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HomeMy WebLinkAbout2021 RECEIVED R: 2 7 2022 Southold Town Clerk Cutchogue Fire District ANNUAL FINANCIAL REPORT December 31, 2021 �HEEHAN TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A ANNUAL FINANCIAL REPORT UPDATE DOCUMENT FINANCIAL SECTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 SUPPLEMENTAL SECTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .21 NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT . . . . . . . .29 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGANDON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF ANNUALFINANCIAL REPORT UPDATE DOCUMENTPERFORMED IN ACCORDANCEWITH GOVERNMENT AUDITINGSTANDARDS. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .51 165OrinocoDrive Brightwaters,NY11718 T:631.665.7040|F:631.665.7014 15SouthBaylesAvenue PortWashington,NY11050 T:516.883.5510|F:516.767.7438 www.sheehancpa.com INDEPENDENT AUDITOR'S REPORT To the Board of Fire Commissioners CutchogueFire District Cutchogue, New York Report on theAudit of theAnnual Financial Report Update Document Unmodified Opinion on Regulatory Basis of Accounting We have audited the accompanying Annual Financial Report Update Document(Financial Section)ofCutchogue Fire District(the District), as of and for the year ended December 31, 2021and the related notes to theAnnual Financial Report Update Document, which collectively comprise the District's basic financial statements as listed in the table of contents. In our opinion, the Annual Financial ReportUpdate Document(Financial Section)referred to above presentsfairly, in all material respects, the assets, liabilitiesand fund balances of the District, as of December31, 2021, andthe revenues it received,and expenditures madefor the year then endedin conformity with the basis of accounting described in Note 1. Adverse Opinion onU.S. Generally Accepted Accounting Principles In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles paragraph, the Annual Financial Report Update Document(Financial Section) referred to above doesnot present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the District asof December 31, 2021,or changes in financial position for the year then ended. Basis for Adverse Opinion on U.S. Generally Accepted AccountingPrinciples and Unmodified Opinion on Regulatory Basis of Accounting As described more fully in Note 1, the District prepares its Annual FinancialReport Update Document(Financial Section) using accounting practices prescribed or permitted by the New York State Office of the State Comptroller, which is a basis of accounting other than accounting -A- An Independent Member of the BDO Alliance USA To the Board of Fire Commissioners CutchogueFire District Page A2 principles generally accepted in the United States of America, to meet the requirements of the New York State Office of the State Comptroller. The effects on the Annual FinancialReport Update Document(Financial Section) of the variances betweenthe regulatory basis of accounting described in Note 1 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. 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. Our responsibilities under those standards are further described in the Auditor'sResponsibilities for the Audit of the Annual FinancialReport Update Document(Financial Section) section of our report. We are requiredto be independent of the District and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our unmodified audit opinion on the regulatory basis of accounting. Responsibilities of Managementfor the Annual Financial Report Update Document (Financial Section) Management is responsible for the preparation and fair presentation of the Annual Financial Report Update Document(Financial Section)in accordancewith the financial reporting provisions of the New York State Office of the State Comptroller, as described in Note 1. Management is also responsible forthe design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the Annual FinancialReport Update Document(Financial Section)that is free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in theaggregate, that raise substantial doubt about the District's ability to continue as a going concern within one year after the date the financial statements are available to be issued. Auditor'sResponsibilities for the Auditof the Annual Financial ReportUpdate Document (Financial Section) Our objectives are to obtain reasonable assurance about whether the Annual Financial Report Update Document(Financial Section)as a whole is free from material misstatement, whether due to fraud or error, and to issuean auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is nota guarantee that an audit conducted in accordance with generally accepted auditing standardsand Government Auditing Standardswill always detect a material misstatement when it exists. To the Board of Fire Commissioners CutchogueFire District Page A3 Therisk of not detecting a material misstatement resultingfrom fraud is higher than for one resulting from error, as fraud may involve collusion,forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is asubstantial likelihoodthat, individually or in the aggregate, they would influence the judgementmade by a reasonable user based on the Annual Financial ReportUpdate Document (Financial Section). In performing an audit inaccordance with generally accepted auditing standards and Government Auditing Standards,we: Exerciseprofessional judgement and maintain professional skepticism throughout the audit. Identify and assess the risks of materialmisstatement of the AnnualFinancial Report Update Document(Financial Section),whether due tofraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the Annual Financial Report Update Document(Financial Section). Obtain anunderstanding of internal control relevant to the audit 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 theDistrict's internal control. Accordingly, no such opinion is expressed. Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the Annual Financial ReportUpdate Document(Financial Section). Concludewhether, in our judgement there are conditions or events, consideredin the aggregate, that raise substantial doubt about theDistrict's ability to continueas a going concern for areasonable period of time. We are required to communicate withthose charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. Other Information Management is responsible for the other information included in theAnnual FinancialReport Update Document. The other information comprises the supplemental section, except for theFire District Questionnaire,listed on page two of the Annual Financial Report Update Documentbut does not include the basicfinancial sectionand our auditor's report thereon. Our opinion on the Annual Financial ReportUpdate Document (Financial Section)does not cover the supplemental sectionexcept for the Fire DistrictQuestionnaire,and we do not express anopinion or any form of assurance thereon. To the Board of Fire Commissioners CutchogueFire District Page A4 In connection with out audit oftheAnnual FinancialReport Update Document(Financial Section), our responsibility is to read the otherinformation and consider whethera material inconsistencyexists between the other informationand the basicfinancialstatements, or the other information otherwise appears to be materiallymisstated. If,based on the work performed, we conclude that anuncorrected material misstatementof the other information exists, we are required to describe it in our report. Other Reporting Required byGovernmentAuditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June1, 2022on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contractsand grant agreements,and other matters. The purpose of that report is solely to describethe scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control over financial reporting oron compliance. Thatreport is an integralpart of an audit performed in accordance withGovernment Auditing Standardsin considering theDistrict'sinternal control over financial reportingandcompliance. Brightwaters, New York June1, 2022 Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 1.Summary of significant accounting policies: The Annual Financial Report Update Document (AUD) of the Cutchogue Fire District (the District),as of and for the year ended December 31, 2021has been prepared in conformity with accounting practices prescribed or permitted by the New York State Office of the State Comptroller (regulatory basis),which is a special purpose framework of accounting other than U.S. generally accepted accounting principles. Financial reporting entity: The District is a governmental entity that provides fire protection to the local community. The District receives most of its funding from property taxes. The District is governed by laws of the State of New York. The Board of Fire Commissioners is the legislative body responsible for the overall operation of the District. All activities and functions performed for the District are its direct responsibility. The Treasurer serves as Chief Fiscal Officer of the District. Basis of presentation: The AUDprovides information about the District's funds. The accounts of theDistrict are organized on the basis of funds,each of which is considered a separate accounting entity. The operations of each fund are segregated for the purpose of carrying on specific activities or attaining certain objectivesin accordance with special regulations,restrictions or limitations. The following fund types are used: Governmental: General Fund The General Fund is the principal operating fund of the District and is used to account for all financial resources except those required to be accounted for in another fund. Debt service is also accounted for in the General Fund. Equipment Reserve Fund The Equipment Reserve Fund is used to account for and report financial resources to be used for the acquisition of equipment needed by the District. Building Reserve Fund The Building Reserve Fund is used to account for and report financial resources to be used for the acquisition,construction or renovation of major capital facilities. -29- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 1.Summary of significant accounting policies (continued): Basis of presentation(continued): Governmental (continued): Service AwardProgram Fund The Service Award Program Fund is used to account for and report financial resources related to the District's length of service award program (LOSAP). For reportingpurposes,these funds are all combined and shown within the General Fund. Basis of accounting: The accompanying AUDhas been prepared on the regulatorybasis of accounting using the current financial resources measurement focus. Revenues are recognized when measurable and available. "Available"means collectible within the current period or within 60 days after year-end. Expenditures are generally recognized under the modified accrual basis of accounting when the related liability is incurred. The exception to this general rule is that principal and interest on general obligation long-term debt,if any,is recognized when due. Cash and cash equivalents: Cashand cash equivalents include demand deposits and temporary investments with original maturities of threemonths or less from the date of acquisition. Investments: An investment is a security or other asset (a) that a government holds primarily for the purpose of income or profit and (b) with present service capacity that is based solely on its ability to generate cash or to be sold to generate cash.Investments are generallyreported atfair value,except certificates of deposit,which are reported at cost. Interfund transfers: The operations of the District give rise to certain transactions between funds,including transfers of expendituresand revenues to provide services and construct assets. This is either by budget,Board resolution,permissive referendumor mandatory referendum. -30- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 1.Summary of significant accounting policies (continued): Encumbrances:Encumbrance accounting is used for budget controland monitoring purposes and is reported as part of the governmental funds. Under this method,purchase orders,contracts and other commitments for the expenditures of monies are recorded to reserve applicable appropriations. Outstanding encumbrancesas ofyear-endare presented as assigned unappropriated fund balance and do not represent expendituresor liabilities. These commitments will be honored inthe subsequent period. Related expenditures are recognized at that time,as the liability is incurred,orthe commitment is paid. Fund balance: In accordance withGovernmentalAccounting Standards Board (GASB) Statement No. 54,Fund Balance Reporting and Governmental Fund Type Definitions, (GASB54),fund balanceis broken down into five differentclassifications: non- spendable,restricted,committed,assigned and unassigned. Non-spendable consists of assetsthat are inherently non-spendable in the current period, either because of their form or because they mustbe maintained intact,including prepaid items,inventories,long-term portions of loan receivable,financial assets held for resale andprincipal ofendowments. Restricted consists of amounts that are