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Year Ended December 31, 2015 Financial Statements Otsego County, Michigan ---PAGE BREAK--- ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN ELECTED OFFICERS For the Year Ended December 31, 2015 BOARD OF COMMISSIONERS Ken Borton Doug Johnson Chairman Vice Chairman Erma Backenstose Paul Beachnau Paul Liss Bruce Brown Julia Powers-Gehman Ken Glasser Robert Harkness Diann Axford Susan DeFeyter Treasurer Clerk/Register of Deeds Matthew Nowicki Michael A. Rola Sheriff Prosecuting Attorney OTHER OFFICIALS John Burt Appointed County Administrator ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Table of Contents Page Independent Auditors’ Report 1-3 Management’s Discussion and Analysis 4-12 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position 13 Statement of Activities 14-15 Fund Financial Statements: Balance Sheet – Governmental Funds 16-17 Reconciliation of Fund Balances for Governmental Funds to Net Position of Governmental Activities 18 Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds 19-20 Reconciliation of Net Changes in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities 21 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual: General Fund 22-24 Housing Commission 25 M-TEC 26 Statement of Net Position – Proprietary Funds 27 Statement of Revenues, Expenses and Changes in Fund Net Position – Proprietary Funds 28 Statement of Cash Flows – Proprietary Funds 29-30 Statement of Fiduciary Assets and Liabilities 31 Combining Statement of Net Position – Discretely Presented Component Units 32 Combining Statement of Activities – Discretely Presented Component Units 33 Notes to Financial Statements 34-76 Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan: Schedule of Changes in County's Net Pension and Related Ratios 77 Schedule of the Net Pension Liability 78 Schedule of Contributions 79 Single-Employer Defined Benefit Other Postemployment Benefits Plan: Schedule of Funding Progress – Other Postemployment Benefits Plan 80 Schedule of Employer Contributions – Other Postemployment Benefits Plan 80 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Table of Contents Page Combining and Individual Fund Financial Statements Nonmajor Governmental Funds: Combining Balance Sheet – Nonmajor Governmental Funds 81 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Governmental Funds 82 Combining Balance Sheet – Nonmajor Special Revenues Funds 83-86 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Special Revenues Funds 87-90 Combining Balance Sheet – Nonmajor Capital Projects Funds 91-92 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Capital Projects Funds 93-94 Nonmajor Enterprise Funds: Combining Statement of Net Position – Nonmajor Enterprise Funds 95-96 Combining Statement of Revenues, Expenses and Changes in Fund Net Position – Nonmajor Enterprise Funds 97-98 Combining Statement of Cash Flows – Nonmajor Enterprise Funds 99-100 Combining Statement of Net Position – Internal Service Funds 101 Combining Statement of Revenues, Expenditures and Changes in Fund Net Position – Internal Service Funds 102 Combining Statement of Cash Flows – Internal Service Funds 103 Combining Statement of Fiduciary Assets and Liabilities - Fiduciary Funds 104 Balance Sheet and Statement of Net Position – University Center Component Unit 105 Statement of Revenues, Expenditures and Changes in Fund Balance and Statement of Activities – University Center Component Unit 106 Internal Control and Compliance 107-108 109 110 Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Summary Schedule of Prior Audit Findings Schedule of Findings and Responses ---PAGE BREAK--- Rehmann Robson 902 South Huron Cheboygan, MI 49721 Ph: [PHONE REDACTED] Fx: [PHONE REDACTED] rehmann.com CPAs & Consultants Wealth Advisors Corporate Investigators Rehmann is an independent member of Nexia International. INDEPENDENT AUDITORS' REPORT Honorable Members of the Board of Commissioners Otsego County Gaylord, Michigan Report on the Financial Statements Management's Responsibility for the Financial Statements Independent Auditors' Responsibility June 24, 2016 We have audited the accompanying financial statements of the governmental activities, the business- type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Otsego County, Michigan (the “County”), as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the County’s basic financial statements as listed in the table of contents. Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Otsego County Road Commission, a discretely presented component unit, which represents 85 percent, 82 percent, and 56 percent, respectively, of the assets and deferred outflows, net position, and revenues of the aggregate discretely presented component units. We did not audit the financial statements of the Otsego County Commission on Aging, a discretely presented component unit, which represents 2 percent, 3 percent, and 12 percent, respectively, of the assets and deferred outflows, net position, and revenues of the aggregate discretely presented component units. Those financial statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Otsego County Road Commission and Otsego County Commission on Aging is 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. 1 ---PAGE BREAK--- Opinions Other Matters 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. Required Supplementary Information 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, each major fund, and the aggregate remaining fund information of the Otsego County, Michigan, as of December 31, 2015, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparison for the General Fund and each major special revenue fund for the year ended in conformity with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis and the schedules for the pension and other postemployment benefit plans listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Implementation of GASB Statement No.68 As described in Note 21, the County implemented the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions in the current year. Accordingly, beginning net position of governmental activities, the Bus System major enterprise fund and the aggregate discretely presented component units was restated. Our opinion is not modified with respect to this matter. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 2 ---PAGE BREAK--- Other Information Other Reporting Required by Government Auditing Standards The combining and individual fund financial statements 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. In our opinion, the combining and individual fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. In accordance with Government Auditing Standards, we have also issued our report dated June 24, 2016 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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County’s basic financial statements. The combining and individual fund financial statements listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. 3 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- MANAGEMENT'S DISCUSSION AND ANALYSIS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Financial Highlights Key metrics and financial highlights of the County for the year ended December 31, 2015 are as follows: Total net position $32,612,340 Unrestricted net position 11,123,269 Change in net position 599,186 Fund balances, governmental funds 11,532,796 Change in fund balances, governmental funds 1,023,524 Fund balance, general fund 4,338,420 (as percentage of general fund expenditures and transfers out) 56% Unassigned fund balance, general fund 4,166,440 (as percentage of general fund expenditures and transfers out) 54% Decrease in net position due to implementation of GASB 68 Governmental activities (5,029,210) Business-type activities (132,387) Overview of the Financial Statements Both of the government-wide financial statements distinguish functions of the County that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the County include various services within the legislative, judicial, general government, public safety, public works, health and welfare, community and economic development, recreation and cultural, and other functions. The business‑type activities of the County include delinquent tax collection, public transit, airport, and other non- major enterprise funds. As management of Otsego County, Michigan (the "County"), we offer readers of the County's financial statements this narrative overview and analysis of the financial activities of the County for the fiscal year ended December 31, 2015. We encourage readers to consider the information presented here in conjunction with additional information that is furnished in the financial statements and notes to the financial statements. This discussion and analysis is intended to serve as an introduction to the County’s basic financial statements. The County’s basic financial statements comprise three components: 1) government‑wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-Wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the County’s finances, in a manner similar to a private-sector business. The statement of net position presents information on all of the County’s assets, deferred outflows of resources, liabilities and deferred inflows of resources, with the residual reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the County is improving or deteriorating. The statement of activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods uncollected taxes and earned but unused sick and vacation leave). 4 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The County adopts an annual appropriated budget for its General Fund and special revenue funds. Budgetary comparison statements or schedules have been provided herein to demonstrate compliance with those budgets for the General Fund and major special revenue funds. Proprietary funds. The County maintains several types of proprietary fund. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The County uses enterprise funds to account for its delinquent tax, tax foreclosure, bus system, airport, global positioning system, metropolitan area network, homestead audit, and jail commissary operations. The County uses internal service funds to account for its building and grounds, administration services, and health care functions. Because these services predominately benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the County’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide information for the Delinquent Tax Fund, Bus System, and Airport, which are considered to be major funds of the County as well as the aggregate of the nonmajor enterprise funds. The County maintains numerous individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental funds statement of revenues, expenditures and changes in fund balances for the General Fund, Housing Commission Fund, M-Tec Fund, Public Improvements Capital Projects Fund, and Debt Service Fund which are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The government-wide financial statements include not only the County itself (known as the primary government), but also legally separate component units for which the County is financially accountable. The component units include the Otsego County Road Commission, Otsego County Ambulance Corporation, University Center at Gaylord, Otsego County Commission on Aging, and the Otsego County Financial information for the balance of the discretely presented component units are reported separately from the financial information presented for the primary government itself. Separately issued reports can be obtained from the Otsego County Road Commission and Otsego County Commission on Aging component unit's offices. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The County, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the County can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government‑wide financial statements. However, unlike the government‑wide financial statements, governmental fund financial statements focus on near‑term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near‑term financing requirements. 5 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis The combining statements and schedules referred to earlier in connection with nonmajor funds are presented following the notes to the financial statement. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information. This is limited to this management discussion and analysis and the schedules for the County pension and other postemployment benefits plans. Government-wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the County, assets exceeded liabilities and deferred inflows of resources by approximately $32,612,000 at the close of the most recent fiscal year. A portion of the County’s net position represents its investment in capital assets land, buildings, vehicles, equipment and infrastructure). The County uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Net investment in capital assets is 50% of total net position. An additional portion of the County's net position, approximately 16%, represents resources that are subject to external restrictions on how they may be used. Restricted net position has constraints placed on it by either: a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments; or b) imposed by law through constitutional provisions or enabling legislation. The unrestricted portion of the County's net position is 34%. This net position may be used to meet the government's ongoing obligations to citizens and creditors. Net Position 6 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Net Position Governmental Activities Business-type Activities Total 2015 2014 2015 2014 2015 2014 Assets Current and other assets 18,056,100 $ 18,212,659 $ 9,629,291 $ 9,852,055 $ 27,685,391 $ 28,064,714 $ Capital assets, net 9,743,722 9,281,689 8,163,970 8,729,213 17,907,692 18,010,902 Total assets 27,799,822 27,494,348 17,793,261 18,581,268 45,593,083 46,075,616 Deferred outflows of resources Deferred pension amounts 501,614 - 83,924 - 585,538 - Liabilities Long-term liabilities 2,471,090 2,693,185 - - 2,471,090 2,693,185 Other liabilities 2,720,558 2,633,948 147,977 164,348 2,868,535 2,798,296 Net pension liability 5,696,879 - 235,315 - 5,932,194 - Total liabilities 10,888,527 5,327,133 383,292 164,348 11,271,819 5,491,481 Deferred inflows of resources Taxes levied for a subsequent period 2,294,462 3,409,384 - - 2,294,462 3,409,384 Net position Net investment in capital assets 8,225,070 7,552,810 8,163,970 8,729,213 16,389,040 16,282,023 Restricted 5,100,031 2,833,042 - - 5,100,031 2,833,042 Unrestricted 1,793,346 8,371,979 9,329,923 9,687,707 11,123,269 18,059,686 Total net position 15,118,447 $ 18,757,831 $ 17,493,893 $ 18,416,920 $ 32,612,340 $ 37,174,751 $ The County’s total net position decreased approximately 12%, or $4,562,000 to $32,613,000 for the year ended December 31, 2015. 7 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Change in Net Position Governmental Activities Business-type Activities Total 2015 2014 2015 2014 2015 2014 Revenues Program revenues: Charges for services 1,931,704 $ 2,383,204 $ 1,881,325 $ 2,112,152 $ 3,813,029 $ 4,495,356 $ Operating grants 2,480,107 3,043,685 866,496 908,107 3,346,603 3,951,792 Capital grants 93,120 50,469 - - 93,120 50,469 General revenues: Property taxes 7,968,606 6,590,904 285,647 282,973 8,254,253 6,873,877 Interest and rentals 221,781 262,437 42,134 400,881 263,915 663,318 Other 1,637,880 1,184,052 467,988 176,080 2,105,868 1,360,132 Gain on sale of capital assets 606 4,500 - - 606 4,500 Total revenues 14,333,804 13,519,251 3,543,590 3,880,193 17,877,394 17,399,444 Expenses Legislative 199,764 200,730 - - 199,764 200,730 Judicial 1,880,211 1,844,501 - 1,880,211 1,844,501 General government 2,553,185 2,725,833 - - 2,553,185 2,725,833 Public safety 4,304,627 4,263,508 - - 4,304,627 4,263,508 Public works 68,792 31,704 - - 68,792 31,704 Health and welfare 1,300,567 1,246,762 - - 1,300,567 1,246,762 Community & economic development 997,512 1,457,367 - - 997,512 1,457,367 Recreation and culture 1,409,665 1,411,550 - - 1,409,665 1,411,550 Other expenses 552,683 408,999 - 552,683 408,999 Interest - unallocated 84,354 94,984 - - - 94,984 Delinquent tax collection - - 234,531 167,675 234,531 167,675 Bus System - - 1,850,405 1,997,639 1,850,405 1,997,639 Airport - - 1,539,330 1,725,427 1,539,330 1,725,427 Nonmajor enterprise funds - - 302,582 380,267 302,582 380,267 Total expenses 13,351,360 13,685,938 3,926,848 4,271,008 17,193,854 17,956,946 Change in net position, before transfers 982,444 (166,687) (383,258) (390,815) 683,540 (557,502) Transfers 407,382 (20,659) (407,382) 20,659 - - Change in net position 1,389,826 (187,346) (790,640) (370,156) 599,186 (557,502) Net position: Beginning of year, as restated 18,757,831 18,945,177 18,416,920 18,787,076 37,174,751 37,732,253 Restatement for implementation of GASB 68 (5,029,210) - (132,387) - (5,161,597) - End of year 15,118,447 $ 18,757,831 $ 17,493,893 $ 18,416,920 $ 32,612,340 $ 37,174,751 $ Governmental activities Governmental activities increased the County’s net position by approximately $1,390,000. Overall revenues increased by approximately $815,000, while community and economic development expenses decreased by approximately $450,000. Other expenses increased approximately $144,000 during the current year which is related primarily to payment of the retiree MERS plan. 8 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis · · · · · · · · · · · Public works - expenses related to drains and airport planning grant. Community and economic development - planning and zoning department. Bus system - the Otsego County Bus System is funded by Federal and State operating grants, a local special voted millage, and user fees. Expenditures include the management, operations, and maintenance of the Bus System. Airport - the Airport Fund accounts for the financial activity of the Gaylord Regional Airport. The main sources of revenue are fuel sales and an annual General Fund appropriation. Expenditures include the management, operations, and maintenance of the airport. Delinquent tax collection - this fund was established as a means of providing the local governments within the County's jurisdiction with 100% of the property tax distributions owed to them annually. The County then acts as the collection agency for the outstanding delinquent real property taxes. As noted earlier, the County uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. Governmental activities consist primarily of: General government activities - expenses related to support the departments of the County such as administration, human resources, treasury, information services, facilities management, finance, equalization, and prosecuting attorney. Legislative activities - expenses related to support the Board of Commissioners and high-level administrative expenditures. Judicial activities - expenses related to the administration of circuit, district and probate/family courts and court probation units. Public safety - expenses related to sheriff's administration and road patrol and County corrections services. Health and welfare - expenses related to public health services, child care, programs for seniors, housing assistance programs, and medical examiner fees. Recreational and cultural activities - expenses related to the County library. Business‑type activities The major business-type activities of the County include the following proprietary operations: Financial Analysis of the County’s Funds $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 Expenses and Program Revenues - Governmental Activities Program Revenues Expenses 9 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis General Fund - The change between the original and final amended budgets of revenue in the General Fund was a .01 percent increase. Capital Asset and Debt Administration The change between the original and final amended budgets of expenditures in the General Fund resulted in a 2.67 percent increase. Overall during the year, General Fund revenues were in line with the budgetary estimates and came in higher than anticipated by approximately $103,000 or 1.4 percent. Overall expenditures were under budget by approximately $562,000 or 8.5 percent. This is a result of fewer medical expenses than anticipated within the Circuit Court and a smaller wage expense for hourly employees within the Sheriff department. Housing Commission Special Revenue Fund - The Housing Commission Special Revenue Fund experienced a decrease between the final amended budget and revenues and expenditures in the amount of approximately $782,000 or 76.4% and $779,000 or 73.5% respectively. This is due to a decrease in grant funding from the Michigan State Housing Development Authority. M-TEC Fund - The M-TEC Special Revenue Fund had a favorable variance between the final amended budget and actual expenditures of approximately $1,354,000 which is related to effectively managing expenses. The fund balance of the General Fund increased by approximately $209,000 from the prior year. Unassigned fund balance of approximately $4,166,000, is available for spending at the County's discretion. Budgetary Highlights Unrestricted net position of the enterprise funds at year end amounted to approximately $9,330,000. The enterprise funds had a decrease in net position for the year of approximately $791,000, due primarily to the transfer out of approximately $666,000. Capital Assets. A capital asset is an asset whose cost exceeds $5,000 and useful life is greater than two years. Included in the cost of a capital asset are items such as labor and freight and any other costs associated with bringing the asset into full operation. Assets are depreciated using the straight-line method over the course of their useful lives. The County's Housing Commission Special Revenue Fund fund balance at December 31, 2015 was approximately $130,000; a decrease of approximately $39,000 from the prior year. The County's M-TEC Special Revenue Fund fund balance at December 31, 2015 was approximately $400 which increased approximately $82,800 from the prior year. Unrestricted net position of the internal service funds at year end amounted to approximately $595,000. The internal service funds had a decrease in net position for year of approximately $133,000. Proprietary funds. The County’s proprietary fund financial statements provide the same type of information found in the government-wide financial statements, but in more detail. Other factors considering the finances of these funds have been addressed in the discussion of the County’s business-type activities. Governmental funds. The focus of the County’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the County’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. In 2015 unassigned fund balance represented 30% of annual government expenditures in the governmental funds. 10 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis Governmental Activities Business-type Activities Total 2015 2014 2015 2014 2015 2014 Land 1,836,067 $ 1,827,962 $ 99,998 $ 99,998 $ 1,936,065 $ 1,927,960 $ Construction in progress 365,100 53,244 219,670 - 584,770 53,244 Buildings 5,812,881 5,727,728 1,533,858 1,633,743 7,346,739 7,361,471 Furniture and Fixtures 122,045 161,987 - - 122,045 161,987 Equipment 1,389,053 1,298,872 105,383 119,683 1,494,436 1,418,555 Vehicles 194,421 197,788 350,739 529,227 545,160 727,015 Infrastructure 24,155 14,108 5,854,322 6,346,562 5,878,477 6,360,670 Total capital assets, net 9,743,722 $ 9,281,689 $ 8,163,970 $ 8,729,213 $ 17,907,692 $ 18,010,902 $ Governmental Activities Business-type Activities Total 2015 2014 2015 2014 2015 2014 2,278,652 $ 2,523,879 $ - $ - $ 2,278,652 $ 2,523,879 $ 192,438 169,306 - - 192,438 169,306 2,471,090 $ 2,693,185 $ - $ - $ 2,471,090 $ 2,693,185 $ Economic Factors and Next Year’s Budget and Rates · · · Total Additional information on the County's capital assets and long-term debt can be found in the notes to the financial statements. Property tax revenues are projected to remain at the same level. The County is required to report the actuarially computed liability for Other Postemployment Healthcare Benefits (OPEB). The total actuarial accrued liability is approximately $2,537,000. If the County were required to fund that liability the estimated annual contribution would be approximately $238,000. The net OPEB obligation at the end of the fiscal year amounted to approximately $1,936,000. This is a significant liability; however, due to changes in benefit levels for new employees, this liability is anticipated to decrease over time. Capital Assets (Net of Depreciation, where applicable) Long-term Debt Installment debt Compensated absences GASB 68, Accounting and Financial Reporting for Pensions , was implemented for the County’s December 31, 2015 year end. Historically governments have only been required to report a net pension obligation to the extent that they have not met the annual required contribution (ARC) in any given year. Upon implementation of this standard, the County is required to report a net pension liability based on the current funded status of their pension plans. The net pension liability reported on the Statement of Net Position for the governmental activities, business activities and component units is $5,696,879, $235,315 and $4,747,171 respectively at December 31, 2015. Long-Term Debt. At the end of the current year, the County had total installment debt and compensated absences outstanding of $2,471,090. The following factors were considered in preparing the County's 2016 budget: Highlights of the 2016 budget are as follows: The cost of employee benefits continue to rise and will be monitored throughout the year. The County is back on the State's revenue sharing and will start receiving state shared revenue annually. 