865) Total Revenues 2,267,399 2,335,739 2,403,847 68,108 EXPENDITURES: Current: Infrastructure and Environmental Debt Service: Debt Principal Debt Interest Capital Outlay: Infrastructure and Environmental Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES): Proceeds from Capital Leases Total Other Financing Sources (Uses) Change in Fund Balance Fund Balance -October 1 (Beginning) Fund Balance -September 30 (Ending) 2,289,448 2,184,672 38,404 186,900 107,999 116,999 2,435,851 2,488,571 (168,452) (152,832) 2,147,045 37,627 419,768 (232,868) 26,216 (26,216) 116,476 523 2,709,505 (220,934) (305,658) (152,826) _ - 264,071 _ - 264,071 (168,452) (152,832) (41,587) 597,872 597,872 597,872 ~~n n~i 264.071 111,245 $ 429,420 $ 445,040 $ 556,285 $ 111,245 The accompanying notes are an integral part of this statement. 33 BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION COUNTY OF KERB, TEXAS Kerrville, Texas For the Year Ended Septembcr 30, 200'1 I FREDERICKSBURG, TEXAS KERR COUNTY, 'TEXAS BASIC FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION SEPTEMBER 30, 2007 ~"' KERR COUNTY, TEXAS ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2007 TABLE OF CONTENTS Exhibit Page Independent Auditors' Report ............................................................................................... 1 Management's Discussion and Analysis ............................................................................... 2 Basic Financial Statements Government Wide Statements: A-1 Statement of Net Assets ........................................................................................................ 8 B-1 Statement of Activities .......................................................................................................... 9 Governmental Fund Financial. Statements: C-1 Balance Sheet ........................................................................................................................ 11 ,, C-2 Reconciliation for C-1 ........................................................................................................... 12 C-3 Statement of Revenues, Expenditures and Changes in Fund Balance ................................ 13 C-4 Reconciliation for C-3 ........................................................................................................... 14 "~' Fiduciary Funds: E-1 Statement of Fiduciary Net Assets ....................................................................................... 15 Notes to the Financial Statements 16 ........................................................................................ Required Supplementary Information C-5 Budgetary Comparison Schedule -General Fund ................................................................ 32 C-6 Budgetary Comparison Schedule -Road and Bridge Fund ................................................. 33 NEFFENDORF, KNOPP, HORRY ~ DOSS, P. C. Certified Public Accountants P.O. BOX 574.736 S. WASHINGTON ST. ~r FREDERICKSBURG, TEXAS 78624-0874 (830)997-3348 MEMBER FAX: (830) 997-3333 MEMBER AMERICAN INSTITUTE OF Email: nkhd®austin.rr.com TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR'S REPORT Honorable Judge and County Commissioners Kerr County, Texas Kerrville, TX 78028 We have audited the accompanying fmancial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Kerr County, Texas, as of and for the year ended September 30, 2007, which collectively comprise the County's basic fmancial statements as listed in the table of contents. These fmancial statements are the responsibility of Kerr County, Texas's management. Our responsibility is to express opinions on err these fmancial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. ~ Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fmancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall fmancial statement +~ presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the fmancial statements referred to above present fairly, in all material respects, the respective fmancial position of the governmental activities, each major fund, and the aggregate remaining fund information of Kerr County, Texas, as of September 30, 2007, and the respective changes in fmancial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. The management's discussion and analysis (pages 2 through 7) and budgetary comparison information (pages 32 and 33) are not a required part of the basic fmancial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited rr procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. In accordance with Government Auditing Standards, we have also issued our report dated June 17, 2008 on our consideration of the County's internal control over fmancial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. ,I~ina~p, ~nn.~ ~ Do,no, P. ~. NEFFENDORF, KNOPP, HORRY AND OSS, P.C. Fredericksburg, Texas June 17, 2008 e~ KERR COUNTY, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (iJNAUDITED) ~` FOR THE YEAR ENDED SEPTEMBER 30, 2007 MANAGEMENT'S DISCUSSION AND ANALYSIS ~" As management of Kerr County, Texas, we offer readers of the County's fmancial statements this narrative overview and analysis of the financial statements of the County for the year ended September 30, 2007. Please read it in conjunction with the independent auditors" report on page I, and County's Basic Financial ~` Statements which begin on page 8. FINANCIAL HIGHLIGHTS - The assets of the County exceeded its liabilities at the close of the most recent fiscal year by $47,987,296 (net assets). Of this amount, $4,299,804 (unrestricted net assets) may be used to meet the County's ongoing obligations to citizen's and creditors. - The County's net assets increased by $35,247,013; $60,925 as a result of this year's operations and $35,186,088 as a result of prior period adjustments. - At September 30, 2007, the County's governmental funds reported combined ending fund balances of $4,558,156, a decrease of $392,988 in comparison with the prior year. - At September 30, 2007, the unreserved fund balance of the general fund was $2,343,974, or 17.5 percent of total general fund expenditures. - Operations of the Kerr County Juvenile Detention Facility greatly improved through restructuring of the operations at the facility. USING THIS ANNUAL REPORT ~ This annual report consists of a series of fmancial statements. The government-wide fmancial statements include the Statement of Net Assets and the Statement of Activities (on pages 8 and 9). These provide information about the activities of the County as a whole and present alonger-term view of the County's ~" property and debt obligations and other fmancial matters. They reflect the flow of total economic resources in a manner similar to the financial reports of a business enterprise. ~" Fund fmancial statements (on pages 11 & 13) report the County's operations in more detail than the government-wide statements by providing information about the County's most significant funds. For governmental activities, these statements tell how services were fmanced in the short term as well as what ~ resources remain for future spending. They reflect the flow of current fmancial resources, and supply the basis for tax levies and the appropriations budget. The notes to the financial statements (starting on page 16) provide narrative explanations or additional data needed for full disclosure in the government-wide statements or the fund financial statements. The Budgetary Comparison Schedules (operating fund) are presented as required supplementary information on pages 32 and 33. 