Document cortlandcountyny_gov_doc_8845854f8b

COUNTY OF CORTLAND, NEW YORK Basic Financial Statements December 31, 2013 Together with Independent Auditor’s Report ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK TABLE OF CONTENTS DECEMBER 31, 2013 Page SECTION A – BASIC FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT 1 - 3 MANAGEMENT’S DISCUSSION AND ANALYSIS 4 - 11 BASIC FINANCIAL STATEMENTS: Government-Wide Financial Statements - Statement of Net 12 Statement of Activities and Change in Net 13 Fund Financial Statements - Governmental Funds Balance 14 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net 15 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental 16 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities and Change in Net 17 Proprietary Funds Statement of Net 18 Statement of Revenues, Expenses, and Changes in Net 19 Statement of Cash 20 Fiduciary Funds Statement of Fiduciary Net Position 21 Component Units Statement of Net 22 Statement of Activities and Change in Net 23 Statement of Cash 24 Notes to Basic Financial Statements 25 - 53 REQUIRED SUPPLEMENTARY INFORMATION: Statement of Revenues, Expenditures, and Change in Fund Balances - Budget and Actual - General Fund 54 Statement of Revenues, Expenditures, and Change in Fund Balances - Budget and Actual - County Road Fund 55 Statement of Revenues, Expenditures, and Change in Fund Balances - Budget and Actual - Road Machinery Fund 56 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK TABLE OF CONTENTS DECEMBER 31, 2013 (Continued) SECTION B - OMB CIRCULAR A-133 INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING 57 - 58 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE AS REQUIRED BY OMB CIRCULAR 59 - 60 SCHEDULE OF EXPENDITURES OF FEDERAL 61 - 62 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL 63 - 64 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 65 - 67 SECTION C - NEW YORK STATE SINGLE AUDIT INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS OF THE STATE TRANSPORTATION ASSISTANCE PROGRAM; AND REPORT ON INTERNAL CONTROL OVER 68 - 69 SCHEDULE OF STATE TRANSPORTATION ASSISTANCE EXPENDED 70 NOTES TO THE SCHEDULE OF STATE TRANSPORTATION ASSISTANCE 71 SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR STATE TRANSPORTATION ASSISTANCE EXPENDED 72 ---PAGE BREAK--- SECTION A COUNTY OF CORTLAND, NEW YORK BASIC FINANCIAL STATEMENTS ---PAGE BREAK--- (Continued) 1 INDEPENDENT AUDITOR’S REPORT September 25, 2014 To the County Legislature of the County of Cortland, New York: Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, and each major fund of the County of Cortland, New York (the County) as of and for the year ended December 31, 2013, and the related notes to the financial statements, which collectively comprise the County’s basic financial statements as listed in the table of contents. We did not audit the financial statements of the Cortland County Industrial Development Agency (the Agency) which represents 17.1%, 23.1%, and 12.4% of the assets, net position, and revenues, respectively, of the discretely presented component units. We did not audit the financial statements of the Cortland Tobacco Asset Securitization Corporation (CTASC) which represents 2.7%, 4.4%, and 0.7% of the assets, fund balances, and revenues, respectively, of each major fund. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Agency which represents 17.1%, 23.1%, and 12.4% of the assets, net position, and revenues, respectively, of the discretely presented component units. We did not audit the financial statements of the CTASC which represents 2.7%, 4.4%, and 0.7% of the assets, fund balances and revenues, respectively, of each major fund. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Agency and CTASC, are based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 171 Sully’s Trail, Suite 201 Pittsford, New York 14534 p (585) 381-1000 f (585) 381-3131 ALBANY • BATAVIA • BUFFALO • EAST AURORA • GENEVA • NYC • ROCHESTER • RUTLAND, VT • SYRACUSE • UTICA www.bonadio.com ---PAGE BREAK--- (Continued) 2 INDEPENDENT AUDITOR’S REPORT (Continued) Opinions In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, and each major fund of the County, as of December 31, 2013, and the respective changes in financial position, and where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States. Correction of Error As described in Note 2 to the financial statements, the prior year financial statements of the County were not properly presented as grants receivable was understated in the General Fund by $679,146. This error occurred because the County did not consistently record grants on the modified accrual basis of accounting in the fund financial statements. Also, the government-wide financial statements and internal service funds for the year ended December 31, 2012 were improperly presented because liabilities were understated by $3,836,817 because the County historically has recorded workers’ compensation and self-insurance claims as they are billed instead of having a liability for known and incurred but not reported (IBNR) claims as generally accepted accounting principles require. Our opinion is not modified with respect to that matter. Report on Required Supplementary Information Accounting principles generally accepted in the United States require that the management’s discussion and analysis on pages 4-11 and budgetary comparison information on pages 54-56 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Report on Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County’s basic financial statements. The schedule of expenditures of federal awards, as required by Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and the schedule of state transportation assistance expended, as required by Draft Part 43 of the New York Code of Rules and Regulations, are presented for purposes of additional analysis and are not a required part of the basic financial statements. ---PAGE BREAK--- 3 INDEPENDENT AUDITOR’S REPORT (Continued) Report on Supplementary Information (Continued) The schedule of expenditures of federal awards and the schedule of state transportation assistance expended are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America by us. In our opinion, based on our audit, and the procedures performed as described above, the schedule of expenditures of federal awards and the schedule of state transportation assistance expended are fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 25, 2014 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 grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the County’s internal control over financial reporting and compliance. SIGN ---PAGE BREAK--- 4 COUNTY OF CORTLAND, NEW YORK MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 2013 The following is management’s discussion and analysis of the County of Cortland, New York’s (the County’s) financial performance for the year ended December 31, 2013. This section is a summary of the County’s financial activities based on current known facts, decisions, and conditions. It is also based on both the government-wide and fund financial statements. This section is only an introduction and should be read in conjunction with the County’s basic financial statements, which immediately follow this section. FINANCIAL HIGHLIGHTS In 2013, the net position of the County’s primary government decreased by approximately $10,487,000 from operating activities. There were also prior period adjustments which decreased net position by approximately $3,158,000. The assets of the County’s primary government exceeded its liabilities at December 31, 2013 by $50,588,155 of which $59,420,816 represents the County’s net investment in capital assets. The County’s governmental funds reported a decrease in fund balance in 2013 of $417,645. OVERVIEW OF THE FINANCIAL STATEMENTS This annual report consists of four parts: management’s discussion and analysis (this section), the basic financial statements, including the notes to financial statements; required supplementary information; and an optional section that presents the schedule of expenditures of federal awards and the schedule of expenditures of state transportation awards. The basic financial statements include two kinds of statements that present different views of the County, government-wide and fund financial statements. The following are some highlights of the financial statements:  The first two statements are government-wide financial statements that provide both long-term and short-term information about the County’s overall financial status.  The remaining fund financial statements focus on individual parts of the County government that report the County’s operations in more detail than the government-wide financial statements. The governmental funds statements indicate how general government services were financed in the short-term, as well as what remains for future spending.  Proprietary fund financial statements offer short and long-term financial information about the activities the County operates similar to a business.  Fiduciary fund financial statements provide information about financial relationships in which the County acts solely as a trustee or agent for the benefit of others, to whom the resources belong.  The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data.  The financial statements are followed by a section of required supplementary information that provides budgetary information for the County’s General Fund, County Road Fund, and Road Machinery Fund. ---PAGE BREAK--- 5 OVERVIEW OF THE FINANCIAL STATEMENTS (Continued) Government-Wide Financial Statements The government-wide financial statements report information about the County as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the County’s assets and liabilities. All of the current year’s revenues and expenses are accounted for in the statement of activities and change in net position regardless of when cash is received or paid. The government-wide financial statements require that capital assets (infrastructure, including roads, bridges, etc.) be valued and reported within the governmental activities column of the government- wide statements. The County depreciates these assets over their estimated useful lives. If a road project is considered maintenance, a recurring cost that does not extend the road’s original useful life or expand its capacity) the cost of the project is expensed as incurred. The two government-wide financial statements report the County’s net position and how they have changed. Net position, the difference between the County’s assets and liabilities, is one way to measure the County’s financial health. Over time, increases or decreases in the County’s net position is an indicator of whether its financial health is improving or deteriorating, respectively. To assess the overall health of the County, one must also consider additional non-financial factors, such as changes in the County’s property tax base, the condition of the County’s roads and infrastructure, and surpluses or deficits in services provided by the County. The government-wide financial statements of the County are divided into three categories:  Governmental Activities - Most of the County’s basic services are included here, such as public safety, educational programs, public works, public health, mental health, human services, culture and recreation programs, and general administration. Property taxes, sales taxes, mortgage taxes, franchise fees, and state and federal grants finance most of these activities. Also included in the governmental activities is the County’s blended component unit, the Cortland Tobacco Asset Securitization Corporation (CTASC). The Internal Service Funds’ governmental activities are the Self Insurance Fund and the Workers’ Compensation Fund.  Business-Type Activities - The County charges fees to other funds to cover most of the costs of certain services it provides. Business-type activities include the County’s Solid Waste Fund.  Component Units - The County’s component units report the activities of the Cortland County Industrial Development Agency (IDA), and the Cortland County Soil and Water Conservation District (SWCD) that are described in detail in the notes to the financial statements. Although legally separate, these component units are important because the County is financially accountable for them. Fund Financial Statements The fund financial statements provide detailed information about the County’s most significant funds, not the County as a whole. Funds are accounting devices that the County uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required by State law and by bond covenants. The County Legislature establishes other funds to control and manage money for particular purposes or to show that it is properly using certain taxes and grants. ---PAGE BREAK--- 6 OVERVIEW OF THE FINANCIAL STATEMENTS (Continued) Fund Financial Statements (Continued) The County has three kinds of funds:  Governmental Funds - Most of the County’s basic services are included in governmental funds, which focus on how cash and other financial assets flow in and out of those funds and the balances remaining at year-end that are available for future allocation. The governmental funds’ financial statements provide a detailed short-term view that helps one determine whether there are more or fewer financial resources that can be spent in the near future to finance the County’s programs. Because this information does not encompass the additional long-term focus of the government-wide financial statements, there is additional information in the subsequent pages that explains the relationship or differences between them.  Proprietary Funds - Proprietary funds, like the government-wide financial statements, provide both long-term and short-term financial information. The County’s Solid Waste Fund is accounted for using the accrual basis of accounting, i.e., revenues are recorded when earned and expenses are recorded when incurred.  Fiduciary Funds - The County is the trustee, or fiduciary, for assets that because of a trust agreement can be used only for the trust beneficiaries. The County is responsible for ensuring that the assets reported in these funds are used for their intended purposes. All of the County’s fiduciary activities are reported in a separate statement of fiduciary net position and, when applicable, a statement of change in fiduciary net position. We exclude these activities from the County’s government-wide financial statements because the County cannot use these assets to finance its operations. FINANCIAL ANALYSIS OF THE COUNTY AS A WHOLE As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. The statement of net position provides perspective of the County as a whole. (Table 1) Condensed Statement of Net Position December 31, 2013 and 2012 (In Thousands) Total Governmental Business-Type Primary Activities Activities Government 2013 2012 2013 2012 2013 2012 ASSETS: Current and other assets $ 39,090 $ 37,077 $ 1,680 $ 1,974 $ 40,770 $ 39,051 Capital assets, net 84,998 89,647 11,156 12,055 96,154 101,702 Total assets 124,088 126,724 12,836 14,029 136,924 140,753 LIABILITIES: Other liabilities 14,147 7,797 3,748 4,260 17,895 12,057 Long-term debt - due in one year 1,993 2,135 383 367 2,376 2,502 Long-term debt - due in more than one year 56,179 51,692 9,886 10,270 66,065 61,962 Total liabilities 72,319 61,624 14,017 14,897 86,336 76,521 ---PAGE BREAK--- 7 FINANCIAL ANALYSIS OF THE COUNTY AS A WHOLE (Continued) (Table 1) (Continued) Condensed Statement of Net Position December 31, 2013 and 2012 (In Thousands) Total Governmental Business-Type Primary Activities Activities Government 2013 2012 2013 2012 2013 2012 NET POSITION: Net investment in capital assets 58,534 69,128 887 1,418 59,421 70,546 Restricted 5,837 5,735 1,066 1,313 6,903 7,048 Unrestricted (12,602) (9,762) (3,134) (3,599) (15,735) (13,361) Total net position $ 51,769 $ 65,100 $ (1,181) $ (868) $ 50,589 $ 64,233 Net position of the County’s primary government decreased 21% from approximately $64,233,000 to $50,589,000 at December 31, 2013. The majority of the net position is invested in capital assets such as land, land improvements, buildings, equipment, and roads. The overall decrease in the net position of the primary government is a result of the following:  In governmental activities, capital assets, net of accumulated depreciation, decreased by approximately $4,649,000, or 5.2%. The capital asset depreciation expense in 2013 outpaced the amount of capital additions.  Other liabilities increased $6,385,000 which is primarily due to a borrowing of a $1,600,000 Bond Anticipation Note for certain improvements to roads and bridges and an increase in liabilities of the workers’ compensation and self-insurance liabilities of approximately $4 million. Payments made for existing serial bonds were in accordance with expected amortization schedules.  