11 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Management's Discussion and Analysis This financial report is designed to provide a general overview of the County finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to Mr. John Burt, Otsego County Administrator at 225 West Main Street, Gaylord, MI 49735. Requests for Information 12 ---PAGE BREAK--- BASIC FINANCIAL STATEMENTS ---PAGE BREAK--- GOVERNMENT-WIDE FINANCIAL STATEMENTS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Net Position December 31, 2015 Business- Governmental type Component Activities Activities Total Units Assets Cash and cash equivalents 5,788,172 $ 1,147,675 $ 6,935,847 $ 2,380,071 $ Investments 5,904,431 6,642,796 12,547,227 1,037,300 Receivables, net 5,194,442 1,718,095 6,912,537 4,225,035 Internal balances 53,366 71,634 125,000 - Prepaid items 43,724 19,887 63,611 1,660 Inventory 16,825 29,204 46,029 578,648 Advance to component unit 295,140 - 295,140 - Lease receivable from component unit 760,000 - 760,000 - Capital assets not being depreciated 2,201,167 319,668 2,520,835 10,018,954 Capital assets being depreciated, net 7,542,555 7,844,302 15,386,857 22,202,321 Total assets 27,799,822 17,793,261 45,593,083 40,443,989 Deferred outflows of resources Deferred pension amounts 501,614 83,924 585,538 476,174 Liabilities Accounts payable and accrued liabilities 717,897 147,477 865,374 424,926 Advances from other government units - - - 255,456 Unearned revenue 66,791 500 67,291 45,453 Advance from primary government - - - 295,140 Long-term liabilities: Due within one year 290,658 - 290,658 371,142 Due in more than one year 2,180,432 - 2,180,432 1,571,500 Net pension liability 5,696,879 235,315 5,932,194 4,747,171 Net other postemployment benefits obligation 1,935,870 - 1,935,870 8,148,256 Total liabilities 10,888,527 383,292 11,271,819 15,859,044 Deferred inflows of resources Taxes levied for a subsequent period 2,294,462 - 2,294,462 2,365,949 Other state grants - - - 85,109 Total deferred inflows 2,294,462 - 2,294,462 2,451,058 Net position Net investment in capital assets 8,225,070 8,163,970 16,389,040 30,497,440 Restricted 5,100,031 - 5,100,031 387,145 Unrestricted (deficit) 1,793,346 9,329,923 11,123,269 (8,274,524) Total net position 15,118,447 $ 17,493,893 $ 32,612,340 $ 22,610,061 $ The accompanying notes are an integral part of these financial statements. Primary Government 13 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Activities For the Year Ended December 31, 2015 Program Revenues Operating Capital Net Charges Grants and Grants and (Expenses) Functions/Programs Expenses For Services Contributions Contributions Revenues Primary government Governmental activities: Legislative 199,764 $ - $ - $ - $ (199,764) $ Judicial 1,880,211 551,269 830,381 - (498,561) General government 2,553,185 415,677 98,693 - (2,038,815) Public safety 4,304,627 774,418 377,805 - (3,152,404) Public works 68,792 - 158 48,103 (20,531) Health and welfare 1,300,567 - 362,848 - (937,719) Community and economic development 997,512 39,389 124,107 - (834,016) Recreation and culture 1,409,665 150,951 686,115 45,017 (527,582) Other 552,683 - - - (552,683) Interest - unallocated 84,354 - - - (84,354) Total governmental activities 13,351,360 1,931,704 2,480,107 93,120 (8,846,429) Business-type activities: Delinquent tax collection 234,531 365,258 - - 130,727 Bus System 1,850,405 336,031 866,496 - (647,878) Airport 1,539,330 843,801 - - (695,529) Nonmajor enterprise funds 302,582 336,235 - - 33,653 Total business-type activities 3,926,848 1,881,325 866,496 - (1,179,027) Total primary government 17,278,208 $ 3,813,029 $ 3,346,603 $ 93,120 $ (10,025,456) $ Component units Road Commission 6,667,573 $ 1,174,267 $ 3,213,861 $ 2,945,687 $ 666,242 $ Ambulance 2,211,428 1,480,984 73,075 854,810 197,441 University center 879,467 - - - (879,467) Commission on Aging 9/30/2015 1,820,121 113,012 417,991 - (1,289,118) 953,219 581,740 - - (371,479) Total component units 12,531,808 $ 3,350,003 $ 3,704,927 $ 3,800,497 $ (1,676,381) $ Continued… 14 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Activities For the Year Ended December 31, 2015 Business- Governmental type Component Activities Activities Total Units Changes in net position Net expenses (8,846,429) $ (1,179,027) $ (10,025,456) $ (1,676,381) $ General revenues: Property taxes 7,968,606 285,647 8,254,253 2,516,170 Interest and rentals 221,781 42,134 263,915 7,283 Other revenue 1,637,880 467,988 2,105,868 1,436,627 Gain on sale of capital assets 606 - 606 96,147 Transfers 407,382 (407,382) - - Total general revenues and transfers 10,236,255 388,387 10,624,642 4,056,227 Change in net position 1,389,826 (790,640) 599,186 2,379,846 Net position, beginning of year, as restated 13,728,621 18,284,533 32,013,154 20,230,215 Net position, end of year 15,118,447 $ 17,493,893 $ 32,612,340 $ 22,610,061 $ Concluded The accompanying notes are an integral part of these financial statements. Primary Government 15 ---PAGE BREAK--- FUND FINANCIAL STATEMENTS ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Balance Sheet Governmental Funds December 31, 2015 Housing Commission M-TEC Special Special General Revenue Revenue Fund Fund Fund Assets Cash and cash equivalents 1,801,217 $ 130,645 $ 380 $ Investments 2,426,098 - - Receivables, net: Accounts 18,210 48 - Property taxes 213,623 - 736,301 Due from other governments 186,745 - - Loans - 2,109,228 - Due from other funds - - - Advances to other funds - - - Advances to component units - - - Lease receivable from component unit - - - Inventories 16,500 - - Other assets 10,757 - - Total assets 4,673,150 $ 2,239,921 $ 736,681 $ Liabilities Accounts payable 281,139 $ 62 $ - $ Accrued liabilities 29,711 350 - Due to other governments - - - Due to other funds - - - Advances from other funds - - - Unearned revenue - - - Total liabilities 310,850 412 - Deferred inflows of resources Taxes levied for a subsequent period 23,880 - 736,301 Unavailable resources - 2,109,228 - Total deferred inflows of resources 23,880 2,109,228 736,301 Fund balances Nonspendable 27,257 - - Restricted - 130,281 380 Committed - - - Assigned 144,723 - - Unassigned 4,166,440 - - Total fund balances 4,338,420 130,281 380 Total liabilities, deferred inflows of resources, and fund balances 4,673,150 $ 2,239,921 $ 736,681 $ The accompanying notes are an integral part of these basic financial statements. 16 ---PAGE BREAK--- Public Improvements Nonmajor Total Capital Project Debt Service Governmental Governmental Fund Fund Funds Funds 324,637 $ - $ 3,241,195 $ 5,498,074 $ 900,000 - 2,278,333 5,604,431 134,250 - 112,101 264,609 - - 1,507,740 2,457,664 - - 171,222 357,967 - - - 2,109,228 - - 8,000 8,000 139,942 - - 139,942 295,140 - - 295,140 - 760,000 - 760,000 - - - 16,500 17,102 - 219 28,078 1,811,071 $ 760,000 $ 7,318,810 $ 17,539,633 $ - $ - $ 354,708 $ 635,909 $ - - 12,601 42,662 - - 5,000 5,000 - - 8,000 8,000 - - 86,576 86,576 - - 65,000 65,000 - - 531,885 843,147 17,102 - 1,517,179 2,294,462 - 760,000 - 2,869,228 17,102 760,000 1,517,179 5,163,690 435,082 - 219 462,558 - - 2,880,609 3,011,270 1,358,887 - 2,388,918 3,747,805 - - - 144,723 - - - 4,166,440 1,793,969 - 5,269,746 11,532,796 1,811,071 $ 760,000 $ 7,318,810 $ 17,539,633 $ 17 ---PAGE BREAK--- Reconciliation Fund Balances for Governmental Funds to Net Position of Governmental Activities December 31, 2015 Fund balances - total governmental funds 11,532,796 $ Capital assets used in governmental activities are not financial resources, and therefore are not reported in the fund statement. Capital assets not being depreciated 2,201,167 Capital assets being depreciated, net 7,542,555 The focus of governmental funds is on short-term financing. Accordingly, some assets will not be available to pay for current-period expenditures. Those assets (such as certain receivables) are offset by deferred inflows in the governmental funds, and thus are not included in fund balance. Unavailable resources 2,869,228 Internal service funds are used by management to charge the costs of certain activities, such as insurance and other centralized costs, to individual funds. The assets and liabilities of certain internal service funds are included in governmental activities. Net position of governmental activities accounted for in internal service funds 595,393 Certain liabilities, such as bonds payable, are not due and payable in the current period, and therefore are not reported in the funds. Bonds and notes payable (2,278,652) Compensated absences (192,438) Net OPEB obligation (1,935,870) Accrued interest on long-term debt (20,467) Certain pension-related amounts, such as the net pension liability and deferred amounts, are not due and payable in the current period or do not represent current financial resources, and therefore are not reported in the funds. Net pension liability (5,696,879) Deferred outflows related to the net pension liability 501,614 Net position of governmental activities 15,118,447 $ The accompanying notes are an integral part of these financial statements. Amounts reported for governmental activities in the statement of OTSEGO COUNTY, MICHIGAN net position are different because: 18 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2015 Housing Commission M-TEC Special Special General Revenue Revenue Fund Fund Fund Revenues Taxes 4,554,739 $ - $ 735,689 $ Licenses and permits 48,848 - - Federal sources 54,639 158,323 - State sources 1,304,743 - - Local sources 25,208 1,252 - Charges for services 880,884 - - Fines and forfeits 19,254 - - Interest and rentals 166,188 127 - Other 505,692 82,439 5,340 Total revenues 7,560,195 242,141 741,029 Expenditures Current: Legislative 199,764 - - Judicial 1,383,428 - - General government 1,954,032 - - Public safety 1,870,517 - - Public works 4,390 - - Health and welfare 543,008 - - Community and economic development 56,891 281,233 658,193 Recreation and culture - - - Other 547,941 - - Debt service: Principal 770 - - Interest and fiscal charges - - - Capital outlay 41,082 - - Total expenditures 6,601,823 281,233 658,193 Revenues over (under) expenditures 958,372 (39,092) 82,836 Other financing sources (uses) Transfers in 369,040 78,560 - Transfers out (1,160,464) (78,693) - Proceeds from capital lease 41,082 - - Proceeds from sale of capital assets 526 - - Total other financing sources (uses) (749,816) (133) - Net change in fund balances 208,556 (39,225) 82,836 Fund balances (deficit), beginning of year, as restated 4,129,864 169,506 (82,456) Fund balances, end of year 4,338,420 $ 130,281 $ 380 $ The accompanying notes are an integral part of these financial statements. 19 ---PAGE BREAK--- Public Improvements Nonmajor Total Capital Project Debt Service Governmental Governmental Fund Fund Funds Funds - $ - $ 2,678,178 $ 7,968,606 $ - - - 48,848 - - 306,586 519,548 - - 419,823 1,724,566 - 325,163 2,121 353,744 - - 1,001,972 1,882,856 - - 169,680 188,934 25,404 - 29,774 221,493 - - 856,295 1,449,766 25,404 325,163 5,464,429 14,358,361 - - - 199,764 - - 459,985 1,843,413 - - 243,082 2,197,114 - - 2,250,520 4,121,037 - - 64,402 68,792 - - 748,908 1,291,916 - - - 996,317 - - 1,121,392 1,121,392 - - 4,742 552,683 - 245,000 40,539 286,309 - 80,163 6,508 86,671 - - 1,097,322 1,138,404 - 325,163 6,037,400 13,903,812 25,404 - (572,971) 454,549 - - 1,543,879 1,991,479 - - (225,035) (1,464,192) - - - 41,082 - - 80 606 - - 1,318,924 568,975 25,404 - 745,953 1,023,524 1,768,565 - 4,523,793 10,509,272 1,793,969 $ - $ 5,269,746 $ 11,532,796 $ 20 ---PAGE BREAK--- Reconciliation Net Changes in Fund Balances of Governmental Funds to Change in Net Position of Governmental Activities For the Year Ended December 31, 2015 Net change in fund balances - total governmental funds 1,023,524 $ Amounts reported for governmental activities in the statement of activities are different because: Governmental funds reported capital outlays as expenditures. However in the statement of activities the cost of those assets is capitalized and allocated over their estimated useful lives and reported as depreciation expense. Acquisition/construction of capital assets 1,138,404 Depreciation expense (721,388) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds, but rather are deferred to the following fiscal year. Net change in unavailable resources (70,468) Proceeds from capital lease (41,082) Contributions of capital assets from the Sports Plex discretely presented component unit are not recognized in the funds but increase capital assets in the statement of net position. 45,017 Bond proceeds provide current financial resources to governmental funds in the period issued, but issuing bonds increases long-term liabilities in the statement of net position. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. Principal payments on long-term liabilities 286,309 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Change in accrued interest payable on long-term debt 2,317 Change in the net pension liability and related deferred amounts (166,055) Change in compensated absences (23,132) Change in net other postemployment benefits obligation 49,060 An internal service fund is used by management to charge the costs of certain services to individual governmental funds. The net revenue (expense) attributable to those funds is reported with governmental activities. Change in net position from governmental activities in internal service funds (132,680) Change in net position of governmental activities 1,389,826 $ The accompanying notes are an integral part of these financial statements. OTSEGO COUNTY, MICHIGAN 21 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund For the Year Ended December 31, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Revenues Taxes 4,749,000 $ 4,749,000 $ 4,554,739 $ (194,261) $ Licenses and permits 24,900 24,900 48,848 23,948 Federal sources 82,000 87,473 54,639 (32,834) State sources 1,278,801 1,258,603 1,304,743 46,140 Local sources 19,800 23,800 25,208 1,408 Charges for services 851,410 851,910 880,884 28,974 Fines and forfeits 9,050 9,050 19,254 10,204 Interest and rentals 117,500 117,500 166,188 48,688 Other 324,580 335,237 505,692 170,455 Total revenues 7,457,041 7,457,473 7,560,195 102,722 Expenditures Legislative: Board of Commissioners 199,167 199,908 199,764 (144) Judicial: Circuit court 1,114,979 1,118,979 994,150 (124,829) Lien fees 11,800 11,800 7,663 (4,137) Drug court 131,416 131,416 105,421 (25,995) RDSS transport 15,000 15,000 8,172 (6,828) District court 69,069 69,069 65,978 (3,091) Jury commission 18,850 26,850 26,103 (747) Probate court 173,747 173,747 172,491 (1,256) Probation/parole 1,500 1,502 1,502 - Family counseling 4,000 4,000 1,948 (2,052) Total judicial 1,540,361 1,552,363 1,383,428 (168,935) General government: Administrative services 225,406 227,306 219,806 (7,500) Buildings and grounds 300,000 305,000 305,000 - Clerk and register of deeds 266,306 284,406 278,913 (5,493) Audit services 11,290 11,290 11,289 IT department - 10,000 - (10,000) IT department 60,781 58,744 58,723 (21) Equalization 261,138 261,138 258,398 (2,740) Treasurer 112,046 112,046 109,925 (2,121) Cooperative extension 57,521 57,521 57,388 (133) Elections 8,220 10,220 313 (9,907) Prosecuting attorney 474,108 474,108 444,957 (29,151) Register of deeds 52,050 52,823 35,708 (17,115) Legal defense 50,000 60,000 52,256 (7,744) Human resources 69,873 69,873 69,873 - Surveyor 200 200 200 - Soil conservation 4,000 4,000 4,000 - Survey and remonumentation 65,000 47,433 47,283 (150) Total general government 2,017,939 2,046,108 1,954,032 (92,076) Continued… 22 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund For the Year Ended December 31, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Public safety: Sheriff 763,162 $ 821,154 $ 648,542 $ (172,612) $ Civil division 35,950 41,947 40,306 (1,641) SANE 20,000 20,000 20,000 - Justice training - 4,694 4,129 (565) Marine safety 9,434 9,434 1,562 (7,872) safety education 52,500 54,500 41,782 (12,718) Snowmobile 8,952 8,952 2,656 (6,296) Secondary road patrol 74,504 78,663 78,283 (380) ORV 20,358 20,358 1,331 (19,027) Jail 1,042,010 1,042,185 1,001,926 (40,259) Emergency 30,000 30,000 30,000 - Total public safety 2,056,870 2,131,887 1,870,517 (261,370) Public works: Drains 4,500 4,500 4,390 (110) Health and welfare: Communicable diseases 500 500 500 - Medical examiner 80,650 110,523 103,660 (6,863) District health 191,130 191,130 191,130 - Mental health 94,003 94,003 94,003 - Soldiers and sailors relief 5,400 6,400 5,934 (466) Veteran's burial 8,450 8,450 5,706 (2,744) Veteran's affairs 55,031 55,031 49,476 (5,555) Substance abuse 129,765 99,495 92,599 (6,896) Total health and welfare 564,929 565,532 543,008 (22,524) Community and Economic Development Planning and zoning 64,213 64,213 56,891 (7,322) Other: Appropriations 11,050 11,050 10,998 (52) Bonds and insurance 263,408 260,643 260,147 (496) Retiree insurance 85,000 237,765 237,764 Other 132,705 66,670 39,032 (27,638) Total other 492,163 576,128 547,941 (28,187) Capital outlay 37,399 22,900 41,082 18,182 Principal payments - - 770 770 Total expenditures 6,977,541 7,163,539 6,601,823 (561,716) Revenues over expenditures 479,500 293,934 958,372 664,438 Continued… 23 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund For the Year Ended December 31, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Other financing sources (uses) Operating transfers in 359,081 $ 564,121 $ 369,040 $ (195,081) $ Operating transfers out (838,581) (1,161,713) (1,160,464) (1,249) Proceeds from capital lease - - 41,082 (41,082) Proceeds from sale of capital assets - 526 526 - Use of fund balance - 303,132 - 303,132 Total other financing sources (uses) (479,500) (293,934) (749,816) 65,720 Net change in fund balance - - 208,556 208,556 Fund balance, beginning of year, as restated 4,129,864 4,129,864 4,129,864 - Fund balance, end of year 4,129,864 $ 4,129,864 $ 4,338,420 $ 208,556 $ Concluded The accompanying notes are an integral part of these financial statements. 24 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - Housing Commission Special Revenue Fund For the Year Ended December 31, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Federal sources 600,000 $ 600,000 $ 158,323 $ (441,677) $ Local sources 365,000 333,600 1,252 (332,348) Interest and rentals 150 150 127 (23) Other revenue 87,000 90,811 82,439 (8,372) 1,052,150 1,024,561 242,141 (782,420) Current: Community and economic development 1,054,150 1,060,081 281,233 (778,848) Revenues over (under) expenditures (2,000) (35,520) (39,092) (3,572) Other financing sources (uses) Operating transfers in 92,783 142,103 78,560 (63,543) Operating transfers out (92,783) (109,433) (78,693) (30,740) Total other financing sources (uses) - 32,670 (133) (32,803) Net change in fund balances (2,000) (2,850) (39,225) (36,375) Fund balance, beginning of year 169,506 169,506 169,506 - Fund balance, end of year 167,506 $ 166,656 $ 130,281 $ (36,375) $ The accompanying notes are an integral part of these financial statements. Revenues Total revenues Expenditures 25 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - M-TEC Special Revenue Fund For the Year Ended December 31, 2015 Actual Over Original Final (Under) Final Budget Budget Actual Budget Taxes - $ 2,012,212 $ 735,689 $ (1,276,523) $ Other - - 5,340 5,340 - 2,012,212 741,029 (1,271,183) Community/economic development - 2,012,212 658,193 (1,354,019) Net change in fund balances - - 82,836 82,836 Fund balance, beginning of year (82,456) (82,456) (82,456) - Fund balance, end of year (82,456) $ (82,456) $ 380 $ 82,836 $ The accompanying notes are an integral part of these financial statements. Revenues Total revenues Expenditures 26 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Net Position Proprietary Funds December 31, 2015 Governmental Activities Delinquent Nonmajor Internal Tax Revolving Bus System Enterprise Service Fund 9/30/2015 Airport Funds Total Funds Assets Current assets: Cash and cash equivalents 315,563 $ 23,347 $ 233,467 $ 575,298 $ 1,147,675 $ 290,098 $ Investments 5,696,489 - - 946,307 6,642,796 300,000 Taxes receivable 1,341,826 - - - 1,341,826 - Interest receivable 162,664 - - - 162,664 - Accounts receivable, net 59,996 18,746 51,202 7,685 137,629 4,974 Due from other governments - 75,976 - - 75,976 - Due from other funds 154,592 - - - 154,592 - Inventories - - 29,204 - 29,204 325 Prepaids - - 11,717 8,170 19,887 15,646 Total current assets 7,731,130 118,069 325,590 1,537,460 9,712,249 611,043 Noncurrent assets: Capital assets not being depreciated - 99,998 219,670 - 319,668 - Capital assets being depreciated, net - 650,529 7,095,390 98,383 7,844,302 - Total noncurrent assets - 750,527 7,315,060 98,383 8,163,970 - Total assets 7,731,130 868,596 7,640,650 1,635,843 17,876,219 611,043 Deferred outflows of resources Deferred pension amounts - 83,924 - - 83,924 - Liabilities Current liabilities: Accounts payable 18,802 12,913 36,215 11,927 79,857 12,653 Accrued liabilities 641 67,937 (1,599) 641 67,620 1,206 Due to other funds - 25,000 4,592 - 29,592 - Unearned revenue - - - 500 500 1,791 Total current liabilities 19,443 105,850 39,208 13,068 177,569 15,650 Noncurrent liabilities: Advances from other funds - - 53,366 - 53,366 - Net pension liability - 235,315 - - 235,315 - Total noncurrent liabilities - 235,315 53,366 - 288,681 - Total liabilities 19,443 341,165 92,574 13,068 466,250 15,650 Net position Investment in capital assets - 750,527 7,315,060 98,383 8,163,970 - Unrestricted (deficit) 7,711,687 (139,172) 233,016 1,524,392 9,329,923 595,393 Total net position 7,711,687 $ 611,355 $ 7,548,076 $ 1,622,775 $ 17,493,893 $ 595,393 $ The accompanying notes are an integral part of these financial statements. Business-type Activities - Enterprise Funds 27 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Funds For the Year Ended December 31, 2015 Governmental Activities Delinquent Nonmajor Internal Tax Revolving Bus System Enterprise Service Fund 9/30/2015 Airport Funds Total Funds Operating revenues Charges for services 93,077 $ 336,031 $ 834,716 $ 334,235 $ 1,598,059 $ 2,054,380 $ Interest and penalties 272,181 - - - 272,181 - Local sources - - - 2,000 2,000 - Other - - 9,085 - 9,085 - Total operating revenues 365,258 336,031 843,801 336,235 1,881,325 2,054,380 Operating expenses Salaries and fringes 46,834 1,265,053 91,331 52,761 1,455,979 1,578,534 Contractual services 106,548 - 168,999 54,565 330,112 232,885 Materials and supplies 7,927 - 605,655 65,720 679,302 9,194 Equipment repair and maintenance - - - - - 31,140 Utilities - - - - - 200,518 Depreciation - 203,421 562,620 12,300 778,341 - Other 73,222 381,931 110,725 117,236 683,114 15,171 Total operating expenses 234,531 1,850,405 1,539,330 302,582 3,926,848 2,067,442 Operating income (loss) 130,727 (1,514,374) (695,529) 33,653 (2,045,523) (13,062) Nonoperating revenues State operating grants - 596,545 20,748 - 617,293 - Federal operating grants - 269,951 178,173 - 448,124 - Investment earnings 80 - 8,995 33,059 42,134 287 Property taxes levied - 285,647 - - 285,647 - Gain on disposal of capital assets - 11,905 - - 11,905 - Other revenues 116 35,537 - 221,509 257,162 - Total nonoperating revenues 196 1,199,585 207,916 254,568 1,662,265 287 Income (loss) before transfers 130,923 (314,789) (487,613) 288,221 (383,258) (12,775) Transfers Transfers in - - 241,527 17,000 258,527 30,095 Transfers out (608,909) - - (57,000) (665,909) (150,000) Total transfers (608,909) - 241,527 (40,000) (407,382) (119,905) Change in net position (477,986) (314,789) (246,086) 248,221 (790,640) (132,680) Net position, beginning of year, as restated 8,189,673 926,144 7,794,162 1,374,554 18,284,533 728,073 Net position, end of year 7,711,687 $ 611,355 $ 7,548,076 $ 1,622,775 $ 17,493,893 $ 595,393 $ The accompanying notes are an integral part of these financial statements. Business-type Activities - Enterprise Funds 28 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Cash Flows Proprietary Funds For the Year Ended December 31, 2015 Business-type Activities - Delinquent Bus System Tax Fund 9/30/2015 Airport Cash flows from operating activities Receipts from customers 253,239 $ 331,633 $ 864,342 $ Internal activity - receipts from other funds - - - Payments to suppliers (185,601) (389,331) (872,476) Payments to employees for services and benefits (48,115) (1,240,888) (97,896) Net cash provided by (used in) operating activities 19,523 (1,298,586) (106,030) Cash flows from noncapital financing activities State grants - 612,299 20,748 Federal grants - 259,104 178,173 Property tax - 285,647 - Other receipts 116 35,537 - Insurance proceeds - 24,974 - Repayment on advance to other funds - - (10,006) Receipts of amounts from advance from other funds - 25,000 - Operating transfers in - - 241,527 Operating transfers out (608,909) - - Net cash provided by (used in) noncapital financing activities (608,793) 1,242,561 430,442 Cash flows from capital and related financing activities Purchase of capital assets - - (226,167) Cash flows from investing activities Proceeds from sale of investments 463,381 - - Purchases of investments - - - Interest received on investments 80 - 8,995 Net cash provided by (used in) investing activities 463,461 - 8,995 Net increase (decrease) in cash and cash equivalents (125,809) (56,025) 107,240 Cash and cash equivalents, beginning of year 441,372 79,372 126,227 Cash and cash equivalents, end of year 315,563 $ 23,347 $ 233,467 $ Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating income (loss) 130,727 $ (1,514,374) $ (695,529) $ Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation expense - 203,421 562,620 Change in: Taxes receivable 36,558 - - Interest receivable 4,419 - - Accounts receivable 1,596 (4,398) 20,541 Due from other funds (154,592) - - Prepaid items - - 1,537 Inventories - - (1,624) Accounts payable 2,096 (7,400) 8,398 Due to other funds - - 4,592 Net pension liability and related deferred amounts - 19,004 - Accrued liabilities (1,281) 5,161 (6,565) Unearned revenue - - - Net cash provided by (used in) operating activities 19,523 $ (1,298,586) $ (106,030) $ The accompanying notes are an integral part of these financial statements. Enterprise Funds 29 ---PAGE BREAK--- Business-type Activities - Governmental Enterprise Funds Activities Nonmajor Internal Enterprise Service Funds Total Funds 333,961 $ 1,783,175 $ - $ - - 2,056,493 (315,732) (1,763,140) (492,868) - (1,386,899) (1,590,805) 18,229 (1,366,864) (27,180) - 633,047 - - 437,277 - - 285,647 - 221,509 257,162 - - 24,974 - - (10,006) - - 25,000 - 17,000 258,527 30,095 (57,000) (665,909) (150,000) 181,509 1,245,719 (119,905) - (226,167) - - 463,381 - (185,341) (185,341) (300,000) 33,059 42,134 287 (152,282) 320,174 (299,713) 47,456 (27,138) (446,798) 527,842 1,174,813 736,896 575,298 $ 1,147,675 $ 290,098 $ 33,653 $ (2,045,523) $ (13,062) $ 12,300 778,341 - - 36,558 - - 4,419 - (2,774) 14,965 322 - (154,592) - (8,170) (6,633) (9,547) - (1,624) - (16,597) (13,503) (3,960) - 4,592 - - 19,004 - (683) (3,368) (2,724) 500 500 1,791 18,229 $ (1,366,864) $ (27,180) $ 30 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Fiduciary Assets and Liabilities Fiduciary Funds December 31, 2015 Agency Funds Assets Cash and cash equivalents 1,767,994 $ Liabilities Undistributed tax collections 925,802 Bonds, restitutions, and payables to others 842,192 Total liabilities 1,767,994 $ The accompanying notes are an integral part of these financial statements. 