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Home My WebLink About2011 FIFD Fishers Tsland Ferry District A Component Unit of the Town of Southold, New York Financial Statements Year Ended December 31, 2011 Fishers Tsland Ferry District Financial Statements For the Year Ended December 31, 2011 Table of Contents Paqe No. Independent Auditors' Report ............................................................................................... 1 [Vlanagement's Discussion and Analysis .................................................................................. 3 Basic Financial Statements: Exhibit Government-Wide Financial Statements: I Statement of Net Assets ........................................................................... 1! 2 Statement of Activities ............................................................................. 12 Fund Financial Statements: 3 Balance Sheet - Governmental Funds ........................................................ 13 4 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds ........................................................................ 14 Notes to the Financial Statements ..................................................................... 15 Required Supplementary Information: Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual (Budgetary Basis) - General Fund ............................................. 35 Combining and Individual Fund Financial Statements: Statement Fund Descriptions ............................................................................................ 38 Special Revenue Funds: 1 Balance Sheet .......................................................................................... 39 2 Statement of Revenues, Expenditures and Changes in Fund Balance ................................................................. 40 Tnternal Control and Compliance Reports: Government Auditinq Standards Report ..................................................................... 42 Schedule of Findings ................................................................................................ 44 O'CONNOR PKF Independent Auditors' Report The Board of Commissioners Fishers Island Ferry District We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Fishers Tsland Ferry District (the "District"), a component unit of the Town of Southold, New York, as of and for the year ended December 31, 2011, which collectively comprise the District's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Fishers ]Island Ferry District's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Aud/t/ng Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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 District's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. Tn our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Fishers Tsland Ferry District as of December 31, 2011 and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. Tn accordance with Government Aud/t/ng Standards, we have also issued our report dated October 17, 2012 on our consideration of the Fishers ]Island Ferry District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Aud/t/n~7 Standards and should be considered in assessing the results of our audit. O'CONNOR DAVIES, LLP 100 Great Meadow Road, Wethersfield, CT 06109 ITeh 860.257.1870 I Fax: 860.257.1875 I www,odpkf.com Accounting principles generally accepted in the United States of America require that Hanagement's Discussion and Analysis and the budgetary comparison information 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 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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Fishers ]~sland Ferry District's financial statements. The accompanying financial information listed as combining and individual fund financial statements in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. Tn our opinion, the accompanying financial information listed as combining and individual fund financial statements in the table of contents is fairly stated in all material respects in relation to the financial statements taken as a whole. Wethersfield, Connecticut October 17, 2012 Fishers Island Ferry District Management's Discussion and Analysis December 31, 2011 Our discussion and analysis of Fishers Tsland Ferry District's (the "Ferry District'g financial performance provides an overview of the Ferry District's financial activities for the fiscal year ended December 31, 2011. Please read it in conjunction with the Ferry District's financial statements, which begin with Exhibit 1. FINANCIAL HIGHLIGHTS · The Ferry District's net assets decreased $150,827 in 2011. · The Ferry District's unrestricted net assets increased from $8,993 in 2010 to $143,475 in 2011. · Fund balance, a measure of the Ferry District's short term health, increased by $146,543 in 2011. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The Statement of Net Assets and the Statement of Activities (Exhibits I and 2) provide information about the activities of the Ferry District as a whole and present a longer-term view of the Ferry District's finances. Fund financial statements start with Exhibit 3. For governmental activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the Ferry District's operations in more detail than the government-wide statements by providing information about the Ferry District's most significant funds. Reporting the Government as a Whole Our analysis of the Ferry District as a whole begins with Exhibit 1. One of the most important questions asked about the Ferry District's finances is, "Is the Ferry District as a whole better off or worse off as a result of the year's activities?" The Statement of Net Assets