The other postemployment benefits expense increased approximately $5,677,000 because of the additional liability accrued based on the actuarial valuation. ---PAGE BREAK--- 8 FINANCIAL ANALYSIS OF THE COUNTY AS A WHOLE (Continued) (Table 2) Changes in Net Position for the Years Ended December 31, 2013 and 2012 (In Thousands) Total Governmental Business-Type Primary Activities Activities Government 2013 2012 2013 2012 2013 2012 REVENUES: Program revenues - Charges for services $ 8,799 $ 9,339 $ 1,511 $ 1,736 $ 10,310 $ 11,075 Operating grants and contributions 26,931 27,859 - 11 26,931 27,870 Capital grants and contributions 3,724 5,298 - - 3,724 5,298 General revenues - Real property taxes and items 32,707 34,388 - - 32,707 34,388 Nonproperty tax items 29,356 28,670 - - 29,356 28,670 Use of money and property 2,841 2,551 1 3 2,842 2,554 Miscellaneous local sources 994 852 - - 994 852 Interfund transfers - (251) - 251 - - Total revenues 105,352 108,706 1,512 2,001 106,864 110,707 EXPENSES: Program expenses - General governmental support 23,038 23,447 - - 23,038 23,447 Education 4,417 4,997 - - 4,417 4,997 Public safety 15,448 11,316 - - 15,448 11,316 Public health 11,205 12,637 - - 11,205 12,637 Transportation 20,799 15,995 - - 20,799 15,995 Economic assistance 36,396 36,705 - - 36,396 36,705 Culture and recreation 936 360 - - 936 360 Home and community 2,011 1,519 - - 2,011 1,519 Debt interest 1,276 779 - - 1,276 779 Business-type activities - - 1,825 2,411 1,825 2,411 Total expenses 115,526 107,755 1,825 2,411 117,351 110,166 Increase (decrease) in net position $ (10,174) $ 951 $ (313) $ (410) $ (10,487) $ 541 ---PAGE BREAK--- 9 FINANCIAL ANALYSIS OF THE COUNTY AS A WHOLE (Continued) Governmental Activities  General Governmental Support - Includes expenses of the County Legislature, County Offices and administration, contracted professional services, buildings and grounds maintenance, and insurance. The approximate $409,000 decrease from 2012 was due to decreases in certain professional expenses offset by increases in wages and benefits.  Education - Includes working with people to assist in job preparation, job skills, and job placement.  Public Safety - Includes the expenses for the Sheriff and Safety Inspection Departments. The increase of approximately $4,132,000 in this category was primarily due to increased expenses related to maintenance of the bridges.  Transportation - Includes salaries for employees in the transportation department and the cost of repairing and maintaining County roads and sidewalks. The increase of approximately $4,805,000 was because of certain projects in 2013 that did not occur in 2012; including road, bridge, and culvert improvement projects.  Public Health - Includes services provided for public and mental health.  Economic Assistance - Includes expenses for the County’s counseling services, nutrition program, and community development.  Culture and Recreation - Includes the costs associated with maintaining the County’s historical society, as well as costs related to youth development programs.  Home and Community Services - Includes the salaries for employees and costs associated with maintaining the County’s zoning, environmental, and planning boards.  Debt Interest - Includes the transactions associated with the payment of interest and other related charges to debt for improvements to the County.  Depreciation - Includes expenses for capital assets allocated to all departments/functions based on their remaining useful lives. THE COUNTY’S MAJOR GOVERNMENTAL FUNDS The focus of the governmental fund financial statements is on the major funds. The County’s main operating fund, the General Fund, is always reported as a major fund. Other individual funds are reported as major funds when assets, liabilities, revenues, or expenditures exceed certain thresholds. For the year ended December 31, 2013, the County Road Fund, Special Grant Fund, Road Machinery Fund, Debt Service Fund, and Capital Projects Fund are reported as major funds. ---PAGE BREAK--- 10 GENERAL FUND BUDGETARY HIGHLIGHTS  The County’s original expenditure budget of $97,723,621 differs from the General Fund’s revised budget of $99,070,759. This increase was due to the budgetary amendments made during the year.  Total revenues in the General Fund were approximately $2,125,000 less than the final budget. This negative variance was primarily due to shortfalls in State and Federal Aid of approximately $415,000 and $1,119,000, respectfully. The decrease in aid is due to a decrease from New York State budget cuts and the loss of certain federal aid, including Federal Salary Sharing funds. However, the County was approximately $1,126,000 more than budgeted on its nonproperty tax items due to an increase in sales tax.  The General Fund’s actual expenditures were approximately $6 million less than the final budget. This was due primarily to the positive effects of cost containment efforts made throughout the year. CAPITAL ASSETS AND SHORT AND LONG-TERM DEBT ADMINISTRATION Capital Assets At December 31, 2013, the primary government of the County had approximately $85 million invested in land, buildings, land improvements, infrastructure, and machinery, equipment, and vehicles net of accumulated depreciation. There were approximately $4.4 million of capital additions during the year offset by $9 million of depreciation and amortization expense. Additional information on the County’s capital assets can be found in the notes to the financial statements. Long-Term Liabilities At December 31, 2013, the County had $68,441,656 in long-term liabilities, as follows: 2013 2012 Serial bonds, excluding CTASC $ 23,070,000 $ 23,935,000 CTASC serial bonds, net 12,604,264 12,553,988 Capital lease 6,425,872 7,220,745 Early termination benefits 173,115 259,672 Other postemployment benefits 24,450,214 18,773,285 Compensated absences 1,718,191 1,720,974 Total $ 68,441,656 $ 64,463,664 The amount of principal paid on outstanding serial bonds (excluding CTASC) was approximately $865,000 in 2013. In addition, the actuarial valuation of the other postemployment benefits liability increased by approximately $5.7 million during 2013. More detailed information about the County’s long-term liabilities is presented in the notes to the financial statements. ---PAGE BREAK--- 11 CONTACTING THE COUNTY’S FINANCE DEPARTMENT These financial statements are designed to report and provide the County’s citizens, taxpayers, customers, investors, and creditors with a general overview of the County’s financial operations and to demonstrate the County’s accountability for the money it receives. If you have any questions about these statements or need additional financial information, contact the County of Cortland, County Administrator, 60 Central Avenue, Cortland, New York 13045. ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK STATEMENT OF NET POSITION Component Units Governmental Business-Type Activities Activities Total Proprietary ASSETS Cash and cash equivalents 16,706,448 $ 486,689 $ 17,193,137 $ 2,429,529 $ Cash and cash equivalents - restricted 953,759 1,066,112 2,019,871 873,933 Accounts receivable 30,712 112,291 143,003 - Taxes receivable, net 5,504,974 - 5,504,974 - State and federal aid receivable 8,479,108 - 8,479,108 - Investment in Railroad Land - - - 209,818 Due from other governments 5,473,957 - 5,473,957 - Prepaid expenses and other assets 1,239,289 14,974 1,254,263 15,586 Tobacco settlement receivables 701,352 - 701,352 - Capital assets, net 84,998,300 11,156,251 96,154,551 20,958 Total assets 124,087,899 12,836,317 136,924,216 3,549,824 LIABILITIES Accounts payable 3,726,709 16,784 3,743,493 22,168 Accrued liabilities 5,374,487 14,582 5,389,069 - Compensated absences - - - 27,936 Bond anticipation note 1,600,000 - 1,600,000 - Due to other funds, net (33,754) 36,559 2,805 - Due to other governments 3,119,470 - 3,119,470 - Closure and post-closure liability - 3,679,563 3,679,563 - Unearned revenues 360,005 - 360,005 863,930 Long-term liabilities - Due within one year 1,993,198 383,290 2,376,488 - Due in more than one year 56,178,778 9,886,390 66,065,168 - Total liabilities 72,318,893 14,017,168 86,336,061 914,034 NET POSITION Net investment in capital assets 58,534,245 886,571 59,420,816 230,776 Restricted - Debt service 810,158 - 810,158 - Law 5,026,306 1,066,112 6,092,418 - Grantors - - - 10,003 Unrestricted (12,601,703) (3,133,534) (15,735,237) 2,395,011 Total net position 51,769,006 $ (1,180,851) $ 50,588,155 $ 2,635,790 $ Primary Government DECEMBER 31, 2013 The accompanying notes are an integral part of these statements. 12 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK STATEMENT OF ACTIVITIES AND CHANGE IN NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2013 Component Units Charges for Operating Grants Capital Grants Governmental Business-Type Expenses Services and Contributions and Contributions Activities Activities Total Proprietary PRIMARY GOVERNMENT: Governmental activities - General government support 23,038,180 $ 1,959,081 $ 398,536 $ 2,501,737 $ (18,178,826) $ - $ (18,178,826) $ Education 4,416,671 - 912,609 - (3,504,062) - (3,504,062) Public safety 15,448,019 738,259 474,213 - (14,235,547) - (14,235,547) Public health 11,205,296 2,909,747 5,468,187 - (2,827,362) - (2,827,362) Transportation 20,799,551 1,353,359 2,967,155 1,222,540 (15,256,497) - (15,256,497) Economic assistance and opportunity 36,395,564 1,508,578 16,597,212 - (18,289,774) - (18,289,774) Culture and recreation 935,751 8,704 43,435 - (883,612) - (883,612) Home and community services 2,010,736 321,482 69,649 - (1,619,605) - (1,619,605) Interest 1,276,484 - - - (1,276,484) - (1,276,484) Total governmental activities 115,526,252 8,799,210 26,930,996 3,724,277 (76,071,769) - (76,071,769) Business-type activities - Solid Waste Fund 1,825,407 1,510,863 - - - (314,544) (314,544) Total business-type activities 1,825,407 1,510,863 - - - (314,544) (314,544) Total primary government 117,351,659 $ 10,310,073 $ 26,930,996 $ 3,724,277 $ (76,071,769) (314,544) (76,386,313) COMPONENT UNITS: Proprietary - Industrial Development Agency 168,995 $ 282,213 $ - $ - $ 113,218 $ Soil and Water Conservation District 1,540,057 27,076 1,698,787 - 185,806 Total component units 1,709,052 $ 309,289 $ 1,698,787 $ - $ 299,024 GENERAL REVENUES: Real property taxes and real property tax items 32,706,754 - 32,706,754 - Nonproperty tax items 29,356,481 - 29,356,481 - Sale of property and compensation for loss 37,586 - 37,586 - Use of money and property 2,840,671 1,737 2,842,408 13,292 Intergovernmental transfer - - - 255,984 Miscellaneous 956,365 - 956,365 15,468 Total general revenues 65,897,857 1,737 65,899,594 284,744 Change in net position (10,173,912) (312,807) (10,486,719) 583,768 Net position - beginning of year, as previously reported 65,100,589 (868,044) 64,232,545 2,052,022 Prior period adjustments (Note 2) (3,157,671) - (3,157,671) - Net position - beginning of year, as restated 61,942,918 (868,044) 61,074,874 2,052,022 Net position - end of year 51,769,006 $ (1,180,851) $ 50,588,155 $ 2,635,790 $ Functions/Programs Net (Expense) Revenue and Changes in Net Position Program Revenue Primary Government The accompanying notes are an integral part of these statements. 13 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK BALANCE SHEET - GOVERNMENTAL FUNDS DECEMBER 31, 2013 General County Road Special Grant Road Machinery Capital Projects Debt Service Fund Fund Fund Fund Fund Fund Total ASSETS Cash and cash equivalents - unrestricted 6,966,675 $ 1,556,231 $ 12,696 $ 1,159,088 $ 3,589,351 $ 113,294 $ 13,397,335 $ Cash and cash equivalents - restricted 143,601 - - - - 810,158 953,759 Due from Federal and State governments 8,069,164 - 21,708 - 388,236 - 8,479,108 Taxes receivable 5,504,974 - - - - - 5,504,974 Due from other governments 2,404,596 4,316 - 280,925 - - 2,689,837 Prepaid expenditures 1,119,977 92,337 - 18,717 - 3,536 1,234,567 Due from other funds 1,385,736 124,972 67 24,050 453,053 - 1,987,878 Total assets 25,594,723 $ 1,777,856 $ 34,471 $ 1,482,780 $ 4,430,640 $ 926,988 $ 34,247,458 $ LIABILITIES, DEFERRED INFLOWS, AND FUND BALANCES LIABILITIES: Accounts payable 2,700,979 $ 334,741 $ - $ 94,952 $ 5,993 $ 8,000 $ 3,144,665 $ Accrued liabilities 639,747 63,015 - 13,942 - - 716,704 Due to other funds 1,109,032 122,842 67 108,728 1,205,143 - 2,545,812 Bond anticipation note - 1,600,000 - - - - 1,600,000 Due to other governments 3,119,470 - - - - - 3,119,470 Unearned revenues 325,621 - 34,384 - - - 360,005 Total liabilities 7,894,849 2,120,598 34,451 217,622 1,211,136 8,000 11,486,656 DEFERRED INFLOWS: Deferred taxes 1,655,333 - - - - - 1,655,333 Total deferred inflows 1,655,333 - - - - - 1,655,333 FUND BALANCES: Nonspendable 1,119,977 92,337 - 18,717 - 3,536 1,234,567 Restricted 1,814,148 37,657 - 25,519 3,148,982 810,158 5,836,464 Assigned 1,003,393 - 20 1,220,922 70,522 105,294 2,400,151 Unassigned 12,107,023 (472,736) - - - - 11,634,287 Total fund balances 16,044,541 (342,742) 20 1,265,158 3,219,504 918,988 21,105,469 Total liabilities, deferred inflows, and fund balances 25,594,723 $ 1,777,856 $ 34,471 $ 1,482,780 $ 4,430,640 $ 926,988 $ 34,247,458 $ Special Revenue Funds The accompanying notes are an integral part of these statements. 14 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK RECONCILIATION OF THE BALANCE SHEET - GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION DECEMBER 31, 2013 Total fund balance - governmental funds 21,105,469 $ Total net position reported for governmental activities in the statement of net position is different because: Capital assets used in governmental activities are not current financial resources and; therefore, are not reported in the funds. Cost of capital assets 162,553,257 $ Accumulated depreciation (77,554,957) 84,998,300 Revenue related to the tax levy is recognized when earned in the statement of activities and change in net position, but deferred in the fund statements if collection is anticipated to exceed sixty days after year-end. 1,655,333 Tobacco settlement revenues will be collected after year-end but are not available soon enough to pay for the current period's expenditures and therefore are unearned in the funds. 701,352 Amounts due from other governments will be collected in the future and therefore is not available to pay for current period expenditures and is not accrued in the governmental funds. 2,784,120 Accrued interest on long-term debt, including serial bonds, is an expense in the funds when paid, but a liability in the statement of net position when incurred. (510,008) The net position of the internal service funds are not included in the fund financial statements, but are included in the governmental activities of the statement of net position. (793,584) Bonds payable and other noncurrent liabilities are not due and payable in the current period and; therefore, are not reported in the funds. Bonds payable - County (12,800,320) $ Bonds payable - CTASC (12,604,264) Compensated absences (1,718,191) Capital lease (6,425,872) Other postemployment benefits (24,450,214) Early termination benefits (173,115) (58,171,976) Total net position of governmental activities 51,769,006 $ The accompanying notes are an integral part of these statements. 15 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS General County Road Special Grant Road Machinery Capital Projects Debt Service Fund Fund Fund Fund Fund Fund Total Real property taxes and tax items 32,890,840 $ - $ - $ - $ - $ - $ 32,890,840 $ Nonproperty tax items 29,356,481 - - - - - 29,356,481 Departmental income 7,496,077 10,602 - - - - 7,506,679 Intergovernmental charges 362,832 745,461 - 304,966 - - 1,413,259 Use of money and property 233,425 1,185 44 2,549,554 4 53,645 2,837,857 Fines and forfeitures 164,272 - - - - - 164,272 Interfund revenue - 60,677 - 252,013 - - 312,690 Sale of property and compensation for loss 10,539 5 - 49,460 - - 60,004 Miscellaneous 251,935 2,035 - 1,479 - 701,352 956,801 State aid 14,437,061 1,629,491 - - 2,587,145 - 18,653,697 Federal aid 9,635,699 - 743,206 - 1,622,671 - 12,001,576 Total revenues 94,839,161 2,449,456 743,250 3,157,472 4,209,820 754,997 106,154,156 General governmental support 21,438,486 - - - - 33,354 21,471,840 Education 4,089,147 - - - - - 4,089,147 Public safety 12,408,317 184,312 - - 2,774,903 - 15,367,532 Public health 9,780,633 - - - - - 9,780,633 Transportation 1,143,340 8,772,615 - 2,548,694 2,338,836 - 14,803,485 Economic assistance and opportunity 33,611,175 - 743,236 - - - 34,354,411 Culture and recreation 304,050 - - - - - 304,050 Home and community services 1,137,111 119,947 - - 82,945 - 1,340,003 Employee benefits 2,577,482 - - - - - 2,577,482 Debt service - Principal 339,760 85,520 - 72,730 794,873 230,000 1,522,883 Interest 323,896 86,643 - 77,352 - 472,444 960,335 Total expenditures 87,153,397 9,249,037 743,236 2,698,776 5,991,557 735,798 106,571,801 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 7,685,764 (6,799,581) 14 458,696 (1,781,737) 19,199 (417,645) Operating transfers - in 264,692 5,219,069 - - 979,742 - 6,463,503 Operating transfers - out (6,025,961) - - (419,612) (17,930) - (6,463,503) Total other financing sources (uses) (5,761,269) 5,219,069 - (419,612) 961,812 - - 1,924,495 (1,580,512) 14 39,084 (819,925) 19,199 (417,645) 13,440,900 1,237,770 6 1,226,074 4,039,429 899,789 20,843,968 679,146 - - - - - 679,146 14,120,046 1,237,770 6 1,226,074 4,039,429 899,789 21,523,114 16,044,541 $ (342,742) $ 20 $ 1,265,158 $ 3,219,504 $ 918,988 $ 21,105,469 $ Special Revenue Funds FOR THE YEAR ENDED DECEMBER 31, 2013 REVENUES: FUND BALANCE - end of year EXPENDITURES: OTHER FINANCING SOURCES (USES): CHANGE IN FUND BALANCE FUND BALANCE - beginning of year, as previously reported Prior period adjustment (Note 2) FUND BALANCE - beginning of year, as restated The accompanying notes are an integral part of these statements. 