31 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Net Position Discretely Presented Component Units December 31, 2015 Commission on Road Ambulance University Aging Commission Corporation Center 9/30/2015 Total Assets Cash and cash equivalents 913,081 $ 107,937 $ 582,282 $ 753,155 $ 23,616 $ 2,380,071 $ Investments 540,229 - 403,071 44,000 50,000 1,037,300 Receivables, net: Accounts 1,151,846 640,790 29,351 22,558 29,947 1,874,492 Taxes 975,757 455,629 634,353 - 284,804 2,350,543 Inventories 561,885 - - 1,849 14,914 578,648 Prepaids - - - 1,660 - 1,660 Capital assets not being depreciated 9,263,228 755,726 - - - 10,018,954 Capital assets being depreciated, net 21,074,425 949,563 178,333 - - 22,202,321 Total assets 34,480,451 2,909,645 1,827,390 823,222 403,281 40,443,989 Deferred outflows of resources Deferred pension amounts 476,174 - - - - 476,174 Liabilities Accounts payable 110,308 63,911 41,577 47,533 7,288 270,617 Accrued liabilities 66,991 4,977 38,960 - - 110,928 Due to other governments 43,381 - - - - 43,381 Advances from government units 255,456 - - - - 255,456 Unearned revenue - - - - 45,453 45,453 Advances from primary government - 295,140 - - - 295,140 Long-term liabilities: Due within one year 364,008 7,134 - - - 371,142 Due in more than one year 1,571,500 - - - - 1,571,500 Net pension liability 4,747,171 - - - - 4,747,171 Net other postemployment benefits obligation 8,148,256 - - - - 8,148,256 Total liabilities 15,307,071 371,162 80,537 47,533 52,741 15,859,044 Deferred inflows of resources Taxes levied for a subsequent period 975,757 455,629 649,759 - 284,804 2,365,949 Other state grants 85,109 - - - - 85,109 Total deferred inflows 1,060,866 455,629 649,759 - 284,804 2,451,058 Net position Net investment in capital assets 28,620,952 1,698,155 178,333 - - 30,497,440 Restricted - - 343,145 44,000 - 387,145 Unrestricted (deficit) (10,032,264) 384,699 575,616 731,689 65,736 (8,274,524) Total net position 18,588,688 $ 2,082,854 $ 1,097,094 $ 775,689 $ 65,736 $ 22,610,061 $ The accompanying notes are an integral part of these financial statements. 32 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Activities Discretely Presented Component Units For the Year Ended December 31, 2015 Commission on Road Ambulance University Aging Commission Corporation Center 9/30/2015 Total Expenses Road Commission 6,667,573 $ - $ - $ - $ - $ 6,667,573 $ Ambulance Corporation - 2,211,428 - - - 2,211,428 University Center - - 879,467 - - 879,467 Commission on Aging - - - 1,820,121 - 1,820,121 - - - - 953,219 953,219 Total expenses 6,667,573 2,211,428 879,467 1,820,121 953,219 12,531,808 Program revenues Charges for services 1,174,267 1,480,984 - 113,012 581,740 3,350,003 Operating grants and contributions 3,213,861 73,075 - 417,991 - 3,704,927 Capital grants and contributions 2,945,687 854,810 - - - 3,800,497 Total program revenues 7,333,815 2,408,869 - 531,003 581,740 10,855,427 Net expense 666,242 197,441 (879,467) (1,289,118) (371,479) (1,676,381) General revenues Property taxes - 463,241 626,498 1,142,714 283,717 2,516,170 Investment earnings - 1,166 2,955 1,409 1,753 7,283 Gain on sale of capital assets 96,147 - - - - 96,147 Other 975,450 48,123 298,807 112,182 2,065 1,436,627 Total general revenues 1,071,597 512,530 928,260 1,256,305 287,535 4,056,227 Change in net position 1,737,839 709,971 48,793 (32,813) (83,944) 2,379,846 Net position, beginning of year, as restated 16,850,849 1,372,883 1,048,301 808,502 149,680 20,230,215 Net position, end of year 18,588,688 $ 2,082,854 $ 1,097,094 $ 775,689 $ 65,736 $ 22,610,061 $ The accompanying notes are an integral part of these financial statements. 33 ---PAGE BREAK--- NOTES TO FINANCIAL STATEMENTS ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity Otsego County (the "County" or the "government") was organized in 1840 and covers an area of approximately 527 square miles divided into nine Townships, one village, and one city. The County seat is located in the City of Gaylord. The County operates under an elected board of commissioners (nine members) with an appointed county coordinator who assists with day-to-day operations. The County provides services to its more than 24,000 residents in many areas including law enforcement, administration of justice, community enrichment, economic development, and human services. Discretely Presented Component Units Otsego County Road Commission (the "Road Commission") - The Road Commission which is established pursuant to the County Road Law (MCL 224.1) is governed by a three member Board of County Road Commissioners elected biannually to serve a six year term. The Road Commission is responsible for the maintenance and construction of the County road system. It may not issue debt without the County's approval and the tax levy is subject to the County Board of Commissioners' approval. If approval is granted, Road Commission taxes are levied under the taxing authority of the County, as approved by the County electors, and would be included as part of the County's total tax levy as well as reported in the County Road Fund. The financial statements of the County have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the County’s accounting policies are described below. Otsego County Building Authority (the "Building Authority") - The Building Authority is governed by a three member board appointed by the County Board of Commissioners. Although it is legally separate from the County, the Building Authority is reported as if it were part of the primary government because its sole purpose is to finance and construct the County's public buildings. The financial statements of the Otsego County Building Authority are reported in the County's Debt Service Fund and Capital Projects Funds as presented in this report. As required by generally accepted accounting principles, these financial statements present the government and its component units, entities for which the County is financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government’s operations and as such, data from these units are combined with data of the primary government. Discretely presented component units, on the other hand, are reported in a separate column in the combined financial statements to emphasize that they are legally separate from the government. Blended Component Units 34 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Otsego County Ambulance Corporation, Inc. (the "Ambulance Corporation") - The Ambulance Corporation, a nonprofit corporation which was established pursuant to the provisions of Public Act 327 of 1931, as amended, and Public Act 284 of 1972, has an agreement with Otsego County to provide ambulance service in and about Otsego County. A nine member board governs the Ambulance Corporation. The Ambulance Corporation may not issue debt without the County's approval and a tax levy is subject to the County Board of Commissioners' approval. If approval is granted, the Ambulance Corporation's taxes are levied under the taxing authority of the County, as approved by the County electors, and would be included as part of the County's total tax levy as well as in the Ambulance Corporation Fund. All assets are in the name of the County. Otsego County University Center (the "University Center") - On December 7, 1999, the electors of Otsego County authorized the County Board of Commissioners to levy a tax not to exceed .56 mills ($.56 per $1,000) for a period of 20 years to provide the funds required to acquire or construct, furnish, equip, and operate the Otsego County University Center (the facility) for use by the residents of the County and the public. On July 1, 2000, Otsego County entered into an agreement for operating and maintaining the facility with The University Center at Gaylord, a Michigan nonprofit corporation organized on November 3, 1989 pursuant to the provisions of Act 162, Public Acts of 1982, as amended. The University Center is governed by an eleven member Board of Directors whose mission is to facilitate the delivery of quality, state-of-the-art education and training that is responsive to personal growth and business needs throughout Otsego County and Northern Michigan through a consortium of colleges offering degrees, enrichment and skill certification programs. The agreement, requires the University Center to submit by October 1st annually a proposed budget for the operation of the facility for the subsequent fiscal year beginning January 1st. Prior to December 31st each year, the County Board of Commissioners shall either approve the final budget as submitted for the operation of the facility or reject the budget setting forth reasons why it was not approved. Once approved, the County Board of Commissioners shall approve a resolution authorizing the levy of such amount of the millage. The University Center's taxes are levied under the taxing authority of the County and are included as part of the County's total tax levy reported in the Otsego County University Center Fund. Otsego County (the - The a nonprofit corporation that was established pursuant to the provisions of Public Act 162 of 1982, has an agreement with Otsego County to operate and maintain a recreational and sports complex for Otsego County. The agreement was amended on December 15, 2015 and expires on December 15, 2020.The sports complex was constructed during 1995 and opened in early 1996. The is operated by a Board of Directors, which consist of between seven and fifteen members. Members recommended by the Board of Directors and forwarded to the County Board of Commissioners for review and approval. The may not issue debt without the County's approval and the tax levy is subject to the County Board of Commissioners' approval. The taxes are levied under the taxing authority of the County, as approved by the County electors and are included as part of the County's total tax levy recorded in the County's Fund. The County Board of Commissioners also approves the budget and fee charges. Although this is a nonprofit corporation, the activities fit the description of a governmental special revenue fund type and, accordingly, are reported as a component unit in this report. Otsego County Commission on Aging (the "Commission") - The Commission is legally separable and administered by an advisory Board of Directors (the "Board") with twelve members. The Commission may not issue debt and the tax levy is subject to the County Board of Commissioners' approval. The Commission's taxes are levied under the taxing authority of the County, as approved by the County electors, and is included as part of the County's total tax levy as well as reported in the Commission on Aging Fund. 35 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Administrative Offices Otsego County 1250 Gornick Avenue Industrial Park, PO Box 537 Gaylord, MI 49735 Gaylord, MI 49735 Otsego County Ambulance Corporation, Inc. 100 McLouth, PO Box 642 80 Livingston Boulevard Gaylord, MI 49735 Gaylord, MI 49735 Joint Ventures Otsego 22.7 percent Antrim 22.2 percent Charlevoix 24.4 percent Emmet 30.7 percent Otsego County's appropriation to the Health Agency for the year was $191,130. North Country Community Mental Health Authority (the "CMH Authority") - The CMH Authority consists of the counties of Antrim, Charlevoix, Cheboygan, Emmet, Kalkaska, and Otsego. Financial records for the CMH Authority are recorded and maintained by the Authority and audited separately. Complete financial statements of the individual component units can be obtained from their respective administrative offices as listed below or from the County Clerk's Office at 225 West Main Street, Gaylord, MI 49735. Northwest Michigan Community Health Agency (the "Health Agency") - The Health Agency provides health service for residents of Otsego County. The Counties of Otsego, Antrim, Emmet, and Charlevoix jointly established the agency. The financial operations of the Health Agency are recorded in the financial statements of Charlevoix County. The funding formula, approved by the member Counties, is based on a pro rata amount based on each unit's population and equalized valuation to the member Counties total population and valuation. Member Counties' percentages of the net operation budget for the year 2015 were as follows: Michigan Technical Education Center - Kirtland Community College, a community college district established pursuant to the provisions of Public Act 331 of 1996, obtained funding through the Michigan Economic Development Corporation ("MEDC") to construct and equip Michigan Technical Education Center ("M-TEC"), an educational facility in Otsego County. On December 7, 1999, the electors of the County authorized a tax levy not to exceed .56 mills for a period of twenty years for the purpose of generating funds to operate the facility. The facility provides vocational, technical, job skills, or workforce development programs and services. Pursuant to the operating agreement, Kirtland established an advisory board (which includes representatives of the County) and is to report its preliminary, final, and amended M- TEC budgets to the County's board. Financial records for M-TEC are recorded and maintained by the Kirtland Community College and are audited separately. M-TEC is used in conjunction with and occupied by the University Center established and operated by the University Center of Gaylord, a non-profit corporation. Otsego County Road Commission Otsego County University Center The County participates in the following activities, which are considered to be joint ventures in relation to the County due to the formation of an organization by contractual agreement between two or more participants that maintain joint control, financial interest, and fiscal responsibility. 36 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Fiscal Year End Other Than December 31, 2015 Commission on Aging Component Unit September 30, 2015 Bus System Enterprise Fund September 30, 2015 Government-Wide and Fund Financial Statements Measurement Focus, Basis of Accounting, and Financial Statement Presentation Separate financial statements are provided for governmental funds, proprietary funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Agency funds, a type of fiduciary fund, are unlike all other types of funds, reporting only assets and liabilities. Therefore, agency funds cannot be said to have a measurement focus. They do, however, use the accrual basis of accounting to recognize receivables and payables. The funding formula for the community mental health operations and services is in accordance with an agreement approved by each county. The current agreement provides that each county will pay at an agreed upon rate. The Otsego County 2015 local match was $94,003. The financial information presented in this report is for the year ended December 31, 2015, except for the following funds: The government wide financial statements the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. Likewise, the primary government is reported separately from certain component units for which the primary government is financially accountable. Fund Fund Presentation Fiscal Year End 37 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements The County reports the following major governmental funds: The M-TEC Special Revenue Fund accounts for activities of an educational facility providing workforce development programs. Property taxes, intergovernmental revenue, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and as such have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. A 60-day availability period is used for revenue recognition for all governmental fund revenues, except for expenditure-driven grants, which must be collected within one year, and property taxes. Property taxes for the County, levied and payable within the current fiscal year, are fully recognized inasmuch as any uncollected taxes are settled with the Delinquent Tax Revolving fund not later than March 1 of the following fiscal year. While this schedule exceeds the normal availability period for property taxes of 60 days, management believes that fully recognizing property taxes in the year they are intended to finance better reflects the matching concept of generally accepted accounting principles. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Additionally, the County reports the following fund types: The County reports the following major proprietary funds: The Public Improvements Capital Project Fund accounts for projects that maintain or improve the County's infrastructure. The Airport Fund accounts for the financial activity of the Gaylord Regional Airport. The Bus System Fund accounts for the operation of the public transit system. The Housing Commission Special Revenue Fund accounts for grant revenue and contributions reserved for the improvement of housing within the County. The Delinquent Tax Revolving Fund accounts for the collection of delinquent taxes. The Debt Service Fund accounts for and reports financial resources that are restricted, committed, or assigned to expenditure for principal and interest. The General Fund is the government’s primary operating fund. It accounts for all the financial resources of the general government, except those accounted for and reported in another fund. Special Revenue Funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. 38 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Assets, liabilities, deferred inflows of resources, and equity State statutes authorize the County to invest in: Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the enterprise fund are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Capital Projects Funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Additionally, funds are used for significant repairs to and maintenance of capital assets. Certificates of deposit, savings accounts, deposit accounts or depository receipts of a qualified financial institution. Internal Service Funds account for buildings and grounds, administrative services, and employee health benefits provided to other departments or agencies of the County on a cost reimbursement basis. Agency Funds are custodial in nature and do not present results of operations or have a measurement focus. These funds are used to account for assets that the government holds for others in an agency capacity (such as taxes collected for other governments). Enterprise Funds account for those operations that are financed and operated in a manner similar to private business or where the County has decided that the determination of revenues earned, costs incurred and/or net income is necessary for management accountability. The government’s cash and cash equivalents include cash on hand, amounts in demand deposit accounts and short-term investments with a maturity of three months or less when acquired. Investments are stated at fair value. Pooled investment income from all funds is allocated to each fund based on the average cash balance. Deposits are recorded at cost. Bonds, securities, and other obligations of the United States or an agency or instrumentality of the United States. Deposits and investments As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments in lieu of taxes and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Restricted net position are assets that are subject to restrictions beyond the government’s control. The restrictions may be externally imposed or imposed by law. When both restricted and unrestricted resources are available for use, it is the government’s policy to use restricted resources first, then unrestricted resources as they are needed. 39 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Bankers’ acceptances of United States banks. Receivables and payables Other assets Capital assets The accounts receivable balance is presented net of allowance for doubtful accounts of $1,452,000. Commercial paper rated at the time of purchase within the two highest classifications established by not less than two standard rating services and that matures not more than 270 days after the date of purchase. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Capital assets, which include property, plant, equipment, and infrastructure assets roads, bridges, sidewalks, and similar items) are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Capital assets are stated at historical cost or estimated historical cost when actual cost information is not available. Donated capital assets are recorded at their market value as of the date of donation. Inventories are valued at cost, using the consumption method. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future fiscal years and are recorded as prepaid items in both government-wide and fund financial statements. Accounts Receivable - Ambulance Corporation Component Unit Obligations of the State of Michigan and its political subdivisions, that, at the time of purchase are rated as investment grade by at least one standard rating service. Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to/from other funds” the current portion of interfund loans) or “advances to/from other funds” the non-current portion of interfund loans). All other outstanding balances between funds are reported as “due to/from other funds.” Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances.” All trade and property tax receivables are shown net of an allowance for uncollectible accounts, as applicable. Property taxes are levied on December 1st and July 1st on the taxable valuation of property as of the preceding December 31st. Taxes are considered delinquent on March 1st of the following year, at which time penalties and interest are assessed. Mutual funds registered under the Investment Company Act of 1940 with the authority to purchase only investment vehicles that are legal for direct investment by a public corporation. External investment pools as authorized by Public Act 20 as amended through December 31, 1997. 40 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Years Buildings 40 Bus operating facility 12-20 Shop equipment and furniture 3-10 Vehicles 3-7 Office equipment 3-10 Other infrastructure 20 Road Commission- Discretely Presented Component Unit Years Buildings 30-50 Road equipment 5-8 Shop equipment 10 Engineering equipment 4-10 Office equipment 4-10 Infrastructure - roads 8-30 Infrastructure - bridges 12-50 Deferred outflows of resources Accrued compensated absences (vacation and sick leave) Depreciation on Road Commission capital assets is computed on the sum-of-the-years'-digit method for road equipment and straight-line method for all other capital assets. The depreciation rate is designed to amortize the cost of the assets over the following estimated useful lives: In addition to assets, the statement of net position may report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflow of resources, represents a consumption of net position that applies to future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The County reports deferred outflows of resources related to the net pension liability. The County reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its fair value. If it is determined that an impairment loss has occurred the asset is written down to its net realizable value and a current charge to income is recognized. Property, plant, and equipment are depreciated using the straight-line method over the following estimated useful lives: It is the County's policy to permit employees to accumulate earned but unused sick pay for the library employees and vacation pay benefits for all of the employees with certain limitations which vary among employee classification. Vacation and sick pay is accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee retirements. 