subject to externally enforceable legalpurpose restrictions imposed by creditors,grantors,contributors or laws and regulations of other governments or through constitutional provisions or enabling legislation. Committed consistsof amounts that are subject to a purpose constraint imposed bya formal action of the government's highest level of decision-making authority before the end of the fiscal year and that require the same level of formalaction to remove the constraint. The Board of Fire Commissioners is the decision-making authority that can, by Board resolution,prior to the end ofthe fiscal year,commit fund balance. Assigned consistsof amounts that are subject toa purpose constraint thatrepresents an intended use established by the District's highest level of decision-making authority or by their designated body or official. The purpose of the assignment must be narrower than the purpose of the General Fundand in funds other than the General Fund,assigned fund balance represents the residual amount of fund balance. The Boardof Fire Commissioners,byBoard resolution,canauthorizethe Treasurerto assign fund balance. Unassigned represents the residual classification for theDistrict's General Fund and could report a surplus or deficit. In funds other than the General Fund,the unassigned classificationshould be used only to report a deficit balance resulting from overspending for specific purposes for which amounts had been restricted,committed or assigned. -31- CutchogueFire District NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 1.Summary of significant accountingpolicies (continued): Fund balance (continued): When resources are available from multiple classifications,the District spends funds in the following order: Restricted amounts are deemed to have been spent when an expenditure is incurred for purposes for which both restricted and unrestricted(committed, assigned or unassigned) amounts are available. Within unrestricted fund balance,expenditures are deemed to be spent first from committed amounts,followed by assigned amounts and then unassigned amounts when expenditures are incurred forpurposes for which amounts in any of those unrestricted fund balance classifications could be used. Fixed assets:Fixedassets, which includeland, buildings, improvements otherthan buildings, machinery and equipment and infrastructure,are reported on the ScheduleK (General Fixed Assets)on the AUD.The Districtdefinesfixedassets as assets with an initial, individual cost of more than $2,500 and anestimated useful life in excess of five years. Such assets are recorded at historical cost or estimated historicalcost if purchased or constructed. Major outlays for fixedassets and improvements are capitalized as projects are constructed. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assetslives are notcapitalized. The costsassociated with the acquisition or construction offixedassets are shown as capital outlay expenditures in governmental funds. Real property taxes:All real property assessments are made by the Town of Southold. Real property taxpayments are due in two equal installments; the first half payable on December 1 (lien and levy date) preceding the year for which the same is levied and the second halfpayable May 10,with the first half payable without penalty to January10and the second half payable without penalty to May 31. After May 31,all taxes must be paid to Suffolk County Treasurer with a 5% penalty charge and interest at the rate of 1% per month from February 1. -32- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 1.Summary of significant accounting policies (continued): Real property taxes(continued): TheTown of Southold Receiver of Taxes collects all real estate taxes anddistributes the tax collections to the District. All payments made to the District are madein the year for which the tax has been levied. The Town ofSouthold Receiver of Taxes turnsover uncollected items to the Suffolk County Treasurer who continues thecollectionof these items. Responsibility for the collection of unpaid taxes rests with Suffolk County. Budgetary data: The District prepares an operating budget for the General Fund each year. The budget is adopted by the Board of Fire Commissionersas its finalbudget for the coming year as it relates to total spending. The District can adjust the budgetas needed by transferring certain budgeted amounts between accounts. The budget is not subject to referendum. All budget appropriations lapse at the end of eachyear. Use of estimates: The preparation of the AUDin conformity with the regulatory basis of accounting requires management to make estimatesand assumptionsthat affect certain reported amounts and disclosures. Accordingly,actual resultscoulddifferfrom those estimates. Newly adopted accounting standards:The District has adopted all current standards of the Governmental Accounting Standards Board that are applicable. Subsequent events: Management has evaluated subsequent events through the date of the report,which is the date the financial statementswere available to be issued. 2.Deposits withfinancial institutions and investments: The District's investment policies are governed by state statutes and District policy. Resources must bedeposited in Federal Deposit Insurance Corporation (FDIC) insured commercial banks or trust companies locatedwithin the state. Permissible investments include special time deposit accounts,certificates of deposit,obligations of the United States ofAmerica,obligations guaranteed by agencies of the United States ofAmerica and obligations of the State of New York. Collateral is required for demand and time deposits andcertificates of deposit not covered by FDIC insurance. Custodial credit risk is the risk thatin the event of a bank failure,the District's deposits maynot be returned to it. The District's riskexposure can be categorized as follows: 1.Insured by FDIC insurance. 