16 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES AND CHANGE IN NET POSITION FOR THE YEAR ENDED DECEMBER 31, 2013 Net change in fund balances - governmental funds (417,645) $ Amounts reported for governmental activities in the statement of activities and change in net position are different because: Governmental funds report outlays for capital assets as expenditures because such outlays use current financial resources. Also, depreciation expense is recorded in the statement of activities over the estimated useful lives of the assets, but not as a change in fund balance of the governmental funds as there is no cash outlay associated with the expense. Capital additions 4,389,722 $ Depreciation (9,016,058) (4,626,336) Losses on disposal of assets are reported in the statement of activities and change in net position, but are not included in the governmental funds. (22,418) Current year payments on amounts due from other governments are recorded as a reduction to the outstanding balance on the statement of net position. (285,000) Deferred tax revenues are recorded on the modified accrual basis, but are not reported in the government-wide financial statements. (184,086) Repayment of bond and capital lease principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. 1,522,883 Tobacco settlement revenues will not be collected for several months after the County's fiscal year-end; therefore, they are not considered "available" revenues and are unearned in the governmental funds. This represents the current year change. (436) The change in net position of the internal service funds are not included in the fund financial statements, but are included in the governmental activities of the statement of activities and change in net position. 23,140 Some expenses reported in the statement of activities and change in net position do not require the use of current financial resources and; therefore, are not reported as expenditures in governmental funds. Change in accrued interest payable (316,149) $ Accretion on CTASC bonds (275,525) Bond discount (4,751) Early termination benefits 86,557 Compensated absences 2,783 Other postemployment benefits (5,676,929) (6,184,014) Change in net position of governmental activities (10,173,912) $ The accompanying notes are an integral part of these statements. 17 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK STATEMENT OF NET POSITION - PROPRIETARY FUNDS DECEMBER 31, 2013 Solid Waste Internal Service Fund Funds ASSETS Cash and cash equivalents 486,689 $ 3,309,113 $ Cash and cash equivalents - restricted 1,066,112 - Accounts receivable, net 112,291 30,712 Due from other funds 7,390 620,550 Prepaid expenses 14,974 4,722 Capital assets, net 11,156,251 - Total assets 12,843,707 3,965,097 LIABILITIES Accounts payable 16,784 582,044 Accrued liabilities 14,582 4,147,775 Due to other funds 43,949 28,862 Closure and post-closure liability 3,679,563 - Long-term liabilities - Due within one year 383,290 - Due after one year 9,886,390 - Total liabilities 14,024,558 4,758,681 NET POSITION Net investment in capital assets 886,571 - Restricted 1,066,112 - Unrestricted (3,133,534) (793,584) Total net position (1,180,851) $ (793,584) $ The accompanying notes are an integral part of these statements. 18 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION - PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2013 Solid Waste Internal Service Fund Funds REVENUES: Charges for services 1,510,863 $ 2,874,836 $ Interfund revenues - 7,978,062 Total operating revenues 1,510,863 10,852,898 OPERATING EXPENSES: Personal services 307,752 53,289 Administrative fees - 8,867,620 Insurance claims - 293,787 Workers' compensation - 1,144,116 Contractual services - 445,581 Depreciation 900,091 - Interest 465,975 - Employee benefits 151,589 28,179 Total operating expenses 1,825,407 10,832,572 Operating income (loss) (314,544) 20,326 NON-OPERATING REVENUES: Use of money and property 1,737 2,814 Total non-operating revenues 1,737 2,814 CHANGE IN NET POSITION (312,807) 23,140 NET POSITION - beginning of year, as previously reported (868,044) 3,020,093 Prior period adjustment (Note 2) - (3,836,817) NET POSITION - beginning of year, as restated (868,044) (816,724) NET POSITION - end of year (1,180,851) $ (793,584) $ The accompanying notes are an integral part of these statements. 19 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2013 Solid Waste Internal Service Fund CASH FLOW FROM OPERATING ACTIVITIES: Cash received from providing services 1,566,746 $ 10,822,186 $ Cash payments for contractual expenses (727,310) (10,183,027) Cash payments for salaries and benefits (459,341) (81,468) Net cash flow from operating activities 380,095 557,691 CASH FLOW FROM INVESTING ACTIVITIES: Use of money and property 1,737 2,814 Net cash flow from investing activities 1,737 2,814 CASH FLOW FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Purchase of capital assets (1,587) - Principal payments on bonds (366,990) - Net cash flow from capital and related financing activities (368,577) - CHANGE IN CASH AND CASH EQUIVALENTS 13,255 560,505 CASH AND CASH EQUIVALENTS - beginning of year 473,434 2,748,608 CASH AND CASH EQUIVALENTS - end of year 486,689 $ 3,309,113 $ RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH USED BY OPERATING ACTIVITIES: Operating income (loss) (314,544) $ 20,326 $ Adjustments to reconcile operating income (loss) to net cash used by operating activities: Depreciation 900,091 - Changes in: Accounts receivable 57,259 (30,712) Restricted cash 247,083 - Due from other funds (1,376) 298,777 Prepaid expenses 2,830 (2,496) Due to other funds 19,630 25,114 Closure and post-closure liabilities (536,367) - Accrued liabilities 13,998 309,703 Accounts payable (8,509) (63,021) NET CASH FLOW FROM OPERATING ACTIVITIES 380,095 $ 557,691 $ Funds The accompanying notes are an integral part of these statements. 20 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK STATEMENT OF FIDUCIARY NET POSITION DECEMBER 31, 2013 Agency Fund ASSETS Cash and cash equivalents 982,473 $ Due from other funds 10,597 Total assets 993,070 $ LIABILITIES Due to other funds 7,792 $ Agency liabilities 985,278 Total liabilities 993,070 $ The accompanying notes are an integral part of these statements. 21 ---PAGE BREAK--- Cortland County Cortland County Industrial Soil and Water Development Conservation Agency District Total ASSETS Cash and cash equivalents 393,257 $ 2,036,272 $ 2,429,529 $ Cash and cash equivalents - restricted - 873,933 873,933 Investment in Railroad Land 209,818 - 209,818 Capital assets - 20,958 20,958 Prepaid expenses 1,047 14,539 15,586 Total assets 604,122 2,945,702 3,549,824 LIABILITIES Accounts payable 1,210 20,958 22,168 Compensated absences - 27,936 27,936 Unearned revenue - 863,930 863,930 Total current liabilities 1,210 912,824 914,034 NET POSITION Net investment in capital assets 209,818 20,958 230,776 Restricted - 10,003 10,003 Unrestricted 393,094 2,001,917 2,395,011 Total net position 602,912 $ 2,032,878 $ 2,635,790 $ COUNTY OF CORTLAND, NEW YORK STATEMENT OF NET POSITION - COMPONENT UNITS DECEMBER 31, 2013 The accompanying notes are an integral part of these statements. 22 ---PAGE BREAK--- Cortland County Cortland County Industrial Soil and Water Development Conservation Agency District Total OPERATING REVENUE: Charges for services 276,713 $ 27,076 $ 303,789 $ Allocation from County of Cortland, New York - 255,984 255,984 Rent and lease income 5,500 - 5,500 Miscellaneous - 15,468 15,468 Federal and state grants - 1,698,787 1,698,787 Total operating revenue 282,213 1,997,315 2,279,528 OPERATING EXPENSES: Professional and administrative 36,088 - 36,088 Business Park 4,131 - 4,131 Direct grants - 738,135 738,135 Salaries and benefits - 654,286 654,286 General and administrative - 66,065 66,065 Natural resources - 14,935 14,935 Miscellaneous - 66,636 66,636 Total operating expenses 40,219 1,540,057 1,580,276 OPERATING INCOME 241,994 457,258 699,252 NON-OPERATING REVENUE (EXPENSES): Interest income 155 13,137 13,292 Loss on sale of property (128,776) - (128,776) Total non-operating revenue (expenses) (128,621) 13,137 (115,484) CHANGE IN NET POSITION 113,373 470,395 583,768 NET POSITION - beginning of year 489,539 1,562,483 2,052,022 NET POSITION - end of year 602,912 $ 2,032,878 $ 2,635,790 $ COUNTY OF CORTLAND, NEW YORK STATEMENT OF ACTIVITIES AND CHANGE IN NET POSITION - COMPONENT UNITS FOR THE YEAR ENDED DECEMBER 31, 2013 The accompanying notes are an integral part of these statements. 23 ---PAGE BREAK--- Cortland County Cortland County Industrial Soil and Water Development Conservation Agency District Total CASH FLOW FROM OPERATING ACTIVITIES: Cash received from providing services 284,092 $ 42,544 $ 326,636 $ Cash received from grants and Cortland County 23,427 1,944,768 1,968,195 Cash payments for contractual expenses (35,002) (878,994) (913,996) Cash payments for Business Park expenses (4,131) - (4,131) Cash payments for salaries and benefits - (626,350) (626,350) Net cash flow from operating activities 268,386 481,968 750,354 CASH FLOW FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Purchases of capital assets - (20,958) (20,958) Net cash flow from capital and related financing activities - (20,958) (20,958) CASH FLOW FROM INVESTING ACTIVITIES: Principal paid on mortgages payable (1,150,000) - (1,150,000) Proceeds on sale of Business Park 1,150,000 - 1,150,000 Purchase option deposit decrease (100,000) - (100,000) Interest income 155 13,137 13,292 Net cash flow from investing activities (99,845) 13,137 (86,708) CHANGE IN CASH AND CASH EQUIVALENTS 168,541 474,147 642,688 CASH AND CASH EQUIVALENTS - beginning of year 224,716 1,562,125 1,786,841 CASH AND CASH EQUIVALENTS - end of year 393,257 $ 2,036,272 $ 2,429,529 $ RECONCILIATION OF OPERATING INCOME TO NET CASH FLOW FROM OPERATING ACTIVITIES: Operating income 241,994 $ 457,258 $ 699,252 $ Changes in: Accounts receivable 25,306 - 25,306 Unearned revenue - (160,076) (160,076) Restricted cash - 150,073 150,073 Compensated absences - 27,936 27,936 Other assets - (358) (358) Prepaid expenses 68 (13,823) (13,755) Accounts payable 1,018 20,958 21,976 NET CASH PROVIDED BY OPERATING ACTIVITIES 268,386 $ 481,968 $ 750,354 $ COUNTY OF CORTLAND, NEW YORK STATEMENT OF CASH FLOWS - COMPONENT UNITS FOR THE YEAR ENDED DECEMBER 31, 2013 The accompanying notes are an integral part of these statements. 24 ---PAGE BREAK--- 25 COUNTY OF CORTLAND, NEW YORK NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2013 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Background The County of Cortland, New York (the County), incorporated in 1808, is governed by County Law, other general laws of the State of New York, and various local laws and ordinances. The County is a municipal corporation governed by the Board of Legislators. The County Board of Legislators, which is the legislative body responsible for the overall operations of the County, consists of nineteen elected officials. The Chairman of the Board of Legislators serves as Chief Executive Officer and the County Treasurer serves as Chief Fiscal Officer. The County provides the following basic services: law enforcement, educational assistance for County residents attending community services, maintenance of County roads and general administration. Financial Reporting Entity The accompanying basic financial statements of the County have been prepared in conformity with accounting principles generally accepted in the United States (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for State and Local Governments through its pronouncements (Statements and Interpretations). All governmental activities performed by the County are its direct responsibility. The financial reporting entity consists of the primary government which is the County, organizations for which the primary government is financially accountable, and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the County’s financial statements to be misleading or incomplete as set forth under generally accepted accounting principles. A component unit is included in the County’s reporting entity if it is both fiscally dependent on the County and there is a potential for the component unit to provide specific financial benefits to or impose specific financial burdens on the primary government. The basic financial statements have been prepared primarily from accounts maintained by the County. Additional data has been derived from reports prescribed by the County Treasurer and prepared by component units based on independent or subsidiary accounting systems maintained by their respective business offices. ---PAGE BREAK--- 26 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Financial Reporting Entity (Continued) The accompanying financial statements present the activities of the County as well as the component units and other entities determined to be includable in the County’s financial reporting entity. The County is not a component unit of another reporting entity. The decision to include a potential component unit in the County’s reporting entity is based on several criteria, including legal standing, fiscal dependency, and financial accountability. Based on application of these criteria, the following is a brief description of certain entities included in the County’s reporting entity:  Discretely Presented Component Units 1. Cortland County Industrial Development Agency The Cortland County Industrial Development Agency (the Agency) is a public benefit corporation created in 1974 by state legislation to promote the economic welfare, recreational opportunities, and the prosperity of the County’s inhabitants. The County Legislature appoints the directors of the Agency. However, the directors of the Agency have sole control over the management and operation of the Agency. Further, Agency finances are generated by project revenue bonds and such bonds are secured only to the extent of the assets acquired for the related project. The County is not liable for Agency bonds or notes. The Agency is a proprietary fund type and presented discretely as a component unit of the County. Financial statements of the Agency may be obtained from its administrative office at: Cortland County Industrial Development Agency, 37 Church Street, Cortland, New York 13045. 2. Cortland County Soil and Water Conservation District The Cortland County Soil and Water Conservation District (the District) was established in accordance with Soil and Water Conservation District Law, to provide for conservation of soil and water resources. Members of the District’s Board of Directors are appointed by the County Legislature. However, the directors of the District have sole control over the management and the operation of the District. The District is a proprietary fund type and presented discretely as a component unit of the County. Separate financial statements are not issued by the District.  Component Unit - Blended Cortland Tobacco Asset Securitization Corporation (CTASC) is a special purpose, bankruptcy-remote local development corporation organized under the Not-For-Profit Corporation Law of the State of New York. CTASC is considered a governmental fund- type component unit (blended presentation) of the County in accordance with generally accepted accounting principles and is reported in a debt service fund. Separate audited financial statements from CTASC may be obtained from CTASC directly by addressing the County Administrator, 60 Central Avenue, Cortland, NY 13045. ---PAGE BREAK--- 27 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation  Government - Wide Financial Statements The County’s basic financial statements include both government-wide (reporting the County as a whole) and fund financial statements. Both the government-wide and fund financial statements categorize primary activities as either governmental or business-type. The County’s police, maintenance of county roads, public works, health, educational activities, human services, and general administrative services are classified as governmental activities. The County’s Solid Waste Fund is classified as a business-type activity. Fiduciary funds are excluded from the government-wide statements. In the government-wide statement of net position, both the governmental and business- type activities columns are presented on a consolidated basis by column, and are reported on a full accrual, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. The County’s net position is reported in three parts: net investment in capital assets; restricted net position; and unrestricted net position. The County first utilizes restricted net position and resources to finance qualifying activities. The government-wide statement of activities and change in net position reports both the gross and net cost of each of the County’s functions and business-type activities. The functions are supported by general government revenues, i.e., real property taxes, real property tax items, nonproperty taxes, certain intergovernmental charges, use of money and property, sale of property and compensation for loss, and state and federal aid. The statement of activities reduces gross expenses, including depreciation, by related program revenues, and operating and capital grants. Program revenues must be directly associated with the function or segment. Operating grants include operating-specific and discretionary grants while capital grants reflect capital-specific grants. All direct expenses incurred are charged to the corresponding function. Capital asset additions that cannot be identified with a specific function are allocated based on total expenses by program. The County allocates indirect costs to all County funds except the General Fund. In addition, interfund activity within the government-wide statements has been eliminated. The government-wide focus is on the sustainability of the County as a whole entity and the change in the County’s net position resulting from the current year’s activities.  Fund Financial Statements Separate financial statements are provided for governmental funds, proprietary funds, component units, and fiduciary funds. Each fund is accounted for by providing a separate self-balancing set of accounts. Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions related to certain government functions or activities. ---PAGE BREAK--- 28 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation (Continued)  Fund Financial Statements (Continued) 1. Governmental Funds Governmental funds are those through which most governmental functions are financed. The acquisition, use, and balances of expendable financial resources and the related liabilities are accounted for through governmental funds. The measurement focus of the governmental funds is upon determination of financial position and changes in financial position, rather than upon the flow of economic resources. The emphasis of the fund financial statements is on major governmental funds, each displayed in a separate column. Nonmajor funds are summarized into a single column. Generally accepted accounting principles set forth minimum criteria (percentage of assets/deferred outflows, liabilities/deferred inflows, revenues, or expenditures/expenses of either fund category or the governmental and enterprise combined) for the determination of major funds; however, the County can elect to report any fund as a major fund. a) Major Governmental Funds  General Fund The General Fund is the County’s primary operating fund. It accounts for all financial resources of the general government, except those to be accounted for in another fund.  Debt Service Fund The Cortland Tobacco Asset Securitization Corporation (the CTASC) is a not- for-profit corporation established for the purpose of acquiring from the County all or any of the rights, titles, and interests of the County under the Master Settlement Agreement with respect to tobacco related litigation between various settling states and participating manufacturers. The CTASC is an instrumentality of, but separate and apart from, the County. Although legally separate, for financial reporting purposes, the CTASC activities are shown in the debt service fund as its purpose is to solely serve the County.  County Road Fund This fund is used to account for expenditures for repair and maintenance of County roads in accordance with New York State laws.  Special Grant Fund This fund is used to account for various state and federally aided programs.  Road Machinery Fund This fund is used to account for purchases, rentals, repairs, maintenance, and storage of highway machinery, tools, and equipment in accordance with New York State laws.  Capital Projects Fund This fund is used to account for the financial resources used for acquisition, construction, or major repair of capital facilities or equipment not being financed by proprietary or nonexpendable trust funds. ---PAGE BREAK--- 29 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Basis of Presentation (Continued)  Fund Financial Statements (Continued) 2. Proprietary Fund Types (Business-Type Activities) The County’s proprietary funds are prepared in conformity with accounting principles generally accepted in the United States as set forth by the Governmental Accounting Standards Board. Proprietary funds include the following fund types:  Enterprise Funds Enterprise funds are used to account for those operations that are financed and operated in a manner similar to private business or where the Board has decided that the determination of revenues earned, costs incurred, and/or net income is necessary for management accountability. Revenues are recognized in the accounting period in which they are earned; expenses are recognized in the period incurred, if measurable. Exchange transactions are those in which each party receives and gives up essentially equal values. Non-operating revenues, such as subsidies and investment earnings, result from non-exchange transactions. Enterprise funds include the following: a. Solid Waste Fund This fund was established by law to account for solid waste activities, including the County landfill operations and recycling activities.  Internal Service Funds The Internal Service Funds are used to account principally for the County’s risk management activities. The County is self-insured for certain risks and the internal service funds utilized are the following: a. Workers’ Compensation Fund This fund accounts for the accumulation of resources for payment of compensation assessments and other obligations under Workers’ Compensation Law, Article 5. b. Self-Insurance Fund This fund is used to account for the accumulation of resources for payment of unemployment insurance as authorized by Section 6M of the General Municipal Law. 3. Fiduciary Fund This fund is used to account for fiduciary activities. Fiduciary activities are those in which the County acts as trustee or agent for resources that belong to others. These activities are not included in the government-wide financial statements because their resources do not belong to the County and are not available to be used.  Agency Fund This fund is custodial in nature and does not present results of operations or have measurement focus. These funds are monies received and held in the capacity of a trustee, custodian, or agent. The Agency Fund is accounted for using the modified accrual basis of accounting. There is currently no expendable, nonexpendable, or pension trust funds reported by the County. ---PAGE BREAK--- 30 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Measurement Focus and Basis of Accounting Basis of accounting refers to the point at which revenues or expenditures/expenses are recognized in the accounts and reported in the financial statements. It relates to the timing of the measurements made regardless of the measurement focus applied.  Accrual Basis The government-wide, business-type, and fiduciary fund financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized when the liability is incurred, regardless of when the related cash transaction takes place. Non- exchange transactions, in which the County gives or receives value without directly receiving or giving equal value in exchange, include real property taxes, grants, and donations. On an accrual basis, revenue from property taxes is recognized in the year for which the taxes are levied. Revenue from grants is recognized in the year in which all eligibility requirements have been satisfied.  Modified Accrual Basis The governmental funds financial statements are presented using the current financial resources measurement focus and modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. “Available” means collectible within the current period. Material revenues that are to be accrued include real property taxes and nonproperty tax items to be collected within 60 days after year-end. Expenditures are generally recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt are reported as other financing sources. Where expenditures are the prime factor for determining eligibility, revenues from federal and state grants are accrued when the expenditure is made, and anticipated to be received within the next reporting period. Assets, Liabilities, and Equity  Cash and Cash Equivalents For financial statement purposes, all highly liquid investments having maturities of three months or less are considered cash equivalents and include cash on hand, demand deposits, and short-term certificates of deposit.  Taxes Receivable and State and Federal Aid Receivable The County establishes an allowance for doubtful accounts based on a review of outstanding amounts and the past history of collections. All trade accounts and property taxes receivable are shown net of an allowance for doubtful accounts of approximately $34,000 at December 31, 2013. All amounts due from other governments are deemed fully collectible. Property taxes levied for 2013 are recorded as receivables, net of the amount estimated to be uncollectible. The property taxes collected during 2013, and expected to be collected within the first sixty days of 2014, are recognized as revenue in 2013. Current and delinquent property taxes receivable estimated to be collectible subsequent to the first sixty days of 2014 is reflected as a deferred inflow. At December 31, 2013, the County’s general fund had recorded $1,655,333 of real property tax revenue as a deferred inflow. ---PAGE BREAK--- 31 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Assets, Liabilities, and Equity (Continued)  Interfund Receivables and Payables Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either interfund receivables/payables or advances to/from other funds. All other outstanding balances between funds are reported as due to/from other funds.  Postemployment Benefits The County provides certain health care benefits for retired employees of the County. The County administers the Retirement Benefits Plan (the "Retirement Plan") as a single- employer defined benefit Other Postemployment Benefit Plan (OPEB). In general, the County provides health insurance coverage for retired employees and their survivors. Substantially all the County’s employees may become eligible for this benefit if they retire with 25 years of service to the County. On the government-wide statements, these amounts attributable to past service have been recorded as a liability.  Property Taxes The authority for levying taxes for the support of County and town government, inclusive of special districts, and for relevied unpaid school taxes, has been delegated by the State Legislature to the governing board of the County through various provisions of the Real Property Tax Law. For purposes of both County and town taxes, the value of real property is listed and established by the towns for each parcel of real property therein. Amounts to be raised by taxes are determined from balanced budgets of the County and the towns. Unpaid school taxes are purchased from each school district and village and added to tax levies and until paid, are counted among the assets of the County. The County thus acquires all rights, title, and interest in any unpaid balances. Any such taxes remaining unpaid at the time of the tax sale are sold along with any other unpaid taxes subject to County enforcement. Real property taxes are levied on or before December 31 on the full-assessed value of all real property located within the County and become a lien on January 1. Taxes for County purposes apportioned to the area of the County outside the City of Cortland, New York (the City) are levied together with taxes for town and special district purposes as a single bill. The towns and special districts receive the full amount of their levies annually out of the first enforcement responsibility for all taxes levied in the towns. The collection of County taxes levied on properties within the City is enforced by the City; the County receives the full amount of such taxes within the year of the levy.  Capital Assets Capital assets which include buildings, machinery and equipment, and infrastructure (i.e. roads, bridges, and similar items), purchased or acquired, are reported at historical cost or estimated historical cost. Donated assets are reported at fair value as of the date received. Additions, improvements, and other capital outlays that significantly extend the useful life of an asset are capitalized. Cost of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset’s life are expensed as occurred. Generally accepted accounting principles require the County to report and depreciate new infrastructure assets. Infrastructure assets include such items as: roads, bridges, underground pipe (other than related utilities), etc. These infrastructure assets are the largest asset class of the County. Depreciation on all assets is provided on the straight-line basis over the following useful lives as follows: ---PAGE BREAK--- 32 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Assets, Liabilities, and Equity (Continued)  Capital Assets (Continued) a. Primary Government Estimated Description Useful Life Land improvements 10 - 20 years Buildings and improvements 50 years Machinery and equipment 5 - 15 years Infrastructure 20 - 65 years b. Enterprise Funds - Solid Waste Fund Estimated Description Useful Life Land improvements 10 - 20 years Buildings and improvements 50 years Equipment and fixtures 5 - 15 years c. Component Units Discretely Presented 1. Soil and Water Conservation District and Cortland County Industrial Development Agency Estimated Description Useful Life Land improvements/infrastructure 50 years Buildings 40 years Furniture, fixtures and equipment 3 - 15 years a. Compensated Absences County employees are granted vacation, sick leave, and compensatory leave benefits as defined in agreements between the County and the representative collective bargaining units. An individual who leaves the employ of the County is entitled to be paid for unused vacation leave and compensatory leave. Upon retirement, the unused sick leave may be applied towards additional service credit pursuant to the Retirement and Social Security Law; therefore, no payments are made for unused sick leave. Vacation and compensatory leave is accrued when incurred in the statement of net position and is reported as a liability in the government-wide financial statements. b. Unearned Revenue Unearned revenue arises when potential revenue does not meet both the measurable and available criteria for recognition in the current period. Unearned revenue also arises when the County receives resources before it has a legal claim to them, as when grant monies are received prior to incurring qualifying expenditures. In subsequent periods, when both recognition criteria are met or when the County has legal claim to the resources, the unearned revenue is recognized as revenue. ---PAGE BREAK--- 33 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Assets, Liabilities, and Equity (Continued) c. Long-Term Obligations Long-term obligations represent the County’s future obligations or future economic outflows. The liabilities are reported as due within one year or due in more than one year in the statement of net position. d. Net Position/Fund Balance Classifications Government-Wide Statements Equity is classified as net position and displayed in three components as follows:  Net investment in capital assets - This class represents the cost, or fair value if donated, of capital assets, net of accumulated depreciation plus unspent bond proceeds and reduced by the outstanding balances on any bonds, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets.  Restricted Net Position - This class consists of net position with constraints placed on the use either by external groups such as creditors, grantors, contributors, or laws or regulations of other governments; or law through constitutional provisions or enabling legislation.  Unrestricted Net Position - All other net position that does not meet the definition of “restricted” or “net investment in capital assets” is considered to be unrestricted. Fund Balances - Fund Financial Statements Accounting principles generally accepted in the United States provide more clearly defined fund balance categories to make the nature and extent of the constraints placed on a government’s fund balances more transparent. The following classifications describe the relative strength of the spending constraints:  Nonspendable Fund Balances These are amounts that cannot be spent either because they are in nonspendable form or because they are legally or contractually required to be maintained intact.  Restricted Fund Balances These are amounts that can be spent only for specific purposes because of constitutional provisions or enabling legislation or because of constraints that are externally imposed by creditors, grantors, contributors, or the laws or regulations of other governments. The County developed a tax stabilization reserve which has a balance of $1,052,429 at December 31, 2013 and is included in restricted fund balance. The County’s Legislature has the authority for establishing this reserve and can add or reduce the stabilization amount by board resolution. The County may utilize the tax stabilization reserve for purposes developed through the budget process. ---PAGE BREAK--- 34 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Assets, Liabilities, and Equity (Continued) e. Net Position/Fund Balance Classifications (Continued) Fund Balances - Fund Financial Statements (Continued)  Committed Fund Balances These are amounts that can be used only for specific purposes determined by a formal action of the County Legislature to year-end. The County Legislature is the highest level of decision-making authority for the County. Commitments may be established, modified, or rescinded only through resolutions approved by the County Legislature.  Assigned Fund Balances These are amounts that do not meet the criteria to be classified as restricted or committed but that are intended to be used for specific purposes. It is at the discretion of the County Legislature to make assignments as it sees fit.  