41 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Long-term obligations Deferred inflows of resources Fund balances Governmental funds report nonspendable fund balances for amounts that cannot be spent because they are either not in spendable form or legally or contractually required to be maintained intact. Restricted fund balance is reported when externally imposed constraints are placed on the use of resources by grantors, contributors, or laws or regulations of other governments. Committed fund balance is reported for amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the Board of Commissioners (the government’s highest level of decision-making authority). A formal resolution of the Board of Commissioners is required to establish, modify, or rescind a fund balance commitment. The County reports assigned fund balance for amounts that are constrained by the government’s intent to be used for specific purposes, but are neither restricted nor committed. The Board of Commissioners has delegated the authority to assign fund balance to the County Administrator or his/her designee. Unassigned fund balance is the residual classification for the General Fund. When the government incurs an expenditure for purposes for which various fund balance classifications can be used, it is the government’s policy to use restricted fund balance first, then committed fund balance, assigned fund balance, and finally unassigned fund balance. In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts, are deferred and amortized over the life of the bonds using the straight-line basis. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as expense when incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. In addition to liabilities, the statement of net position and governmental funds balance sheet may report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The governmental funds also report unavailable revenues, which arise only under a modified accrual basis of accounting that are reported as deferred inflows of resources. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. In addition, deferred inflows of resources are reported in the government-wide and governmental fund financial statements for property taxes levied during the year that were intended to finance future periods. 42 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Budget stabilization arrangement Interfund transactions Use of estimates Unearned revenues Unearned revenues are those where asset recognition criteria have been met, but for which revenue recognition criteria have not. The Otsego County Board of Commissioners has established a Budget Stabilization arrangement for the following purposes: to preserve current levels of services provided by the County's general fund, to cover potential general fund deficits, to cover potential expenses arising due to a natural disaster, and to assist with the County's cash flow during the fiscal year, in accordance with Public Act 30 of 1978. The Board appropriates funds as available and as deemed necessary during the budget process. Unassigned fund balance of the general fund includes $1,485,187 related to the stabilization agreement. Grants and other intergovernmental revenues Federal grants and assistance awards for all governmental type funds are recorded as federal sources in accordance with the terms of the representative grants. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Significant estimates of the County include management's estimate of the useful lives of depreciable capital assets, management’s estimate of the accrued compensated absences, management’s estimate of the allowance for uncollectible receivable balances and the assumptions used in the actuarial valuations of the pension and other postemployment benefit plans. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan fiduciary net position have been determined on the same basis as they are reported by the Plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. During the course of normal operations, the County has numerous transactions between funds and component units, including expenditures and transfers of resources to provide services, construct assets, and service debt. The accompanying financial statements generally reflect such transactions as transfers. Transfers between governmental or proprietary funds are netted as part of the reconciliation to the government-wide financial statements. Internal service funds are used to record charges for services to all County departments and funds as transfers or operating revenue. All County funds record these payments to the internal service funds as transfers or operating expenditures/expenses. 43 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 2. BUDGETARY INFORMATION 1. 2. 3. 4. 5. 6. 3. EXCESS OF EXPENDITURES OVER BUDGET The County does not record encumbrances in the accounting records during the year as normal practice and, therefore, no outstanding encumbrances exist at year end. Each December, after receiving input from the individual departments, Administration and the County Budget and Finance Committee prepare a proposed operating budget for the fiscal period commencing January 1st and lapses on December 31st. The operating budget includes proposed expenditures and the means of financing them. Budgeted amounts are as originally adopted or amended by the Board of Commissioners during the year. Individual amendments were not material in relation to the original appropriations which were amended. The modified accrual basis of accounting is used for budgetary purposes. Budgetary control is exercised at the departmental level of the General Fund. Any revisions that alter the total expenditures of any department or fund budget amendments) require approval by the Board of Commissioners. Such amendments are made in accordance with the procedures prescribed under Public Act 621 of 1978. The General Fund revenue budget was adopted on the basis of activities or programs of departments financed by the General Fund. Michigan Public Act 621 of 1978 requires that budgets be adopted for governmental funds. U.S. generally accepted accounting principles require that the financial statements present budgetary comparisons for the governmental fund types for which budgets were legally adopted. The original budget adopted for the General Fund was modified throughout the year through various budget amendments. Budgets presented in the financial statements were prepared on the same basis as the accounting basis used to reflect actual results. The General Fund and special revenue funds are subject to legal budgetary accounting controls and all are budgeted annually. The County follows these procedures in establishing the budgetary data reflected in the financial statements: Public hearings are conducted to obtain taxpayer comments. Prior to the first day of the following fiscal year, the budget is legally enacted through a resolution passed by the Board of Commissioners. P.A. 621 of 1978, as amended, provides that a local unit shall not incur expenditures in excess of the amount budgeted. The approved budgets of the County were adopted on the departmental level basis for all governmental funds, which is the legal level of control. During the year ended December 31, 2015 the County had no expenditures in the General Fund in excess of the amounts budgeted. The budget document presents information by fund, function, department, and line items. The legal level of budgetary control adopted by the governing board is the departmental level. The budget and approved appropriations lapse at the end of the fiscal year. 44 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 4. DEFICIT FUND BALANCE 5. DEPOSITS AND INVESTMENTS Primary Government Component Unit Totals Statement of Net Position Cash and cash equivalents 6,935,847 $ 2,380,071 $ 9,315,918 $ Investments 12,547,227 1,037,300 13,584,527 Statement of Fiduciary Assets and Liabilities Cash and cash equivalents 1,767,994 - 1,767,994 Total 21,251,068 $ 3,417,371 $ 24,668,439 $ Deposits and investments Bank deposits: Checking and savings accounts 11,074,672 $ Pooled certificates of deposit: Due within one year 2,250,000 Due within one to five years 1,047,640 Due within six to ten years 669,346 Investments, at fair value 9,617,541 Cash on hand 9,240 Total 24,668,439 $ The Bus System enterprise fund, and the Road Commission discretely presented component unit reported a deficit unrestricted net position of $139,172 and $10,032,264 respectively at December 31, 2015. Investment and deposit risk Custodial credit risk – Investments. For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the County will not be able to recover the value of the investments or collateral securities that are in possession of an outside party. The County does not have a policy for investment custodial credit risk. As of December 31, 2015, the County has no custodial credit risk exposure for any of its investments. Following is a reconciliation of deposit and investment balances as of December 31, 2015: Custodial Credit Risk – Deposits. Custodial credit risk is the risk that, in the event of a bank failure, the County’s deposits might not be returned. State law does not require and the County does not have a policy for deposit custodial credit risk. As of year-end, $11,678,350 of the County’s bank balance of $13,880,369 was exposed to custodial credit risk because it was uninsured and uncollateralized. 45 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Credit Rating Fair Value AA+ $ 9,614,470 Total $ 9,614,470 Investment Less than one More than 10 Type year 1-5 years 6-10 years years Total U.S. Government agencies - $ 1,002,850 $ 490,585 $ 8,121,035 $ 9,614,470 $ Total Equity in wholly owned subsidiary 3,071 $ U.S. Government agencies 9,614,470 Total 9,617,541 $ Concentration of credit risk. The County's investment policy places no limit on the amount the County may invest in any one issuer, however, not more than 5% was invested with any one issuer. Investment Maturities (Fair Value) U.S. Government agencies Investments Credit Risk. State law limits investments to specific government securities, certificates of deposits and bank accounts with qualified financial institutions, commercial paper with specific maximum maturities and ratings when purchased, bankers acceptances of specific financial institutions, qualified mutual funds and qualified external investment pools as identified in the list of authorized investments in the accounting policies. The County has no investment policy that would further limit its investment choices. Listed below are the County's investments subject to credit risk. The credit ratings are established by Standard & Poor's. Interest Rate Risk. Interest rate risk is the risk that the market rate of securities in the portfolio will fall due to changes in market interest rates. State law limits the allowable investments and the maturities of some of the allowable investments as identified in the summary of significant accounting policies. The County does not have a formal investment policy that would further limit investment maturities. The investments subject to interest rate risk are as follows: The University Center at Gaylord owns 100% equity in the University Center - Advertising. For purposes of the financial statements, it is classified as an investment. Investment Type 46 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 6. RECEIVABLES Governmental Business-type Component Activities Activities Unit Accounts 269,583 $ 137,629 $ 3,326,492 $ Less: Allowance for uncollectible accounts - - (1,452,000) Taxes 2,457,664 1,341,826 2,350,543 Loans 2,109,228 - - Interest - 162,664 - Due from other governmental units 357,967 75,976 - 5,194,442 $ 1,718,095 $ 4,225,035 $ 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Governmental Business-type Component Activities Activities Unit Accounts 648,562 $ 79,857 $ 270,617 $ Accrued liabilities 43,868 67,620 110,928 Due to other governments 5,000 - 43,381 Accrued interest on long-term debt 20,467 - - 717,897 $ 147,477 $ 424,926 $ Receivables are comprised of the following at year-end: Loans receivable - Housing Commission Special Revenue Fund The amount recorded as loans receivable represent long-term mortgage notes in the Housing Commission Special Revenue Fund, consisting of grants and loans made to individuals pursuant to community development block grants received from the State of Michigan. Certain homes are secured with mortgages and grants with liens to qualified applicants. The mortgage interest rates vary from 0% to 3.5% and the grants with liens are payable upon transfer of title. The receivable is offset with deferred inflows of resources. Revenue is recognized on a cash basis when collected. The loans were made for the purpose of repair, renovation, or rehabilitation of residential buildings. At December 31, 2015, the total amount of outstanding loans was $2,109,228. The amount recorded as the lease receivable from component unit represents amounts payable to the County primary government from the Road Commission a discretely presented component unit. The lease receivable relates to an agreement between the County and the Road Commission that requires the Road Commission to make payments sufficient to allow the County to pay the principal and interest on the Otsego County Building Authority Series 2011 bonds as they become due (Note 10). Lease receivable - Road Commission Discretely Presented Component Unit Payables are comprised of the following at year-end: 47 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 8. INTERFUND RECEIVABLES AND PAYABLES AND TRANSFERS Due from Other Funds Due to Other Funds Nonmajor governmental funds 8,000 $ 8,000 $ Delinquent tax revolving fund 154,592 - Airport - 4,592 Bus system - 25,000 Timing difference - 125,000 162,592 $ 162,592 $ Advance to Other Funds Advance From Other Funds Public Improvement Fund 139,942 $ - $ Nonmajor governmental funds - 86,576 Airport - 53,366 139,942 $ 139,942 $ Advance to Other Funds Advance From Other Funds Public Improvement Fund 295,140 $ - $ Ambulance - 295,140 295,140 $ 295,140 $ Advances to and from component units Interfund advances - primary government These balances resulted from the time lag between the dates that interfund goods and services are provided or reimbursable expenditures occur, transactions are recorded in the accounting system, and payments between funds are made. The timing difference is a result of the Bus System Enterprise Fund having a fiscal year-end that is different from the County’s year-end. The composition of interfund balances as of December 31, 2015, was as follows: Due to and from primary government funds 48 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Transfers In Transfers Out General Fund 369,040 $ 1,160,464 $ Housing Commission 78,560 78,693 Nonmajor governmental funds 1,543,879 225,035 Delinquent Tax Fund - 608,909 Airport 241,527 - Nonmajor enterprise funds 17,000 57,000 Internal service funds 30,095 150,000 2,280,101 $ 2,280,101 $ For the year ended December 31, 2015, interfund transfers consisted of the following: Transfers are used to: move revenues from the fund that is required to collect them to the fund that is required or allowed to expend them; move receipts restricted to or allowed for debt service from the funds collecting the receipts to the debt service fund as debt service payments become due; and use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. 49 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 9. CAPITAL ASSETS Beginning Balance Additions Disposals Ending Balance Governmental Activities Capital assets, not being depreciated: Land 1,827,962 $ 8,105 $ - $ 1,836,067 $ Construction in progress 53,244 311,856 - 365,100 1,881,206 319,961 - 2,201,167 Capital assets, being depreciated: Buildings 14,992,797 636,108 - 15,628,905 Furniture and fixtures 514,550 - - 514,550 Equipment: Data handling 1,222,226 108,238 - 1,330,464 Other equipment 2,139,992 40,495 - 2,180,487 Vehicles 1,380,819 66,869 - 1,447,688 Infrastructure 25,380 11,750 - 37,130 20,275,764 863,460 - 21,139,224 Less accumulated depreciation for: Buildings (9,265,069) (550,955) - (9,816,024) Furniture and fixtures (352,563) (39,942) - (392,505) Equipment: Data handling (1,128,716) (35,409) - (1,164,125) Other equipment (934,630) (23,143) - (957,773) Vehicles (1,183,031) (70,236) - (1,253,267) Infrastructure (11,272) (1,703) - (12,975) (12,875,281) (721,388) - (13,596,669) Total capital assets being depreciated, net 7,400,483 142,072 - 7,542,555 Governmental activities capital assets, net 9,281,689 $ 462,033 $ - $ 9,743,722 $ Capital asset activity for the primary government for the year ended December 31, 2015, was as follows: Primary government 50 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Disposals Ending Balance Business-type Activities Capital assets, not being depreciated: Land 99,998 $ - $ - $ 99,998 $ Construction in progress - 219,670 - 219,670 99,998 219,670 - 319,668 Capital assets, being depreciated: Buildings 2,635,361 6,497 - 2,641,858 Furniture and fixtures 6,000 - - 6,000 Vehicles 2,651,675 - (960,630) 1,691,045 Equipment 504,603 - (187,233) 317,370 Infrastructure 12,288,302 - - 12,288,302 18,085,941 6,497 (1,147,863) 16,944,575 Less accumulated depreciation for: Buildings (1,001,618) (106,382) - (1,108,000) Furniture and fixtures (6,000) - - (6,000) Vehicles (2,122,448) (165,419) 947,561 (1,340,306) Equipment (384,920) (14,300) 187,233 (211,987) Infrastructure (5,941,740) (492,240) - (6,433,980) (9,456,726) (778,341) 1,134,794 (9,100,273) Total capital assets being depreciated, net 8,629,215 (771,844) (13,069) 7,844,302 Business-type activities capital assets, net 8,729,213 $ (552,174) $ (13,069) $ 8,163,970 $ Depreciation expense was charged to functions/programs of the primary government as follows: Depreciation of governmental activities by function General government 314,867 $ Public safety 132,784 Recreation and culture 273,737 721,388 $ Depreciation of business-type activities by function Bus System 9/30/2015 203,421 $ Airport 562,620 University Center Metropolitan Area Network 12,300 778,341 $ 51 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Disposals/ Adjustments Ending Balance Component Unit - Road Commission Capital assets, not being depreciated: Land and improvements 170,157 $ 1,006,867 $ 8,086,204 $ 9,263,228 $ Capital assets, being depreciated: Buildings 3,934,836 - - 3,934,836 Road equipment 6,049,367 829,035 (533,016) 6,345,386 Shop equipment 101,193 8,572 (1,082) 108,683 Office equipment 49,215 10,823 - 60,038 Engineer's equipment 13,562 - - 13,562 Yard and storage equipment 1,800 - - 1,800 Depletable assets 4,760 - (4,760) - Traffic signals 44,756 4,801 - 49,557 Infrastructure - bridges 1,780,315 - (668,014) 1,112,301 Infrastructure - roads 47,889,501 1,934,019 (17,320,099) 32,503,421 59,869,305 2,787,250 (18,526,971) 44,129,584 Less accumulated depreciation for: Buildings (1,636,779) (87,495) - (1,724,274) Road equipment (5,382,720) (343,510) 280,298 (5,445,932) Shop equipment (92,131) (3,411) 1,082 (94,460) Office equipment (42,469) (7,083) - (49,552) Engineer's equipment (12,320) (468) - (12,788) Yard and storage equipment (1,800) - - (1,800) Traffic signals (37,997) (2,904) 359 (40,542) Infrastructure - bridges (695,022) (14,043) 461,635 (247,430) Infrastructure - roads (27,142,019) (1,791,698) 13,495,336 (15,438,381) (35,043,257) (2,250,612) 14,238,710 (23,055,159) Total capital assets being depreciated, net 24,826,048 536,638 (4,288,261) 21,074,425 Road Commission capital assets, net 24,996,205 $ 1,543,505 $ 3,797,943 $ 30,337,653 $ Capital assets activity for the Road Commission component unit for the year ended December 31, 2015, was as follows: Discretely presented component units 52 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Disposals Ending Balance Component Unit - Otsego County Ambulance Corporation Capital assets, not being depreciated: Construction in progress - $ 755,726 $ - $ 755,726 $ Capital assets being depreciated: Buildings 725,000 - - 725,000 Other equipment 613,746 - - 613,746 Vehicles 1,856,932 54,922 (35,000) 1,876,854 3,195,678 54,922 (35,000) 3,215,600 Less accumulated depreciation for: Buildings (522,000) (29,000) - (551,000) Other equipment (505,610) (17,882) - (523,492) Vehicles (1,100,505) (126,040) 35,000 (1,191,545) (2,128,115) (172,922) 35,000 (2,266,037) Total capital assets being depreciated, net 1,067,563 (118,000) - 949,563 Otsego County Ambulance Corp capital assets, net 1,067,563 $ 637,726 $ - $ 1,705,289 $ Component Unit - Otsego County University Center Capital assets being depreciated: Buildings 144,125 $ - $ - $ 144,125 $ Leasehold improvements 24,854 - - 24,854 Furniture and fixtures 323,707 - - 323,707 Data handling equipment 564,668 24,999 (47,367) 542,300 1,057,354 24,999 (47,367) 1,034,986 Less accumulated depreciation for: Buildings (53,928) (10,574) - (64,502) Leasehold improvements (33,138) 8,284 - (24,854) Furniture and fixtures (241,509) (18,504) - (260,013) Data handling equipment (536,803) (17,848) 47,367 (507,284) (865,378) (38,642) 47,367 (856,653) Otsego County University Center capital assets, net 191,976 $ (13,643) $ - $ 178,333 $ 53 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Disposals Ending Balance Component Unit - Otsego County Commission on Aging Capital assets being depreciated: Leasehold improvements and equipment 140,189 $ - $ - $ 140,189 $ Less accumulated depreciation for: Leasehold improvements and equipment (140,189) - - (140,189) Otsego County Commission on Aging capital assets, net - $ - $ - $ - $ 10. LONG-TERM DEBT Governmental Activities Beginning Balance Additions Deductions Ending Balance Due Within One Year Otsego County Building Authority Series 2010 Bonds, maturing serially through 2020 in annual amounts ranging from $20,000 to $240,000 and at interest rates from 2.0% to 4.0%. $ 1,295,000 $ - $ 210,000 $ 1,085,000 $ 205,000 Otsego County Building Authority Series 2011 Bonds, issued on behalf of Otsego County Road Commission, maturing serially through 2031 in annual amounts ranging from $35,000 to $65,000 and at interest rates from 3.25% to 5.0%. 795,000 - 35,000 760,000 35,000 Otsego County Brownfield Redevelopment Authority loan, maturing through 2024 with payments starting in 2014 ranging from $47,472 to $48,184 and interest at 1.5%. 433,879 - 40,539 393,340 41,147 Long-term debt activity for the year ended December 31, 2015, was as follows: 54 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Beginning Balance Additions Deductions Ending Balance Due Within One Year Purchase agreement for the purchase of equipment requiring 48 payments of $952 including interest at .44% Secured by the related equipment. $ - $ 41,082 $ 770 $ 40,312 $ 9,511 Total installment debt 2,523,879 41,082 286,309 2,278,652 290,658 Accrued compensated absences 169,306 69,850 46,718 192,438 - Total governmental activities $ 2,693,185 $ 110,932 $ 333,027 $ 2,471,090 $ 290,658 Year Ended Bonds Payable Installments Payable December 31, Principal Interest Principal Interest 2016 35,000 $ 32,938 $ $ 255,658 $ 46,086 2017 35,000 31,713 251,794 37,877 2018 35,000 30,488 272,965 38,031 2019 40,000 29,175 273,225 18,294 2020 40,000 27,775 283,672 8,175 2021-2025 225,000 112,313 181,338 6,850 2026-2030 285,000 53,500 - - 2031 65,000 1,625 - - 760,000 $ 319,527 $ $ 1,518,652 $ 155,313 Annual debt service requirements to maturity for long-term debt included in governmental activities are as follows: 55 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Discretely Presented Component Unit Beginning Balance Additions Deductions Ending Balance Due Within One Year Road Commission Lease payable to the County in amounts sufficient to allow the County to pay the principal and interest on the Otsego County Building Authority Series 2011 bonds as they become due. $ 795,000 $ - $ 35,000 $ 760,000 $ 35,000 Installment purchase agreements 308,915 811,828 164,042 956,701 329,008 Total installment debt 1,103,915 811,828 199,042 1,716,701 364,008 Accrued compensated absences 124,319 94,488 - 218,807 - Total road commission component unit $ 1,228,234 $ 906,316 $ 199,042 $ 1,935,508 $ 364,008 Discretely Presented Component Unit Ambulance Corporation Installment purchase agreement for medical equipment from Phillips Medical, due in installments of $1,110 including interest charged at 14.88%. Final payment due in 2016. 