2.Collateralized by securities held by the pledging financial institution's trust department or agent,but not in the District's name. -33- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 2.Deposits with financial institutions and investments (continued): 3.Collateralized by securities held by the pledging financial institution,but not in the District's name. 4.Uncollateralized. The District's deposits held are categorized,basedon the above criteria,as follows: CategoryAmount 1$ 250,000 22,115,220 3 - 4 - Total$2,365,220 The District did not have any investments at year-end or during the year. Consequently, the District was not exposed to any material interest rate risk. 3.Fixed assets: A summary of changes in fixed assetsfollows: Balance Balance 12/31/2012/31/21 AdditionsDeletions Fixed assets not being depreciated $1,053,403$ -$ -$1,053,403 Land Fixed assets being depreciated 1,579,876 - - 1,579,876 Buildings 297,207 - - 297,207 Improvements other than buildings 4,586,005 167,937 - 4,753,942 Machinery and Equipment 411,541 14,107 - 425,648 Infrastructure 6,874,629 182,044 - 7,056,673 Total fixed assets being depreciated 3,859,413 309,923 - 4,169,336 Less accumulated depreciation Total fixed assets being depreciated, net 3,015,216 (127,879) - 2,887,337 $4,068,619$(127,879)$ -$3,940,740 Fixed assets, net -34- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 4.Long-term liabilities: Long-term liability activity for the year ended December 31,2021was as follows: Beginning Ending Balance AdditionsReductions Balance M&T BankEquipment Finance$307,325 $ - $(47,961)$259,364 Total$307,325$ - $(47,961)$259,364 In 2017,the District entered intoalease purchase finance agreementwith M&T Bank Equipment Finance for the purchase of a 2017 Spartan Fire Truckthatendson November 21,2026. The value of the equipment at the inception of the lease was $716,631. The District made a down payment of $216,631 and financed the remaining $500,000 balance. Interest and principal are being provided for in the General Fund. Interestis at an annual rate of2.594%. Maturities of long-term indebtedness,principal and interest,at December 31,2021,are as follows: Duein Fiscal Year Ended PrincipalInterest Total 2022$49,220 $ 6,808$56,028 202350,5125,51656,028 202451,8384,19056,028 202553,1992,83056,029 2026 54,595 1,433 56,028 Total$259,364$20,777$280,141 -35- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 5.Pension Plan: Plan description:The District participates in theNew York Stateand Local Employees' Retirement System (ERS)which is part of the New YorkState and Local Retirement System (theSystem). This is a cost-sharing,multiple-employer defined benefit retirement system. The net position ofthe System is held in the New YorkState Common Retirement Fund (the Fund),which was established to hold allnet assets and record changes infiduciary net positionallocated to the System. The Comptroller of the State of New York serves as the trustee of the Fund and is theadministrativehead of the System. System benefits are established under the provisions of the New York State Retirement and Social Security Law(NYSRSSL). Once a public employer elects to participate in the System,the election is irrevocable. The New York State Constitution provides that pension membership is acontractualrelationship and plan benefits cannot be diminished or impaired. Benefitscan be changed for future members only byenactment of a State statute. The Districtalso participates in the Public Employees'Group LifeInsurance Plan (GLIP),whichprovides death benefits in the form of life insurance. The System isincluded in the State's financial report as a pension trust fund. That report may be found at www.osc.state.ny.us/retire/publications/index.phpor obtained bywriting to the New York State and Local RetirementSystem,110 State Street,Albany,New York 12244. Benefits provided: The System provides retirementbenefits as well as death and disability benefits. Tiers1 and 2 Eligibility:Tier1members,with theexception of those retiring under special retirement plans,must be at least age 55 to be eligible to collect a retirement benefit. There is no minimum service requirement for Tier 1 members. Tier 2 members,with the exception of thoseretiring under special retirement plans,musthave five years of service andbe at least age55 to be eligible tocollect a retirement benefit. The age at which full benefits may be collected for Tier 1 is 55 and the full benefit age for Tier 2 is 62. Benefit calculation:Generally,the benefit is 1.67% of final average salary foreach year of service if the member retires with less than 20years. If the member retires with20or more years of service,the benefit is 2% of finalaverage salary for each yearof service. Tier 2 members with five ormore years of service can retireasearly as age 55 with reduced benefits.Tier 2 members age 55 or older with 30 or more years ofservice can retire with no reduction in benefits. -36- Cutchogue Fire District NOTES TO ANNUAL FINANCIALREPORT UPDATE DOCUMENT ____ 5.Pension Plan(continued): Benefitsprovided(continued): Tiers1 and 2(continued): Benefit calculation(continued): As aresult of Article 19 of the NYSRSSL,Tier 1 andTier 2memberswhoworked continuouslyfrom April1,1999 through October1,2000received anadditionalmonth of service credit for each year of credited service they have at retirement,up to a maximumof 24 additional months. Final average salary isthe average ofthe wages earned in the threehighest consecutive years. For Tier 1 members who joined on or after June17,1971,each year of final average salary is limited to no more than 20% of the previous year. For Tier 2 members, each year of final average salary is limited to no more than 20%of theaverage of the previous two years. Tiers3,4 and 5 Eligibility:Tier 3 and 4 members,with the exception of those retiring under special retirement plans,must have five years of serviceand be at leastage55 to beeligible to collect aretirement benefit. Tier 5 members,with the exceptionof those retiring under special retirement plans,must have 10 years of service and be at least age 55 to be eligible to collect a retirement benefit. The full benefit age for Tiers 3,4 and 5 is 62. Benefitcalculation:Generally,the benefit is 1.67% of final average salary for each year of service if the member retires with less than 20years. If a member retires with between 20 and 30years of service,the benefit is2% of final average salary for each yearof service. Ifamemberretireswith more than 30years of service,an additionalbenefit of 1.5% of final average salary is applied for each year of service over 30years. Tier3 and 4 members with five or more years of service and Tier 5 members with10 or more years of service can retire as early as age 55 with reduced benefits. Tier 3 and 4 members age 55 or older with 30 or more years of service can retire with no reduction in benefits. Final averagesalary isthe averageof thewages earned inthe threehighest consecutive years.For Tier 3,4 and 5 members,each year of final average salary is limited to no more than 10% of the average of the previous two years. -37- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 5.Pension Plan (continued): Benefits provided(continued): Tier 6 Eligibility:Tier 6 members,with theexception of those retiring under special retirement plans,must have tenyears ofservice and beat least age 55 to be eligible