Unassigned Fund Balances These are all other spendable amounts. Absent a County-wide policy, when an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the County considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed. f. Interfund Transfers Interfund transfers generally are recorded as operating transfers in or out, except for the following types of transactions: interfund revenues, which are recorded as revenues of the performing fund and expenditures of the requesting fund or reimbursements for services performed, which are recorded as a reduction of expenditures in the performing fund and an expenditure of the requesting fund. Transfers between governmental funds are reported at net as part of the reconciliation to the government-wide financial statements. Transfers between governmental funds and fiduciary funds are not offset in the government-wide financial statements, since fiduciary funds are not included in the government-wide financial statements. g. Labor Relations Certain County employees are covered by collective bargaining units and the remainder is governed by County Board and Civil Service rules and regulations. h. Estimates The preparation of financial statements in conformity with generally accepted accounting principles require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. ---PAGE BREAK--- 35 2. PRIOR PERIOD ADJUSTMENTS The fund financial statements for the year ended December 31, 2012 were improperly presented in that the fund financial statements for grants receivable was understated in the General Fund by $679,146. This error occurred because the County did not consistently record grants on the modified accrual basis of accounting in the fund financial statements. The government-wide financial statements and internal service funds for the year ended December 31, 2012 were improperly presented because liabilities were understated by $3,836,817 because the County historically has recorded workers’ compensation and self- insurance claims as they are billed instead of having a liability for known and incurred but not reported (IBNR) claims as generally accepted accounting principles require. The effect of the restatement as of January 1, 2013 is as follows: As Previously Reported Restated Governmental activities: Net position, beginning of year $ 65,100,589 $ 61,942,918 General Fund: Fund balance, beginning of year $ 13,440,900 $ 14,120,046 Internal Service Funds: Net position, beginning of year $ 3,020,093 $ (816,724) ---PAGE BREAK--- 36 3. STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY Budgetary Information i. Budget Policies Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds. All annual appropriations lapse at year-end. For capital projects, project length financial plans are developed for each project. Budgets are prepared for Enterprise Funds to control expenditures, and establish user charges. The County employs the following budgetary procedures: a) No later than November 15, the budget officer submits a tentative budget to the legislature for the fiscal year commencing the following January 1. The tentative budget includes proposed expenditures and the proposed means of financing them. The budget is prepared on a departmental basis. b) After public hearings are conducted to obtain taxpayer comments, but no later than December 20, the legislature adopts the annual budget. c) All revisions that alter appropriations of any department or fund must be approved by the legislature. d) Budgetary controls are established for the Capital Projects Fund through resolutions authorizing individual projects. e) No budgets are approved for the Special Grant Fund, Workers’ Compensation Fund, and Self-Insurance Fund. Solid Waste Fund The deficit of the Solid Waste Fund was approximately $1,181,000 at December 31, 2013. This deficit results from the recognition of closure and post-closure liabilities. This deficit will remain until such time as the closure and post-closure liabilities are satisfied. Internal Service Funds The deficit of the Internal Service Funds was approximately $794,000 at December 31, 2013. This deficit results from the recognition of known and incurred but not recorded (IBNR) liabilities. Over time, the funds of the County will need to finance these estimated liabilities. County Road Fund The deficit of the County Road Fund was approximately $343,000 at December 31, 2013. This deficit results from the issuance of a Bond Anticipation Note (BAN) of $1,600,000 during 2013. As this BAN is repaid or converted to long-term debt, the fund’s deficit will be reduced or eliminated. Cortland Tobacco Asset Securitization Corporation The net position deficit of the Corporation was approximately $11 million at December 31, 2013. This deficit results from full accrual accounting which requires the recording of the full amount of the bonds payable at the time the bonds are issued, while the revenue is recognized as it becomes available to pay the bond debt. It is expected that the deficit will decline as the revenues related to the tobacco settlements are received. j. Budget Reconciliation/Budget Modifications A reconciliation of expenditures for the 2013 General Fund budget is as follows: Original adopted budget $ 97,723,621 Amendments 1,347,138 Final revised budget $ 99,070,759 ---PAGE BREAK--- 37 4. DEPOSITS AND INVESTMENTS State statutes govern the County’s investment policies. The County has its own written deposit and investment policy, which is compliant with Section 39 of the General Municipal Law. County monies must be deposited in Federal Deposit Insurance Corporation (FDIC) insured commercial banks or trust companies located within New York State. The County Treasurer is authorized to use demand accounts and certificates of deposit. Permissible investments include obligations of the U.S. Treasury and its agencies, repurchase agreements, and general obligations of New York State or its localities. Collateral is required for demand and time deposits and certificates of deposit not covered by Federal Deposit Insurance. Obligations that may be pledged as collateral are obligations of the United States and its agencies and obligations of New York State and its municipalities. At year-end, demand deposits and certificates of deposit for the County were entirely covered by FDIC insurance or collateral held by trust companies located within the State. At December 31, 2013, cash and cash equivalents consisted of demand deposit accounts, money market accounts, and savings accounts. Investment and Deposit Policy The County follows an investment and deposit policy, the overall objective of which is to adequately safeguard the principal amount of funds invested or deposited; conform with federal, state, and other legal requirements; and provide sufficient liquidity of invested funds in order to meet obligations as they become due. Oversight of investment activity is the responsibility of the County Treasurer. Interest Rate Risk Interest rate risk is the risk that the fair value of investments will be affected by changing interest rates. The County does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk The County’s policy is to minimize the risk of loss due to failure of an issuer or other counterparty to an investment to fulfill its obligations. Custodial Credit Risk - Deposits Custodial credit risk is the risk that in the event of a failure of a depository financial institution, the reporting entity may not recover its deposits. In accordance with the County’s investment and deposit policy, all deposits of the County including certificates of deposit and special time deposits, in excess of the amount insured under the provisions of the Federal Deposit Insurance Act shall be secured by a pledge of securities with an aggregate value of 100% of the aggregate amount of deposits. The County restricts the securities to the following eligible items:  Obligations issued, fully insured, or guaranteed as to the payment of principal and interest, by the United States, an agency thereof, or a United States government sponsored corporation.  Obligations issued, fully guaranteed by the International Bank for Reconstruction and Development, the InterAmerican Development Bank, and the Asian Development Bank. ---PAGE BREAK--- 38 4. DEPOSITS AND INVESTMENTS (Continued) Custodial Credit Risk - Deposits (Continued)  Obligations partially insured or guaranteed by any agency of the United States.  Obligations issued or fully insured or guaranteed by New York State, obligations issued by a municipal corporation, school district, or district corporation of New York State.  Obligations issued by a state other than New York State rated in one of the three highest rating categories by at least one nationally recognized statistical rating organization.  Obligations issued by Puerto Rico rated in one of the three highest rating categories by at least one nationally recognized statistical rating organization.  Obligations of counties, cities, and other governmental entities of a state other than the State of New York having the power to levy taxes that are backed by the full faith and credit of such governmental entity and rated in one of the three highest rating categories by at least one nationally recognized statistical rating organization.  Obligations of domestic corporations rated in one of the two highest rating categories by at least one nationally recognized statically rating organization.  Any mortgage related securities, as defined in the Securities Exchange Act of 1934, as amended, which may be purchased by banks under the limitations established by regulatory agencies.  Commercial paper and bankers’ acceptances issued by a bank, other than the bank, rated in the highest short term category by at least one nationally recognized statistical rating organization and having maturities of not longer than sixty days from the date they are pledged.  Zero coupon obligations of the United States government marketed as “Treasury strips” Primary Government, Including Internal Service Funds and Fiduciary Funds At December 31, 2013, the bank balance of the County’s cash and cash equivalents of its primary government, including Internal Service Funds and Fiduciary Funds, was exposed to custodial credit risk as follows: Bank Carrying Description Balance Amount Cash and cash equivalents $ 23,164,401 $ 20,195,481 Category 1: Covered by FDIC insurance $ 1,375,347 Category 2: Collateralized with securities held by the pledging financial institution’s trust department or agent in the County’s name 21,994,200 $ 23,369,547 Restricted cash represents cash and cash equivalents where use is limited by legal requirements. These assets represent amounts required by statute to be reserved for various purposes. ---PAGE BREAK--- 39 4. DEPOSITS AND INVESTMENTS (Continued)  Discretely Presented Component Units a. Soil and Water Conservation District At December 31, 2013, the bank balance of the District’s cash and cash equivalents was exposed to custodial credit risk as follows: Bank Carrying Balance Amount Cash and cash equivalents $ 2,922,498 $ 2,910,205 Category 1: Covered by FDIC Insurance $ 320,932 Category 2: Collateralized with securities held by the pledging financial institution’s trust department or agent in the District’s name 2,977,274 $ 3,298,206 Restricted cash of the District held for grantor organizations was $873,933 at December 31, 2013. b. Cortland County Industrial Development Agency The bank balance of the Agency’s cash and cash equivalents and its exposure to custodial credit risk have been disclosed in the Agency’s separately issued financial statements. 5. RECEIVABLES Primary Government The County’s receivables for its governmental and proprietary funds are stated at net realizable value and consisted of the following at December 31, 2013: Real property and other taxes, net $ 5,504,974 Federal and state aid 8,479,108 Due from other governments 5,473,957 Other receivables 30,712 Solid waste accounts receivable 112,291 $ 19,601,042 Taxes Receivable The County has estimated the taxes receivable that it has deemed to be uncollectible and has recorded approximately $34,000 in an allowance for doubtful accounts. Taxes receivable are shown net of this allowance on the statement of net position. ---PAGE BREAK--- 40 6. CAPITAL ASSETS Governmental Activities Capital asset activity for the County’s governmental activities was as follows for the year ended December 31, 2013: Balance Balance 1/01/13 Additions Deletions 12/31/13 Capital assets not being depreciated: Land $ 1,221,700 $ - $ - $ 1,221,700 Construction in progress 2,769,097 3,425,183 - 6,194,280 Total capital assets not being depreciated 3,990,797 3,425,183 - 7,415,980 Capital assets being depreciated: Buildings and improvements 28,125,924 - - 28,125,924 Capital lease (Note 11) 10,914,213 - - 10,914,213 Machinery and equipment 14,706,512 964,539 (206,668) 15,464,383 Infrastructure 100,632,757 - - 100,632,757 Total cost of capital assets being depreciated 154,379,406 964,539 (206,668) 155,137,277 Less accumulated depreciation and amortization: Buildings and improvements (19,938,379) (596,157) - (20,534,536) Capital lease - (1,091,421) - (1,091,421) Machinery and equipment (8,421,704) (1,649,151) 184,250 (9,886,605) Infrastructure (40,363,066) (5,679,329) - (46,042,395) Total accumulated depreciation (68,723,149) (9,016,058) 184,250 (77,554,957) Total depreciable capital assets, net 85,656,257 (8,051,519) (22,418) 77,582,320 Governmental activities capital assets, net $ 89,647,054 $ (4,626,336) $ (22,418) $ 84,998,300 Depreciation expense and amortization expense was allocated as follows in governmental activities at December 31, 2013: Transportation $ 6,671,883 Public safety 811,445 General government 721,285 Home and community 613,092 Economic assistance and opportunity 81,145 Health 54,096 Culture and recreation 45,080 Education 18,032 Total depreciation and amortization expense $ 9,016,058 ---PAGE BREAK--- 41 6. CAPITAL ASSETS (Continued) Business-Type Activities Capital asset activity for the County’s business-type activities was as follows for the year ended December 31, 2013: Balance Balance 1/01/2013 Additions Deletions Transfers 12/31/2013 Capital assets not being depreciated: Land $ 176,300 $ - $ - $ - $ 176,300 Total capital assets not being depreciated 176,300 - - - 176,300 Capital assets being depreciated: Buildings and improvements 2,303,685 - - - 2,303,685 Land improvements 19,909,964 - - - 19,909,964 Equipment and fixtures 2,218,752 1,587 - - 2,220,339 Total cost of capital assets being depreciated 24,432,401 1,587 - - 24,433,988 Less accumulated depreciation: Buildings and improvements (529,845) (76,789) - - (606,634) Land improvements (10,217,312) (655,170) - - (10,872,482) Equipment and fixtures (1,806,789) (168,132) - - (1,974,921) Total accumulated depreciation (12,553,946) (900,091) - - (13,454,037) Total depreciable capital assets, net 11,878,455 (898,504) - - 10,979,951 Total capital assets, net $ 12,054,755 $ (898,504) $ - $ - $ 11,156,251 Discretely Presented Component Units  Cortland County Industrial Development Agency - The Agency had $209,818 invested in Railroad Land at December 31, 2013. There were no additions or deletions associated with these properties during the year.  Cortland County Soil and Water Conservation District - The District had $20,958 in vehicles at December 31, 2013. There were no deletions associated with capital assets during the year. There was also no depreciation expense associated with this capital asset during the year ended December 31, 2013. ---PAGE BREAK--- 42 7. POSTEMPLOYMENT HEALTH CARE BENEFITS Plan Description The County provides certain health care benefits for retired employees. The County administers the Retirement Benefits Plan (the “Retirement Plan”) as a single-employer defined benefit Other Postemployment Benefit Plan (OPEB). Funding Policy The contribution requirements of Plan members and the County are established and may be amended by the County Legislature. The County Legislature has negotiated several collective bargaining agreements, which include obligations of Plan members and the County. The required contribution is based on projected pay-as-you-go financing requirements. For the year ended December 31, 2013, the County contributed $2,459,000 to the Plan for current premiums. Plan members receiving benefits may be required to contribute to the Plan depending on their collective bargaining unit. The Retirement Plan does not issue a stand- alone financial report since there are no assets legally segregated for the sole purpose of paying benefits under the plan. There were approximately 700 participants in the County’s Retirement Plan for the year ended December 31, 2013. Annual OPEB Cost and Net OPEB Obligation The County’s annual OPEB cost is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with generally accepted accounting principles. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities over a period of thirty years. The following table shows the components of the County’s annual OPEB cost for the year, the amount actually contributed to the Retirement Plan, and changes in the County’s net OPEB obligation to the Retirement Plan: Normal cost $ 3,173,849 Amortization of UAAL 4,878,838 Interest 322,107 Total annual required contribution 8,374,794 Interest on net OPEB obligation 535,867 Adjustment to annual required contribution (774,732) Annual OPEB cost 8,135,929 Contributions made (2,459,000) Increase in net OPEB obligation 5,676,929 NET OPEB obligation - January 1, 2013 18,773,285 NET OPEB obligation - December 31, 2013 $ 24,450,214 ---PAGE BREAK--- 43 7. POSTEMPLOYMENT HEALTH CARE BENEFITS (Continued) Trend Information The following table provides trend information for the Retirement Plan: Year Ended Annual OPEB Cost Actual Employer Contribution Percent Contributed Net OPEB Obligation 2013 $8,135,929 $2,459,000 30.2% $24,450,214 2012 $8,135,929 $2,759,327 33.9% $18,773,285 2011 $5,998,769 $3,072,828 51.2% $13,396,683 Schedule of Funding Progress The Schedule of Funding Progress presents multi-year trend information about whether the actuarial value of Retirement Plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Because the aggregate actuarial cost method does not identify or separately amortize unfunded actuarial liabilities, information about funded status and funding progress has been prepared using the entry age actuarial cost method for that purpose, and the information presented is intended to approximate the funding of the Retirement Plan. Actuarial Valuation Date Year Ended Actuarial Value of Assets Actuarial Accrued Liability (AAL) Unfunded AAL (UAAL) – Funded Ratio Covered Payroll UAAL as a % of Covered Payroll 1/1/2012 12/31/13 $ - $ 87,739,563 $ 87,739,563 0.0% $ 22,589,660 388.4% 1/1/2012 12/31/12 $ - $ 87,739,563 $ 87,739,563 0.0% $ 22,283,085 393.7% 1/1/2011 12/31/11 $ - $ 65,717,960 $ 65,717,960 0.0% Not available Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan as understood by the employer and plan members and include the types of benefits provided at the time of the valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the January 1, 2012 actuarial valuation, the following methods and assumptions were used: Actuarial cost method Projected unit credit Discount rate* 4.0% Medical care cost trend rate 10.0% or 7.5% initially, depending on age, reduced by decrements each year to an ultimate rate of 5.0% in 2016. Unfunded actuarial accrued liability: Amortization period 30 years initially Amortization method Level dollar Amortization basis Open * As the plan is unfunded, the assumed discount rate considers that the County’s investment assets are low risk in nature, such as money market funds or certificates of deposit. ---PAGE BREAK--- 44 7. POSTEMPLOYMENT HEALTH CARE BENEFITS (Continued) The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23, 2010. On March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (HCERA), which amends certain aspects of PPACA was signed into law. The new laws are expected to have a financial impact on employers who sponsor postretirement health care benefit plans and therefore may affect the valuation of the Retirement Plan. As of the date of this statement, the County could not reasonably conclude which provisions would impact the financial accounting of the plan. Upon release of further regulatory guidance, the impact of PPACA and HCERA will be appropriately reflected in the valuation. 8. INTERFUND BALANCES Interfund receivables and payables between governmental activities are eliminated on the statement of net position. The County typically loans resources between funds for the purpose of mitigating the effects of transient cash flow issues. All interfund payables are not expected to be repaid within one year. Net interfund balances at December 31, 2013 were as follows: Fund Interfund Receivables Interfund Payables General fund $ 1,385,736 $ 1,109,032 County road fund 124,972 122,842 Special grant fund 67 67 Road machinery fund 24,050 108,728 Capital projects fund 453,053 1,205,143 Solid waste fund 7,390 43,949 Internal service funds 620,550 28,862 Agency fund 10,597 7,792 Total $ 2,626,415 $ 2,626,415 Interfund transfers for the year ended December 31, 2013 were as follows: Fund Transfers In Transfers Out General $ 264,692 $ 6,025,961 County road 5,219,069 - Capital projects 979,742 17,930 Road machinery - 419,612 $ 6,463,503 $ 6,463,503 ---PAGE BREAK--- 45 9. FINANCING ARRANGEMENTS Serial Bonds - Excluding CTASC The County borrows money in order to acquire land or high cost equipment or construct buildings and improvements. This enables the cost of these capital assets to be borne by the present and future taxpayers receiving the benefit of the capital assets. These long-term liabilities are full faith and credit debt of the County. The provision to be made in future budgets for capital indebtedness represents the amount, exclusive of interest, authorized to be collected in future years from taxpayers and others for liquidation of the long-term liabilities. Serial Bonds - CTASC The original purchase price for the County’s future rights, title and interest in the TSRs was financed through the issuance of Series 2001 Bonds in the amount of $10,640,000 with interest at rates ranging from 4.27% to 5.75%. The 2001 Bonds were sold at a discount of $123,538, for a net issue price of $10,516,462. The discount is amortized over the maturity period of the bonds using the straight-line method. The bonds mature from June 1, 2006 until June 1, 2043 under term restructuring and from June 1, 2002 until June 1, 2027 under the super sinker payment schedule. The second bond issue was issued November 29, 2005 and are capital appreciation bonds. These bonds are subordinate bonds to the original issue bonds detailed above and cannot be defeased until the original issue bonds are paid in full. These bonds were issued in different series with different interest and maturity rates. These bonds shall accrue interest at their stated rates from the series 2005 delivery date, which interest shall accrue and not be payable, compounded semiannually, until maturity. Interest accrued for the year ended December 31, 2013 was $275,525. During 2013, no principal or interest payments were made. The value of the bonds increase based upon the interest accrued over the life of the bonds. The total value of the bonds issued at November 29, 2005 was $4,185,259. Other Long-Term Obligations In addition to long-term bonded debt the County had the following other obligations: Compensated Absences - represents the value of earned and unused vacation leave and compensatory time. The amounts below are disclosed on a net basis, as it is impractical to report on the gross basis. Summary of Long-Term Obligations The following is a summary of all long-term obligations outstanding at December 31, 2013: Balance January 1 Increases Decreases Balance December 31 Due in One Year Governmental activities: Serial Bonds - excluding CTASC $ 13,298,330 $ - $ (498,010) $ 12,800,320 $ 516,710 Serial Bonds - CTASC, net 12,553,988 280,276 (230,000) 12,604,264 340,000 Compensated absences 1,720,974 - (2,783) 1,718,191 429,548 Capital lease (Note 11) 7,220,745 - (794,873) 6,425,872 620,383 Early termination benefits (Note 12) 259,672 - (86,557) 173,115 86,557 Other postemployment benefits 18,773,285 8,135,929 (2,459,000) 24,450,214 - Total governmental activities 53,826,994 8,416,205 (4,071,223) 58,171,976 1,993,198 Business-type activities: Serial Bonds 10,636,670 - (366,990) 10,269,680 383,290 Total primary government $ 64,463,664 $ 8,416,205 $ (4,438,213) $ 68,441,656 $ 2,376,488 ---PAGE BREAK--- 46 9. FINANCING ARRANGEMENTS (Continued) Summary of Long-Term Obligations (Continued) The following is a summary of maturity of the long-term indebtedness: Issue Final Interest 2013 Outstanding Date Maturity Rate Payments December 31 Serial Bonds - excluding CTASC - Real property 2004 2019 4.38 - 4.50% $ 35,000 $ 250,000 Public improvement 2007 2028 3.88 - 4.00% 375,000 8,000,000 Public improvement 2008 2032 4.00 - 5.00% 455,000 9,950,000 Public improvement 2012 2038 2.75 - 3.25% - 4,870,000 $ 23,070,000 The following is a summary of maturing debt service requirements for general obligation serial bonds-excluding CTASC: Principal Interest 2014 $ 900,000 $ 918,904 2015 930,000 882,111 2016 975,000 843,836 2017 1,030,000 803,529 2018 1,060,000 761,458 2019 - 2023 5,810,000 3,126,318 2024 - 2028 7,110,000 1,821,388 2029 - 2033 3,960,000 593,776 2034 - 2038 1,295,000 127,768 $ 23,070,000 $ 9,879,088 The following is a summary of maturity of the long-term indebtedness of the CTASC: Issue Final Interest 2013 Outstanding Date Maturity Rate Payments December 31 Serial Bonds - CTASC Series 2001 2001 2027 4.30 - 5.75% $ 230,000 $ 8,210,000 Series 2005 2005 2060 6.00 - 7.15% - 4,460,784 Bond discount (66,520) $ 12,604,264 ---PAGE BREAK--- 47 9. FINANCING ARRANGEMENTS (Continued) Summary of Long-Term Obligations (Continued) The following is a summary of maturing debt service requirements for the CTASC. Principal and interest payments for the Series 2001 Bonds are as follows for the years ended December 31: Principal Interest 2014 $ 340,000 $ 469,191 2015 355,000 461,550 2016 375,000 439,650 2017 390,000 416,700 2018 500,000 390,000 2019 - 2023 2,965,000 1,450,550 2024 - 2027 3,285,000 463,500 $ 8,210,000 $ 4,091,141 The Series 2005 Bonds are capital appreciation bonds, upon which the investment return on the investment principal is reinvested at a compounded rate until maturity. There are no scheduled principal and interest payments on these bonds other than their respective maturity dates, at which time a single payment is made representing principal and investment return. Such payments are as follows: Principal Interest Series S1 payable June 2038 $ 713,160 $ 2,947,369 Series S2 payable June 2050 730,966 9,197,816 Series S3 payable June 2055 649,493 16,117,354 Series S4A payable June 2060 734,367 32,192,723 $ 2,827,986 $ 60,455,262 Interest on all long-term debt for the year was composed of: Interest paid $ 960,335 Plus: Interest accrued in the current year 510,008 Less: Interest accrued in the prior year (193,859) Total interest expense $ 1,276,484 10. SHORT-TERM DEBT Short-term debt provides financing for governmental activities. The County issued one Bond Anticipation Note (BAN) in 2013 totaling $1,600,000. The BAN was issued to finance certain highway, road, bridge, and culvert improvements. This BAN had a repayment date of May 27, 2014, and bore interest at 0.89%. The following is a summary of changes in short-term debt for the year ended December 31, 2013: Balance, January 1, 2013 $ - Increases 1,600,000 Decreases - Balance, December 31, 2013 $ 1,600,000 ---PAGE BREAK--- 48 11. CAPITAL LEASE The County and Motorola Solutions, Inc. (Motorola) entered into an agreement in 2012 which provides for Motorola, as agent of the County, to construct cell towers and related equipment which will be owned by the County at the end of the lease. The County entered into this lease as of January 1, 2012. The lease expires on January 15, 2022. This lease is defined as a capital lease and the related cell towers are recorded as an asset that will be amortized over the term of the lease. The lease obligation is shown as a liability with the related interest expense reported as non-operating expenses. The payment terms under this lease are as follows for the years ended December 31: Principal Interest 2014 $ 620,383 $ 223,299 2015 641,941 201,741 2016 664,249 179,433 2017 687,331 156,351 2018 711,216 132,466 2019 - 2022 3,100,752 273,977 $ 6,425,872 $ 1,167,267 12. TERMINATION BENEFITS During 2010, the County approved a one-time early retirement incentive plan, known as the 2010-2011 Retirement Incentive Program (the Program), for all employees. This Program was initiated by the New York State and Local Employees’ Retirement System (the System) and has two different incentive programs, Part A and Part B. To be eligible for Parts A and B under the Program, employees were required to have 10 years of service with the County and be at least 50 years of age but not yet 55 years of age. The commencement of the open period was October 1, 2010 and eligible employees under both Part A and B of the Program were required to retire by December 29, 2010. Employees taking advantage of Part A of the Program received approximately one month of additional service credit for each year of service, up to a maximum of three additional years of service credit. Employees taking advantage of Part B of the Program were allowed to retire at age 55 without a benefit reduction. During the year ended December 31, 2010, fifteen employees elected early retirement under Part A of the Program. The estimated present value of the benefits provided to the retirees under the Program is reported as a liability to the County of $173,115 and is included in long term liabilities in the statement of net position at December 31, 2013. The County will fund the system in two remaining installments of approximately $86,600 over the next two years. ---PAGE BREAK--- 49 13. EMPLOYEE RETIREMENT SYSTEM Plan Description The County participates in the New York State and Local Employees’ Retirement System (the System). This is a cost-sharing multiple-employer public employee retirement system. The System provides retirement benefits as well as death and disability benefits. Obligations of employers and employees to contribute and benefits to employees are governed by the New York State Retirement and Social Security Law As set forth in the the Comptroller of the State of New York (the Comptroller) serves as sole trustee and administrative head of the System. The Comptroller shall adopt and may amend rules and regulations for the administration and transaction of the business of the System and for the custody and control of its funds. The System issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to the New York State and Local Employees’ Retirement System, 110 State Street, Albany, NY 12244. Funding Policy Membership, benefits, and employer and employee obligations to contribute are described in the using the tier concept. Pension legislation established tier membership by the date a member last joined the Retirement System. They are as follows:  Tier 1 - Those persons who last became members of the System before July 1, 1973.  Tier 2 - Those persons who last became members on or after July 1, 1973, but before July 27, 1976.  Tier 3 - Generally those persons who are State correction officers who last became members on or after July 27, 1976, and all others who last became members on or after July 27, 1976, but before September 1, 1983.  Tier 4 - Generally, except for correction officers, those persons who last became members on or after September 1, 1983.  Tier 5 - Those persons who last became members of the System on or after January 1, 2010.  Tier 6 - Those persons who last became members of the System on or after April 1, 2012. The System is noncontributory for the employee who joined prior to July 27, 1976. For employees who joined the System after July 27, 1976, and prior to January 1, 2010, employees contribute 3% of their salary, except that employees in the System more than ten years are no longer required to contribute. For employees who joined after January 1, 2010, employees in the System contribute 3% of their salary throughout their active membership. The Comptroller certifies the rates expressed as proportions of members’ payroll annually which are used in computing the contributions required to be made by employers to the pension accumulation fund. Employees who joined on or after April 1, 2012 contribute 3% of their reportable salary. The System cannot be diminished or impaired. Benefits can be reduced for future membership only by an act of the New York State Legislature. The County contributed 100% of the required contributions for the current year and two preceding years as follows: 2013 $ 5,007,313 2012 $ 4,357,681 2011 $ 3,779,401 ---PAGE BREAK--- 50 14. LANDFILL CLOSURE AND POST-CLOSURE COSTS The County has three landfills that it maintains: the West Side, Pine Tree, and Old Cortland County landfills. The West Side landfill is the only one that is active; the other two are closed. Based on a survey completed by an engineering firm, the total remaining air space capacity of the West Side landfill is 1,264,002 tons, or approximately 26.7 years of remaining site life. State and federal laws and regulations require the County to place a final cover on its landfill sites when it stops accepting waste and to perform certain maintenance and monitoring functions at the site for thirty years after closure. Although closure and post-closure care costs will be paid only near or after the date that the landfill stops accepting waste, the County reports a portion of these closure and post-closure care costs as a liability in each period based on landfill capacity used as of each balance sheet date. Landfill activity is reported in the Solid Waste Fund, an enterprise fund. The County has a total of $3,679,563 reported as landfill closure and post-closure care liability which represents the cumulative amount reported to date. The total cost consists of total post closure and closure costs of $3,126,033 of the West Side landfill; $254,337 for the Pine Tree landfill; and $299,193 of the Old Cortland County landfill. The County will recognize the remaining estimated cost of closure and post-closure care of $3,679,563 as the remaining estimated capacity is filled. These amounts are based on what it would cost to perform all closure and post-closure care in 2013 for the West Side, Pine Tree, and Old Cortland County landfills. The County expects to close the West Side landfill in the year 2040. Actual closure and post-closure costs may be higher due to inflation, changes in technology, or changes in regulations. 