16,822 $ - $ 9,688 $ 7,134 $ 7,134 $ 56 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Year Ended Lease Payable Installments Payable December 31, Principal Interest Principal Interest 2016 35,000 $ 32,938 $ 329,008 $ 16,230 $ 2017 35,000 31,713 176,487 12,167 2018 35,000 30,488 179,395 9,286 2019 40,000 29,175 17,141 6,355 2020 40,000 27,775 254,670 1,849 2021-2025 225,000 112,313 - - 2026-2030 285,000 53,500 - - 2031 65,000 1,625 - - 760,000 $ 319,527 $ 956,701 $ 45,887 $ Year Ended Installments Payable December 31, Principal Interest 2016 7,134 $ 1,192 $ 7,134 $ 1,192 $ 11. ACCRUED COMPENSATED ABSENCES 12. OPERATING LEASES Substantially all County employees are entitled to certain vacation and sick pay benefits that accrue and vest under various parameters including individual labor contracts. Accrued benefits for all governmental fund types are reported as long-term debt. Vested Employee Benefits Payable - Bus System (Enterprise Fund) Vacation leave is accrued every pay period. Employees can accumulate a maximum of their base at any given time. Personal leave is earned at the beginning of the calendar year at a rate of 56 hours per full-time employee and 35 hours per part-time employee per year. Personal leave is paid out for up to 28 hours for full time employees and 17.5 hours for part-time employees. Compensated absences amounted to $39,078 at December 31, 2015. Annual debt service requirements to maturity for Road Commission long-term debt are as follows: Annual debt service requirements to maturity for Ambulance Corporation long-term debt are as follows: Primary Government The Commission on Aging leases office and activity space from Alpine Alten Zimmer. The future rent payments will approximate $28,000 per year, with a rent increase not to exceed 1% per year through December 31, 2029. Lease Commitments - Commission on Aging Discretely Presented Component Unit 57 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 13. RISK MANAGEMENT Changes in the balances of claims liabilities are as follows: 2015 2014 Estimated liability, beginning of year 51,456 $ 122,043 $ Receipts 71,997 73,453 Estimated claims incurred (96,345) 3,603 Claim payments (27,108) (147,643) Estimated liability, end of year $ - 51,456 $ The Commission on Aging has entered into a sublease with Northwest Michigan Community Health Agency to rent the space commonly known as "Otsego Haus". The sublease terms require payments of $1,620 or $19,440 annually, and is renewable on a month-to-month basis. Primary Government The Commission on Aging leases the Elkland Senior Center for both programmatic and social events. The rent payments total $600 per year and are renewable annually. The County is exposed to risks of loss related to theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The government manages its risk exposures and provides certain employee benefits through a combination of self-insurance programs, risk management pools and commercial insurance and excess coverage policies. The following is a summary of these self- insurance programs and risk management pool participation. The County participates in the Michigan Municipal Risk Management Authority (MMRMA) for general and automobile liability, motor vehicle physical damage, and property damage coverages. The MMRMA was established in January 1980, pursuant to laws of the State of Michigan, which authorize local units of government to jointly exercise any power, privilege or authority which each might exercise separately. The purpose of the Authority is to provide cooperative and comprehensive risk financing and risk control services. The MMRMA provides risk management, underwriting, reinsurance and claim review and processing services for all member governments pursuant to its charter. The County makes annual contributions to MMRMA based on actuarial studies using historical data and insurance industry statistics. These contributions are paid from the General Fund using premiums paid into it by other funds of the government. Such contributions that are received by MMRMA are allocated between its general and member retention funds. Economic resources in the MMRMA's General Fund are expended for reinsurance coverage, claim payments and certain general and administrative costs, whereas resources in the member retention funds are used for loss payments and defense costs up to the members' self-insurance retention limits along with certain other member-specific costs. Accordingly, because contributions to the member retention fund are essentially recognized as revenue by MMRMA to the extent of expenditures, the government records an asset and a related liability, equal to the loss reserves estimated by MMRMA, for its portion of the unexpended member retention fund in the Michigan Municipal Risk Agency Fund. At December 31, 2015, the balance of the County's member retention was $246,391. Year Ended December 31, 58 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Workers' Compensation Component Unit - Road Commission Vehicle Physical Damage Employee Benefits Self-Insured Retention Coverage Liability $1,000 deductible per occurrence Property and crime $15,000 per vehicle $30,000 per occurrence 10% of the next $100,00 $1,000 Member Deductible $75,000 Commercial Insurance Provider The County is a member of the Michigan Counties Workers' Compensation Fund. Full statutory coverage for workers' disability compensation and employers' liability is guaranteed by the fund for Michigan operations through authority granted by the Sate of Michigan under Chapter 6, Section 418.611, Paragraph of the Workers' Disability Compensation Act of 1969, as amended. At December 31, 2015 there were no claims that exceeded insurance coverage. The County had no significant reduction in insurance coverage from previous years. The Road Commission from time to time is named as a defendant in accident claims and lawsuits requesting damages of various amounts, the majority of which do not state a specific maximum. Insurance coverage related to these claims and lawsuits, if any, is categorized under the general liability insurance program. It is the opinion of management and legal counsel that reasonable estimates of the Road Commission's current liability for these matters, if any, have been recorded. The pooling agreement allows for the pool to make additional assessments to make the pool self-sustaining. The Road Commission is unable to provide an estimate of the amounts of additional assessments. There are nonaccident liability and condemnation lawsuits sometimes are pending against the Road Commission claiming amounts for damages and relief without stated limitations. It is the opinion of management and legal counsel that reasonable estimates of the Road Commission's current liability for these matters, if any, have been recorded. The Road Commission is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Road Commission was unable to obtain general liability insurance at a cost it considered to be economically justifiable. The Road Commission joined together with other Road Commissions and created a public entity risk pool currently operating as a common risk management and insurance program. The Road Commission pays an annual premium to the pool for its general insurance coverage. The agreement provides that the pool will be self-sustaining through member premiums and will reinsure through commercial companies for claims in excess of $1,000 ($2,000 for errors and omissions) for each insured event. The maximum limit of liability for each occurrence is $10,500,000. 59 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Component Unit - Ambulance Corporation Component Unit - Commission on Aging Component Unit - 14. PROPERTY TAXES The County levies property tax on each December 1st and July 1st on the taxable valuation of property (as defined by State statutes) located in the County of Otsego as of the preceding December 31st. The Ambulance Corporation is exposed to risks of loss related to theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Ambulance Corporation's general liability, property, and vehicle insurance is included in the County's plan. Additional vehicle insurance, health insurance, and workers' compensation is obtained through commercial insurance providers. The is exposed to risks of loss related to theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Health insurance and workers' compensation is obtained through commercial insurance providers. At December 31, 2015, there were no claims that exceeded insurance coverage. The did not have any significant reduction in insurance coverage from previous years. At December 31, 2015, there were no claims that exceeded insurance coverage. The Ambulance Corporation did not have any significant reduction in insurance coverage from previous years. Although the County of Otsego 2014 ad valorem tax is levied and collectible on December 1, 2014 and the 2015 ad valorem tax is levied and collectible on July 1, 2015, it is the County of Otsego's policy to recognize revenue from the current tax levy in the current year when the proceeds of this levy are budgeted and made "available" for the financing of operations. "Available" means collected within the current period or expected to be paid from the delinquent tax revolving funds within one year. The Commission on Aging has insurance coverage provided by independent insurance companies for property, general liability, fire, workers' compensation and employee bond coverage. The Commission on Aging liability is normally limited to the deductible. 60 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Source Millage Rate Animal Control 0.3000 Commission on Aging 1.0000 Ambulance 0.4000 Bus System 0.2500 Parks and Recreation 0.1875 Road Projects 1.0000 Library 0.4000 Recycling 0.2500 0.2500 Building 0.1875 M-TEC 0.6464 University Center 0.5569 15. CONTINGENT LIABILITIES 16. BENEFIT PLANS Primary Government The December 1, 2015 taxable valuation of the County of Otsego totaled $1,137,047,405, on which ad valorem taxes were levied as follows: The July 1, 2015 taxable valuation of the County of Otsego totaled $1,137,047,405, on which ad valorem taxes levied consisted of 4.0502 mills for the General Fund, this amount is recognized in the General Fund. Defined Benefit Pension Plan Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the Federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the County expects such amounts, if any, to be immaterial. Plan Description. The County's defined benefit pension plan provides normal retirement, deferred retirement and service retirement allowance, disability retirement allowance, nonduty-connected death and post-retirement adjustments to plan members and their beneficiaries. The County participates in the Municipal Employees Retirement System of Michigan (“MERS”), an agent multiple-employer plan administered by the MERS Retirement Board. Act No. 427 of the Public Acts of 1984, as amended, establishes and amends the benefit provisions of the participants in MERS. The Municipal Employees Retirement System of Michigan issues a publicly available financial report that includes financial statements and required supplementary information for MERS. That report may be obtained by writing to the Municipal Employees Retirement System of Michigan, 1134 Municipal Way, Lansing, Michigan 48917 or by calling (800) 767-6377. 61 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 88 44 111 243 Division Name Status Employer Contribution Rate Employer Contribution Rate Defined Benefit Closed $ 3,503 0% Defined Benefit Open 9.23% 0% Defined Benefit Closed 5,079 0% Defined Benefit Closed 4,138 0% Defined Benefit Closed 15,858 0% Defined Benefit Closed 6,823 1% Defined Benefit Closed 3,610 0% Defined Benefit Closed 1,692 0% Defined Benefit Closed 6,995 0% Defined Benefit Open 2.17% 4% Defined Benefit Open 8.13% 0% Hybrid Open 6.32% 0% Hybrid Open 7.18% 0% Hybrid Open 5.15% 0% Hybrid Open 4.89% 0% Hybrid Open 4.83% 0% Hybrid Open 8.01% 0% Employees Covered by Benefit Terms. At December 31, 2014, plan membership consisted of the following: Inactive employees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits Active employees Total membership Contributions. The County is required to contribute amounts at least equal to the actuarially determined rate, as established by the MERS Retirement Board. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employer contributions are expressed as a percentage of payroll for open divisions and as a fixed amount for closed divisions as summarized in the following table: Police Officers Association of Michigan Elected Appointed Supervisors Police Officers Association of Michigan hired after 1/1/11 46th Trial Court General Local 214 Clerical 87-A Judge/Friend of Court pre Sheriff Union Sheriff Union new hires after 6/1/10 Library Director Benefits Provided. Pension benefits vary by division and are calculated as final average compensation (based on a 5 years and 3 years for defined benefit and hybrid divisions, respectively) and a multiplier ranging from 1.0% to 2.5%. Participants are fully vested in the plan after 10 years for defined benefit divisions and 6 years for hybrid divisions. Normal retirement age is 60 with early retirement at age 50 with 25 years of service or age 55 with 15 years of service. Member contributions range from 0% to 3.26% of covered wages as presented in the table below. Division Name General Non Union Library Non Union General Local 214 Bus The service requirement for General Non-union, POAM, Teamsters Local #214 and 46th Circuit Court is computed using credited service at the time of termination of membership multiplied by the sum of 2.25% times the final average compensation (FAC-5), with a maximum benefit of 80% of FAC. The service requirement for Elected and Appointed Supervisors and the Sheriff-POLC Union is computed using credited service at the time of termination of membership multiplied by the sum of 2.5% of (FAC-5), with a maximum benefit of 80% of FAC. The most recent period for which actuarial data was available was for the fiscal year ended December 31, 2014. 46th Trial Court hired after 6/1/11 Clerical Local #214 after 1/1/12 Teamsters Bus hired after 1/1/11 Elected Appointed Supervisors after General Non Union after 1/1/09 62 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Inflation 3% to 4% Salary increases inflation Target Allocation Long-Term Expected Real Rate of Return Expected Money- Weighted Rate Global equity 57.50% 5.02% 2.89% 20.00% 2.18% 0.44% Real assets 12.50% 4.23% 0.53% 10.00% 6.56% 0.64% 100.00% 3.50% 0.25% 8.25% Global fixed income Net Pension Liability. The County's net pension liability was measured as of December 31, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. Administrative expenses netted above Investment rate of return Although no specific price inflation assumptions are needed for the valuation, the 4.5% long-term wage inflation assumption would be consistent with a price inflation of Actuarial Assumptions. The total pension liability in the December 31, 2014 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: 4.5% in the long-term and 3% for calendar Investment rate of return years 2015 and 2016 respectively) net of investment expense and including Diversifying strategies Inflation Mortality rates used were based on the 1994 Group Annuity Mortality Table of a 50% Male and 50% Female blend. For disabled retirees, the regular mortality table is used with a 10-year set forward in ages to reflect the higher expected mortality rates of disabled members. The actuarial assumptions used in the December 31, 2014 valuation were based on the results of an actuarial experience study conducted in 2008. (MERS Retirement Board is currently conducting an actuarial experience study covering the period from January 1, 2009, through December 31, 2013.) The long-term expected rate of return on pension plan investments was determined using a model method in which the best-estimate ranges of expected future real rates of return (expected returns, net of investment and administrative expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Asset Class 63 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Total Pension Liability Plan Fiduciary Net Position Net Pension Liability - $ 18,252,331 $ 12,723,758 $ 5,528,573 338,932 - 338,932 1,479,439 - 1,479,439 - 640,433 (640,433) - 3,630 (3,630) - 800,044 (800,044) (978,368) (978,368) - - (29,357) 29,357 840,003 436,382 403,621 $ 19,092,334 $ 13,160,140 $ 5,932,194 1% Decrease (7.25%) Current Discount Rate (8.25%) 1% Increase (9.25%) $ 8,051,268 $ 5,932,194 $ 4,126,005 Benefit payments, including refunds Net changes Balances at December 31, 2014 Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the County, calculated using the discount rate of 8.25%, as well as what the County's net pension liability would be if it were calculated using a discount rate that is 1% lower (7.25%) or 1% higher (9.25%) than the current rate: County's net pension liability Discount Rate. The discount rate used to measure the total pension liability is 8.25% for 2014. The projection of cash flows used to determine the discount rate assumes that employer and employee contributions will be made at the rates agreed upon for employees and the actuarially determined rates for employers. Based on these assumptions, the pensions plan's fiduciary net position was projected to be available to pay all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Change in Net Pension Liability Service cost of employee Contributions Administrative expense Pension Plan Fiduciary Net Position. Detailed information about the pension plan's fiduciary net position is available in the separately issued Plan financial statements. Interest Employer contributions Employee contributions Net investment income The components of the change in the net pension liability are summarized as follows: Balances at December 31, 2013 Changes for the year: 64 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Deferred Outflows of Resources Deferred Inflows of Resources Net Deferred Outflows (Inflows) of Resources $ 187,732 $ - $ 187,732 397,805 - 397,805 Total $ 585,537 $ - $ 585,537 Year Ended December 31, Amount 2016 $ 46,933 2017 46,933 2018 46,933 2019 46,933 Total $ 187,732 Road Commission - Component Unit For the year ended December 31, 2015, the County recognized pension expense of $856,322. The County reported deferred outflows of resources related to pensions from the following sources: The Road Commission is in an agent multiple-employer defined benefit pension plan with the Municipal Employees' Retirement System (MERS). The system provides the following provisions: normal retirement, deferred retirement and service retirement to plan members and their beneficiaries. The service requirement is computed using credited service at the time of termination of membership multiplies by the sum of 2.50% times the final compensation (FAC). The most recent period of which actuarial data was available was for year ended December 31, 2014. Payable to the Pension Plan. At December 31, 2015, the County reported a payable of $62,941 for the outstanding amount of contributions to the pension plan required for the year ended December 31, 2015. The amount reported as deferred outflows of resources resulting from contributions subsequent to the measurement date will be recognized as a reduction in the net pension liability for the year ending December 31, 2016. Other amounts reported as deferred outflows of resources related to the pension will be recognized in pension expense as follows: Description of Plan and Plan Assets Contributions subsequent to the measurement date Net difference between projected and actual earnings on pension plan investments Pension Expense and Deferred Outflows of Resources Related to Pensions 65 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 2014 Valuation Benefit Multiplier: 2.50% Multiplier (80% max) Normal Retirement Age: 60 Vesting: 10 Years Early Retirement (Unreduced): 55/25 Early Retirement (Reduced): 50/25 55/15 Final Average Compensation: 5 Years Employee Contributions: 1.50% Act 88: Yes (Adopted 11/23/1970) 2014 Valuation Benefit Multiplier: 2.00% Multiplier (no max) Normal Retirement Age: 60 Vesting: 10 Years Early Retirement (Unreduced): - Early Retirement (Reduced): 50/25 55/15 Final Average Compensation: 5 Years Employee Contributions: 1.50% Act 88: Yes (Adopted 11/23/1970) 2014 Valuation Benefit Multiplier: 2.50% Multiplier (no max) Normal Retirement Age: 60 Vesting: 10 Years Early Retirement (Unreduced): 55/25 Early Retirement (Reduced): 50/25 55/15 Final Average Compensation: 5 Years Employee Contributions: 1.50% Act 88: Yes (Adopted 11/23/1970) 01-General: Closed Division 02-General: Open Division NonUnion: Open Division General Information about the Pension Plan Plan Description. The employer's defined benefit pension plan provides certain retirement, disability and death benefits to plan members and beneficiaries. The employer participates in the Municipal Employees Retirement System (MERS) of Michigan. MERS is an agent multiple-employer, statewide public employee pension plan established by the Michigan Legislature under Public Act 135 of 1945 and administered by a nine member Retirement Board. MERS issues a publicly available financial report that includes financial statements and required supplementary information. This report may be obtained accessing the MERS website at www.mersofmich.com. 66 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 48 4 31 83 Inflation Salary increases The actuarial assumptions used in valuation were based on the results of the most recent actuarial experience study in 2008. (MERS Retirement Board is currently conducting an actuarial experience study covering the period from January 1, 2009, through December 31, 2013.) Net Pension Liability The Road Commission's net pension liability was measured as of December 31. 2014, and the total pension liability used to calculate the net pens ion liability was determined by an actuarial valuation as of that date. Actuarial Assumptions. The total pension liability in the December 31, 2014 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: 4.5 percent, average, including inflation Investment rate of return 8.0 percent 3.0 to 4.0 percent Although no specific price inflation assumptions are needed for the valuation, the 4.5% long-term wage inflation assumption would be consistent with a price inflation of 3% - Mortality rates used were based on the 1994 Group Annuity Mortality Table of a 50% Male and 50% Female blend. For disabled retirees, the regular mortality table is used with a I0-year set forward in ages to reflect the higher expected mortality rates of disabled members. Inactive employees or beneficiaries currently receiving benefits Inactive employees entitled to but not yet receiving benefits Employees Covered by Benefit Terms At December 31, 2014, the following employees were covered by the benefit term: Active employees Funding Policy The obligation to contribute to and maintain the system for these employees was established by negotiation with the Road Commission's competitive bargaining unit and personnel policy, which require employees to contribute to the plan. The Road Commission is required to contribute at an actuarially determined blended rate for 2015 of 26.69% of payroll. 67 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Target Allocation Long-Term Expected Real Rate of Return Global equity 57.50% 5.02% 20.00% 2.18% Real assets 12.50% 4.23% 10.00% 6.56% Total Pension Liability Plan Fiduciary Net Position Net Pension Liability $ 10,431,989 $ 6,196,251 $ 4,235,738 137,944 - 137,944 835,847 - 835,847 - - - - - - - - - - 498,792 (498,792) - 77,134 (77,134) - (91,306) 91,306 (738,956) (738,956) - - (13,449) 13,449 8,813 - 8,813 243,648 (267,785) 511,433 $ 10,675,637 $ 5,928,466 $ 4,747,171 The long-term expected rate of return on pension plan investments was determined using a model method in which the best-estimate ranges of expected future real rates of return (expected returns, net of investment and administrative expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Increases (Decreases) Balances at December 31, 2014 Changes for the year: Service cost Interest on total pension Employer contributions Employee contributions Global fixed income Diversifying strategies Discount Rate. The discount rate used to measure the total pension liability is 8.25% for 2015 and will be 8.0% in 2016 and thereafter. The projection of cash flows used to determine the discount rate assumes that employer and employee contributions well be made at the rates agreed upon for employees and the actuarially determined rates for employers. Based on these assumptions, the pension plan's fiduciary net position was projected to be available to pay all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Changes in Net Pension Liability Net investment income Benefit payments, including employee refunds Administrative expense Net changes Balances at December 31, 2015 Other changes Changes in benefits Difference between expected and actual experience Changes in assumptions Asset Class 68 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 1% Decrease (7.25%) Current Discount Rate (8.25%) 1% Increase (9.25%) Road Commission's net pension liability $ 5,857,983 $ 4,747,171 $ 3,793,577 Deferred Outflows of Resources Deferred Inflows of Resources $ - $ - - - 476,174 - Total $ 476,174 $ - Year Ended December 31, Amount 2016 $ 119,043 2017 119,043 2018 119,044 2019 119,044 Total $ 476,174 Pension plan fiduciary net position. Detailed information about the pension plan's fiduciary net position is available in the separately issued MERS financial report. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended December 31, 2015, the Road Commission recognized pension expense of $534,051. At December 31, 2015, the Road Commission reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Difference between expected actual experience Changes in assumptions Net difference between projected and actual earnings on pension plan investments Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recorded in pension expense as follows: Sensitivity of the net pension liability to changes in the discount rate. The following presents the net pension liability of the Road Commission, calculated using the discount rate of 8.25% , as well as what the Road Commission's net pension liability would be if it were calculated using a discount rate that is 1- percentage-point lower (7.25%) or 1-percentage-point higher (9.25%) than the current rate: 69 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 17. DEFERRED COMPENSATION PLAN Primary Government Commission on Aging Component Unit - The Otsego County Commission on Aging offers its employees a deferred compensation plan created in accordance with IRC Section 457. The plan, available to all employees, permits them to defer a portion of their current earnings until the employee's termination, retirement, death, or unforeseeable emergency. The Otsego County offers its employees a Saving Incentive Match Plan for Employees (SIMPLE plan) Individual Retirement Account (IRA) in accordance with IRC Section 408(p). The plan, available to employees earning at least $5,000 in annual compensation, permits them to defer a portion of their current salary until future years. The deferred compensation is not available to the employees until termination, retirement, death, or unforeseeable emergency. The employer matches employee contributions up to 3% of the employee's elected salary contribution. The Commission's liability to each participant is equal to the participant's deferred compensation adjusted by an amount equal to the investment performance in a related assets account. Investments are managed by a trustee, and investment decisions are made by individual employees. The Commission, through Otsego County, provides the duty of due care that would be required of an ordinary prudent investor. Otsego County offers its employees a deferred compensation plan created in accordance with IRC Section 457. Effective January 1, 1997, the assets of the plan were held in a trust, custodial account or annuity contract described in IRC Section 457(g) for the exclusive benefit for the participants (employees) and their beneficiaries. The custodial account is held by the custodian for the exclusive benefit of the participants and beneficiaries of these Section 457 plans and the assets may not be diverted to any other use. The administrator (Nationwide Retirement Solutions) is an agent of the employer. The Administrator provides direction to the custodian, from time to time, regarding the investment of the funds held in the account, transfer of assets to or from the account and all other matters. GASB 32 does not require inclusion of the deferred compensation balances in a trust and agency fund. See separately issued independent auditor's report for required supplementary information with respect to the Road Commission's defined benefit pension plan. Annual Pension Cost During the year ended December 31, 2015, the Road Commission's contributions totaling $376,152 were made in accordance with contribution requirement determined by an actuarial valuation of the plan as of December 31, 2013. The employer contribution rate has been determined based on the entry age normal funding method. Under the entry age normal cost funding method, the total employer contribution is comprised of the normal cost plus the level annual percentage of payroll payment required to normal cost is, for each employee, the level percentage of payroll contribution (from entry age to retirement) required to accumulate sufficient assets at the member's retirement to pay for his projected benefit. Significant actuarial assumptions used include a long-term investment yield rate of 8 percent and annual salary increases of 4.5 percent based on an age-related scale to reflect merit, longevity, and promotional salary increases. The unfunded actuarial liability is amortized as a level percent of payroll on a closed basis. The remaining amortization period is 25 years. 70 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 18. OTHER POSTEMPLOYMENT BENEFITS Primary government Annual required contribution 237,772 $ Interest on net OPEB obligation 79,397 Adjustment to annual required contribution (128,465) 188,704 Contributions made (237,764) (49,060) 1,984,930 1,935,870 $ Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 12/31/2013 390,240 $ 21% 1,890,308 $ 12/31/2014 186,669 49% 1,984,930 12/31/2015 188,704 126% 1,935,870 Net OPEB cost (expense) Decrease in net OPEB Plan Description . Otsego County administers a single-employer defined benefit healthcare plan (the “Plan”). The plan provides healthcare benefits for eligible employees upon retirement, through the County's group health insurance plan, which covers both active and retired members. The benefits are provided under the collective bargaining agreement for union employees and by personnel policies for nonunion employees. At December 31, 2014, the date of the last plan valuation, the County’s healthcare plan covered 41 members 19 active plan members and 22 retirees receiving benefits). Annual OPEB Cost and Net OPEB Obligation. The County’s annual other postemployment benefit (OPEB) cost (expense) is calculated based on the annual required contribution of the employer (ARC). The County has elected to calculate the ARC and related information using the alternative measurement method permitted by GASB Statement No. 45 for employers in plans with fewer than one hundred total plan members. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the County’s annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the County’s net OPEB obligation: Three-Year Trend Information The County's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2015 and the two preceding years were as follows: Funding policy. Contribution requirements also are negotiated between the County and employees. The County contributes 80% of the cost of current-year premiums for eligible retired plan members. For fiscal year 2015, the County contributed $237,764 to the plan. Net OPEB obligation, end of year Net OPEB obligation, beginning of year 71 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Road Commission - Component Unit Employees hired prior to December 31, 2008, and retire with 20 years of employment and age 55 years, or greater, will receive health insurance comparable to that provided to the current employees until age 65 years and supplemental health insurance for the employee and spouse for their lifetimes. The plan does not issue a separate stand-alone financial statement. Funded Status and Funding Progress. As of December 31, 2014, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $2,537,155, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the Plan) was $745,953, and the ratio of the UAAL to the covered payroll was 340.1 percent. The schedule of funding progress, presented as required supplementary information (RSI) following the notes to the financial statements, presents multiyear trend information about whether the actuarial values of plan assets are increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial valuation of an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits calculations. Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive plan (the Plan as understood by the employer and Plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and Plan members to that point. The 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 December 31, 2014 actuarial valuation, the entry age actuarial cost method was used. The actuarial assumptions included a 4.0% investment rate of return (net of administrative expenses), which is a blended rate of the expected long-term investment returns on plan assets and on the employer's own investments calculated based on the funded level of the plan at the valuation date, and an annual healthcare cost trend rate of 9% initially, reduced by decrements to an ultimate rate of 5% after four years. Both rates included percent inflation assumptions of The actuarial value of assets (if any) was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five-year period. The UAAL is being amortized as a level percentage of projected payroll on an open basis. The Otsego County Road Commission provides hospitalization and medical coverage for eligible retirees and their spouses through the Road Commissions group health insurance plan, which covers both active and retired members. The following are the Governmental Accounting Standards Board Statement No. 45 required disclosures which have been implemented prospectively by the Road Commission. 72 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements 307,622 $ Interest on net OPEB obligation 325,549 Adjustments to ARC (314,020) Annual OPEB cost (expense) 319,151 (309,626) Increase in net OPEB obligation 9,525 8,138,731 Net OPEB obligation, end of year 8,148,256 $ Year Ended Annual OPEB Cost Percentage of Annual OPEB Cost Contributed Net OPEB Obligation 12/31/2013 1,588,361 $ 21.68% 7,231,810 $ 12/31/2014 1,221,411 25.75% 8,138,731 12/31/2015 319,151 97.02% 8,148,256 Three-Year Trend Information Annual OPEB Cost and Net OPEB Obligation . The Road Commissions annual other post employment benefit (OPEB) cost is calculated based on the annual required contribution of the employer (ARC). The Road Commission has elected to calculate the ARC and related information using the alternative measurement method permitted by GASB Statement 45 for employers in plans with fewer than one hundred total plan members. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities over a period not to exceed thirty years. The Road Commission has no obligation to make contributions in advance of when the premiums are due for payment may be financed on a "pay-as-you-go" basis). The only current contributions made are to pay the actual current premiums of the retirees. That amount was less than the annual required contribution and is reflected in the schedule that follows. Administrative costs of the plan are paid for by the Road Commission. The Road Commission's computed contribution and actual funding is summarized as follows: Net OPEB obligation, beginning of year Contributions made Annual required contribution (ARC) Funding Progress. For the year ended December 31, 2015, the Road Commission has determined an estimated cost of providing post employment benefits through the alternative measurement method of calculation as of December 31, 2015. The calculation computes an annual required contribution, which represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and to cover the amortization of any unfunded actuarial liabilities from the past, over a period not to exceed 30 years. The Road Commission's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal years 2013, 2014 and 2015 are as follows: Funded Status and Funding Progress. As of December 31, 2015, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $6,088,899, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the Plan) was $1,103,398, and the ratio of the UAAL to the covered payroll was 552 percent. 73 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Notes to Financial Statements Actuarial Methods and Assumptions: Assumptions About Employees and Members: Assumptions About Healthcare Costs: Other Assumptions and Methods Based on historical average retirement age of the covered group, active plan members were assumed to retire at various ages between 55 and 65 or the first year thereafter in which the member would qualify for benefits. Marital status as of the calculation date was assumed to continue throughout retirement. Life expectancy was based on mortality tables published in the 1994 Group Annuity Mortality Table. The probability of remaining employed until the assumed retirement age and employees' expected future working lifetimes were developed using specific age-based turnover data. The 2014 health insurance premiums for retirees were used to calculate the present value of total benefits to be paid. The expected rate of increase in health insurance premiums were based on the 2013 version of the National Health Expenditures (NHE) released in 2014, Centers for Medicare & Medicaid Services, Office of the Actuary. The inflation rate was assumed to be 4.0%. Based on the historical and expected returns of the Commission's investments, the investment rate of return was assumed to be The value of Plan assets was set at market value. A simplified version of the entry age actuarial cost method was used in the actuarial valuation. The UAAL is amortized over a thirty-year period as a level percent of projected payroll on an open basis. Payroll was assumed to grow over the long-term at the same rate as inflation. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan member 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. 74 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN NOTES TO FINANCIAL STATEMENTS 19. FUND BALANCES - GOVERNMENTAL FUNDS Public Improvements Nonmajor Total General Housing Capital Project Governmental Governmental Fund Commission M-TEC Fund Funds Funds Nonspendable 27,257 $ - $ - $ 435,082 $ 219 $ 462,558 $ Restricted for: Housing projects - 130,281 - - - 130,281 Public safety - - - - 1,525,720 1,525,720 Health and welfare - - - - 120,063 120,063 Recreation and culture - - 380 - 740,404 740,784 State revenue sharing - - - - - - Debt service - - - - 163,185 163,185 Recycling - - - - 229,202 229,202 Register of Deeds - - - - 61,422 61,422 Law Library - - - - 15,582 15,582 Bradford Lake Dam - - - - 20,068 20,068 Pre-disaster Mitigation - - - - 4,963 4,963 Total restricted - 130,281 380 - 2,880,609 3,011,270 Committed for: Work Camp - - - - 148,622 148,622 Friend of the Court - - - - 172,309 172,309 Child Care Probate - - - - 107,674 107,674 Equipment - - - - 130,401 130,401 Public improvements - - - 1,358,887 1,829,912 3,188,799 Total committed - - - 1,358,887 2,388,918 3,747,805 Assigned for: Legal defense 122,486 - - - - 122,486 Soldiers' relief 22,237 - - - - 22,237 Total assigned 144,723 - - - - 144,723 Unassigned 4,166,440 - - - - 4,166,440 Total fund balances, governmental funds 4,338,420 $ 130,281 $ 380 $ 1,793,969 $ 5,269,746 $ 11,532,796 $ The County has adopted the provisions of GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions . GASB 54 establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Detailed information on fund balances of governmental funds is as follows: 75 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN NOTES TO FINANCIAL STATEMENTS 20. NET INVESTMENT IN CAPITAL ASSETS AND RESTRICTED NET POSITION The composition of net investment in capital assets as of December 31, 2015, was as follows: Governmental Business-type Component Activities Activities Units Capital assets: Capital assets not being depreciated 2,201,167 $ 319,668 $ 10,018,954 $ Capital assets being depreciated, net 7,542,555 7,844,302 22,202,321 9,743,722 8,163,970 32,221,275 Related debt: Total installment debt 2,278,652 - 1,723,835 Less: Otsego County Road Commission bonds (760,000) - - 1,518,652 - 1,723,835 Net investment in capital assets 8,225,070 $ 8,163,970 $ 30,497,440 $ The composition of restricted net position as of December 31, 2015, was as follows: Governmental Business-type Component Activities Activities Units Net position restricted for: Housing projects 2,239,509 $ - $ - $ Public safety 1,525,720 - - Health and welfare 120,063 - - Recreation and culture 740,784 - - Debt service 142,718 - - Recycling 229,202 - - Register of Deeds 61,422 - - Law Library 15,582 - - Bradford Lake Dam 20,068 - - Pre-disaster Mitigation 4,963 - - University Center - - 343,145 Commission on Aging - - 44,000 Total restricted net position 5,100,031 $ - $ 387,145 $ 21. RESTATEMENTS 22. SUBSEQUENT EVENTS The County adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, in the current year. As a result of this change, beginning net position of governmental activities, the Bus System fund and the aggregate discretely presented component units was decreased by $5,029,210, $132,387 and $4,235,738 respectively. After fiscal year end, the Road Commission executed and authorized purchase orders for three single axle trucks for approximately $547,000 and equipment purchases amounting to approximately $26,000. Beginning net positon of the aggregate discretely presented component units was decreased by $3,798,598 as a result of adjusting capitalized nondepreciable land improvements and infrastructure. 76 ---PAGE BREAK--- REQUIRED SUPPLEMENTARY INFORMATION ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Year Ended December 31, 2015 Total pension liability Service cost 338,932 $ Interest 1,479,439 Benefit payments, including refunds of employee contributions (978,368) Net change in total pension liability 840,003 Total pension liability, beginning of year 18,252,331 Total pension liability, end of year 19,092,334 Plan fiduciary net position Employer contributions 640,433 Employee contributions 3,630 Net investment income 800,044 Benefit payments, including refunds of employee contributions (978,368) Administrative expense (29,357) Net change in plan fiduciary net position 436,382 Plan fiduciary net position, beginning of year 12,723,758 Plan fiduciary net position, end of year 13,160,140 County's net pension liability 5,932,194 $ Plan fiduciary net position as a percentage of total pension liability 68.9% Covered-employee payroll 4,188,926 $ County's net pension liability as a percentage of covered-employee payroll 141.6% Notes: The amounts presented for each fiscal year were determined as of December 31 of the preceding year. GASB 68 was implemented in fiscal year 2015. This schedule is being built prospectively. Ultimately, 10 years of data will be presented. Schedule of Changes in County's Net Pension Liability and Related Ratios 77 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Schedule of the Net Pension Liability Fiscal Year Ended December 31, Total Pension Liability Plan Net Position Net Pension Liability Plan Net Position as Percentage of Total Pension Liability Covered- Employee Payroll Net Pension Liability as Percentage of Covered Payroll 2015 19,092,334 $ 13,160,140 $ 5,932,194 $ 68.9% 4,188,926 $ 141.62% The amounts presented for each fiscal year were determined as of December 31 of the preceding year. Note: GASB 68 was implemented in fiscal year 2015. This schedule is being built prospectively. Ultimately, 10 years of data will be presented. 78 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information MERS Agent Multiple-Employer Defined Benefit Pension Plan Schedule of Contributions Fiscal Year Ending December 31, Actuarially Determined Contribution Contributions in Relation to the Actuarially Determined Contribution Contribution Deficiency (Excess) Covered- Employee Payroll Contributions as Percentage of Covered- Employee Payroll 2006 727,328 $ 727,328 $ - $ 4,444,345 $ 16.37% 2007 634,376 634,376 - 4,414,637 14.37% 2008 590,169 590,169 - 4,443,017 13.28% 2009 633,642 633,642 - 4,428,647 14.31% 2010 716,885 716,885 - 4,387,035 16.34% 2011 565,476 565,476 - 4,402,435 12.84% 2012 705,702 705,702 - 4,016,929 17.57% 2013 727,962 727,962 - 4,082,902 17.83% 2014 640,433 640,433 - 4,190,940 15.28% 2015 693,477 693,477 - 4,188,926 16.56% Valuation payroll as of the previous year ended December 31. Notes to Schedule of Contributions Valuation Date Methods and assumptions used to determine contribution rates: Actuarial cost method Entry-age normal Amortization method Level percent of payroll, closed Remaining amortization period 24 years Asset valuation method 10 year Inflation 3.0% to 4.0% Salary increases Investment rate of return 8.0%, net of investment expense and including inflation Retirement age Mortality Age-based table of rates that are specific to the type of eligibility condition. The Normal Retirement rates were first used for the December 31, 2009 actuarial valuations. The Early Retirement rates were first used for the December 31, 2011 actuarial valuations. 1994 Group Annuity Mortality Table of a 50% Male and 50% Female blend. For disabled retirees, the regular mortality table is used with a 10-year set forward in ages to reflect the higher expected mortality rates of disabled members. Actuarially determined contribution rates are calculated as of December 31, that is 12 months prior to the beginning of the fiscal year in which contributions are reported. 4.5% in the long-term and 3% for calendar years 2015 and 2016, respectively) The actuarially determined contribution was calculated based on projected covered payroll. Employer contributions were made in full based on actual covered payroll. Accordingly, the actuarially-determined contribution has been expressed above as a percentage of actual payroll. 79 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Required Supplementary Information Other Postemployment Benefits Plan (Primary Government) Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage Actuarial Value of (AAL) - AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (b-a) (a / b) / c) 12/31/2008 - $ 3,946,926 $ 3,946,926 $ 0.0% 2,060,811 $ 191.5% 12/31/2011 - 3,742,809 3,741,809 0.0% 1,572,403 238.0% 12/31/2014 - 2,537,155 2,537,155 0.0% 745,953 340.1% Annual Year Ended Required Percentage December 31, Contributions Contributed 2013 424,314 $ 63% 2014 230,268 19% 2015 237,772 40% Schedule of Employer Contributions Other Postemployment Benefits Plan Schedule of Funding Progress Other Postemployment Benefits Plan 80 ---PAGE BREAK--- COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Governmental Funds December 31, 2015 Special Capital Revenue Projects Total Assets Cash and cash equivalents 1,890,183 $ 1,351,012 $ 3,241,195 $ Investments 1,631,809 646,524 2,278,333 Receivables, net: Accounts 112,101 - 112,101 Property taxes 1,294,532 213,208 1,507,740 Due from other governments 161,222 10,000 171,222 Due from other funds - 8,000 8,000 Other assets 219 - 219 Total assets 5,090,066 $ 2,228,744 $ 7,318,810 $ Liabilities Accounts payable 177,084 $ 177,624 $ 354,708 $ Accrued liabilities 12,601 - 12,601 Due to other governments 5,000 - 5,000 Due to other funds - 8,000 8,000 Advances from other funds 86,576 - 86,576 Unearned revenue 65,000 - 65,000 Total liabilities 346,261 185,624 531,885 Deferred inflows of resources Taxes levied for a subsequent period 1,303,971 213,208 1,517,179 Fund balances Nonspendable 219 - 219 Restricted 2,880,609 - 2,880,609 Committed 559,006 1,829,912 2,388,918 Total fund balances 3,439,834 1,829,912 5,269,746 Total liabilities, deferred inflows 5,090,066 $ 2,228,744 $ 7,318,810 $ of resources, and fund balances 81 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended December 31, 2015 Special Capital Revenue Projects Total Revenues Taxes 1,320,871 $ 1,357,307 $ 2,678,178 $ Federal sources 306,586 - 306,586 State sources 409,665 10,158 419,823 Local sources 2,121 - 2,121 Charges for services 952,877 49,095 1,001,972 Fines and forfeits 169,680 - 169,680 Interest and rentals 17,701 12,073 29,774 Other revenue 738,475 117,820 856,295 Total revenues 3,917,976 1,546,453 5,464,429 Expenditures Judicial 459,314 671 459,985 General government 243,082 - 243,082 Public safety 1,395,710 854,810 2,250,520 Public works - 64,402 64,402 Health and welfare 748,908 - 748,908 Community and economic development - - - Recreation and culture 1,108,538 12,854 1,121,392 Other 4,742 4,742 Debt service: Principal 40,539 - 40,539 Interest and fiscal charges 6,508 - 6,508 Capital outlay 159,367 937,955 1,097,322 Total expenditures 4,161,966 1,875,434 6,037,400 Revenues over (under) expenditures (243,990) (328,981) (572,971) Other financing sources (uses) Transfers in 656,847 887,032 1,543,879 Transfers out (194,789) (30,246) (225,035) Proceeds from sale of capital assets 80 - 80 Total other financing sources (uses) 462,138 856,786 1,318,924 Net change in fund balances 218,148 527,805 745,953 Fund balances, beginning of year 3,221,686 1,302,107 4,523,793 Fund balances, end of year 3,439,834 $ 1,829,912 $ 5,269,746 $ 82 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Special Revenue Funds December 31, 2015 Groen Revenue Friend Work Parks and Nature Sharing of the Camp Recreation Preserve Reserve Court Assets Cash and cash equivalents 147,352 $ 126,296 $ 10,081 $ - $ 136,148 $ Investments - 110,000 - - - Receivables, net: Accounts - 548 - - 120 Property taxes - 213,818 - - - Due from other governments 2,200 - - - 55,366 Prepaids - - - - 152 Total assets 149,552 $ 450,662 $ 10,081 $ - $ 191,786 $ Liabilities Accounts payable 536 $ 2,874 $ 1,109 $ - $ 5,893 $ Accrued liabilities 394 1,557 340 - 3,993 Due to other governments - - - - - Advances from other funds - - - - - Unearned revenue - 65,000 - - - Total liabilities 930 69,431 1,449 - 9,886 Deferred inflows of resources Taxes levied for a subsequent period - 213,818 - - 9,439 Fund balances Nonspendable - - - - 152 Restricted - 167,413 8,632 - - Committed 148,622 - - - 172,309 Total fund balances 148,622 167,413 8,632 - 172,461 Total liabilities, inflows of 149,552 $ 450,662 $ 10,081 $ - $ 191,786 $ resources, and fund balances 83 ---PAGE BREAK--- Animal Register Control Brownfield of Deeds Animal Forfeited Recycling Moth Redevelopment Building Automation Control Funds Funds Control Authority Department Fund Library 28,474 $ 8,154 $ 72,790 $ 113,948 $ 163,185 $ 566,698 $ 62,332 $ 5,828 $ 410,000 - 156,809 - - - - 600,000 - - - - - - 145 3,045 341,514 - 283,674 - - - - 455,526 - - - - - - - - - - - - - - - - 779,988 $ 8,154 $ 513,273 $ 113,948 $ 163,185 $ 566,698 $ 62,477 $ 1,064,399 $ 9,297 $ - $ 397 $ - $ - $ 3,053 $ 1,055 $ 44,514 $ 3,465 - - - - 1,027 - - - - - - - - - - 86,576 - - - - - - - - - - - - - - - 99,338 - 397 - - 4,080 1,055 44,514 341,514 - 283,674 - - - - 455,526 - - - - - - - - 339,136 8,154 229,202 113,948 163,185 562,618 61,422 564,359 - - - - - - - - 339,136 8,154 229,202 113,948 163,185 562,618 61,422 564,359 779,988 $ 8,154 $ 513,273 $ 113,948 $ 163,185 $ 566,698 $ 62,477 $ 1,064,399 $ Continued… 84 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Special Revenue Funds December 31, 2015 Emergency Homeland Pre-Disaster Concealed Local 911 Security Mitigation Pistol Officers Law Funds Grant Grant Licensing Training Library Assets Cash and cash equivalents 100,944 $ 5,000 $ - $ 4,787 $ 22,670 $ 15,582 $ Investments 350,000 - - - - - Receivables, net: Accounts 106,455 - - 176 1,075 - Property taxes - - - - - - Due from other governments 36,701 - - - - - Prepaids - - - - - - Total assets 594,100 $ 5,000 $ - $ 4,963 $ 23,745 $ 15,582 $ Liabilities Accounts payable 2,033 $ - $ - $ - $ - $ - $ Accrued liabilities - - - - - - Due to other governments - 5,000 - - - - Advances from other funds - - - - - - Unearned revenue - - - - - - Total liabilities 2,033 5,000 - - - - Deferred inflows of resources Taxes levied for a subsequent