tocollect a retirement benefit. The full benefit age for Tier 6 is 63 for ERS members. Benefit calculation:Generally,the benefitis 1.67% of final average salary foreach year of service if themember retires with less than 20years. If a member retires with 20years of service,the benefit is 1.75% of final average salary for each year of service. If a member retires withmore than 20years of service,an additional benefit of2% of final averagesalary isapplied for each yearof service over20years. Tier 6 members with ten or more years of service can retire as early as age 55 with reduced benefits. Final average salary is theaverage of the wages earned in the five highestconsecutive years.For Tier 6members,eachyear of final average salary is limited tono more than 10% of the average of the previous four years. Ordinary Disability Benefits Generally, ordinary disability benefits, usually one-third of salary, are provided to eligible members after ten years ofservice; in some cases, they are provided after five years of service. Accidental Disability Benefits For all eligible Tier 1 and Tier 2 ERS members, the accidental disability benefit is a pension of 75% of final average salary, with an offset for any Workers'Compensation benefits received. The benefit for eligible Tier 3, 4, 5 and 6 members is the ordinary disability benefit with the years-of-service eligibility requirement dropped. Ordinary Death Benefits Death benefits are payableupon the death,before retirement,ofa member who meets eligibility requirements asset forth by law. The first $50,000 of an ordinary death benefit is paid in the form of group term life insurance. The benefitis generally three times the member's annualsalary. For mostmembers,there is also a reduced post-retirement ordinary death benefit available. -38- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 5.PensionPlan (continued): Benefits provided(continued): Post-Retirement Benefit Increases A cost-of-living adjustment is provided annually to: (i)all pensioners who have attained age 62 andhavebeen retiredforfive years,(ii)allpensioners who have attainedage 55 and have beenretired for tenyears,(iii)all disabilitypensioners,regardless of age,who have been retired for five years,(iv)ERS recipients of an accidental death benefit, regardless of age,who have beenreceiving such benefit for five yearsand (v) the spouse of a deceased retiree receiving a lifetime benefitunder an option elected by the retiree at retirement. An eligible spouse is entitled to one-half the cost-of-living adjustment amount that would have been paid to the retiree when the retiree would have met the eligibility criteria. This cost-of-living adjustment is a percentage of the annual retirement benefit of the eligible member as computed on a base benefit amount notto exceed$18,000 of the annual retirement benefit. Thecost-of-living percentage shallbe 50%of the annual Consumer Price Index as published by the U.S.Bureau of Labor butcannot be less than 1% or exceed 3%. Contributions: The System is non-contributory except for employees who joined the ERSafter July 27, 1976, who contribute 3% of their salary for the first ten years of membership and employees who joined on or after January 1, 2010,who generally contribute 3% of their salary for their entire length of service. For Tier 6 members, the contribution rate varies from 3% to 6% dependingon salary. Generally, Tier 5 and 6 members arerequired to contribute for all years of service. Under the authority of the NYSRSSL, the Comptroller annually certifies the actuarially determined rates expressly used in computing the employers'contributions based on salaries paid during the Systems'fiscal year ending March 31. Contributions for the current year and two preceding years were equal to 100%of the contributions requiredand were as follows: Year Ending December 31, Amount 2021$3,863 20207,293 20196,465 -39- Cutchogue Fire District NOTES TOANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 5.PensionPlan (continued): Contributions(continued): Chapter 57 of the Laws of 2013 of the State of New York, Part BB, amending several sections of the Retirement and Social Security Law, was enacted that allows local employersto amortizea portion oftheir retirement bill for up to 12 years in accordance withthe following stipulations: The maximum amount an employer can amortize is the difference between the normal annual contribution (total bill, excluding payments for deficiency, group life, previous amortizations, incentive costs and prior year adjustments) and the graded contribution. For subsequent State Fiscal Years (SFYs), the graded rate will increase or decrease by up to one-half of 1% depending on the gap between the increaseor decrease in the System's average rate and the previous graded rate. The interest rate will be set annually and will be comparable to a 12-year U.S. Treasury Bond plus 1%. For subsequent SFYs in which the System's average rates are lower than the graded rates, the employerwill be required to pay the graded rate. Any additional contributions made will first be used to pay off existing amortizations and then any excess will be deposited into a reserve account and will be used to offset future increases in contribution rates. This law requires participating employers to makepayments on a current basis,while amortizingexistingunpaid amounts relatingto the System's fiscal years when the local employer opts to participate in the program. The District'stotal pension liability was paid as of December 31,2021. Pension liabilities,pension expense and deferred outflows of resources and deferred inflows ofresources related to pensions: At December 31,2021,the Districtreported a liability of$185for its proportionate share of the net pension liability. Thenet pension liability was measured as of March 31,2021,and the total pension liability used to calculate the netpensionliability was determined byan actuarial valuation as of thatdate. The District'sproportion ofthe net pension liability was basedon a projection of the District'slong-term share ofcontributions to the pensionplan relative tothe projected contributions of all participating members,actuarially determined. -40- Cutchogue Fire District NOTESTOANNUAL FINANCIAL REPORT UPDATEDOCUMENT ____ 5.Pension Plan (continued): Pension liabilities,pension expense and deferred outflows of resources and deferred inflowsofresources related to pensions(continued): At March31,2021,the District'sproportion was0.0001855%, which was an increase of 0.0000136%from its proportion measured at March 31,2020. For the yearended December 31,2021,the Districtrecognized pension expendituresof $3,863.At December31,2021,the Districtreporteddeferred outflows of resources and deferred inflows of resourcesrelated to pensions from the following sources: DeferredDeferred Outflows ofInflows of ResourcesResources Differences between expected and actual experience$ 2,256 $- Changes of assumptions33,962641 Net difference between projected and actual earnings on pension plan investments - 53,060 Changesin proportion and differences between District contributions and proportionate share of contributions2,3654,143 District contributions subsequent to the measurement date 3,863 - Total$42,446$57,844 The $3,863reported asdeferred outflows of resources related to pensionsresulting from Districtcontributions subsequent to the measurement date will be recognized as a reductionof the net pension liability in the year ended March 31,2022. Other amounts reported as deferredoutflows ofresources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ended March 31:Amount 2022$ (3,608) 2023(2,111) 2024(3,563) 2025(9,979) -41- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 5.Pension Plan (continued): Actuarial assumptions: The total pensionliability at March 31,2021was determined by usingan actuarial valuation as of April1,2020withupdate procedures used to roll forward the totalpension liability to March 31,2021. The actuarial valuation used the followingactuarial assumptions: Inflation2.7% Salary increases4.4% Investment rate of return (net of investment expense,including inflation)5.9% Cost-of-living adjustments1.4% Annuitant mortality rates are based on April 1,2015throughMarch 31,2020System experience with adjustments for mortality improvements based on the Society of Actuaries'Scale MP-2020.Thepreviousactuarial valuation as of April1,2019used April 1, 2010throughMarch 31, 2015 System experience, mortality improvements based on the Society of Actuaries'scale MP-2018, inflationof2.5%, cost-of-living adjustments of 1.3%, salary increases of4.5%and investment rate of returnof6.8%. Theactuarial assumptions usedin the April 1,2020valuation arebased on the results of an actuarial experience studyforthe periodApril 1,2015through March 31,2020. The long-term expected rate ofreturn on pension plan investments was determined using a building-block methodin which best-estimate ranges of expected future real rates of return (expected return,net investmentexpensesand inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weightingthe expected future real rates of return by the target assetallocation percentage and byadding expectedinflation. The target allocation andbest estimatesof arithmetic realrates ofreturn for each major assetclass as of March 31,2021are summarized below: Long-term Expected Real AssetClass Target Allocation Rate of Return Domestic equity32.00%4.05% International equity15.00%6.30% Private equity10.00%6.75% Real estate 9.00%4.95% -42- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATE DOCUMENT ____ 5.Pension Plan(continued): Actuarial assumptions (continued): Long-term Expected Real AssetClass Target Allocation Rate of Return Opportunistic/ARS Portfolio3.00%4.50% Credit 4.00%3.63% Real assets 3.00%5.95% Fixed Income23.00%0.00% Cash1.00%0.50% 100.00% The real rate of return is net of the long-term inflation assumption of2.0%. Discount rate: The discountrate used to calculate the total pension liability was 5.9%. The projection of cash flows used to determine the discount rate assumes that contributions from plan members will be made atthecurrent contributionrates and that contributions from employerswill be made at statutorily requiredrates,actuarially.Based upon the assumptions,the System's fiduciary net position was projected to be available to make all projected future benefit paymentsof current plan members. Therefore,the long- term expectedrate of return on pension plan investments was applied to all periods of projected benefitpayments to determine the total pension liability. Sensitivity of thenetpension liability(asset)to the discount rate assumption: The following presents the current period net pension liability of the District'sproportionate share of the net pension liability(asset)calculated using the current period discount rate assumptionof 5.9%,as well as what the District'scollectivenet pension liability(asset) would be ifit were calculated using a discount rate that is 1 percentage point lower (4.9%)or 1 percentage pointhigher (6.9%)than the current rate: 1% Current 1% DecreaseAssumptionIncrease (4.9%) (5.9%) (6.9%) District'sproportionateshare of the net pension liability (asset)$51,268$185($46,926) -43- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATEDOCUMENT ____ 5.Pension Plan (continued): Pension plan fiduciary net position: The components of the collectivenet pension liability of theparticipatingemployersasofMarch 31,2021were as follows: (Dollarsin Thousands) Employees'Retirement System Employers'total pensionliability$220,680,157 Plan net position (220,580,583) Employers'net pension liability$ 99,574 Ratio of plan netpositionto the employers' total pension liability99.95% 6.Length ofService Award Program (LOSAP): The District'sAUD isforthe year ended December 31,2021. However,the information containedin this note is based on information for the LOSAP forthe plan yearending on February 28,2021,which is the most recent planyearfor whichcomplete information is available. The fundingdetail is for the period March 1,2019through February 29,2020. The Districtestablished a defined benefit LOSAP forthe active volunteer firefighters of the District.The Program took effect onMarch 1,1993. The Program was established pursuantto Article11-A of theGeneral Municipal Law. The Program provides municipally funded,pension-like benefits to facilitate the recruitmentandretention of active volunteer firefighters. The District is the sponsor of the Program. Programdescription: Participation,vestingand service credit: Activevolunteer firefighterswho have reached the age of 17 and who have completedtheirprobationary period are eligible to participate in the Program. Participants acquire a non-forfeitable right to a service award after being credited with five years of firefighting service or upon attaining the Program's entitlement age. The Program's entitlement age is age 65. In general,an active volunteer firefighter iscredited with a year of firefighting serviceforeach calendar year after the establishment of theProgramin which he or sheaccumulates 50 points. -44- Cutchogue Fire District NOTESTO ANNUAL FINANCIAL REPORT UPDATEDOCUMENT ____ 6.Length ofServiceAward Program (LOSAP)(continued): Programdescription(continued): Participation,vestingand