2 Reporting the County as a Whole The Statement of Net Assets and the Statement of Activities ~" The analysis of the County's overall fmancial condition and operations begins on page 8. Its primary purpose is to show whether the County is better off or worse off as a result of the year's activities. The Statement of Net Assets includes all the County's assets and liabilities at the end of the year while the ~" Statement of Activities includes all the revenues and expenses generated by the County's operations during the year. These apply the accrual basis of accounting which is the basis used by private sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. All the County's assets are reported whether they serve the current year or future years. Liabilities are considered regardless of whether they must be paid in the current or future years. These two statements report the County's net assets and changes in them. The County's net assets (the difference between assets and liabilities) provide one measure of the County's financial health, or fmancial ,, position. Over time, increases or decreases in the County's net assets are one indicator of whether its financial health is improving or deteriorating. To fully assess the overall health of the County, however, you should consider other factors as well, such as changes in the County's customers or its property tax base and the condition of the County's facilities. In the Statement of Net Assets and the Statement of Activities, the County has one kind of activity: ~" - Governmental activity -Most of the County's basic services are reported here, including the public safety, streets and highways, justice system, juvenile services, health and human services, culture and recreation, conservation and development and administration. Property taxes, grants, fees of office, automobile registration, sales tax and other taxes fmance most of these activities. Reporting the County's Most Significant Funds Fund Financial Statements The fund fmancial statements on pages 11 & 13 provide detailed information about the most significant funds -not the County as a whole. - Governmental funds -All of the County's basic services are reported in governmental funds. These use modified accrual accounting (a method that measures the receipt and disbursement of cash and all other financial assets that can be readily converted to cash) 'and report balances that are available for future spending. The governmental fund statements provide a detailed short-term view of the County's general operations and the basic services it provides. We describe the differences between governmental activities (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in Note 2 to the financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS Net assets of the County's governmental activities increased from $12,740,283 to $47,987,296. Unrestricted net assets -the part of net assets that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements -was $4,299,804 at September 30, 2007. This increase in governmental net assets was the result of five factors. First, the County's revenues exceeded the expenditures by $60,925. Second, the County acquired capital assets in the amount of $677,993. Third, the County issued other long-term debt in the amount of $369,277 and paid principal on long-term debt of $1,743,636. Fourth, the County recorded depreciation in the amounts of $1,521,895. Fifth, the County recorded a prior period adjustment of $35,186,088 which was the retroactive addition of infrastructure assets. Table I KERR COUNTY, TEXAS NET ASSET'S in thousands Current and Other Assets Receivables Other Noncurrent Assets Capital Assets Total Assets Long-Term Liabilities Accounts Payable Other Liabilities and Deferred Revenue Long-term Debt Total Liabilities Net Assets: Invested in Capital Assets Net of Related Debt Restricted Unrestricted Total Net Assets Governmental Activities 2nm ~nn~ $ 5,916 $ 5,531 2,263 1,657 30 40 46,680 13,271 '~ S4 RR9 ~ 7n 499 1,234 506 516 2,351 5,152 4,901 $ 6,902 $ 7,758 $ 41,473 $ 6,745 2,214 2,322 4,300 3,673 $ 47,987 $ 12,740 4 err Table II KERB COUNTY, TEXAS CHANGES IN NET ASSETS in thousands Governmental Activities 2007 2006 Revenues: Program Revenue Charges for Services $ 3,244 $ 3,366 Operating Grants and Contributions 156 500 Capital Grants and Contributions 445 616 General Revenues Property Taxes 11,687 10,924 Other Taxes 2,902 2,706 Grants and Contributions - 73 Investment Earnings 371 271 Other General Revenues 1,627 1,818 Total Revenue $ 20,432 $ 20,274 Expenses: - General Government $ 3,287 $ 3,339 Administration of Justice 3,930 3,577 Public Safety 4,069 4,485 Corrections 3,048 4,292 Health and Human Services 1,425 1,412 Community & Economic Development 1,022 737 Infrastructure & Environmental Services 3,342 1,898 Long-term Debt Expenditures 248 286 Total Expenses $ 20,371 $ 20,026 Increase in Net Assets $ 61 $ 248 Net Assets -Beginning 12,740 12,492 Prior Period Adjustment 35,186 - Net Assets -Ending $ 47,987 $ 12,740 5 ~ The cost of all governmental activities this year was $20,3i' 1,185. However, the amount that our taxpayers ultimately fmanced for these activities through County taxes was only $11,686,817 because the other costs were paid by other taxes ($2,902,581), operating and capital grants and contributions ($601,267), user charges ($3,243,792) investment earnings ($370,648) and other miscellaneous ($1,627,005). THE COUNTY'S FUNDS As the County completed the year, its governmental funds (as presented in the balance sheet on page 11) reported a combined fund balance of $4,558,156, which is less than last year's total of $4,951,144. Included in this year's total change in fund balance is a decrease of $285,094 in the County's General Fund. The primary reason for the General Fund's decrease is the use of prior year surplus funds. The Commissioner's Court adopted the General Fund and Road and Bridge Fund budgets. In the General Fund, actual revenues and expenditures were less than the budgeted amounts, resulting in a net positive variance of $681,566. In the Road and Bridge Fund, actual revenues and expenditures were more than the budgeted amounts, resulting in a net positive variance of $111,245. CAPITAL ASSET AND DEBT ADMIl~IISTRATION At September 30, 2007, the County had the following amounts invested in capital assets, net of depreciation: CAPITAL ASSETS in thousands 2007 2006 ~. Land $ 497 $ 497 ~ Buildings & Improvements 15,081 15,072 Machinery & Equipment 8,313 9,024 Infrastructure 38,680 - Total Capital Assets $ 62,571 $ 24,593 Accumulated Depreciation 15,891 11,322 Capital Assets, Net $ 46,680 $ 13,271 This year's major additions included: ~r (4) 2007 Ford Crown Victorias $ 105,206 2006 GMC Dumptruck 55,639 "~ Software 75,000 Printer 17,600 2007 Chev. 2500 Pickup 28,533 2007 Chev. 1500 Pickup 23,304 Mobile Off ce - R & B Department 9,000 ,; Other Equipment & Furniture 363,711 TOTALS $ 677,993 More detailed information about the County's capital assets is presented in Note 3.D. to the fmancial statements. 6 r DEBT At September 30, 2007, the County had the following outstanding debt: OUTSTANDING DEBT in thousands 2007 2006 Certificates of Obligation $ 3,770 $ 4,760 "' Notes Payable 786 1,030 Capital Leases 596 736 Total Outstanding Debt $ S,1S2 $ 6,526 For governmental activities, the County had $5,151,966 in certificates of obligation and other long-term ~, debt outstanding, a decrease of 21 percent. The County paid $1,743,636 in principal on the outstanding long-term debt, and issued $369,277 in capital lease obligations. More detailed information about the County's long-term liabilities is presented in Note 3.F. to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES The County's elected and appointed officials considered many factors when setting the fiscal-year 2008 ~' budget and tax rates. The major factors are the economy, population growth, and assessed property valuation. These indicators were taken into account when adopting the General Fund budget for 2008. Amounts available for appropriation in the General Fund budget are $14,315,307 and expenditures are estimated to be $14,757,736. If these estimates are realized, the County's budgetary General fund balance is expected to decrease $442,429 by the close of 2008 (use of prior year surplus). The total budget for capital expenditures is $272,194 for fiscal-year 2008. The expenditures include ~,,, vehicles and equipment for the Sheriff's Department, Road and Bridge Department, Environmental Health Department and Animal Control Department. Also included are improvements to the Kerr County Courthouse grounds and the Hill Country Youth Exhibit Center. 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 show the County's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the County Auditor or Commissioners' Court, at Kerr County, Texas, Kerrville, Texas. 7 BASIC FINANCIAL STATEMENTS ~,,, rr ~r KERR COUNTY STATEMENT OF NET ASSETS SEPTEMBER 30, 2007 rimary Government Governmental Activities ASSETS '~ Cash and Cash Equivalents $ 5,916,170 Receivables (net of allowance for uncollectibles) 781,404 Court Fines and Fees Receivable 1,482,124 rr Capitalized Debt Issuance Costs 29,764 Capital Assets: Land 497,457 Infrastructure, net 34,745,479 Buildings, net 9,574,474 Machinery and Equipment, net 1,862,503 Total Assets 54,889,375 ~r LIABILITIES Accounts Payable 1,234,491 Compensated Absences Payable 384,831 Accrued Interest Payable 54,638 Deferred Revenues 76,154 Noncurrent Liabilities ar Due Within One Year 1,403,851 Due in More Than One Year 3,748,114 Total Liabilities 6,902,079 NET ASSETS Invested in Capital Assets, Net of Related Debt 41,473,310 Restricted for: Special Revenue 2,031,695 Debt Service 172,723 Capital Projects 9,764 ~" Unrestricted Net Assets 4,299,804 Total Net Assets $ 47,987,296 ~. EXHIBIT A-1 The notes to the Financial Statements are an integral part of this statement. 