and the Statement of Activities report information about the Ferry District as a whole and about its activities in a way that helps answer this question. These statements include all assets and liabilities using the accrua/basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the Ferry District's net assets and changes in them. You can think of the Ferry District's net assets--the difference between assets and liabilities--as one way to measure the Ferry District's financial health, or financia/position. Over time, increases or decreases in the Ferry District's net assets are one indicator of whether its financia/hea/th is improving or deteriorating. You will need to consider other nonfinancial factors, however, such as changes in the Ferry District's property tax base and the condition of the Ferry District's assets, to assess the overa//hea/th of the Ferry District. Fishers Tsland Ferry District Management's Discussion and Analysis December 31, 2011 Tn the Statement of Net Assets and the Statement of Activities, the Ferry District shows the following activity: Governmental activities--The Ferry District's basic services are reported here. Ferry fees, property taxes, state and federal grants, and rental fees finance most of these activities. Reporting the Ferry District's Most Significant Funds Our analysis of the Ferry District's major funds begins in the section titled "The Ferry District's Funds". The fund financial statements begin with Exhibit 3 and provide detailed information about the most significant funds--not the Ferry District as a whole. Some funds are required to be established by State law and by bond covenants. However, the Board of Commissioners establishes other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money. Governmenta/funds--The Ferry District's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year- end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term v/ewof the Ferry District's general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the Ferry District's programs. We describe the relationship (or differences) between governmental act/v/t/es (reported in the Statement of Net Assets and the Statement of Activities) and governmental funds in a reconciliation at the bottom of the fund financial statements. THE FERRY DISTRZCT AS A WHOLE The Ferry District's combined net assets decreased by $:t50,827 from a year ago - decreasing from $8,84-4,203 to $8,693,376. Last year (2010) the net assets increased by $40,432. Our analysis below focuses on the net assets (Table 1) and changes in net assets (Table 2) of the Ferw District. Capital assets decreased during the year by $560,310. This was the result of $581,:t60 of depreciation applied to the assets to show that they have aged during the year and only $20,850 of replacement assets were purchased. The District paid a net amount of $275,000 on debt used to finance the capital assets. The result was that Net Assets invested in capital assets decreased by $285,310. Current assets increased during the year. Although there was a net loss of $150,827, depreciation in the amount of $581,160, was deducted from the income to create that loss. Depreciation does not use cash. The cash loss was $430,333 (-$150,827+581,160). This cash was used to increase current assets and pay down long term debt. Fishers Tsland Ferry District Management's Discussion and Analysis December 31, 2011 Table 1 Change in Net Assets (on Exhibit 1) Current and other assets Capital assets Total assets Long-term debt outstanding Other liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Unrestricted Total net assets Change During Year 2011 Dollars Percent 2010 $ 1,059,476 $ 188,338 21.62% $ 871,138 11,099,901 (560,310) -4.81% 11,660,211 12,159,377 (371,972) -2.97% 12,531,349 3,114,273 (258,963) -7.68% 3,373,236 351,728 37,818 12.05% 313,910 3,466,001 (221,145) -6.00% 3,687,146 8,549,901 (285,310) -3.23% 8,835,211 143,475 134,483 1495.58% 8,992 $ 8,693,376 $ (150,827) -1.71% $ 8,844,203 As discussed earlier, the Ferry District decreased its net assets by $150,827 in 2011 when in 2010 the net assets increased by $40,432. Below is a comparison of the income statements between the two years: Table 2 Change in Net Assets (on Exhibit 2) Revenues Program revenues: Charges for services Operating grants and contributions General revenues: Property taxes Interest and investment earnings Gain (loss) on disposal of equipment Miscellaneous revenues Total revenues Change Durin9 Year 2011 Dollars Percent 2010 $ 2,587,181 $ (75,391) -2.83% $ 2,662,572 257,665 64,814 33.61% 192,851 650,036 (100,062) 1,757 (78) 2,846 7,110 (25,599) 3,503,749 (133,470) -13.34% 750,098 -4.25% 1,835 0.00% (2,846) -78.26% 32,709 -3.67% 3,637,219 Program expenses General government Ferry operations Airport Theater Rental activities ]~nterest on long-term debt Total expenses ]~ncrease (decrease) in net assets 233,147 82,010 54.26% 151,137 3,103,391 (1,586) -0.05% 3,104,977 219,962 5,712 2.67°/0 214,250 7,265 (4,110) -36.13°/o 11,375 7,727 (14,604) -65.40°/0 22,331 83,084 (9,633) -10.39°/o 92,717 3,654,576 57,789 1.61°/o 3,596,787 $ (150,827) $ (191,259) 473.04% $ 40,432 Fishers Tsland Ferry District Management's Discussion and Analysis December 31, 2011 The significant changes between 2011 and 2010 were as follows: Charges for services are primarily ferry fees. These went down by $75,391 from 2010 to 2011. Tn 2010 there was a one-time asphalt project that provided approximately $100,000 of additional touch fees. The asphalt project is depicted on the graph below as the grey section of the bar in 2010. 