service credit(continued): Points aregranted for the performance of certain activities in accordance with a system established by thesponsorbased onastatutory list ofactivities and point values. A participant may also receive credit for five years offirefighting service rendered prior to the establishment of the Program. Benefits: A participant's benefit under theProgram is theactuarial equivalent of a monthly payment for life equalto $20 multiplied by the person'stotal number of years of firefighting service. The number of years of firefighting service used to compute the benefit cannot exceed 30. Benefits arenot payable untilthe first day ofthe month coincident with or followingthe attainment of age 65 and completionofone yearof plan participation. Except in the case of disability or death,benefits are payable when a participant reaches entitlement age. TheProgramprovides statutorilymandated death and disability benefits. Fiduciary investment and control: Service credit is determinedby the Governing Board of the sponsor,based on informationcertified to the Governing Board by each fire company having members who participate in theProgram. Each firecompany must maintain all required records on formsprescribedbytheGoverning Board. The Governing Board of the sponsor has retained and designatedGlatfelter Specialty Benefits,VolunteerFiremen's Insurance Services,Inc. (VFIS), adivision of Glatfelter Insurance Group,to assist inthe administrationof theProgram. Thedesignated Program administrator's functions include providing basic annual administration services as follows: a)Providing participant enrollmentforms. b)Providingan annualreminderletter with a review list for thecurrent anniversary date. c)Preparationof Explanation of Plan Benefits. d)Calculation ofSchedule of Benefits and costs annually. -45- Cutchogue FireDistrict NOTES TOANNUALFINANCIALREPORT UPDATE DOCUMENT ____ 6.Length ofServiceAward Program (LOSAP) (continued): Fiduciary investment and control (continued): e)Participants'benefit calculation at time of severance or retirement. f)Auxiliary Fund valuation and suggested deposit. g)Summary of required annualcontribution. h)Annual actuarialreviewand recommendedbenefit enhancements. Disbursements of Program assets for the payment of benefits or administrative expenses must be approved. The following is an explanationof the process for approving disbursements: Payment of benefits: 1.Entitlement benefits-VFISprepares and submits to the plan sponsor a Verification of Benefits Statementand an Annuity Enrollment form for participants active at entitlement age and for vested participants upon termination fromthe plan. Following review for accuracy,theplan sponsor signs and returns the paperwork to VFIS authorizing VFIS to disburse entitlement benefits. 2.Death benefits-Upon notification from the plan sponsor of a participant's death, VFIS prepares aVerification of Benefits statementanda Lump-Sum Death Benefit form. Following review foraccuracy,the plan sponsor signs and returns the paperwork accompanied by a death certificate to VFISauthorizing VFIS to disbursea death benefit. 3.Disability benefits -Upon notification from the plan sponsorof a participant's total and permanent disability,VFIS prepares a Verification of Benefits statement, a Physician Statement form and a Lump-Sum Disability Benefit form. Following review for accuracy,the plansponsorsignsand returns the paperwork authorizing VFIS to disburse a disability benefit. Payment of administrative expenses: 1.Per the executed Service Fee Agreement,the plan sponsor agrees to paymentas contracted. -46- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORTUPDATEDOCUMENT ____ 6.Length of Service Award Program (LOSAP) (continued): Authorityto invest Program assets is vested in EmpowerRetirement. Subject to restrictionsin the Program document,Program assetsare investedin accordance with a statutory "prudent person"rule. The sponsor invested plan funds in a general investment account. The sponsoris required to retain an actuary to determine the amount of sponsor's contributions to the plan. The actuary retained by the sponsor for thispurpose is GailE. Johnson. The actuary reviewed the actuarial valuation of the plan prepared byVFIS and issued a report datedJune 8, 2020. Portions of the following information were derived from a report preparedby VFISdatedJune 3,2020. Programfinancial condition: Assets andLiabilities % of Total Actuarial present value of accrued benefits at February 29,2020: Vested$3,095,308 Non-vested 35,191 3,130,499 Present valueof accruedpost-entitlementbenefits 474,931 Totalpresent value ofaccrued benefits$3,605,430 Less:assets available for benefits: General investments100% $2,654,187 Total net assets available for benefits (2,654,187)(A) Totalunfundednormal benefits $951,243* * The unfunded liability was placed on a 10-yearamortization effective March 1,2013. Theunfunded liability was based upon data as of March 1,2013 and will be affected by planexperience over the10-yearperiod. Funded ratio: Plan assets$2,654,187 Total present value of accrued benefits$3,605,430 Percent funded 73.6% -47- Cutchogue FireDistrict NOTES TO ANNUAL FINANCIAL REPORTUPDATE DOCUMENT ____ 6.Length of ServiceAward Program (LOSAP) (continued): Program financial condition (continued): Receipts and Disbursements Plannet assets,beginning of year,1/1/21$2,964,619 Changes during the year (increases/(decreases)): Plan contributions$415,000 Fixed investment gain96,091 Plan benefitwithdrawals(199,733) Administrative and other fees/charges (6,055) 305,303 Plan net assets,end of year,12/31/21$3,269,922(B) (A)The information included on page 47 and 48 is as of February 29, 2020and based off the most recent actuarial report dated June 3, 2020. (B)This amount represents the netassets available for the payment of benefits as of December 31, 2021 as reflected in Empower Retirements general investmentaccount andagrees to thevalue being reported on the faceof the Annual Financial Report Update Document (Financial Section). Contributions Amount of sponsor's contributionrecommended byactuary$ 376,554(A) Amountof sponsor'sactualcontribution$ 415,000 AdministrationFees Fees paid to designatedprogram administrator$ 6,055 Funding methodology and actuarial assumptions: Normal costs: The actuarial valuation methodology used by the actuary to determinethe sponsor's contribution is Entry Age Normal FrozenInitial Liability. The assumptions used by the actuary to determinethe sponsor's contribution and theactuarial present value of benefits are: -48- Cutchogue Fire District NOTES TO ANNUALFINANCIAL REPORTUPDATEDOCUMENT ____ 6.Length of Service