8 KERR COUNTY STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2007 Program Revenues Operating Charges for Grants and Expenses Services Contributions Primary Government: GOVERNMENTAL ACTIVITIES: General Government Administration of Justice Public Safety Corrections Health and Human Services Community and Economic Development Infrastructure and Environmental Debt Interest Fiscal Agent's Fees Issuance Costs TOTAL PRIMARY GOVERNMENT: $ 3,287,175 $ 1,109,318 $ 204 3,929,491 1,403,773 62,110 4,068,996 217,852 40,181 3,048,371 396,883 9,525 1,424,764 18,210 - 1,021,596 - - 3,342,396 97,756 44,452 236,294 - - 2,181 - - 9,921 - - $ 20,371,185 $ 3,243,792 $ 156,472 General Revenues: Taxes: Property Taxes, Levied for General Purposes Property Taxes, Levied for Debt Service Sales & Other Taxes Miscellaneous Revenue Investment Earnings Transfers In (Out): Total General Revenues and Transfers Change in Net Assets Net Assets--Beginning Prior Period Adjustment Net Assets--Ending The notes to the Financial Statements are an integral part of this statement. 9 ®~ ar air rr arr s err s. Net (Expense) Revenue and Changes in Net Assets Capital Primary Government Grants and Governmental Contributions $ - $ (2,177,653) - (2,463,608) - (3,810,963) - (2,641,963) - (1,406,554) - (1,021,596) 444,795 (2,755,393) - (236,294) ,., , ~,. $ 444,795 (16,526,126) 10,373,219 1,313,598 2,902,581 1,599,382 o ^~n cno 16,587,051 12,740,283 3 5,186,088 $ 47,987,296 10 EXHIBIT B-1 ~r KERR COUNTY BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2007 EXHIBIT C-1 Total General Road & Other Governmental ~r Fund Bridge Fund Funds Funds ASSETS Cash and Cash Equivalents $ 3,265,876 $ 826,279 $ 1,824,015 $ 5,916,170 '~" Taxes Receivable 301,971 44,092 143,633 489,696 Allowance for Uncollectible Taxes (credit) (12,154) (2,028) (5,781) (19,963) Receivables (net of allowance for uncollectibles) 280,010 1,781 29,880 311,671 ~+ Total Assets $ 3,835,703 $ 870,124 $ 1,991,747 $ 6,697,574 LIABILITIES AND FUND BALANCES Liabilities: Accounts Payable $ 831,354 $ 231,522 $ 171,614 $ 1,234,490 Compensated Absences Payable 320,027 40,421 24,384 384,832 Deferred Revenues 340,348 41,896 137,852 520,096 Total Liabilities 1,491,729 313,839 333,850 2,139,418 Fund Balances: ,~ Unreserved and Undesignated: Reported in the General Fund 2,343,974 - - 2,343,974 Reported in the Special Revenue Fund - 556,285 1,475,410 2,031,695 Reported in the Debt Service Fund - - 172,723 172,723 Reported in the Capital Projects Fund - - 9,764 9,764 Total Fund Balances 2,343,974 556,285 1,657,897 4,558,156 ~r Total Liabilities and Fund Balances $ 3,835,703 $ 870,124 $ 1,991,747 $ 6,697,574 The notes to the Financial Statements are an integral part of this statement. 11 KERR COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2007 $ 4,558,156 35,186,088 6,725,170 Total Fund Balances -Governmental Funds Prior Period Adjustment (Note 3.K.) Capital assets used in governmental activities are not financial resources and therefore are not reported in governmental funds. At the beginning of the year, the cost of these assets was $24,594,016 and the accumulated depreciation was $11,322,792. In addition, long-term liabilities, including bonds payable, are not due and payable in the current period, and, therefore are not reported as liabilities in the funds. The net effect of including the beginning balances for capital assets (net of depreciation) and long-term debt in the governmental activities is to increase net assets. Current year capital outlays and long-term debt principal payments are expenditures in the fund financial statements,but they should be shown as increases in capital ~„ assets and reductions in long-term debt in the government-wide financial statements. The net effect of including the 2007 capital outlays and debt principal payments is to increase net assets. The 2007 depreciation expense increases accumulated depreciation. The net effect of the current year's depreciation is to decrease net assets. Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, eliminating interfund transactions, reclassifying the proceeds of bond sales as an increase in bonds payable, and recognizing the liabilities associated with maturing long-term debt and interest. The ~"' net effect of these reclassifications and recognitions is to increase net assets. Net Assets of Governmental Activities EXHIBIT C-2 1,113,711 (1,521,895) 1,926,066 47,987,296 The notes to the Financial Statements are an integal part of this statement. 12 ~ ~" EXHIBIT C-3 ICERR COUNTY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2007 Total General Road & Other Governmental Fund Bridge Fund Funds Funds REVENUES: Taxes: Property Taxes $ 7,].13,744 $ 945,130 $ 3,394,431 $ 11,453,305 Other Taxes 2,936,460 - - 2,936,460 Automobile Registration - 1,008,094 - 1,008,094 Intergovernmental Revenue and Grants 194,397 29,091 1,291,763 1,515,251 Fees of Office 1,892,035 311,653 220,479 2,424,167 '~' Fines and Forfeitures 321,367 2,350 925 324,642 Investment Earnings 197,523 41,054 132,071 370,648 Other Revenue 336,851 66,475 39,994 443,320 :~ Total Revenues 12,992,377 2,403,847 5,079,663 20,475,887 EXPENDITURES: Current: ~ General Government 3,015,335 - 170,591 3,185,926 Administration of Justice 3,478,104 - 404,533 3,882,637 Public Safety 3,330,007 - 333,587 3,663,594 Corrections 2,163,969 - 811,898 2,975,867 Health and Human Services 532,365 - 882,832 1,415,197 Community and Economic Development 434,534 - 564,587 999,121 Infrastructure and Environmental 195,900 2,147,045 72,683 2,415,628 ~„ Debt Service: Debt Principal 90,059 419,768 1,233,809 1,743,636 Debt Interest 2,506 26,216 212,349 241,071 Fiscal Agent's Fees - - 2,181 2,181 +~ Capital Outlay: General Government 4,091 - 8,817 12,908 Administration of Justice 4,144 - 39,638 43,782 Public Safety 129,688 - 41,452 171,140 '~ Community and Economic Development 1,975 - - 1,975 Infrastructure and Environmental - 116,476 394,636 511,112 Total Expenditures 13,382,677 2,709,505 5,173,593 21,265,775 ~ Excess (Deficiency) of Revenues Over (Under) (390,300) (305,658) (93,930) (789,888) Expenditures OTHER FINANCING SOURCES (USES): 91r Proceeds from Capital Leases 105,206 264,071 - 369,277 Transfers In - - 103,000 103,000 Transfers Out (Use) - - (75,377) (75,377) Total Other Financing Sources (Uses) 105,206 264,071 27,623 396,900 Net Change in Fund Balances (285,094) (41,587) (66,307) (392,988) ~„ Fund Balance -October 1 (Beginning) 2,629,068 597,872 1,724,204 4,951,144 Fund Balance -September 30 (Ending) $ 2,343,974 $ 556,285 $ 1,657,897 $ 4,558,156 s The notes to the Financial Statements are an integral part of this statement. 13 '~ EXHIBIT C-4 KERR COUNTY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2007 Total Net Change in Fund Balances -Governmental Funds Current year capital outlays and long-term debt principal payments are expenditures in the fund financial statements, but they should be shown as increases in capital assets and reductions in long-term debt in the government-wide financial statements. The net effect of removing the 2007 capital outlays and debt principal payments is to increase net assets. Depreciation is not recognized as an expense in governmental funds since it does not require the use of current financial resources. The net effect of the current year's depreciation is to decrease net assets. ~ Various other reclassifications and eliminations are necessary to convert from the modified accrual basis of accounting to accrual basis of accounting. These include recognizing deferred revenue as revenue, adjusting current year revenue to show the revenue earned from the current year's tax levy, eliminating interfund transactions, reclassifying the proceeds of bond sales, and recognizing the liabilities associated with maturing long-term debt and interest. The net effect of these reclassifications and recognitions is to increase net assets. Change in Net Assets of Governmental Activities $ (392,988) 1,113,711 (1,521,895) 862,097 $ 60,925 The notes to the Financial Statements are an integral part of this statement. 14 ~r KERR COUNTY STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS SEPTEMBER 30, 2007 Agency Fund ASSETS Cash and Cash Equivalents Total Assets LIABILITIES Due to Other Governmental Units Total Liabilities $ 990,759 $ 990,759 EXHIBIT E-1 The accompanying notes are an integral part of this statement. 