period - - - - - - Fund balances Nonspendable - - - - - - Restricted 592,067 - - 4,963 23,745 15,582 Committed - - - - - - Total fund balances 592,067 - - 4,963 23,745 15,582 Total liabilities, inflows of 594,100 $ 5,000 $ - $ 4,963 $ 23,745 $ 15,582 $ resources, and fund balances 85 ---PAGE BREAK--- Department Child Bradford of Human Care Veteran's Equipment Lake Services Probate Trust Revolving Dam Total 706 $ 106,388 $ 609 $ 172,143 $ 20,068 $ 1,890,183 $ 5,000 - - - - 1,631,809 - 465 - 72 - 112,101 - - - - - 1,294,532 - 66,955 - - - 161,222 - 67 - - - 219 5,706 $ 173,875 $ 609 $ 172,215 $ 20,068 $ 5,090,066 $ 200 $ 64,309 $ - $ 41,814 $ - $ 177,084 $ - 1,825 - - - 12,601 - - - - - 5,000 - - - - - 86,576 - - - - - 65,000 200 66,134 - 41,814 - 346,261 - - - - - 1,303,971 - 67 - - - 219 5,506 - 609 - 20,068 2,880,609 - 107,674 - 130,401 - 559,006 5,506 107,741 609 130,401 20,068 3,439,834 5,706 $ 173,875 $ 609 $ 172,215 $ 20,068 $ 5,090,066 $ Concluded 86 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Special Revenue Funds For the Year Ended December 31, 2015 Groen Revenue Friend Work Parks and Nature Sharing of the Animal Camp Recreation Preserve Reserve Court Control Revenues Taxes - $ 212,734 $ - $ - $ - $ 340,504 $ Federal sources - - - - 306,586 - State sources - - - - 31,034 - Local sources - - - - - - Charges for services 62,650 150,951 - - 32,484 43,921 Fines and forfeits - - - - - 710 Interest and rentals - 610 - - - 4,363 Other revenue - 85,683 40,063 - - 15,195 Total revenues 62,650 449,978 40,063 - 370,104 404,693 Expenditures Judicial - - - - 459,314 - General government - - - - - - Public safety 112,295 - - - - 343,533 Health and welfare - - - - - - Recreation and culture - 362,080 48,785 - - - Debt service: Principal - - - - - - Interest and fiscal charges - - - - - - Capital outlay - - - - - - Total expenditures 112,295 362,080 48,785 - 459,314 343,533 Revenues over (under) expenditures (49,645) 87,898 (8,722) - (89,210) 61,160 Other financing sources (uses) Transfers in 56,000 - 2,000 - 148,396 - Transfers out - - - (136,622) - - Proceeds from sale of capital assets - - - - - - Total other financing sources (uses) 56,000 - 2,000 (136,622) 148,396 - Net change in fund balances 6,355 87,898 (6,722) (136,622) 59,186 61,160 Fund balances, beginning of year 142,267 79,515 15,354 136,622 113,275 277,976 Fund balances, end of year 148,622 $ 167,413 $ 8,632 $ - $ 172,461 $ 339,136 $ 87 ---PAGE BREAK--- Animal Register Control Brownfield of Deeds Forfeited Recycling Moth Redevelopment Building Automation Funds Fund Control Authority Department Fund Library - $ 283,776 $ - $ 24,109 $ - $ - $ 459,748 $ - - - - - - - - - - - - - 17,904 - - - - - - - - - - - 464,353 39,476 - - - - - - - 168,970 4 2,921 244 - 39 - 7,339 - 2,065 - - 212 - 51,095 4 288,762 244 24,109 464,604 39,476 705,056 - - - - - - - - 206,767 - - - 30,565 - - - - - 338,227 - - - - - - - - - - - - - - - 694,972 - - - 40,539 - - - - - - 6,508 - - - - - - - - - 10,500 - 206,767 - 47,047 338,227 30,565 705,472 4 81,995 244 (22,938) 126,377 8,911 (416) - - - - - - - - - - - (36,000) 133 - - - - - - - - - - - - (36,000) 133 - 4 81,995 244 (22,938) 90,377 9,044 (416) 8,150 147,207 113,704 186,123 472,241 52,378 564,775 8,154 $ 229,202 $ 113,948 $ 163,185 $ 562,618 $ 61,422 $ 564,359 $ Continued… 88 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Special Revenue Funds For the Year Ended December 31, 2015 Emergency Homeland Pre-Disaster Concealed Local 911 Security Mitigation Pistol Officers Law Funds Grant Grant Licensing Training Library Revenues Taxes - $ - $ - $ - $ - $ - $ Federal sources - - - - - - State sources - - - - - - Local sources - - - - - - Charges for services 147,767 - - 4,963 6,312 - Fines and forfeits - - - - - - Interest and rentals 664 - - - - - Other revenue 495,672 - - - - 3,500 Total revenues 644,103 - - 4,963 6,312 3,500 Expenditures Judicial - - - - - - General government - - - - - - Public safety 601,323 - - - 332 - Health and welfare - - - - - - Recreation and culture - - 2,701 - - - Debt service: Principal - - - - - - Interest and fiscal charges - - - - - - Capital outlay - - - - - - Total expenditures 601,323 - 2,701 - 332 - Revenues over (under) expenditures 42,780 - (2,701) 4,963 5,980 3,500 Other financing sources (uses) Transfers in - - - - - - Transfers out (22,300) - - - - - Proceeds from sale of capital assets - - - - - - Total other financing sources (uses) (22,300) - - - - - Net change in fund balances 20,480 - (2,701) 4,963 5,980 3,500 Fund balances, beginning of year 571,587 - 2,701 - 17,765 12,082 Fund balances, end of year 592,067 $ - $ - $ 4,963 $ 23,745 $ 15,582 $ 89 ---PAGE BREAK--- Department Child Bradford of Human Care Veteran's Equipment Lake Services Probate Trust Revolving Dam Total - $ - $ - $ - $ - $ 1,320,871 $ - - - - - 306,586 - 350,982 9,745 - - 409,665 - 2,121 - - - 2,121 - - - - - 952,877 - - - - - 169,680 51 - - 1,466 - 17,701 - 43,975 - 1,015 - 738,475 51 397,078 9,745 2,481 - 3,917,976 - - - - - 459,314 - - - 5,750 - 243,082 - - - - - 1,395,710 7,706 729,500 11,702 - - 748,908 - - - - - 1,108,538 - - - - - 40,539 - - - - - 6,508 - - - 148,867 - 159,367 7,706 729,500 11,702 154,617 - 4,161,966 (7,655) (332,422) (1,957) (152,136) - (243,990) 7,655 235,000 - 207,796 - 656,847 - - - - - (194,789) - - - 80 - 80 7,655 235,000 - 207,876 - 462,138 - (97,422) (1,957) 55,740 - 218,148 5,506 205,163 2,566 74,661 20,068 3,221,686 5,506 $ 107,741 $ 609 $ 130,401 $ 20,068 $ 3,439,834 $ Concluded 90 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Balance Sheet Nonmajor Capital Projects Funds December 31, 2015 EMS Building Capital Court Project Library Restoration Airport Fund Building Building Construction Assets Cash and cash equivalents 228,536 $ 195,415 $ 82,454 $ 172,495 $ Investments 196,524 350,000 - - Receivables, net: Property taxes 838 - - - Due from other governments - - - - Due from other funds - - - - Total assets 425,898 $ 545,415 $ 82,454 $ 172,495 $ Liabilities Accounts payable 128,654 $ - $ 3,829 $ 3,913 $ Due to other funds - - - - Total liabilities 128,654 - 3,829 3,913 Deferred inflows of resources Taxes levied for a subsequent period 838 - - - Fund balances Committed 296,406 545,415 78,625 168,582 Total liabilities, deferred inflows of resources, and fund balances 425,898 $ 545,415 $ 82,454 $ 172,495 $ 91 ---PAGE BREAK--- Groen Nature Groen Preserve Capital Capital Building Capital Projects II Projects Maintenance Projects Total 32,470 $ 216 $ 68,749 $ 570,677 $ 1,351,012 $ - - - 100,000 646,524 - - 212,370 - 213,208 - - - 10,000 10,000 - - - 8,000 8,000 32,470 $ 216 $ 281,119 $ 688,677 $ 2,228,744 $ - $ - $ - $ 41,228 $ 177,624 $ 8,000 - - - 8,000 8,000 - - 41,228 185,624 - - 212,370 - 213,208 24,470 216 68,749 647,449 1,829,912 32,470 $ 216 $ 281,119 $ 688,677 $ 2,228,744 $ 92 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Capital Projects Funds For the Year Ended December 31, 2015 EMS Building Capital Court Project Library Restoration Airport Fund Building Building Construction Revenues Property taxes 1,143,153 $ - $ - $ - $ State grants - - - 158 Charges for services - - 49,095 - Interest and rentals 8,063 3,577 - - Other revenue - - - 820 Total revenues 1,151,216 3,577 49,095 978 Expenditures Judicial - - 671 - Public safety 854,810 - - - Public works - - - - Recreation and culture - - - - Other - - - 4,742 Capital outlay - - 28,264 - Total expenditures 854,810 - 28,935 4,742 Revenues over (under) expenditures 296,406 3,577 20,160 (3,764) Other financing sources (uses) Transfers in - - - 30,000 Transfers out - - - (27,246) Total other financing sources (uses) - - - 2,754 Net change in fund balances 296,406 3,577 20,160 (1,010) Fund balances, beginning of year - 541,838 58,465 169,592 Fund balances, end of year 296,406 $ 545,415 $ 78,625 $ 168,582 $ 93 ---PAGE BREAK--- Groen Nature Groen Preserve Capital Capital Building Capital Projects II Projects Maintenance Projects Total - $ - $ 214,154 $ - $ 1,357,307 $ - - - 10,000 10,158 - - - - 49,095 - - 433 - 12,073 22,000 - - 95,000 117,820 22,000 - 214,587 105,000 1,546,453 - - - - 671 - - - - 854,810 - - - 64,402 64,402 12,854 - - - 12,854 - - - - 4,742 - - 145,838 763,853 937,955 12,854 - 145,838 828,255 1,875,434 9,146 - 68,749 (723,255) (328,981) 1,000 - - 856,032 887,032 (2,000) - - (1,000) (30,246) (1,000) - - 855,032 856,786 8,146 - 68,749 131,777 527,805 16,324 216 - 515,672 1,302,107 24,470 $ 216 $ 68,749 $ 647,449 $ 1,829,912 $ 94 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Net Position Nonmajor Enterprise Funds December 31, 2015 Global University Tax Positioning Center Foreclosure System Metropolitan Fund Fund Area Network Assets Current assets: Cash and cash equivalents 375,570 $ 56,491 $ 103,986 $ Investments 946,307 - - Accounts receivable, net - - 639 Prepaids - - - Total current assets 1,321,877 56,491 104,625 Noncurrent assets: Capital assets being depreciated, net - - 98,383 Total assets 1,321,877 56,491 203,008 Liabilities (all current) Accounts payable 2,862 1,795 5,280 Accrued liabilities 641 - - Unearned revenue - - - Total liabilities 3,503 1,795 5,280 Net position Investment in capital assets - - 98,383 Unrestricted 1,318,374 54,696 99,345 Total net position 1,318,374 $ 54,696 $ 197,728 $ 95 ---PAGE BREAK--- Airport Special Jail Homestead Events Commissary Audit Total 24,798 $ 325 $ 14,128 $ 575,298 $ - - - 946,307 700 6,346 - 7,685 8,170 - - 8,170 33,668 6,671 14,128 1,537,460 - - - 98,383 33,668 6,671 14,128 1,635,843 1,301 689 - 11,927 - - - 641 500 - - 500 1,801 689 - 13,068 - - - 98,383 31,867 5,982 14,128 1,524,392 31,867 $ 5,982 $ 14,128 $ 1,622,775 $ 96 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenses and Changes in Fund Net Position Nonmajor Enterprise Funds For the Year Ended December 31, 2015 Global University Tax Positioning Center Foreclosure System Metropolitan Fund Fund Area Network Operating revenues Charges for services 145,442 $ 11,236 $ 108,232 $ Local sources - 2,000 - Total operating revenues 145,442 13,236 108,232 Operating expenses Salaries and fringes 52,761 - - Contractual services - - - Materials and supplies 4,582 28,043 - Depreciation - - 12,300 Other 7,795 - 75,717 Total operating expenses 65,138 28,043 88,017 Operating income (loss) 80,304 (14,807) 20,215 Nonoperating revenues Investment earnings 31,011 - - Other 148,383 - - Total nonoperating revenues 179,394 - - Income (loss) before transfers 259,698 (14,807) 20,215 Transfers Transfers in - 17,000 - Transfers out (57,000) - - Total transfers (57,000) 17,000 - Change in net position 202,698 2,193 20,215 Net position, beginning of year 1,115,676 52,503 177,513 Net position, end of year 1,318,374 $ 54,696 $ 197,728 $ 97 ---PAGE BREAK--- Airport Special Jail Homestead Events Commissary Audit Total 47,836 $ 21,026 $ 463 $ 334,235 $ - - - 2,000 47,836 21,026 463 336,235 - - - 52,761 54,565 - - 54,565 16,938 16,157 - 65,720 - - - 12,300 30,393 - 3,331 117,236 101,896 16,157 3,331 302,582 (54,060) 4,869 (2,868) 33,653 - - 2,048 33,059 73,126 - - 221,509 73,126 - 2,048 254,568 19,066 4,869 (820) 288,221 - - - 17,000 - - - (57,000) - - - (40,000) 19,066 4,869 (820) 248,221 12,801 1,113 14,948 1,374,554 31,867 $ 5,982 $ 14,128 $ 1,622,775 $ 98 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Cash Flows Nonmajor Enterprise Funds For the Year Ended December 31, 2015 Global University Tax Positioning Center Foreclosure System Metropolitan Fund Fund Area Network Cash flows from operating activities Receipts from customers 145,442 $ 13,236 $ 112,504 $ Payments to suppliers (63,574) (46,185) (76,320) Net cash provided by (used in) operating activities 81,868 (32,949) 36,184 Cash flows from noncapital financing activities Other receipts 148,383 - - Operating transfers in - 17,000 - Operating transfers out (57,000) - - Net cash provided by (used in) noncapital financing activities 91,383 17,000 - Cash flows from investing activities Purchases of investments (185,341) - - Interest received on investments 31,011 - - Net cash provided by (used in) investing activities (154,330) - - Net increase (decrease) in cash and cash equivalents 18,921 (15,949) 36,184 Cash and cash equivalents, beginning of year 356,649 72,440 67,802 - Cash and cash equivalents, end of year 375,570 $ 56,491 $ 103,986 $ Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating income (loss) 80,304 $ (14,807) $ 20,215 $ Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation expense - - 12,300 Change in: Accounts receivable - - 4,272 Prepaid items - - - Accounts payable 2,247 (18,142) (603) Accrued liabilities (683) - - Unearned revenue - - - Net cash provided by (used in) operating activities 81,868 $ (32,949) $ 36,184 $ 99 ---PAGE BREAK--- Airport Special Jail Homestead Events Commissary Audit Total 47,636 $ 14,680 $ 463 $ 333,961 $ (108,993) (17,329) (3,331) (315,732) (61,357) (2,649) (2,868) 18,229 73,126 - - 221,509 - - - 17,000 - - - (57,000) 73,126 - - 181,509 - - - (185,341) - - 2,048 33,059 - - 2,048 (152,282) 11,769 (2,649) (820) 47,456 13,029 2,974 14,948 527,842 - 24,798 $ 325 $ 14,128 $ 575,298 $ (54,060) $ 4,869 $ (2,868) $ 33,653 $ - - - 12,300 (700) (6,346) - (2,774) (8,170) - - (8,170) 1,073 (1,172) - (16,597) - - - (683) 500 - - 500 (61,357) $ (2,649) $ (2,868) $ 18,229 $ 100 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Net Position Internal Service Funds December 31, 2015 Building and Administrative Health Grounds Services Care Total Assets (all current) Cash and cash equivalents 191,186 $ 20,025 $ 78,887 $ 290,098 $ Investments - - 300,000 300,000 Accounts receivable, net 4,646 - 328 4,974 Inventories - 325 - 325 Prepaids - - 15,646 15,646 Total assets 195,832 20,350 394,861 611,043 Liabilities (all current) Accounts payable 12,321 332 - 12,653 Accrued liabilities - 1,206 - 1,206 Unearned revenue 1,791 - - 1,791 Total liabilities 14,112 1,538 - 15,650 Net position Unrestricted 181,720 18,812 394,861 595,393 Total net position 181,720 $ 18,812 $ 394,861 $ 595,393 $ 101 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Revenues, Expenditures and Changes in Fund Net Position Internal Service Funds For the Year Ended December 31, 2015 Building and Administrative Health Grounds Services Care Total Operating revenues Charges for services 466,350 $ 454,606 $ 1,133,424 $ 2,054,380 $ Operating expenses Salaries and fringes - 489,684 1,088,850 1,578,534 Contractual services 232,885 - - 232,885 Materials and supplies 3,391 5,803 - 9,194 Equipment repair and maintenance 29,573 1,567 - 31,140 Utilities 199,503 1,015 - 200,518 Other 3,567 11,604 - 15,171 Total operating expenses 468,919 509,673 1,088,850 2,067,442 Operating income (loss) (2,569) (55,067) 44,574 (13,062) Nonoperating revenues Investment earnings - - 287 287 Income (loss) before transfers (2,569) (55,067) 44,861 (12,775) Transfers Transfers in - 30,095 - 30,095 Transfers out - - (150,000) (150,000) Total transfers - 30,095 (150,000) (119,905) Change in net position (2,569) (24,972) (105,139) (132,680) Net position, beginning of year 184,289 43,784 500,000 728,073 Net position, end of year 181,720 $ 18,812 $ 394,861 $ 595,393 $ 102 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Cash Flows Internal Service Funds For the Year Ended December 31, 2015 Building and Administrative Health Grounds Services Care Total Cash flows from operating activities Internal activity - receipts from other funds 468,099 $ 454,606 $ 1,133,788 $ 2,056,493 $ Payments to suppliers (472,243) (20,625) - (492,868) Payments to employees for services and benefits - (492,408) (1,098,397) (1,590,805) Net cash provided by (used in) operating activities (4,144) (58,427) 35,391 (27,180) Cash flows from noncapital financing activities Operating transfers in - 30,095 - 30,095 Operating transfers out - - (150,000) (150,000) Net cash provided by (used in) noncapital financing activities - 30,095 (150,000) (119,905) Cash flows from investing activities Net purchase of investments - - (300,000) (300,000) Interest received on investments - - 287 287 Net increase (decrease) in cash and cash equivalents (4,144) (28,332) (414,322) (446,798) Cash and cash equivalents, beginning of year 195,330 48,357 493,209 736,896 - Cash and cash equivalents, end of year 191,186 $ 20,025 $ 78,887 $ 290,098 $ Reconciliation of operating income (loss) to net cash provided by (used in) operating activities Operating income (loss) (2,569) $ (55,067) $ 44,574 $ (13,062) $ Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Change in: Accounts receivable (42) - 364 322 Prepaid items - - (9,547) (9,547) Accounts payable (3,324) (636) - (3,960) Accrued liabilities - (2,724) - (2,724) Unearned revenue 1,791 - - 1,791 Net cash provided by (used in) operating activities (4,144) $ (58,427) $ 35,391 $ (27,180) $ 103 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Combining Statement of Fiduciary Assets and Liabilities Fiduciary Funds December 31, 2015 Michigan Municipal Risk General Agency Payroll Imprest Library Management Fund Fund Penal Fines Authority Total Assets Cash and cash equivalents 1,134,587 $ 274,235 $ 112,781 $ 246,391 $ 1,767,994 $ Liabilities Undistributed tax collections 925,802 $ - $ - $ - $ 925,802 $ Bonds, restitutions, and payables to others 208,785 274,235 112,781 246,391 842,192 Total liabilities 1,134,587 $ 274,235 $ 112,781 $ 246,391 $ 1,767,994 $ 104 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Balance Sheet and Statement of Net Position University Center Component Unit December 31, 2015 University Statement of Center Adjustments Net Position Assets Cash and cash equivalents 582,282 $ - $ 582,282 $ Investments 403,071 - 403,071 Receivables, net: Accounts 29,351 - 29,351 Taxes 634,353 - 634,353 Capital assets being depreciated, net - 178,333 178,333 Total assets 1,649,057 $ 178,333 1,827,390 Liabilities Accounts payable 41,577 $ - 41,577 Accrued liabilities 38,960 - 38,960 Unearned revenue - - - Total liabilities 80,537 - 80,537 Deferred inflows of resources Taxes levied for a subsequent period 649,759 - 649,759 Fund balances Restricted 343,145 (343,145) - Unassigned 561,973 (561,973) - Total fund balances 905,118 (905,118) - Total liabilities, deferred inflows of resources and fund balances 1,635,414 $ Net position Investment in capital assets 178,333 178,333 Restricted 343,145 343,145 Unrestricted 575,616 575,616 Total net position 1,097,094 $ 1,097,094 $ 105 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Statement of Revenues, Expenditures and Changes in Fund Balance and Statement of Activities University Center Component Unit For the Year Ended December 31, 2015 Statement of Revenues, Expenditures and Changes in Fund Statement of Balance Adjustments Activities Revenues Property taxes 626,498 $ - $ 626,498 $ Investment earnings 2,955 - 2,955 Other 298,807 - 298,807 Total revenues 928,260 - 928,260 Expenditures / expenses Current: Other functions 879,467 - 879,467 Change in fund balance / net position 48,793 - 48,793 Fund balance / net position, beginning of year 856,325 191,976 1,048,301 Fund balance / net position, end of year 905,118 $ 191,976 $ 1,097,094 $ 106 ---PAGE BREAK--- INTERNAL CONTROL AND COMPLIANCE ---PAGE BREAK--- Rehmann Robson 902 South Huron Cheboygan, MI 49721 Ph: [PHONE REDACTED] Fx: [PHONE REDACTED] rehmann.com CPAs & Consultants Wealth Advisors Corporate Investigators Rehmann is an independent member of Nexia International. Honorable members of the Board of Commissioners of Otsego County, Michigan Gaylord, Michigan We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Otsego County, Michigan (the "County"), as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the County’s basic financial statements, and have issued our report thereon dated June 24, 2016. Our report includes a reference to other auditors who audited the financial statements of Otsego County Road Commission and Otsego County Commission on Aging discretely presented component units, as described in our report on the County’s financial statements. This report does not include the results of the other auditors’ 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 a certain deficiency in internal control over financial reporting that we consider to be a material weakness. Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards June 24, 2016 107 ---PAGE BREAK--- 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 results of that testing, and not to provide an opinion on the effectiveness of the County’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. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described in the accompanying schedule of findings and responses as item 2015-001 to be a material weakness. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. 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. Otsego County, Michigan’s Response to Findings 108 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Schedule of Findings and Responses For the Year Ended December 31, 2015 Finding Type. Material Weakness in Internal Control over Financial Reporting. 2015-001 - Material Audit Adjustments (Repeat finding) View of Responsible Officials. Management agrees with the adjustments proposed by its auditors, and they have been posted in the County’s records. The County will improve procedures to ensure the account balances are reviewed and reconciled on a regular basis. Recommendation. The adjustments noted above have been reviewed by management, posted to the County’s records, and are reported correctly in the audited financial statements. However, we recommend that the County strive to strengthen its financial reporting processes by enhancing its review and reconciliation procedures. Criteria. Management is responsible for maintaining its accounting records in accordance with generally accepted accounting principles (GAAP). Condition. During our audit, we identified and proposed material adjustments (which were approved and posted by management) to adjust the County’s general ledger to the appropriate balances. These adjustments affected a variety of accounts of the primary government and component units which included, due from other governments, taxes receivable, and long-term debt. Cause. This condition was caused by the County failing to reconcile several accounts and make necessary adjustments to those accounts. Effect. As a result of this condition, the County’s accounting records were initially misstated by amounts material to the financial statements. 109 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Summary Schedule of Prior Audit Findings For the Year Ended December 31, 2015 Repeated as finding 2015-001. 2014-001 - Material Audit Adjustments (Repeat finding) 2014-002 - Preparation of Financial Statements in Accordance with GAAP 2014-003 - Incomplete Monitoring of Subrecipients In the prior year, there were several instances in which the County did not perform monitoring of subrecipients of the Homeland Security Grant as required by the Uniform Guidance. The County did not have any subrecipients for the year under audit. As such, this finding is considered resolved. In the prior year, the County relied on its external auditors for preparation of the financial statements in accordance with Generally Accepted Accounting Principles (GAAP). Management completed a financial statement GAAP disclosure checklist, ensuring the financial statements were in accordance with GAAP. As such, this finding is considered resolved. 110 ---PAGE BREAK--- Rehmann Robson 902 South Huron Cheboygan, MI 49721 Ph: [PHONE REDACTED] Fx: [PHONE REDACTED] rehmann.com CPAs & Consultants Wealth Advisors Corporate Investigators Rehmann is an independent member of Nexia International. INDEPENDENT AUDITORS’ COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE June 24, 2016 To the Board of Commissioners Otsego County, Michigan 225 West Main Street Gaylord, MI 49735 We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Otsego County, Michigan (the “County”) as of and for the year ended December 31, 2015, and have issued our report thereon dated June 24, 2016. We did not audit the financial statements of the Otsego County Road Commission or the Otsego County Commission on Aging. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion on the financial statements and this report, insofar as they relate to the Otsego County Road Commission and the Otsego County Commission on Aging, are based solely on the report of other auditors. Professional standards require that we advise you of the following matters relating to our audit. Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter dated January 27, 2016, our responsibility, as described by professional standards, is to form and express opinions about whether the financial statements that have been prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities. Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing 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 over financial reporting. Accordingly, as part of our audit, we considered the internal control of the County solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you. We have provided our findings regarding internal control over financial reporting and compliance noted during our audit in a separate letter to you dated June 24, 2016. In addition, we noted certain other matters which are included in Attachment A to this letter. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in our engagement letter and in our meeting about planning matters on April 19, 2016. ---PAGE BREAK--- Page 2 Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, as appropriate, and our firm have complied with all relevant ethical requirements regarding independence. Qualitative Aspects of the County’s Significant Accounting Practices Significant Accounting Policies Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the County is included in Note 1 to the financial statements. As described in Note 21 to the financial statements, the County changed accounting policies related to accounting for pension plans by adopting Statement of Governmental Accounting Standards (GASB Statement) No. 68, Accounting and Financial Reporting for Pensions. The cumulative effect of the accounting change as of the beginning of the year is reported in the Statement of Activities. No matters have come to our attention that would require us, under professional standards, to inform you about the methods used to account for significant unusual transactions and the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Significant Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments. The most sensitive accounting estimates affecting the financial statements were: Management’s estimate of the useful lives of depreciable capital assets is based on the length of time it is believed that those assets will provide some economic benefit in the future. Management’s estimate of the accrued compensated absences is based on current hourly rates and policies regarding payment of sick and vacation banks. Management’s estimate of the allowance for uncollectible receivable balances is based on past experience and future expectation for collection of various account balances. The assumptions used in the actuarial valuations benefits plan are based on historical trends and industry standards. We evaluated the key factors and assumptions used to develop these estimates and determined that they are reasonable in relation to the basic financial statements taken as a whole and in relation to the applicable opinion units. In addition, the financial statements include a net pension asset and liability and other pension-related amounts, which are dependent on estimates made by the plan. These estimates are based on historical trends and industry standards, but are not within the control of management. ---PAGE BREAK--- Page 3 Significant Difficulties Encountered During the Audit We encountered no significant difficulties in dealing with management relating to the performance of the audit. Uncorrected and Corrected Misstatements For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion unit. In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. The misstatements detected as a result of audit procedures and corrected by management are described in Attachment B to this letter. The schedule of adjustments passed is included with management’s written representations in Attachment D to this letter, and summarizes uncorrected financial statement misstatements whose effects in the current and prior periods, as determined by management, are immaterial, both individually and in the aggregate, to the financial statements taken as a whole and each applicable opinion unit. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the County’s financial statements or the auditors’ report. No such disagreements arose during the course of the audit. Representations Requested from Management We have requested certain written representations from management, which are included in Attachment D to this letter. Management’s Consultations with Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. Other Significant Matters, Findings, or Issues In the normal course of our professional association with the County, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the County’s auditors. ---PAGE BREAK--- Page 4 Other Information in Documents Containing Audited Financial Statements Our responsibility for the supplementary information accompanying the financial statements, as described by professional standards, is to evaluate the presentation of the supplementary information in relation to the financial statements as a whole and to report on whether the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole. We made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. Upcoming Changes in Accounting Standards Generally accepted accounting principles (GAAP) are continually changing in order to promote the usability and enhance the applicability of information included in external financial reporting. While it would not be practical to include an in-depth discussion of every upcoming change in professional standards, Attachment C to this letter contains a brief overview of recent pronouncements of the Governmental Accounting Standards Board (GASB) and their related effective dates. Management is responsible for reviewing these standards, determining their applicability, and implementing them in future accounting periods. This information is intended solely for the use of the governing body and management of Otsego County, Michigan and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Attachment A - Comments and Recommendations For the December 31, 2015 Audit During our audit, we became aware of certain other matters that are opportunities for strengthening internal control and/or improving operating efficiency. This memorandum summarizes our comments and recommendations regarding those matters. Our consideration of the County's internal control over financial reporting is described in our report, dated June 24, 2016, issued in accordance with Government Auditing Standards. This memorandum does not affect that report or our report dated June 24, 2016, on the financial statements of the County. Inmate Trust Accounts It was noted that the County does not reconcile the inmate trust bank account to the inmate balances as required in this fund. We recommend that the bank account be reconciled to a subledger of individual inmate balances when the bank reconciliation is prepared. ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Attachment B - Adjusting Journal Entries AJE Account Number Account Description Debit/(Credit) 1 213-000-390.000 Fund Balance - Unassigned 210 $ 213-806-801.020 Professional (210) 2 210-000-136.000 Buildings, Additions, Improvements 755,726 467-999-999.000 Transfer Out 755,726 210-901-980.000 Depreciation Expense 172,922 210-000-136.000 Buildings, Additions, Improvements 54,922 210-000-137.000 Accumulated Depreciation - Buildings, Additions, Improvements 35,000 210-050-699.030 Other Source - Transfers (755,726) 467-901-970.300 Capital Outlay Expense (755,726) 210-000-137.000 Accumulated Depreciation - Buildings, Additions, Improvements (172,922) 210-651-970.435 Property - Machinery & Equipment (54,922) 210-000-136.000 Buildings, Additions, Improvements (35,000) 3 467-999-999.000 Transfer Out 99,084 210-651-970.435 Property - Machinery & Equipment 99,084 467-901-970.300 Capital Outlay Expense (99,084) 210-050-699.030 Other Source - Transfers (99,084) 4 213-000-137.000 Accumulated Depreciation - Buildings, Additions, Improvements 47,367 213-901-980.000 Depreciation Expense 38,642 213-000-136.000 Buildings, Additions, Improvements 24,999 213-000-136.000 Buildings, Additions, Improvements (47,367) 213-000-137.000 Accumulated Depreciation - Buildings, Additions, Improvements (38,642) 213-806-970.440 Property - Computer (24,999) 5 281-000-136.000 Buildings, Additions, Improvements 219,670 481-050-501.000 Federal Grants 178,173 481-999-999.000 Transfer Out 27,246 481-050-539.000 State Grants 20,748 281-000-136.000 Buildings, Additions, Improvements 6,497 481-901-970.300 Property Improvements (226,167) 281-050-501.000 Federal Grants (178,173) 281-050-699.030 Other Source - Transfers (27,246) 281-050-539.000 State Grants (20,748) Client Identified Entries To adjust beginning equity to PY audited financial statements. To reclassify capital asset additions/disposals and depreciation expense and agree transactions between EMS and Capital Projects Fund of County. To transfer noncapitalizable expenses from the Capital Projects Fund at the County to EMS component unit. To reclassify capital asset additions/disposals and depreciation expense. To move activity to Fund 281 (from Fund 481), where the capital assets are recorded. B1 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Attachment B - Adjusting Journal Entries AJE Account Number Account Description Debit/(Credit) 6 101-000-026.000 Taxes Receivable - Real - Delinquent 189,743 $ 101-010-411.000 Delinquent Real Property Taxes (179,576) 101-010-445.022 Interest on Taxes (10,166) 7 516-170-445.100-TAX0700000 Penalty & Interest/Taxes 138,735 516-170-445.100-TAX2014000 Penalty & Interest/Taxes 75,231 516-170-445.100-TAX0800000 Penalty & Interest/Taxes 74,712 516-170-445.100-TAX2013000 Penalty & Interest/Taxes 71,680 516-170-445.100-TAX0900000 Penalty & Interest/Taxes 59,819 516-170-445.100-TAX2010000 Penalty & Interest/Taxes 36,000 516-170-445.100-TAX2011000 Penalty & Interest/Taxes 34,837 516-170-445.100-TAX2012000 Penalty & Interest/Taxes 10,382 516-000-026.002 Interest Receivable - Delinquent Taxes (501,397) 8 569-000-339.000 Deferred Revenue 35,000 569-000-040.000 Advance to Component Unit (35,000) 9 481-901-970.300 Property - Improvements 198,921 481-050-501.000 Federal Grants (178,173) 481-050-539.000 State Grants (20,748) 10 516-170-445.200-TAX2014000 Administration 2,392 516-000-026.004 Penalties and Fees Receivable - Delinquent Taxes (2,392) To record administration fee receivable for 2015 tax year. To record delinquent real property tax receivable. To reverse JE #19551, relating to delinquent tax interest receivable. To record principal payments received from Road Commission. To record airport revenue funded through MDOT. B2 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Attachment B - Adjusting Journal Entries AJE Account Number Account Description Debit/(Credit) 11 594-228-700.000 Component Unit Expenses 11,697 $ 594-000-001.001 Equity in Pooled Cash 3,811 594-000-202.000 Accounts Payable 603 594-170-626.041 Service - Fiber transport Fee 461 594-000-390.000 Fund Balance - Unassigned 594-000-136.000 Buildings, Additions, Improvements (12,300) 594-000-040.000 Accounts Receivable (4,272) 12 101-010-411.000 Delinquent Real Property Taxes 193,687 101-010-445.022 Interest on Taxes 10,813 101-000-026.000 Taxes Receivable - Real - Delinquent (204,500) 13 213-999-999.000 Transfer Out 255,250 213-010-402.000 Current Real Property Taxes (255,250) 14 516-000-026.002 Interest Receivable - Delinquent Taxes 132,206 516-170-445.100-TAX2014000 Penalty & Interest/Taxes (132,206) 15 701-000-001.005 Sheriff Inmate Cash 6,616 701-000-226.005 Inmate Funds Held in Trust (6,616) 16 467-651-700.000 Component Unit Expenses 85,324 467-651-700.000 Component Unit Expenses 43,330 467-000-202.000 Accounts Payable (128,654) 17 516-000-017.000 Investments 49,000 516-253-955.000 Gain/Loss on Investments (49,000) 18 216-000-007.RR Investments in UC - Unrestricted 3,071 216-030-694.RR Investment Income UC - Unrestricted (2,071) 216-000-001.006 Cash Held at Component Unit (1,000) 19 [PHONE REDACTED]-RR-1 Capital Outlay 41,082 [PHONE REDACTED]-RR-2 Principal payments 770 [PHONE REDACTED].RR Proceeds - Issuance of Long-term Debt (41,082) 101-864-920.410 Service Contracts (770) Reclass entry to record capital lease activity in the general fund. To adjust the University Center account balances to actual as of December 31, 2015. Rehmann Identified Entries To reverse prior year delinquent real property tax receivable. To recognize 2015 real property tax revenue in 2015. To recognize 2015 real property tax revenue in 2015. To record inmate cash held by the Sheriff Department. To record liability for December project billing & retainage on building improvement. To adjust investment gain/loss to actual. To record equity interest in Advertising Corporation, a component unit of UC. B3 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Attachment B - Adjusting Journal Entries AJE Account Number Account Description Debit/(Credit) 20 499-901-970.999 Repairs & Maintenance Services 64,402 $ 271-790-700.000 Component Unit Expenses 18,950 481-901-920.400 Repairs & Maintenance Services 4,742 266-901-920.400 Repairs & Maintenance Services 4,078 497-901-970.999 Repairs & Maintenance Services 671 499-901-970.300-FORCLOOOOO Property - Improvements (54,074) 271-790-970.300 Property - Improvements (18,950) 481-901-970.300 Property - Improvements (4,742) Property - Improvements (4,178) 266-901-970.435 Property - Machinery & Equipment (4,000) 499-901-970.300-CTY_ROOF_ Property - Improvements (3,150) 499-901-970.300-COURTROOM_ Property - Improvements (1,613) 499-901-970.300 Property - Improvements (1,387) 497-901-970.300 Property - Improvements (671) 266-901-970.420 Property - Vehicles (78) To agree capital outlay with total additions to capital assets. B4 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Attachment B - Adjusting Journal Entries AJE Account Number Account Description Debit/(Credit) 21 [PHONE REDACTED].000-00012 Capital Outlay 597,749 $ [PHONE REDACTED].000-00036 Net Assets 415,015 [PHONE REDACTED].000-00037 Principal Expense 322,047 [PHONE REDACTED].000-00005 Internal Service Fund Net Income 65,347 [PHONE REDACTED].000-00021 Depreciation Expense - Recreation (303,105) [PHONE REDACTED].000-00018 Depreciation Expense - General Government (285,015) [PHONE REDACTED].000-00019 Depreciation Expense - Public Safety (278,518) [PHONE REDACTED].000-00056 Economic Development Revenue (209,594) [PHONE REDACTED].000-00013 Capital Outlay - Allocate, General Government (112,613) [PHONE REDACTED].000-00023 Change in Compensated Absences - General Government (94,622) [PHONE REDACTED].000-00006 Internal Service Fund Net Income - Allocate, General Government (60,272) [PHONE REDACTED].000-00057 General Government Revenue (30,000) [PHONE REDACTED].000-00017 Capital Outlay - Allocate, Judicial (12,530) [PHONE REDACTED].000-00020 Depreciation Expense - Public Works (5,023) [PHONE REDACTED].000-00011 Interest Expense (3,791) [PHONE REDACTED].000-00007 Internal Service Fund Net Income - Allocate, Public Safety (3,111) [PHONE REDACTED].000-00009 Internal Service Fund Net Income - Allocate Recreation (1,964) 22 [PHONE REDACTED].000-00035 Other Post Employment Benefits 49,060 [PHONE REDACTED].000-00023 Change in Compensated Absences - General Government (49,060) 23 [PHONE REDACTED].000-00029 Long-Term Debt, Current Portion 285,539 [PHONE REDACTED].000-00028 Long-Term Debt, Net of Current Portion 281,147 [PHONE REDACTED].000-00037 Principal Expense (285,539) [PHONE REDACTED].000-00029 Long-Term Debt, Current Portion (281,147) 24 [PHONE REDACTED].000-00031 Accrued Interest Payable 2,317 [PHONE REDACTED].000-00011 Interest Expense (2,317) 25 [PHONE REDACTED].000-00006 Internal Service Fund Net Income - Allocate, General Government 13,062 [PHONE REDACTED].000-00005 Internal Service Fund Net Income (13,062) 26 [PHONE REDACTED].000-00002 Capital Assets, Being Depreciated 725,884 [PHONE REDACTED].000-00002.1 Construction in Process 363,333 [PHONE REDACTED].000-00001 Capital Assets, Not Being Depreciated 8,105 [PHONE REDACTED].000-00012 Capital Outlay (1,097,322) To adjust accrued interest payable at 12/31/15 to actual. To eliminate operating loss in internal service funds. GASB 34 Conversation Entries For F/S Presentation Only To record current portion of long-term debt and to reclassify principal expense as reduction in long-term debt. To adjust liability relating to retiree health insurance in accordance with GASB 45. To closeout 2014 activity to fund balance. To record current year capital asset additions. B5 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Attachment B - Adjusting Journal Entries AJE Account Number Account Description Debit/(Credit) 27 [PHONE REDACTED].000-00018 Depreciation Expense - General Government 314,867 $ [PHONE REDACTED].000-00021 Depreciation Expense - Recreation 273,737 [PHONE REDACTED].000-00019 Depreciation Expense - Public Safety 132,784 [PHONE REDACTED].000-00002.2 Accumulated Depreciation (721,388) 28 [PHONE REDACTED].000-00002 Capital Assets, Being Depreciated 51,477 [PHONE REDACTED].000-00002.1 Construction in Progress (51,477) 29 [PHONE REDACTED].000-00057 General Government Revenue 35,000 [PHONE REDACTED].000-00003.1 Deferred Inflows (35,000) 30 [PHONE REDACTED].000-00036 Net Assets 5,029,210 934-000-190.00 Deferred Outflows of Resources - Contributions 321,265 934-000-361.00 Net Pension Liability (5,350,475) 31 934-000-192.00 Deferred Outflows - Investments Earned 149,069 934-714-001.00 Pension Expense - General Government 54,070 934-714-002.00 Pension Expense - Public Safety 50,806 934-714-003.00 Pension Expense - Judicial 36,798 934-000-191.00 Deferred Outflows - Contributions 31,280 934-714-004.00 Pension Expense - Recreation & Culture 14,536 934-714-005.00 Pension Expense - Health & Welfare 8,650 934-714-006.00 Pension Expense - Community/Economic Development 1,195 934-000-361.00 Net Pension Liability (346,404) 32 [PHONE REDACTED].000-00056 Economic Development Revenue 35,468 [PHONE REDACTED].000-00003 Deferred Inflows - Mortgages Receivable (35,468) 33 [PHONE REDACTED].000-00002 Capital Assets, Being Depreciated 45,017 [PHONE REDACTED].000-00045 Donated Capital Assets - Recreation (45,017) 34 [PHONE REDACTED].000-00023 Change in Compensated Absences - General Government 23,132 [PHONE REDACTED].000-00034.1 Compensated Absences (23,132) 35 976-000-138.000 Data Handling Equipment 41,082 976-000-295.000 Loans Payable (40,312) 976-901-920.410 Service Contracts (770) To eliminate revenue recognized in the funds for reduction in receivable. To eliminate revenue recognized in the funds for reduction in receivable. To record general capital asset paid for by the Sports Plex Operating Fund. To record current year depreciation. To record 8 copiers as a capital asset (grouped them as one figure) and record the capital lease as long-term debt. To record restatement for implementation of GASB68. To record change in net pension liability and related deferred amounts. To record change in compensated absences. To record current year transfer from construction in progress to capital assets being depreciated. B6 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Attachment B - Adjusting Journal Entries AJE Account Number Account Description Debit/(Credit) 36 976-000-295.000 Loans Payable 9,511 $ 976-000-295.RR Long-Term Debt Current Portion (9,511) 37 [PHONE REDACTED].000-00041 Proceeds - Issuance of Long-term Debt 41,082 [PHONE REDACTED].000-00012 Capital Outlay (41,082) To eliminate proceeds from issuance of capital lease and related capital outlay. To record current portion of capital lease. B7 ---PAGE BREAK--- OTSEGO COUNTY Attachment C – Upcoming Changes in Accounting Standards / Regulations GASB 72 Fair Value Measurement and Application Effective 06/15/2016 (your FY 2016) GASB 73 Pensions and Related Assets Not Within the Scope of GASB 68 Effective 06/15/2016 (your FY 2016) GASB 74 Postemployment Benefit Plans Other than Pension Plans Effective 06/15/2017 (your FY 2017) GASB 75 Postemployment Benefits Other than Pensions Effective 06/15/2018 (your FY 2018) GASB 76 The Hierarchy of GAAP for State and Local Governments Effective 06/15/2016 (your FY 2016) This standard defines "fair value" as the price that would be received to sell an asset in an orderly transaction between market participants (an "exit price"). Fair value measurement is currently applied principally to investments, which GASB 72 does not change. However, it does introduce specific methods for measuring fair value when a market price is not readily available, and establishes a 3-level hierarchy of fair value that is disclosed in the footnotes, based on the presence or absence of observable market inputs. The following pronouncements of the Governmental Accounting Standards Board (GASB) have been released recently and may be applicable to the County in the near future. We encourage management to review the following information and determine which standard(s) may be applicable to the County. For the complete text of these and other GASB standards, visit www.gasb.org and click on the “Standards & Guidance” tab. If you have questions regarding the applicability, timing, or implementation approach for any of these standards, please contact your audit team. This standard clarifies the source of "generally accepted accounting principles" (GAAP) for governments. Authoritative sources of GAAP now include GASB pronouncements, GASB implementation guides, and AICPA literature specifically cleared by the GASB. This standard does not change existing GAAP. For the December 31, 2015 Audit This standard addresses accounting and financial reporting for pensions that were not covered by GASB Statement No. 68, because the plan assets are not held in trust. Essentially, it applies the same treatment as GASB 68, but reflects the total pension liability and plan assets separately, rather than a net pension liability. We do not expect this standard to have any significant effect on the County. This standard requires the calculation of a net other postemployment benefit (OPEB) liability based on an actuarial valuation of retiree healthcare and similar benefits administered by an OPEB trust. It mirrors the new accounting and financial reporting requirements of GASB 67 for pension plans. This standard builds on the requirements of GASB 74 by requiring employers that provide other postemployment benefits (OPEB) to recognize a net OPEB liability on their statements of net position. It mirrors the new accounting and financial reporting requirements of GASB 68 for pension benefits. C1 ---PAGE BREAK--- OTSEGO COUNTY Attachment C – Upcoming Changes in Accounting Standards / Regulations For the December 31, 2015 Audit GASB 77 Tax Abatement Disclosures Effective 12/15/2016 (your FY 2016) GASB 78 Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans Effective 12/15/2016 (your FY 2016) GASB 79 Certain External Investment Pools and Pool Participants Effective 06/15/2016 (your FY 2016) GASB 80 Blending Requirements for Certain Component Units Effective 06/15/2017 (your FY 2017) GASB 81 Irrevocable Split-Interest Agreements Effective 12/15/2017 (your FY 2017) GASB 82 Pension Issues Effective 06/15/2017 (your FY 2017) This standard is an amendment to GASB 68, and provides guidance to governments that participate in non- governmental cost-sharing pension plans. We do not expect this standard to have any significant effect on the County. This standard is an amendment to GASB 14, The Financial Reporting Entity, and requires blending component units incorporated as not-for-profit corporations in which the government is the sole corporate member. We do not expect this standard to have any significant effect on the County. This standard addresses the accounting for split-interest agreements for which the government serves as the intermediary and/or the beneficiary. It requires governments to record assets, liabilities, and deferred inflows of resources at the inception of the agreement when serving as intermediary, or when the government controls the present service capacity of a beneficial interest. We do not expect this standard to have any significant effect on the County. This standard is an amendment to GASB 67/68 to clarify several issues related to pensions. We do not expect this standard to have any significant effect on the County. This standard requires governments to disclose certain information about tax abatement agreements made to foster economic development or otherwise benefit the government or its citizens. Required disclosures include a brief description of the arrangement, the gross dollar amount of taxes abated in the current period, and any additional commitments made by the government as part of the agreement. This standard essentially extends the guidance previously available to governments investing in 2a7-like external investment pools to carry investments at amortized cost, as an approximation of fair value. The SEC amended Rule 2a7 in 2014, so the GASB replicated its prior provisions in this statement. We do not expect this standard to have any significant effect on the County. C2 ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Attachment D – Management Representations The following pages contain the written representations that we requested from management. For the December 31, 2015 Audit D1 ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- OTSEGO COUNTY, MICHIGAN Schedule of Adjustments Passed (SOAP) Effect of Passed Adjustment - Over(Under)Statement Beginning Expenses/ Assets Liabilities Equity Revenues Expenditures Nonmajor governmental funds/governmental activities - $ - $ 18,222 $ - $ 18,222 $ Misstatement as a percentage of total program/general revenues - governmental activities 0.0% 0.0% 0.1% 0.0% 0.1% Component units - $ - $ (8,262) $ - $ (8,262) $ - - 13,494 - 13,494 - - 37,513 - 37,513 - (9,837) - - (9,837) - (17,942) - - (17,942) - (6,454) - - (6,454) (19,931) (19,931) - - - Component units (19,931) $ (54,164) $ 42,745 $ - $ 8,512 $ Misstatement as a percentage of total revenues - component units -0.1% -0.3% 0.2% 0.0% 0.0% For the December 31, 2015 Audit 2014 - Unposted payroll accrual in the Library Fund 2014 - Overstated chargeback liability in the EMS 2014 - Unposted payroll accrual in the 2014 - Unposted payroll accrual in the EMS Fund Cumulative effect of items noted above In accordance with generally accepted auditing standards, we have prepared the following schedule of proposed audit adjustments, which we believe are immaterial both individually and in the aggregate. We are providing this schedule to both management and those charged with governance to receive their assurance that they agree that the amounts listed below are not material to the financial statements, either individually or in the aggregate, and do not need to be recorded. 2015 - Unposted retainage in the Capital Projects 2015 - Unposted payroll accrual in the 2015 - Unposted payroll accrual in the EMS Fund 2015 - Unposted payroll accrual in the UC Man Fund