15. FUND BALANCES As of December 31, 2013, fund balances were composed of the following: General Fund County Road Fund Special Grant Fund Road Machinery Fund Capital Projects Fund Debt Service Fund Nonspendable $ 1,119,977 $ 92,337 $ - $ 18,717 $ - $ 3,536 Restricted - Debt service - - - - - 810,158 Law 1,814,148 37,657 - 25,519 3,148,982 - Assigned Other spendable amounts 1,003,393 - 20 1,220,922 70,522 105,294 Unassigned 12,107,023 (472,736) - - - - Total $ 16,044,541 $ (342,742) $ 20 $ 1,265,158 $ 3,219,504 $ 918,988 ---PAGE BREAK--- 51 16. RISK MANAGEMENT The government is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. These risks are covered by commercial insurance purchased from independent third parties. Settled claims from these risks have not exceeded commercial coverage for the past three years. The County’s self-insurance coverage applies to medical, dental, and vision insurance and workers’ compensation. The County has excess liability insurance protection up to $1,000,000 for a single incident with coverage that is effective in the event that a single loss exceeds $1,000,000. The excess insurance covers workers’ compensation claims with a specific excess limit of $10,000,000 and employer’s liability limit of $1,000,000. The specific deductible on workers’ compensation is $375,000 per occurrence. The excess insurance also covers property damage for all County buildings and their contents, as well as all other County assets with a deductible of $100,000. Any public works equipment, which is not licensed or cannot be licensed per New York State regulations, has a $1,000 deductible per occurrence. Various County funds paid $7,420,772 to the Self Insurance Fund during the year ended December 31, 2013, for the cost of these services. Various County funds were also charged $557,290 by the Workers’ Compensation Fund during the year ended December 31, 2013 for those services. The County’s estimated claims liability at December 31 of each year is based on the anticipated final outcome of each claim, analyzed on a case-by-case basis. The County also utilizes a third party administrator who is responsible for processing claims and estimating liabilities for the self-insurance fund and workers’ compensation fund. Based upon the requirements of accounting principles generally accepted in the United States, liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNRs). Claim liabilities are calculated considering the effect of inflation, recent claim settlement trends including frequency and amount of pay-outs and other economic and social factors. At December 31, 2013, the amount of the liability for both funds was $4,729,819 and is included in both accrued liabilities and accounts payable at year-end. The following represents changes in those aggregate liabilities for the year ended December 31, 2013: Self-Insurance Workers’ Compensation January 1, 2013 $ 917,676 $ 3,565,461 Claims and changes in estimates 8,969 237,713 December 31, 2013 $ 926,645 $ 3,803,174 The County’s Self-Insurance Fund had net position of $2,957,380 at December 31, 2013, which is included in the County’s Internal Service Funds. The County’s Workers’ Compensation Fund had net position deficit of $3,750,964 at December 31, 2013, which is included in the County’s Internal Service Funds. County employees are entitled to coverage under the New York State Unemployment Insurance Law. The County has elected to discharge its liability to the New York State Unemployment Insurance Fund by the benefit reimbursement method; a dollar-for-dollar reimbursement to the fund for benefits paid from the fund to former County employees and charged to the County’s account. ---PAGE BREAK--- 52 17. FEDERAL AND STATE FUNDED PROGRAMS The County participates in a number of Federal and New York State grant and assistance programs. These programs are subject to financial and compliance audits by the grantors or their representatives. The amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time, although the County expects such amounts, if any, to be immaterial. Expenditures disallowed by completed audits have generally been immaterial in nature and, accordingly, have been reflected as adjustments to revenues in the year the expenditure was determined to be unallowable. Third-party payers, especially government funders, have substantially increased their scrutiny of payments made to their designated service providers. Specific areas for review by the governmental payers and their investigative personnel include appropriate billing practices, reimbursement maximization strategies, technical regulation compliance, etc. The stated purpose for these reviews is to recover reimbursements, which the payers believe may have been inappropriate. The County has reviewed its internal records and policies with respect to such matters. However, due to the nature of these matters, it is difficult to estimate the ultimate liability, if any, which it may incur related to such matters. 18. CONTINGENCIES The County is the defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, it is the opinion of the County’s counsel that resolution of these matters will not have a material effect on the financial condition of the County government. 19. JOINT VENTURE The Tompkins-Cortland Community College (the College) was established by joint action of the Legislative Boards of Cortland and Tompkins Counties. The College operates under authority of Article 126 of the Education Law and the Rules and Regulations of the State University Trustees. It is administered by a ten member Board of Trustees, five of whom are appointed by the legislative boards of the two counties under an apportionment made between the two by the State University Trustees. The College’s annual operating budget is subject to approval by both County legislative boards. Ownership of existing capital facilities and capital expenses are shared in proportion of the student population of each County. Subsidies to meet operational expenses are shared in the ratio of resident students in attendance. The County contributed approximately $1,590,000 and $140,000 to the College in 2013 for operations and debt, respectively. The County also advanced funds in prior years to the College for its campus master plan, and at December 31, 2013, the College owes the County $2,784,120. These funds will be paid by the College each year until 2026 under a long-term payment plan. This amount is recorded as a long-term receivable in the statement of net position. ---PAGE BREAK--- 53 20. IMPACT OF FUTURE GASB PRONOUNCEMENTS In June 2012, the GASB issued Statement No. 67, Financial Reporting for Pension Plans-an amendment of GASB Statement No. 25. This standard improves accounting and financial reporting by expanding disclosures and required supplementary information of state and local governmental pension plans. The County is required to adopt the provisions of Statement No. 67 for the year ending December 31, 2014. The County’s management has not yet assessed the impact of this statement on its future financial statements. In June 2012, the GASB issued Statement No. 68, Accounting and Reporting for Pension Plans. This standard improves accounting and financial reporting by requiring governments to recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits through additional disclosures and required supplementary information. The County is required to adopt the provisions of Statement No. 68 for the year ending December 31, 2015. The County’s management has not yet assessed the impact of this statement on its future financial statements. In January 2013, the GASB issued Statement No. 69, Government Combinations and Disposals of Government Operations. This Statement establishes accounting and financial reporting standards related to government combinations and disposals of government operations. The term government combinations include a variety of transactions referred to as mergers, acquisitions, and transfers of operations. The County is required to adopt the provisions of this Statement for the year ending December 31, 2014. The Statement should be applied on a prospective basis and early adoption is encouraged. In April 2013, the GASB issued Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. This Statement requires a government that extends a nonexchange financial guarantee to recognize a liability when qualitative factors and historical data, if any, indicate that it is more likely than not that the government will be required to make payments on the guarantee. The County is required to adopt the provisions of the Statement for the year ending December 31, 2015. The Statement should be applied on a prospective basis and early adoption is encouraged. 21. SUBSEQUENT EVENTS The County renewed the Bond Anticipation Note outstanding at December 31, 2013 for $1,600,000 on May 27, 2014 with an interest rate of 1.25% and a new due date of February 27, 2015. In addition, the County issued a Bond Anticipation Note for $2,333,000 on August 19, 2014 with an interest rate of 1% and a maturity date of February 25, 2015. ---PAGE BREAK--- REQUIRED SUPPLEMENTARY INFORMATION ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL FUND FOR THE YEAR ENDED DECEMBER 31, 2013 Variance with Final Budget Original Final Actual Amounts Positive Budget Budget (Budgetary Basis) (Negative) REVENUES: Real property taxes and tax items 34,040,647 $ 34,040,647 $ 32,890,840 $ (1,149,807) $ Nonproperty tax items 28,215,500 28,230,500 29,356,481 1,125,981 Departmental income 7,563,753 7,604,801 7,496,077 (108,724) Intergovernmental charges - - 362,832 362,832 Use of money and property 58,600 58,600 233,425 174,825 Fines and forfeitures - - 164,272 164,272 Sale of property and compensation for loss 2,000 12,605 10,539 (2,066) Miscellaneous 1,401,070 1,411,569 251,935 (1,159,634) State aid 14,416,654 14,851,517 14,437,061 (414,456) Federal aid 10,739,823 10,754,236 9,635,699 (1,118,537) Total revenues 96,438,047 96,964,475 94,839,161 (2,125,314) EXPENDITURES: General governmental support 21,664,439 21,953,813 21,438,486 515,327 Education 4,954,098 4,488,098 4,089,147 398,951 Public safety 13,314,215 12,890,157 12,408,317 481,840 Public health 10,325,541 10,598,616 9,780,633 817,983 Transportation 555,250 534,002 1,143,340 (609,338) Economic assistance and opportunity 36,353,421 36,589,032 33,611,175 2,977,857 Culture and recreation 340,779 342,571 304,050 38,521 Home and community services 2,071,766 2,206,664 1,137,111 1,069,553 Employee benefits 2,679,000 2,863,000 2,577,482 285,518 Debt service 665,657 673,657 663,656 10,001 Total expenditures 92,924,166 93,139,610 87,153,397 5,986,213 EXCESS OF REVENUES OVER EXPENDITURES 3,513,881 3,824,865 7,685,764 3,860,899 OTHER FINANCING SOURCES (USES): Appropriated fund balance 1,285,574 1,285,574 - (1,285,574) Operating transfers - in - 251,564 264,692 13,128 Operating transfers - out (4,799,455) (5,931,149) (6,025,961) (94,812) Total other financing sources (uses) (3,513,881) (4,394,011) (5,761,269) (1,367,258) CHANGE IN FUND BALANCE - (569,146) 1,924,495 2,493,641 FUND BALANCE - beginning of year, as previously reported 13,440,900 13,440,900 13,440,900 - Prior period adjustment (Note 2) 679,146 679,146 679,146 - FUND BALANCE - beginning of year, as restated 14,120,046 14,120,046 14,120,046 - FUND BALANCE - end of year 14,120,046 $ 13,550,900 $ 16,044,541 $ 2,493,641 $ The accompanying notes are an integral part of this supplementary information. 54 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES - BUDGET AND ACTUAL - COUNTY ROAD FOR THE YEAR ENDED DECEMBER 31, 2013 Variance with Final Budget Original Final Actual Amounts Positive Budget Budget (Budgetary Basis) (Negative) REVENUES: Departmental income 23,050 $ 23,050 $ 10,602 $ (12,448) $ Intergovernmental charges - - 745,461 745,461 Use of money and property 1,500 1,500 1,185 (315) Interfund revenues - - 60,677 60,677 Sale of property and compensation for loss - - 5 5 Miscellaneous 1,604,000 1,604,000 2,035 (1,601,965) State aid 2,108,359 2,384,961 1,629,491 (755,470) Total revenues 3,736,909 4,013,511 2,449,456 (1,564,055) EXPENDITURES: Public safety 202,384 191,884 184,312 7,572 Home and community - - 119,947 (119,947) Transportation 8,637,399 8,924,501 8,772,615 151,886 Debt service 172,193 172,193 172,163 30 Total expenditures 9,011,976 9,288,578 9,249,037 39,541 DEFICIENCY OF REVENUES OVER EXPENDITURES (5,275,067) (5,275,067) (6,799,581) (1,524,514) OTHER FINANCING SOURCES: Operating transfers - in 5,275,067 5,275,067 5,219,069 55,998 Total other financing sources 5,275,067 5,275,067 5,219,069 55,998 CHANGE IN FUND BALANCE - - (1,580,512) (1,468,516) FUND BALANCE - beginning of year 1,237,770 1,237,770 1,237,770 - FUND BALANCE - end of year 1,237,770 $ 1,237,770 $ (342,742) $ (1,468,516) $ The accompanying notes are an integral part of this supplementary information. 55 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES - BUDGET AND ACTUAL - ROAD MACHINERY FOR THE YEAR ENDED DECEMBER 31, 2013 Variance with Final Budget Original Final Actual Amounts Positive Budget Budget (Budgetary Basis) (Negative) REVENUES: Intergovernmental charges 280,000 $ 280,750 $ 304,966 $ 24,216 $ Use of money and property 2,687,075 2,687,075 2,549,554 (137,521) Interfund revenues - - 252,013 252,013 Sale of property and compensation for loss - 20,000 49,460 29,460 Miscellaneous 3,000 3,000 1,479 (1,521) Total revenues 2,970,075 2,990,825 3,157,472 166,647 EXPENDITURES: Transportation 2,679,865 2,700,615 2,548,694 151,921 Debt service 150,082 150,082 150,082 - Total expenditures 2,829,947 2,850,697 2,698,776 151,921 EXCESS OF REVENUES OVER EXPENDITURES 140,128 140,128 458,696 318,568 OTHER FINANCING SOURCES: Appropriated fund balance 279,484 279,484 - (279,484) Operating transfers - in (419,612) (419,612) (419,612) - Total other financing sources (140,128) (140,128) (419,612) (279,484) CHANGE IN FUND BALANCE - - 39,084 39,084 FUND BALANCE - beginning of year 1,226,074 1,226,074 1,226,074 - FUND BALANCE - end of year 1,226,074 $ 1,226,074 $ 1,265,158 $ 39,084 $ The accompanying notes are an integral part of this supplementary information. 56 ---PAGE BREAK--- SECTION B OMB CIRCULAR A-133 ---PAGE BREAK--- (Continued) 57 INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS September 25, 2014 To the County Legislature of the County of Cortland, New York: We have audited, in accordance with the auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, and each major fund of the County of Cortland, New York (the County) as of and for the year ended December 31, 2013, and the related notes to the financial statements, which collectively comprise the County’s basic financial statements, and have issued our report thereon dated September 25, 2014. Our report includes a reference to other auditors who audited the financial statements of the Cortland County Industrial Development Agency (the Agency) and the Cortland Tobacco Asset Securitization Corporation (CTASC), as described in our report on the County’s financial statements. This report does not include the results of the other auditor’s testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the County’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the County’s internal control. Accordingly, we do not express an opinion on the effectiveness of the County’s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses (Findings 2013-001, 2013-002 and 2013- 003). 171 Sully’s Trail, Suite 201 Pittsford, New York 14534 p (585) 381-1000 f (585) 381-3131 ALBANY • BATAVIA • BUFFALO • EAST AURORA • GENEVA • NYC • ROCHESTER • RUTLAND, VT • SYRACUSE • UTICA www.bonadio.com ---PAGE BREAK--- 58 INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS (Continued) Internal Control Over Financial Reporting (Continued) A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiencies described in the accompanying schedule of findings and questioned costs to be material weaknesses. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Compliance and Other Matters As part of obtaining reasonable assurance about whether the County’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. County’s Response to Findings The County’s responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. The County’s responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. SIGN ---PAGE BREAK--- (Continued) 59 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE AS REQUIRED BY OMB CIRCULAR A-133 September 25, 2014 To the County Legislature of the County of Cortland, New York: Report on Compliance for Each Major Federal Program We have audited the County of Cortland, New York’s (the County’s) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the County’s major federal programs for the year ended December 31, 2013. The County’s major federal programs are identified in the summary of auditor results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the County’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the County’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the County’s compliance. Opinion on Each Major Federal Program In our opinion, the County complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2013. 