15 KERB COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2007 NOTE 1 - SLINIlVIARY OF SIGNIFICANT ACCOUNTING POLICIES The fmancial statements of Kerr County have been prepared in conformity with Generally Accepted Accounting Principles (GAAP) as applied to government units. The Governmental Accounting Standards ~` Board (GASB) is the accepted standard-setting body for establishing governmental accounting and fmancial reporting principles. The more significant of the government's accounting policies are described below: 1.A. REPORTING ENTITY The County has developed criteria to determine if the activities of any outside agencies or ~"' organizations should be included within its financial statements. The criteria includes the amount of oversight responsibility exercised by the County over the activities of an agency or organization, the scope of public service of an agency or organization, and the nature of any special financing relationships which may exist between the County and an agency or organization. Oversight responsibility includes financial interdependency, selection of the governing authority, designation of management, the ability to significantly influence operations, and accountability for fiscal matters. The County's fmancial statements include all funds over which the County exercises oversight responsibility. Also, the County is not included as a part of any other reporting entity. I .B. BASIS OF PRESENTATION Government-wide Financial Statements: The Statement of Net Assets and Statement of Activities display information about the reporting government as a whole. They include all funds of the reporting entity except for fiduciary funds. The statements distinguish between governmental and business-type activities. Governmental activities generally are fmanced through taxes, intergovernmental revenues, and other nonexchange revenues. Business-type activities are fmanced in whole or in part by fees charged to external parties for goods or services. Fund Financial Statements: Fund financial statements of the reporting entity 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 expenditure/expenses. Funds are organized into three major categories: governmental, proprietary, and fiduciary. An emphasis is placed on major funds within the governmental and proprietary categories. A fund is considered major if it is the primary operating fund of the County or meets the following criteria. a. Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or ~„ enterprise fund are at least 10 percent of the corresponding total for all funds of that category or type; and b. Total assets, liabilities, revenues, or expenditure/expenses of the individual governmental fund or enterprise fund are at least 5 percent of the corresponding total for all governmental and enterprise funds combined. 16 ~r The funds of the financial reporting entity are described below: Governmental Funds General Fund The General Fund, the primary operating fund of the County, is always classified as a major fund. It is the basic fund of the County and covers all activities for which a separate fund has not been established. ~" Special Revenue Funds Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specific purposes. Debt Service Funds The Debt Service Fund accounts for the accumulation of financial resources for and the payment of arr principal and interest on general long-term debt of the County other than debt service payments made by enterprise funds. Ad valorem taxes are used for the payment of principal and interest on the County's debt. Capital Projects Fund The Capital Projects Fund is used to account for proceeds of general long-term debt and other revenues. Expenditures are restricted to the construction and acquisition of major capital facilities. Fiduciary Funds (Not included in government-wide statements) Agency Funds Agency funds account for assets held by the County in a purely custodial capacity. Since agency funds are custodial in nature (i.e., assets equal liabi.lities), they do not involve the measurement of '~ results of operations. Major and Nonmajor Funds The funds are further classified as major or nonmajor. The major funds are as follows: Major Fund Brief Description General See above for description. Special Revenue Fund: Accounts for all road and bridge construction and Road and Bridge maintenance activity. Nonmajor funds consist of special revenue funds, debt service funds, and capital project funds. 17 1.C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING Measurement focus is a term used to describe "which" transactions aze recorded within the vazious financial statements. Basis of accounting refers to "when" transactions are recorded regardless of ~ the measurement focus applied. Measurement Focus '~ On the government-wide Statement of Net Assets and the Statement of Activities, both governmental and business-like activities are presented using the economic resources measurement focus as defined below. In the fund financial statements, the "current fmancial resources" measurement focus or the "economic resources" measurement focus is used as appropriate: a. All governmental funds utilize a "current financial resources" measurement focus. Only current financial assets and liabilities are generally included on their balance sheets. Their ~• operating statements present sources and uses of available spendable fmancial resources during a given period. These funds use fund balance as their measure of available spendable financial resources at the end of the period. b. Agency and Permanent Trust Funds are nat involved in the measurement of results of operations; therefore, measurement focus is not applicable to them. Basis of Accounting In the government-wide Statement of Net Assets and Statement of Activities, governmental activities are presented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expense, gains, losses, assets, and liabilities resulting from exchange and ~" exchange-like transactions are recognized when the exchange takes place. In the fund financial statement, governmental funds and agency funds are presented on the modified ~"` accrual basis of accounting. Under this modified accrual basis of accounting, revenues are recognized revenues when both "measurable and available." Measurable means knowing or being able to reasonably estimate the amount. Available means collectable within the current period or ~"' within 60 days after year end. Also under the modified accrual basis of accounting, expenditures (including capital outlay) are recorded when the related fund liability is incurred, except for general obligation bond principal and interest which are reported as expenditures in the year due. 1.D. ASSETS, LIABILITIES AND EQUITY Cash and Cash Investments For the purpose of the Statement of Net Assets, "Cash and Cash Equivalents" includes demand ~„~ deposit accounts and government investment pools. All amounts are considered available upon demand and are considered to be "cash equivalents." Several funds may be invested in an investment account and each fund has an equity interest therein. Interest earned on the Investment of these monies is allocated based upon relative equity at month end. 18 ~""7 Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e., the current portion of ~. interfund loans) or "advances to/from other funds" (i.e., the noncurrent portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds." All trade and property tax receivables are shown net of an allowance for uncollectibles. Trade accounts receivable in excess of 60 days comprise the trade accounts receivable allowance for uncollectibles. Ad valorem property taxes attach as enforceable liens as of January 1. Taxes are levied prior to September 30, payable on October 1, and are delinquent on February 1. The majority of the ~"" County's property tax collections occur during December and early January each year. To the extent that County property tax revenue results in current receivables as defined by the Governmental Accounting Standards Board (GASB), they are recognized when levied. Capital Assets ~r Government-wide Statements Capital assets, which include property, plant, equipment and infrastructure assets (e.g. roads, bridges, sidewalks and similar items) are reported in the governmental activities column in the ~„ government-wide fmancial statements. The County defines capital assets as assets with an initial, individual cost of more than $1,000 (amount not rounded) and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Property, plant and equipment is depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings and Improvements 2S - 50 Improvements 10 - 50 Furniture and Equipment 3 - 20 Infrastructure 25 - 50 Fund Financial Statements In the fund financial statements, fixed assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. 19 ~r Compensated Absences Full time and regular part time employees who work 20 hours per week or more are granted vacation ~r benefits in varying amounts to specified maximums depending on tenure with the County. Sick leave accrues to full time and regular part time employees to specified maximums. Accumulated vacation time may be taken in pay upon termination or retirement up to a maximum of twenty (20) +^ days; however, this policy does not apply to accumulated sick leave. In the fund financial statements, governmental funds report only the compensated absence liability payable from expendable available resources. Long-term Obligations ""~ In the government-wide fmancial statements, long-term debt and other long-term obligations are reported as liabilities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds. 