AwardProgram (LOSAP) (continued): Funding methodologyand actuarial assumptions (continued): Normal costs (continued): Assumed rate of return on investment4.50% Mortality tables used for: Pre-retirement MaleN/A FemaleN/A Post-retirement MaleRP2000M>20300 FemaleRP2000F>2030 0 7.Commitments and contingencies: Encumbrances:In the current year,the District has fivereportedencumbrances in the amount of $33,484. Thisamount isrepresentedin the assignedunappropriatedfund balance of $33,484reported in the AUD. This amountismainly for thepurchase of a Kubota Utility Vehicle,turnoutgearand SCBA bottles. Assignedappropriatedfund balance: TheDistrict,from time-to-time,will appropriate a portion of its unassigned unappropriated fund balance. During 2021,no such appropriation wasmade. Legal: The Districtis exposed to various risksof lossrelated to torts,theft of,damage to and destruction of assets,injuries to employees,errors andomissions,natural disasters, etc. These risks are covered by commercial insurance purchased fromindependent third- parties.Settled claims from these riskshavenotexceeded commercial insurance coverage. 8.Economic dependency: Forthe year ended December 31,2021,approximately94% ofthe District's gross revenues werederived from real property taxes providedby the Town of Southold. -49- Cutchogue Fire District NOTES TO ANNUAL FINANCIAL REPORT UPDATEDOCUMENT ____ 9.Rental of real property: OnDecember 13,2016,the District entered into a lease agreementto lease ground space on its property to a company for the positioning of a communication tower,which has not yet been positioned onthe property.The communication tower will not be District owned. This is a 30-year lease commencing onthe date of commercialoperation of the leased space.Upon noticeof lessee,the lease will be renewed for three additional terms of five years each and one additional term of four years.The termsof the lease allow for the lesseeto subleasethe property and requires the lessee topay theDistrict 30% of all rents received from the first sublessee,35% for thesecondsub lessee and 40% from all subsequent sublessees.There was no rental income related to this lease during theyear ended December 31,2021and future rentalincomeis not readily determinable. 10. Coronavirus pandemic: InMarch 2020,an outbreakof a new strain of Coronavirus,COVID-19,emerged as a pandemic in New York State and across the United Statesof Americaleading to widespreadbusiness shutdowns and significant volatility in the financialmarkets. To help blunt the spread of COVID-19 and reduce the density of exposure,manybusinesses and organizations temporarily ceased operations or beganoperating ona very limited or remote basis. The Coronavirusoutbreak is still evolving. Theultimateextent of the pandemic's impacton theDistrictwill depend on future developments which are highly uncertainand ongoing. Currently,management is unable to quantify thepotential effects of the pandemicon operations and financialperformance of the District. -50- 165 Orinoco Drive Brightwaters, NY 11718 T: 631.665.7040 | F: 631.665.7014 15 South Bayles Avenue Port Washington, NY 11050 T: 516.883.5510 | F: 516.767.7438 www.sheehancpa.com INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING ANDON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OFANNUAL FINANCIAL REPORT UPDATE DOCUMENT PERFORMEDIN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of FireCommissioners CutchogueFire District Cutchogue, New York We have audited,in accordance with auditing standards generally accepted in the United States of Americaand the standards applicable to financial audits contained in Government Auditing Standardsissued by the Comptroller General of the United States, the Annual Financial Report Update Documentof Cutchogue Fire District(the District), as of and for the year ended December 31, 2021,and the related notes to the Annual Financial Report Update Document (Financial Section), which collectively comprise theDistrict's basic financial statementsand have issued our report thereon dated June1,2022. Report on Internal Control Over Financial Reporting In planning and performing our auditof the Annual Financial Report Update Document (Financial Section), we considered the District's internal control over financial reporting(internal control)asa basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the Annual Financial Report Update Document(Financial Section)but not for the purpose of expressing an opinion on the effectiveness of the District's internal control. Accordingly, wedo not express an opinion on the effectiveness of the District's internal control. A deficiency in internal controlexists when the design or operation of a control does not allow management or employees, in the normal course of performing their assignedfunctions, to prevent or detect and correct misstatements on a timely basis. A material weaknessis a deficiency,or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the District's Annual Financial Report Update Document(Financial Section)will not be prevented or detected and corrected on a timely basis. -51- To the Board of Fire Commissioners CutchogueFire District Asignificantdeficiencyis a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yetimportant enough to merit attention by those charged with governance. Our consideration of internal control wasfor the limited purpose described in the first paragraph of this section and was not designed to identify alldeficiencies in internal controlthatmight be material weaknessesor significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknessesor significant deficienciesmay exist that havenotbeen identified. Report on Compliance and Other Matters As part of obtaining reasonable assurance aboutwhether the District'sAnnual Financial Report Update Document(Financial Section)isfree from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contractsand grant agreements, non- compliance with which could have a direct and material effect on the determination of Annual FinancialReport Update Document(Financial Section). 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 noinstance of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describethescope of our testing of internal control and compliance and the resultsof that testing,and not to provide an opiniononthe effectiveness of the District's internal control or on compliance. This report is an integral part ofan audit performed in accordance with Government Auditing Standardsin considering the District's internal control and compliance. Accordingly, thiscommunication is not suitable for any other purpose. Brightwaters, New York June1, 2022 -52-