171 Sully’s Trail, Suite 201 Pittsford, New York 14534 p (585) 381-1000 f (585) 381-3131 ALBANY • BATAVIA • BUFFALO • EAST AURORA • GENEVA • NYC • ROCHESTER • RUTLAND, VT • SYRACUSE • UTICA www.bonadio.com ---PAGE BREAK--- 60 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM; AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE AS REQUIRED BY OMB CIRCULAR A-133 (Continued) Report on Internal Control Over Compliance Management of the County is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the County’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the County’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. SIGN ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED DECEMBER 31, 2013 Pass-Through Federal Entity CFDA Identifying Federal Number Number Expenditures U.S. Department of Agriculture: Passed through NYS Department of Social Services - State Administrative Matching Grants for the Supplemental Nutrition Assistance Program 10.561 N/A 720,897 $ Total U.S. Department of Agriculture 720,897 U.S. Department of Labor: Passed through NYS Department of Labor - WIA Cluster WIA Adult Program 17.258 N/A 40,293 WIA Dislocated Worker Formula Grants 17.278 N/A 45,728 WIA Youth Activities 17.259 N/A 54,838 Subtotal-WIA Cluster 140,859 Trade Adjustment Assistance 17.245 N/A 113,806 Passed through NYS Office of the Aging - Senior Community Service Employment Program 17.235 N/A 18,437 Total U.S. Department of Labor 273,102 U.S. Department of Homeland Security: Passed Through NYS Office of the State Comptroller - Homeland Security Grant Program 97.067 T970022 13,000 Homeland Security Grant Program 97.067 T970032 14,000 Subtotal - NYS Office of the State Comptroller 27,000 Passed Through NYS Division of Homeland Security & Emergency Services - Homeland Security Grant Program 97.067 C838400 66,632 Homeland Security Grant Program 97.067 C970010 45,769 Homeland Security Grant Program 97.067 T970020 38,999 Subtotal - NYS Division of Homeland Security & Emergency Services 151,400 Total U.S. Department of Homeland Security 178,400 U.S. Department of Transportation: Passed through the NYS Department of Transportation - Highway Planning and Construction 20.205 D033492 28,382 Highway Planning and Construction 20.205 D033306 1,194,158 Subtotal - Highway Planning and Construction 1,222,540 Job Access and Reverse Commute Program 20.516 C003869 245,389 New Freedom Program 20.521 C5633 25,161 Formula Grants for Rural Areas 20.509 N/A 380,000 Subtotal - NYS Department of Transportation 1,873,090 Passed through the NYS Division of Criminal Justice - State and Community Highway Safety 20.600 T523658 12,082 Airport Improvement Program 20.106 N/A 826,735 Total U.S. Department of Transportation 2,711,907 Corporation for National and Community Service Retired and Senior Volunteer Program 94.002 N/A 40,528 Total Corporation for National and Community Service 40,528 Federal Grantor/ Program Title (Continued) 61 ---PAGE BREAK--- COUNTY OF CORTLAND, NEW YORK SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED DECEMBER 31, 2013 (Continued) Pass-Through Federal Entity CFDA Identifying Federal Number Number Expenditures U.S. Department of Health and Human Services: Passed through NYS Office of the Aging - Special Programs for the Aging - Title IIID - Disease Prevention and Health Promotion Services 93.043 N/A 7,481 National Family Caregiver Support - Title III-E 93.052 N/A 26,603 Special Programs for the Aging - Title VII - Chapter 2 - Long Term Care Ombudsman Services for Older Individuals 93.042 N/A 10,592 44,676 Special Programs of the Aging Cluster - Special Programs for the Aging - Title IIIB - Grants for Supportive Services and Senior Centers 93.044 N/A 50,920 Special Programs for the Aging - Title IIIC- Nutrition Services 93.045 N/A 101,798 Nutrition Services Incentive Program 93.053 N/A 79,689 Subtotal - Special Programs of the Aging Cluster 232,407 Total NYS Office of the Aging 277,083 Passed through NYS Office of Temporary and Disability Assistance - Temporary Assistance for Needy Families 93.558 N/A 10,500 Passed through NYS Department of Health - Family Planning Services 93.217 C027019 78,211 Children's Health Insurance Program 93.767 C027830 27,440 Medical Assistance Program 93.778 C027830 27,440 Immunization Grants 93.268 C028286 8,700 Maternal and Child Health Services Block Grant to the States 93.994 C026503 14,491 Maternal and Child Health Services Block Grant to the States 93.994 C027019 37,243 Centers for Disease Control and Prevention - Investigations and Technical Assistance 93.283 4697-01 31,611 Public Health Emergency Preparedness 93.069 1596-10 53,500 Total NYS Department of Health 278,636 Passed through NYS Department of Social Services - Temporary Assistance for Needy Families 93.558 N/A 4,005,322 Child Support Enforcement 93.563 N/A 365,334 Foster Care - Title IV-E 93.658 N/A 1,129,867 Adoption Assistance 93.659 N/A 446,463 Medical Assistance Program 93.778 N/A 863,880 Child Care and Development Block Grant 93.575 N/A 14,058 Low-Income Home Energy Assistance 93.568 N/A 2,100,583 Social Services Block Grant 93.667 N/A 712,373 Chafee Foster Care Independence Program 93.674 N/A 20,820 Total NYS Department of Social Services 9,658,700 Passed through NYS Department of Alcohol and Substance Abuse Services - Block Grants for Prevention and Treatment of Substance Abuse 93.959 25147 192,395 Total NYS Department of Alcohol and Substance Abuse Services 192,395 Total U.S. Department of Health and Human Services 10,417,314 Total Expenditures of Federal Awards 14,342,148 $ Note: Bold items denote major programs. Federal Grantor/ Program Title The accompanying notes are an integral part of this schedule. 62 ---PAGE BREAK--- 63 COUNTY OF CORTLAND, NEW YORK NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS DECEMBER 31, 2013 1. GENERAL The accompanying schedule of expenditures of federal awards presents the activity of federal awards programs administered by the County of Cortland, New York (the County), an entity as defined in the basic financial statements, except that it does not include the federal financial assistance programs, if any, of the Cortland County Industrial Development Agency, Cortland Tobacco Asset Securitization Corporation, and the Cortland County Soil and Water Conservation District. 2. PASS-THROUGH PROGRAMS Where the County receives funds from a government entity other than the federal government (pass-through), the funds are accumulated based upon the Catalog of Federal Domestic Assistance (CFDA) number advised by the pass-through grantor. Identifying numbers, other than the CFDA numbers, which may be assigned by pass-through grantors are not maintained in the County’s financial management system. The County has identified certain pass-through identifying numbers and included them in the schedule of expenditures of federal awards, as available. 3. BASIS OF ACCOUNTING The schedule of expenditures of federal awards is presented in conformity with accounting principles generally accepted in the United States and the amounts presented are derived from the County’s general ledger. For programs with funding ceilings and caps, federal expenditures are only recorded and presented in the schedule of expenditures of federal awards up to such amounts. 4. NONMONETARY FEDERAL PROGRAMS The County is the recipient of federal financial assistance programs that do not result in cash receipts or disbursements, termed “nonmonetary programs.” New York State makes payments of benefits directly to third parties on behalf of eligible persons participating in the Low-Income Home Energy Assistance Program (CFDA Number 93.568). Included in the amount presented on the schedule of expenditures of federal awards is $1,986,854 in direct payments for the Low-Income Home Energy Assistance Program. ---PAGE BREAK--- 64 5. INDIRECT COSTS Indirect costs are included in the reported expenditures to the extent such costs are included in the federal financial reports used as the source for the data presented. 6. MATCHING COSTS Matching costs, i.e., the County’s share of certain program costs, are not included in the reported expenditures. ---PAGE BREAK--- 65 COUNTY OF CORTLAND, NEW YORK SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED DECEMBER 31, 2013 A. SUMMARY OF AUDIT RESULTS 1. The independent auditor’s report expresses an unmodified opinion on the basic financial statements of the County of Cortland, New York (the County). 2. Material weaknesses are reported relating to the audit of the basic financial statements are reported in the Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards. 3. No instances of noncompliance material to the basic financial statements of the County were disclosed during the audit. 4. No material weaknesses or significant deficiencies relating to the audit of major federal award programs are reported in the Independent Auditor’s Report on Compliance for Each Major Federal Program; and Report on Internal Control Over Compliance as Required by OMB Circular A-133. 5. The independent auditor’s report on compliance for the County’s major federal award programs expresses an unmodified opinion. 6. There are no audit findings relative to major federal award programs for the County. 7. The programs tested as major programs were:  CFDA No. 20.205 Highway Planning and Construction  CFDA No. 93.778 Medical Assistance  CFDA No. 93.658 Foster Care - Title IV-E  CFDA No. 93.659 Adoption Assistance  CFDA No. 93.558 Temporary Assistance for Needy Families 8. The threshold for distinguishing Types A and B programs was $430,264. 9. The County was not determined to be a low-risk auditee. B. FINDINGS - FINANCIAL STATEMENT AUDIT Finding 2013-001: Prior Period Adjustments Condition: The County required two prior period adjustments in order to properly state beginning fund balance and net position. Criteria: Generally accepted accounting principles required certain transactions to be recorded differently than they were recorded in 2012. ---PAGE BREAK--- 66 B. FINDINGS - FINANCIAL STATEMENT AUDIT (Continued) Finding 2013-001: Prior Period Adjustments (Continued) Cause: The internal controls of the County did not catch the material errors. Effect: The financial statements for the year ended December 31, 2012 were improperly presented in the fund financial statements because grants receivable was understated in the General Fund by $679,146. This error occurred because the County did not consistently record grants on the modified accrual basis of accounting in the fund financial statements. The government-wide financial statements and internal service funds for the year ended December 31, 2012 were improperly presented because liabilities were understated by $3,836,817 because the County historically has recorded workers’ compensation and self- insurance claims as they are billed instead of having a liability for known and incurred but not reported (IBNR) claims as generally accepted accounting principles require. Recommendation: We recommend that the County review its year-end close of its financials to ensure that transactions are recorded properly. Management Response: Management and the County Legislature will work with its accounting firm to ensure that transactions are recorded properly in the future. Finding 2013-002: Bond Anticipation Note Condition: The County required an audit adjustment of approximately $1,600,000 to properly state Bond Anticipation Note (BAN) Payable. The County had originally recorded the BAN as proceeds from obligations in the County Road Fund. Criteria: Generally accepted accounting principles require BANs to be recorded as short term liabilities in the fund and proceeds from obligations when they are converted to permanent financing. Cause: The internal controls of the County did not catch the material error. Effect: The County’s liabilities were understated by $1,600,000 and revenues were overstated, and this significant error had not been prevented or detected by the controls of the County for the year ended December 31, 2013. Recommendation: We recommend that the County reviews its year-end close of its financials to ensure that all material liabilities are recorded in the correct period. Management Response: Management and the County Legislature will work with its accounting firm to ensure that BANs are recorded properly in the future. Finding 2013-003: Capital Assets Condition: There is no centralized listing of capital assets at the County. In some cases, listings of capital assets are maintained manually, which is vulnerable to mathematical errors. Criteria: The County is required to track its capital assets in accordance with generally accepted accounting principles. Cause: Various listings are maintained throughout the County within individual departments. The listings are not shared between departments and are not compiled into one complete list at year-end by the County. ---PAGE BREAK--- 67 B. FINDINGS - FINANCIAL STATEMENT AUDIT (Continued) Finding 2013-003: Capital Assets (Continued) Effect: There is a significant risk that the County’s capital assets will be materially misstated at year-end due to bookkeeping errors or lack of communication between departments regarding asset acquisitions or dispositions. Recommendation: We recommend that the County maintain one main capital asset listing and update it quarterly. Management Response: Management and the County Legislature will work with its accounting firm to ensure that capital assets are recorded properly in the future. C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT None. ---PAGE BREAK--- SECTION C NEW YORK STATE SINGLE AUDIT ---PAGE BREAK--- (Continued) 68 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS OF THE STATE TRANSPORTATION ASSISTANCE PROGRAM; AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE September 25, 2014 To the County Legislature of the County of Cortland, New York: Report on Compliance of the State Transportation Assistance Program We have audited the County of Cortland, New York’s (the County’s) compliance with the types of compliance requirements described in the Draft Part 43 of the New York State Codification of Rules and Regulations that could have a direct and material effect on the County’s state transportation assistance program tested for the year ended December 31, 2013. The County’s State Transportation Assistance program tested is identified in the summary of audit results section of the accompanying schedule of findings and questioned costs for state transportation assistance expended. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its state transportation assistance program. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for the County’s state transportation assistance program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Draft Part 43 of Those standards and Draft Part 43 of require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on the state transportation assistance program occurred. An audit includes examining, on a test basis, evidence about the County’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the state transportation assistance program. However, our audit does not provide a legal determination of the County’s compliance. Opinion on State Transportation Assistance Program In our opinion, the County complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its state transportation assistance program for the year ended December 31, 2013. 171 Sully’s Trail, Suite 201 Pittsford, New York 14534 p (585) 381-1000 f (585) 381-3131 ALBANY • BATAVIA • BUFFALO • EAST AURORA • GENEVA • NYC • ROCHESTER • RUTLAND, VT • SYRACUSE • UTICA www.bonadio.com ---PAGE BREAK--- 69 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS OF THE STATE TRANSPORTATION ASSISTANCE PROGRAM; AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE (Continued) Report on Internal Control Over Compliance Management of the County is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the County’s internal control over compliance with the types of requirements that could have a direct and material effect on the state transportation assistance program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the state transportation assistance program and to test and report on internal control over compliance in accordance with Draft Part 43 of but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the County’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of the state transportation assistance program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of the state transportation assistance program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of the state transportation assistance program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of Draft Part 43 of Accordingly, this report is not suitable for any other purpose. SIGN ---PAGE BREAK--- 70 COUNTY OF CORTLAND, NEW YORK SCHEDULE OF STATE TRANSPORTATION ASSISTANCE EXPENDED FOR THE YEAR ENDED DECEMBER 31, 2013 NYSDOT Contract/ Program Title Ref. Number Expenditures Consolidated Local Street and Highway Program (CHIPS) 001-01/001-02 $ 1,629,461 Snow and Ice Control on State Highways - Indexed Lump Sum 002-02 731,311 Marchiselli Program - Highway Project D033306 223,904 FAA Grant - Obstruction Removal 3-36-0017-19-11 11,890 FAA Grant - SRE - Building Construction 3-36-0017-18-11 9,909 Marchiselli Program - State Bridge Aid D033492 5,322 FAA Grant - Runway Grooving 3-36-0017-22-13 4,813 FAA Grant - NavAids Construction 3-36-0017-20-12 3,558 FAA Grant - LA Phase II 3-36-0017-16-10 1,058 FAA Grant - SRE-NavAids Design 3-36-0017-18-11 59 $ 2,621,285 Bolded program represents a major program. ---PAGE BREAK--- 71 COUNTY OF CORTLAND, NEW YORK NOTES TO THE SCHEDULE OF STATE TRANSPORTATION ASSISTANCE EXPENDED DECEMBER 31, 2013 1. GENERAL The accompanying Schedule of State Transportation Assistance Expended of the County of Cortland, New York (the County) presents the activity of all financial assistance programs provided by the New York State Department of Transportation. 2. BASIS OF ACCOUNTING The accompanying Schedule of State Transportation Assistance Expended is presented in conformity with accounting principles generally accepted in the United States. 3. INDIRECT COSTS Indirect costs are included in the reported expenditures to the extent they are included in the New York State financial reports used as the source for the data presented. 4. MATCHING COSTS Amounts identified as Marchicelli Program - State Bridge Aid and Marchiselli Program – Highway Project represent matching costs for the federally aided programs. ---PAGE BREAK--- 72 COUNTY OF CORTLAND, NEW YORK SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR STATE TRANSPORTATION ASSISTANCE EXPENDED FOR THE YEAR ENDED DECEMBER 31, 2013 A. SUMMARY OF AUDIT RESULTS 1. Internal control over state transportation assistance expended:  No material weaknesses were identified. 2. The independent auditor’s report on compliance for state transportation assistance expended for the County expressed an unmodified opinion and did not disclose any material noncompliance with the state transportation program tested. 3. The program tested was:  Consolidated Local Street and Highway Improvement Program (CHIPS) B. FINDINGS REQUIRED TO BE REPORTED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS There were no current year findings and there were no prior year findings. C. COMPLIANCE FINDINGS AND QUESTIONED COSTS There were no current year findings.