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. In the fund fmancial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs during the current period. The face amount of debt issued is reported as other fmancing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other fmancing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Equity Classifications Government-wide Statements Equity is classified as net assets and displayed in three components: ~r a. Invested in capital assets, net of related debt -Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. b. Restricted net assets -Consists of net assets with constraints placed on the use either by (1) ,, external groups such as creditors, grantors, or laws or regulations of other governments; or (2) law through constitutional provisions or enabling legislation. c. Unrestricted net assets -All other net assets that do not meet the defmition of "restricted" or "invested in capital assets, net of related debt." Fund Statements Governmental fund equity is classified as fund balance. Fund balance is further classified as reserved and unreserved, with unreserved further split between designated and undesignated. Use of Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the fmancial statements and the reported amounts of revenue and expenses during the reporting period. Actual amounts ~„ could differ from those estimates. 20 I .E. REVENUES, EXPENDITURES AND EXPENSES Property Taxes Property taxes are levied by October 1, in conforniity with Subtitle E, Texas Property Tax Code. Taxes are due on receipt of the tax bill and are delinquent if not paid before February 1, of the year following the year in which imposed. On January 1, of each year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. For the 2006 tax roll, the total assessed valuation was $3,092,943,887 and the taxes assessed amounted to $.3149. The total tax rate was $.3896 per $100 valuation and allocated $.3149 to the General Fund and $.0438 to the Debt Service Funds and .0309 to the Road and Bridge Fund. The maximum tax levy allowed by State law for the above purposes is $.80 per $100 valuation. In the fund financial statements, property taxes are recorded as revenue in~the period levied to the extent they are collected within 60 days of year-end. Due to the immaterial amount of additional ~" property taxes receivable after the 60-day period, no additional accrual is made in the government- wide financial statements. Expenditures/Expenses In the government-wide financial statements, expenses are classified by function for governmental activities. In the fund financial statements, expenditures are classified as follows: Governmental Funds - by Character: Current (further classified by function) Debt Service Capital Outlay In the fund financial statements, governmental funds report expenditures of financial resources. Interfund Transfers Permanent reallocation of resources between funds of the reporting entity are classified as interfund transfers. For the purposes of the Statement of Activities, all interfund transfers between individual governmental funds have been eliminated. NOTE 2 -STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Information ~` The County Judge and staff prepare the proposed budget, using revenue estimates fizrnished by the County Auditor. The proposed budget is then submitted to Commissioners Court for a public hearing. Before determining the final budget, Commissioners Court may increase or decrease the °"" amounts requested by the various departments. In the final budget, which is usually adopted in September, expenditures for current operating funds cannot exceed the estimated available cash balances in such funds on October 1, plus the estimate of revenues for the ensuing year. At any time during the year, Commissioners Court may increase the budget for unexpected revenues. Commissioners Court may transfer amounts among individual budget line items within major expenditure categories during the year, but no such transfer may increase the overall total of the budget. Formal budgetary integration is employed for the General, Special Revenue, Debt Service and Capital Projects Funds. Budgets for these funds are prepared on a cash basis. Unused appropriations lapse at the end of each year. 21 ~r NOTE 3 -DETAILED NOTES ON ALL FUNDS 3.A. DEPOSITS AND INVESTMENTS The funds of the County must be deposited and invested under the terms of a contract, contents of ~r which are set out in the Depository Contract Law. The depository bank places approved pledged securities for safekeeping and trust with the County's agent bank in an amount sufficient to protect County funds on a day-to-day basis during the period of the contract. The pledge of approved securities is waived only to the extent of the depository bank's dollar amount of Federal Deposit Insurance Corporation ("FDIC") insurance. At September 30, 2007, the carrying amount of the County's deposits was $5,812,640 and the bank "~` balance was $7,175,142. The County's cash deposits held at Security State Bank and Trust at September 30, 2007 and during the year ended September 30, 2007 were entirely covered by FDIC insurance or by pledged collateral held by the County's agent bank in the County's name. The Public Funds Investment Act (Government Code Chapter 2256) contains specific provisions in the areas of investment practices, management reports and establishment of appropriate policies. Among other things, it requires the County to adopt, implement, and publicize an investment policy. That policy must address the following areas: (1) safety of principal and liquidity, (2) portfolio diversification, (3) allowable investments, (4) acceptable risk levels, (5) expected rates of return, (6) maximum allowable stated maturity of portfolio investments, (7) maximum average dollar-weighted maturity allowed based on the stated maturity date for the portfolio, (8) investment staff quality and capabilities, (9) and bid solicitation preferences for certificates of deposit. Statutes authorize the ,,, County to invest in (1) obligations of the U.S. Treasury, certain U.S. agencies, and the State of Texas, (2) certificates of deposit, (3) certain municipal securities, (4) money market savings accounts, (5) repurchase agreements, (6) bankers acceptances, (7) Mutual funds, (8) Investment pools and guaranteed investment contracts. The Act also requires the County to have independent auditors perform test procedures related to investment practices as provided by the Act. The County's deposits and temporary investments at September 30, 2007 are shown below: Carrying Market FDIC Pledged Fiduciary/Type of Deposit Amount Walue Coverage Securities r Security State Bank & Trust Depository Bank rr Demand Deposit Accounts $ 5,812,640 $ 5,812,640 $ 200,000 $ 16,948,461 Banc of America Securities, LLC ~` Money Market Obligations Trust Gov't Obligations 3,439 3,439 - - a~ Morgan Stanley Money Market -Active Asset Gov't Securities Trust 99,814 99,814 - - ~r LOGIC Liquid Asset Portfolio 277 277 - - Total Governmental Activities $ 5,916,170 $ 5,916,170 $ 200,000 $ 16,948,461 22 * The investment in Logic is considered a government pool investment. Government pool investments are not categorized in accordance with GASB Statement No. 3, because they are not evidenced by securities that exist in physical or book entry form. Also, investments in government investment pools are not required to disclose custodial credit risk, concentration of credit risk and interest rate risk in accordance with GASB Statement No. 40. Policies Governing Deposits and Investments In compliance with the Public Funds Investment Act, the County has adopted a deposit and investment policy. That policy does address the following risks: "" Custodial Credit Risk -Deposits: This is the risk that in the event of bank failure, the County's deposits may not be returned to it. The County was not exposed to custodial credit risk since its deposits at year-end were covered by depository insurance or by pledged collateral held by the County's agent bank in the County's name. Custodial Credit Risk -Investments: This is the risk that, in the event of the failure of the counterparty, the County will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The County's investments (certificates of deposit) were secured by FDIC insurance and pledged securities. Other Credit Risk: There is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. At September 30, 2007, the County was not exposed to concentration of credit ~ risk, interest rate risk or foreign currency risk. For the year ended September 30, 2007, the County complied in all material respects with the requirements of the Public Funds Investment Act and with local policies. 3.B. RECEIVABLES Receivables as of year-end for the government's individual major funds and nonmajor funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Governmental Funds Road Other and Governmental ~"' General Bridge Funds TOTAL Receivables: Property Taxes $ 301,971 $ 44,092 $ 143,633 $ 489,696 Other 280,010 1,781 29,880 311,671 ur Gross Receivables $ 581,981 $ 45,873 $ 173,513 $ 801,367 err Less: Allowance for Uncollectibles 12,154 2,028 5,781 19,963 Net Total Receivables $ 569,827 $ 43,845 $ 167,732 $ 781,404 23 r Governmental funds report deferred revenue irr connection with receivables for revenue that is not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, deferred revenues reported in the governmental funds were as follows: ~ General Fund - Delinquent Property Taxes Receivable $ 289,817 Other Receivables 50,531 Special Road and Bridge Fund - Delinquent Property Taxes Receivable 41,896 Other Governmental Funds - Delinquent Property Taxes Receivable 137,852 TOTAL DEFERRED REVENUES $ 520,096 3.C. COURT FINES AND FEES RECEIVABLE .~ The County has determined the amount of court fines and fees receivable at September 30, 2007 to be $1,482,124 which represents amounts owed and outstanding for the last 10 years. This receivable is included on the government wide statement of net assets and is net of an allowance for ~, uncollectible court fines and fees based on historical collection rates for the various courts. 3.D. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2007, was as follows: ,, Primary Government ~,, Balance Prior Period Balance 10/1/06 Increases Decreases Adjustments 9/30/07 Governmental Activities: Capital Assets, Not Being Depreciated: Land $ 497,457 $ - $ - $ - $ 497,457 Capital Assets, Being Depreciated: Buildings and Improvements 15,072,321 9,000 - - 15,081,321 FumitureandEquipment 9,024,238 668,993 1,241,293 (138,751) 8,313,187 ,~ Infrastructure - - - 38,679,333 38,679,333 Total Capital Assets Being Depreciated 24,096,559 677,993 1,241,293 38,540,582 62,073,841 Less Accumulated Depreciation: Buildings and Improvements (5,139,574) (367,273) - - (5,506,847) Furniture and Equipment (6,183,218) (575,262) 307,796 - (6,450,684) Infrastructure - (579,360) - (3,354,494) (3,933,854) Total Accumulated Depreciation (11,322,792) (1,521,895) 307,796 (3,354,494) (15,891,385) Total Capital Assets Being Depreciated, Net 12,773,767 (843,902) 933,497 35,186,088 46,182,456 Governmental Activities Capital Assets, Net $ 13,271,224 $ (843,902) $ 933,497 $ 35,186,088 $ 46,679,913 ~. The County recorded a prior period adjustment of $35, 186,088 for the retroactive addition of infrastructure assets. 24 ar Depreciation expense was charged to functions/programs of the County as follows: ;~, Governmental Activities: General Government $ 189,299 Public Safety 405,402 Administration of Justice 15,685 Community & Economic Development 22,475 Health and Human Services 9,567 Corrections 72,504 Infrastructure & Environmental 806,963 Total Depreciation Expense - Governmental Activities $ 1,521,895 3.E. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS Interfund Transfers Transfer In: ""' Nonmajor Governmental Transfer Out: Funds Total Nonmajor Governmental Funds $ 75,377 $ 75,377 Agency Fund 27,623 27,623 r TOTAL $ 103,000 $ 103,000 Transfers are used to 1) move revenues from the fund with collection authorization to the debt service fund as debt service principal and interest payments become due, 2) move restricted "" amounts from borrowings to the debt service fund to establish mandatory reserve accounts, 3) move unrestricted general fund revenues to fmance various programs that the government must account for in other funds in accordance with budgetary authorizations, including amounts provided as air subsidies or matching funds for various grant programs. 3.F. LONG-TERM LIABILITIES ~ The following is a summary of the long-term liability transactions of the County for the year ended September 30, 2007. ~n Balance Balance Due Within Type of Debt 10/01/06 Issued Retired 9/30/07 One Year Governmental Activities: Notes & Bonds Payable $ 5,790,000 $ - $ 1,233,808 $ 4,556,192 $ 1,232,742 Capital Lease Obligations 736,325 369,277 509,828 595,774 171,109 TOTAL $ 6,526,325 $ 369,277 $ 1,743,636 $ 5,151,966 $ 1,403,851 25 rr Certificates of Obligation and Notes Payable Limited Tax General Obligation Bonds, Series 1994 Original issue amount $5,900,000, interest rates of 4.25% to 6.25%, with fmal maturity February 15, 2012 Certificates of Obligation, Series 2005 Original issue amount $2,000,000, interest rates of 3.25% to 3.50%, with final maturity date February 15, 2010 Public Property Finance Contractual Obligations, Series 2001 Original issue amount $900,000, interest rates of 2.80% to 4.10%, with fmal maturity date February 15, 2008 Bank of America Note for purchase of computer software dated May 1, 2006, principal and interest payment of $231,463, interest rate is 4.015%, final Balance at Due Within 9/30/07 One Year $ 2,405,000 $ 435,000 1,205,000 440,000 160,000 160,000 maturity date of March 16, 2011 786,192 197,742 TOTAL CERTIFICATES OF OBLIGATION AND NOTES PAYABLE $ 4,556,192 1,232,742 The annual requirements for principal and interest qn the outstanding certificates of obligation and notes payable are as follows: Year Ending Annual +~+ September 30, Principal Interest Requirements 2008 $ 1,232,742 $ 163,741 $ 1,396,483 2009 1,035,681 119,077 1,154,758 2010 1,083,939 78,050 1,161,989 2011 673,830 42,192 716,022 2012. 530,000 11,262 541,262 ~. TOTAL $ 4,556,192 $ 414,322 $ 4,970,514 Capital Lease Obli atg ions ~fi Security State Bank & Trust: Capital lease obligation for Etnyre Chip Spreader, dated March 1, 2005, principal and interest of $66,101.43 payable annually, effective annual interest rate of 4.30%, final payment due March 1, 2008. Capital lease obligation for Asphalt Distributor, dated March 1, 2005, ~^ principal and interest of $17,938.91 payable annually, effective annual interest rate of 4.30%, final payment due March 1, 2008. Balance at Due Within 9/30/07 One Year $ 63,376 $ 63,376 17,199 17,199 26 ~r Balance at Due Within 9/30/07 One Year Capital lease obligation for a chip spreader, dated December 1, 2005, principal and interest payments of $28,988 payable annually, effective interest rate of 4.88%, final maturity date October 1, 2008. 26,789 - Capital lease obligation for (2) Motor Graders and (1) Wheel Loader dated December 27, 2006, principal and interest of $45,637 paid yearly, interest rate of 4.82%, final maturity date December 27, 2013. 264,071 32,433 Caterpillar Financial Services: Capital lease obligation for a Caterpillar Backhoe Loader dated June 15, 2004, principal and interest of $786 paid monthly, interest rate of 4.73%, final payment August 1, 2009. 35,143 7,938 Capital lease obligation for (2) Caterpillar 420D Backhoe Loaders dated April 28, 2006, annual principal and interest payments of $23,368, interest rate of 5.35%, final maturity April, 2011. 121,322 17,310 Ford Motor Credit Corporation: Capital lease obligation for four (4) 2007 Crown Victoria Police Sedans dated March 9, 2007, annual principal and interest payments of $37,332, interest rate of 6.60%, final maturity date March 9, 2009. 67,874 32,853 TOTAL CAPITAL LEASE OBLIGATIONS $ 595,774 171,109 A summary of the future minimum lease payments under the lease along with the present value of the minimum lease payments as of September 30, 2007 follows: Year Ended September 30 2008 $ 199,809 2009 162,659 2010 69,002 2011 114,019 2012 45,637 2013 45,637 2014 45,637 Total Minimum Lease Payments $ 682,400 Less Amount Representing Interest 86,626 Present Value of Lease Payments $ 595,774 27 3.G. EMPLOYEE RETIREMENT PLAN Plan Description Kerr County provides retirement, disability, and death benefits for all of its full-time employees through a nontraditional defined benefit pension plan in the statewide Texas County and District Retirement System (TCDRS). The Board of Trustees of TCDRS is responsible for the ~ administration of the statewide agent multiple-employer public employee retirement system consisting of 573 nontraditional defined benefit pension plans. TCDRS in the aggregate issues a comprehensive annual fmancial report (CAFR) on a calendar year basis. The CAFR is available '~ upon written request from the TCDRS Board of Trustees at P.O. Box 2034, Austin, Texas 78768- 2034. ""' The plan provisions are adopted by the governing body of the employer, within the options available in the Texas state statutes governing TCDRS (TCDRS Act). Members can retire at ages 60 and above with 8 or more years of service, with 30 years of service regardless of age, or when the sum of their age and years of service equals 75 or more. Members are vested after 8 years of service but must leave their accumulated contributions in the plan to receive any employer-financed benefit. Members who withdraw their personal contributions in a lump sum prior to retirement are not entitled to any amounts contributed by their employer. Partial lump sum distributions are allowed at "" retirement. Benefit amounts are determined by the sum of the employee's contributions to the plan, with interest, and employer-financed monetary credits. The level of these monetary credits is adopted by the governing body of the employer within the actuarial constraints imposed by the TCDRS Act so that the resulting benefits can be expected to be adequately financed by the employer's commitment to ~. contribute. At retirement, death, or disability, the benefit is calculated by converting the sum of the employee's accumulated contributions and the employer-financed monetary credits to a monthly annuity using annuity purchase rates prescribed by the TCDRS Act. ~. Funding Policy The County has elected the annually determined contribution rate (variable rate) plan provisions of the TCDRS Act. The plan is funded by monthly contributions from both employee members and the employer based on the covered payroll of employee members. Under the TCDRS Act, the contribution rate of the employer is actuarially determined annually. The County contributed using ~` the actuarially determined rate of 8.51% for the months of the accounting year in 2007 and 7.60% for the months of the accounting year in 2006. ~"` The contribution rate payable by the employee members for calendar year 2006 is the rate of 7%, as adopted by the County. For calendar year 2007, the employee contribution rate was 7%. The employee and the employer contribution rate may be changed by the governing body of the County within the options available in the TCDRS Act. 28 Annual Pension Cost For the County's accounting year ended September 30, 2007, the annual pension cost for the TCDRS plan for its employees was $800,621, and the actual contributions were $800,621. The annual required contributions were actuarially determined as a percent of the covered payroll of the participating employees, and was in compliance with the GASB Statement No. 27 parameters based on the actuarial valuation as of December 31, 2005 and December, 2006, the basis for determining the contribution rate for calendar years 2007 & 2008. The December 31, 2006 actuarial valuation is the most recent valuation. ACTUARIAL VALUATION INFORMATION Actuarial valuation date 12/31/06 12/31/05 12/31/04 Actuarial cost method entry age entry age entry age Amortization method level percentage level percentage level percentage of payroll, closed of payroll, open of payroll, open Amortization period 15 20 20 Asset valuation method SAF: 10-yr long-term long-term ~r smoothed value appreciation appreciation ESF: Fund value with adjustment with adjustment ,~r Actuarial Assumptions: Investment return' 8% 8% 8% Projected salary increases` 5.3% 5.3% 5.5% Inflation 3.5% 3.5% 3.5% Cost-of-living adjustments 0.0% 0.0% 0.0% ,~ 'Includes inflation at the stated rate TREND INFORMATION FOR THE RETIItEMENT PLAN FOR THE EMPLOYEES OF KERR COUNTY Accounting Annual Percentage Net Year Pension of APC Pension Ending Cost(APC) Contribul - -~ ~- 9/30/06 $ 741,520 100% 9/30/07 800,621 100% -0- 29 SCHEDULE OF FUNDING PROGRESS FOR THE RETIREMENT PLAN FOR THE EMPLOYEES OF KERR COUNTY Actuarial UAAL as a Actuarial Value Accrued Annual Covered Percentage of Actuarial of Assets Liability (AAL) Unfunded AAL Funded Ratio Payroll Covered Payroll Valuation Date (a) (b) (UAAL) (b-a) (a/b) (c) [(b-a)/c] 12/31/03 $ 13,000,396 $ 15,187,317 $ 2,186,921 85.60% $ 8,020,926 27.27% 12/31/04 14,260,964 16,668,166 2,407,202 85.56% 8,870,350 27.14% 12/31/05 16,152,206 18,786,439 2,634,233 85.98% 9,247,537 28.49% 12/31/06 18,402,681 20,440,673 2,037,992 90.03% 9,320,152 21.87% The annual covered payroll is based on the employee contributions received by TCDRS for the yeaz ending with the valuation date. Revised economic and demographic assumptions due to an experience review were reflected in this valuation. 3.H. RISK MANAGEMENT Workers Compensation, Unemployment, and Property and Liability Coverage The County is exposed to various risks of loss related to torts; damage to and theft or destruction of assets; errors and omissions; injuries to employees; automobile liability and natural disasters. ~- To reduce the risk of exposure in these areas, the County contracts in the form of interlocal agreements with risk pools created by the Texas Association of Counties (TAC). The County is a member of workers compensation, unemployment, and property and liability risk pools. The pools are public entity risk pools and were created based on the general objectives of formulating, developing and administering a program of self-insurance for the membership and obtaining lower costs for coverage. The pools have the power to establish fees, contributions and methods for establishing rates. Under contract with the pools, the TAC provides for such services as claims administration and management, underwriting, loss control services and training, and financial reporting for its members. The pools are governed by a board of directors ~,,, made up of employees or officials of counties which are members of the pool. Member counties make contributions to the pools, and the pools provide insurance coverage and applicable reinsurance or stop loss coverage. Contributions are set annually and the interlocal agreements carry various deductibles and aggregate maximum loss totals. Liability by the County is ~" generally limited to the amounts calculated by the County interlocal agreements. The by-laws and audited financial statements of the pools are detailed in separate documents and ~. can be obtained from the Texas Association of Counties, 1210 San Antonio Street, Austin, TX 78701. The County has had no significant reduction in insurance coverage from prior years and the County has had no settlements which exceeded insurance coverage in the current or prior ,,, years. Self Insured Group Medical Insurance ~` The County has elected to provide group medical benefits to their employees on a partially self- funded basis. They have contracted with an outside plan supervisor to administer all claims payments. The County sets a specific amount of money aside each month and as claims are ~" submitted to the plan supervisor the County reimburses them when notified. Under this plan, the County is limited to $50,000 per employee per calendar year with an aggregate amount of $2,000,000 per year. After the deductible and aggregate amount, the balance is paid by a third party carrier. 30 +r 3.I. COMMITMENTS AND CONTINGENCIES Operating Leases The reporting entity has entered into a number of operating leases, which contain cancellation provisions and are subject to annual appropriations. For the year ended September 30, 2007, rent expenditures approximated $155,291 for all types of operating leases. These expenditures were made primarily from the General Fund. air Grant Program Involvement "" In the normal course of operations, the County participates in various federal or state grant programs. The grant programs are often subject to additional audits by agents of the granting or funding agency, the purpose of which is to ensure compliance with the specific conditions of the ~" grant. Any liability for reimbursement that may arise as a result of these audits cannot be reasonably determined at this time, although it is believed the amount, if any, would not be material. 3.J. RESTRICTED NET ASSETS Net assets restricted for debt service include the excess of assets over certain liabilities restricted for the debt service on revenue bonds. Net assets of governmental funds restricted by enabling legislation for the specific purpose of debt service total $172,723 at September 30, 2007. 3.K. PRIOR PERIOD ADJUSTMENT ~ Pursuant to GASB Statement No. 34, an extended period of deferral was available before the requirement to record and depreciate infrastructure assets (e.g., roads, bridges and similar items). The County made the retroactive addition of Infrastructure assets as a prior period adjustment for the year ended September 30, 2007. The Government Wide Statement of Net Assets and the Government Wide Statement of Activities shows a net prior period adjustment of $35,186,088. This increase in Net Assets was ~' due to a prior period adjustment made to furniture, machinery and equipment ($138,751) and the retroactive addition of Infrastructure assets ($38,679,333) and the corresponding accumulated depreciation ($3,354,494). 3.L. CHANGE IN ACCOUNTING ESTIMATE ~' After reviewing historical tax collection rates for the County, a change with which we concur, was made to the estimate used in the calculation of Allowance for Uncollectible Taxes. The following is a summary of the change in estimate: of Uncollectible Taxes Receivable Current Prior Year Year General Fund 4.025 41.870 Road & Bridge Fund 4.600 38.210 Other Nonmajor Special Revenue Funds 4.025 41.870 31 REQUIRED SUPPLEMENTARY INFORMATION KERR COUNTY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL -GENERAL FUND FOR THE YEAR ENDED SEP'CEMBER 30, 2007 EXHIBIT C-5 Actual Amounts Vaziance With (GAAP BASIS) Final Budget Budgeted Amounts Positive or Original Final (Negative) REVENUES: Taxes: Property Taxes $ 7,260,030 $ 7,260,030 $ 7,113,744 $ (146,286) Other Taxes 2,830,366 2,830,366 2,936,460 106,094 Intergovernmental Revenue and Grants 282,646 290,412 194,397 (96,015) Fees of Office 1,838,510 1,838,510 1,892,035 53,525 Fines and Forfeitures 326,000 326,000 321,367 (4,633) Investment Earnings 200,000 200,000 197,523 (2,477) Other Revenue 297,369 318,535 336,851 18,316 Total Revenues 13,034,921 13,063,853 12,992,377 (71,476) EXPENDITURES: Current: General Government 3,177,827 3,137,206 3,015,335 121,871 Administration of Justice 3,410,289 3,639,613 3,478,104 161,509 Public Safety 3,801,567 3,791,703 3,330,007 461,696 Corrections 2,320,971 2,154,605 2,163,969 (9,364) Health and Human Services 550„404 539,637 532,365 7,272 Community and Economic Development 424,411 460,076 434,534 25,542 Infrastructure and Environmental 199,039 206,539 195,900 10,639 Debt Service: Debt Principal - - 90,059 (90,059) Debt Interest - - 2,506 (2,506) Capital Outlay: General Government 15,668 8,013 4,091 3,922 Administration of Justice 12,214 9,227 4,144 5,083 Public Safety 13,919 31,919 129,688 (97,769) Community and Economic Development - 1,975 1,975 - Total Expenditures 13,926,309 13,980,513 13,382,677 597,836 Excess (Deficiency) of Revenues Over (Linder) (891,388) (916,660) (390,300) 526,360 Expenditures - OTHER FINANCING SOURCES (USES): Proceeds from Capital Leases - - 105,206 105,206 Transfers Out (Use) (50,000) (50,000) - 50,000 Total Other Financing Sources (Uses) (50,(-00) (50,000) 105,206 155,206 Net Change (941,388) (966,660) (285,094) 681,566 Fund Balance -October 1 (Beginning) 2,629,068 2,629,068 2,629,068 - Fund Balance -September 30 (Ending) $ 1,687,680 $ 1,662,408 $ 2,343,974 $ 681,566 The accompanying notes are an integral part of this statement. 32 "~' KERR COUNTY EXHIBIT C-6 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL -ROAD AND BRIDGE FUND ~"' FOR THE YEAR ENDED SEPTEMBER 30, 2007 Actual Variance With Budgeted Amounts Final Budget GAAP BASIS Positive or Original Final (See Note) (Negative) REVENUES: Taxes: Property Taxes Automobile Registration Intergovernmental Revenue and Grants Fees of Office Fines and Forfeitures Investment Earnings Other Revenue Total Revenues EXPENDITURES: Current: Infrastructure and Environmental Debt Service: Debt Principal Debt Interest Capital Outlay: Infrastructure and Environmental Total Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures OTHER FINANCING SOURCES (USES): Proceeds from Capital Leases Total Other Financing Sources (Uses) Change in Fund Balance Fund Balance -October 1 (Beginning) Fund Balance -September 30 (Ending) $ 908,099 $ 908,099 $ 945,130 $ 37,031 979,500 979,500 1,008,094 28,594 29,200 29,200 29,091 (]09) 325;500 325,500 311,653 (13,847) 3,100 3,100 2,350 (750) 21,000 21,000 41,054 20,054 1,000 69,340 66,475 (2,865) 2,267,399 2,335,739 2,403,847 68,108 2,289,448 2,184,672 2,147,045 37,627 38,404 186,900 419,768 (232,868) - - 26,216 (26,216) 107,999 116,999 116,476 523 2,435,851 2,488,571 2,709,505 (220,934) (168,452) (152,832) (305,658) (152,826) - - 264,071 264,071 - - 264,071 264,071 (168,452) (152,832) (41,587) 111,245 597,872 597,872 597,872 - $ 429,420 $ 445,040 $ 556,285 $ 111,245 The accompanying notes are an integral part of this statement. 33 NEFFENDORF, KNOPP, HORRY F~ DOSS, P. C. Certified Public Accountants P.O. BOX 874.736 S. WASHINGTON ST. FREDERICKSBURG, TEXAS 78624-0874 (830)997-3348 MEMBER FAX: (830) 997-3333 MEMBER AMERICAN INSTITUTE OF Email: nkhd®austin.rr.com TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS CERTIFIED PUBLIC ACCOUNTANTS REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAL AUDITING STANDARDS Independent Auditor's Report Honorable Judge and Commissioners Kerr County, Texas, Texas Kerrville, TX 78028 We have audited the financial statements of Kerr County, Texas as of and for the year ended September 30, 2007, and have issued our report thereon dated June 17, 2008. 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. Compliance As part of obtaining reasonable assurance about whether Kerr County, Texas's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, 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 that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered Kerr County, Texas's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. ,» However, we noted other matters involving the internal control over financial reporting that we have reported to the administration of Kerr County, Texas in a separate letter dated June 17, 2008. This report is intended solely for the information of the Commissioner's Court, the management, government agencies and pass-through entities and is not intended to be used and should not be used by anyone other than these specified parties. NEFFENDORF, KNOPP, HORRY & DOSS, P.C. Fredericksburg, Texas June 17, 2008 NEFFENDORF, KNOPP, HORRY ~ DOSS, P. C. Certified Public Accountants P.O. BOX 874.736 S. WASHINGTON ST. FREDERICKSBLTRG, TEXAS 78624-0874 (830) 997-3348 MEMBER FAX: (830) 997-3333 MEMBER AMERICAN INSTITUTE OF Email: nlchd~ausHn.rr.com TEXAS SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS June 17, 2008 Honorable Judge and Commissioners Kerr County, Texas, Texas Kerrville, TX 78028 CERTIFIED PUBLIC ACCOUNTANTS We have audited the financial statements of the govemmental activities, each major fund, and the aggregate remaining fund information of Kerr County, Texas for the year ended September 30, 2007, and have issued our report thereon dated June 17, 2008. Professional standards require that we provide you with the following information related to our audit. Our Responsibility under U.S. Generally Accepted Auditino Standards As stated in our engagement letter our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by Kerr County, Texas are described in Note I to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2007. We noted no transactions entered into by the governmental unit during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to. the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated June 17, 2008. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the governmental unit's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the governmental unit's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. We did find non-material weakness, included for informational purposes as follows: Internal Audits -Officials & Departments During our audit of the various offices and departments of the County, we found that very few internal audits were done. Most of the offices and departments had adequate internal controls to the extent possible (size of staff). We recommend that the County Auditor perform internal audits on a periodic basis of each office and department. We understand that the County Auditor already has begun internal audits in the 2008 fiscal year. We also noted the following during our audit of the various offices and departments: • Accounting for balances in Official Fee Accounts -Some of the bank accounts used by the Officials had accumulated a balance over the years without either a listing of items or differences between the listing and the balance. We recommend that to the extent possible, these differences be researched and resolved. tf not material, we recommend that they be written off and balanced on a monthly basis. • Outstanding checks over one year old - We noted several accounts that had outstanding checks that were over one year old. We recommend that at least annually the outstanding checks be reviewed and adjusted accordingly. We appreciate the cooperation of the County Auditor's offices and the various officials and employees of the County. This information is intended solely for the use of the Commissioner's Court and management of Kerr County, Texas and is not intended to be and should not be used by anyone other than these specified parties. Sincerely, ~~, eGwpp, Nu,nn~~- Dam, ~ L' . NEFFENDORF, KNOPP, HORRY AND DOSS, P.C. Fredericksburg, Texas