52,600,000 $2,500,000 Comparison of Ferry Rev es $2,400,000 $2,3OO,OOO 52,200,000 $2,100,000 i $2,000,000 Actual Actual Actual Actual Actual 2007 2008 2009 2010 20ii During the year, the District had two primary grants. A $193,143 grant was received for the airport. This is a continuing grant. Last year, the airport grant was $192,851. This project is nearly completed. In 2011 the District received a one-time grant for port security and earned $64,522 of it. Property taxes decreased by $100,062 during the year due to a planned reduction in the budget. Tn 2010, the property budget was increased to cover shortages in the ferry revenues in 2009 (see above) due to a drop in the economy and stock market. The ferry fees rebounded in 2010 so the increased property taxes did not need to continue. General government expenditures increased due to additional professional fees. These fees were for a Human Resources consultant, accounting assistance and management support. Rental repairs decreased in 2011 as compared to 2010. Fishers Tsland Ferry District Management's Discussion and Analysis December 31, 2011 Governmental Activities Table 3 presents the cost of each of the Ferry District's governmental programs as well as each governmental program's net cost (total cost less revenues generated by the activities). The net cost shows the financial burden that was placed on the Ferw District's taxpayers by each of these functions. Table 3 Governmental Type Activities Total Cost Net Cost (Income from) of Services [ncr. of Services [ncr. 2011 2010 Decr. 2011 2010 Decr. Governmental Activities GeneraIGovernment $ 233,147 $ 151,137 54.26% $ 233,147 $ 151,137 54.26% Ferry Operations 3,103,391 3,104,977 -0.05% 527,681 515,259 2.41% Airport 219,962 214,250 2.67% 26,819 21,399 25.33% Theater 7,265 11,375 -36.13% (2,342) 3,177 -173.72% Rental Activities 7,727 22,331 -65.40% (58,659) (42,325) 38.59% Interest on Long-Term Debt 83~084 92~717 -10.39% 83,084 92~717 -10.39% Totals $ 3r654r576 $ 3~596~787 1.61% $ 809,730 $ 741~364 9.22% The significant changes in the total cost of services were discussed above. The net cost of, or income from, services shared similar variances as the total costs. THE GOVERNMENT'S FUNDS While the year showed a $150,827 decrease in net assets on Exhibit 2, it showed a much different picture in Fund Balance. During the year Fund Balance increased by $146,543 in the governmental funds as presented in Exhibits 3 and 4. The difference for this is primarily the treatment of long-term debt and capital assets. Tn the fund balance principal payments on long-term debt are a reduction in fund balance when the payments on the debt are made. Debt payments are never a direct reduction in net assets on the government-wide statements. Likewise, purchases of capital assets are a reduction in fund balance when the purchase is made. Capital asset purchases are never a direct reduction in net assets on the government- wide statements, except that depreciation is deducted. General Fund Budgetary Highlights Over the course of the year, the Board of Commissioners can revise the Ferry District budget with additional appropriations and budget transfers. Additional appropriates increase the total budget. Transfers do not increase the total budget, but instead pull appropriations from one department that needs additional funding from other departments that might have excess funding. Below is a summarized view of the final budget and actual results for the General Fund: Fishers Tsland Ferry District Management's Discussion and Analysis December 31, 2011 Table 4 General Fund - Budget Summary Revenues Ferry Property Tax Property iVlanagemeet Grant Revenues Other Total Revenues Final Budget Actual Variance $ 2,312,000 $ 2,500,857 $ 188,857 650,000 650,036 36 80,000 75,993 (4,007) 64,522 64,522 8r000 33r798 25~798 3~050r000 3~325r206 275~206 Expenditures General Government 240,433 300,668 (60,235) Transporbation 2,230,912 2,093,588 137,324 Miscellaneous 8,000 7,265 735 Employee Benefits 374,300 406,580 (32,280) Debt Service 360r855 360r768 87 Total Expenditures 3~214r500 3~168,869 45~631 Increase (Decrease) in Fund Balance $ (164,500) $ 156,337 $ 320,837 The original budget called for expenditures of $3,182,000. During the year $32,500 of additional appropriations were made. The budgeted revenues were $3,050,000. Tf everything happened right on budget, the Ferry District would have used $164,500 of its accumulated Fund Balance to balance the budget. Revenues came in $188,857 higher than anticipated. The Ferry District received a grant from Homeland Security in the amount of $64,522. And, an insurance recovery from 2010, which was not received in time to be counted as revenue in the budget according to the accounting rules, was recorded as revenue in 2011. Tn total, revenues were $275,206 higher than anticipated and expenditures were $45,631 less than budgeted. Tnstead of using $164,500 of Fund Balance, the District added $156,337 to the Fund Balance. CAPITAL ASSET AND DEBT ADMINTSTRATION Capital Assets At the end of this year, the Ferry District had $17,803,240 invested government activity capital assets before accumulated depreciation. This amount represents a net increase (including additions and deductions) of $20,850 from last year. More detailed information about the Ferry District's capital assets is presented in Note 4 to the financial statements. Fishers Tsland Ferry District Management's Discussion and Analysis December 31, 2011 Debt At year end, the Ferry District had $2,550,000 in bonds outstanding. This is a decrease of $275,000 from last year. The Ferry District issues bonds through the Town of Southold. $outhold's general obligation bond rating continues to carry an Aa2 rating. More detailed information about the Ferry District's long-term liabilities is presented in Note 6 to the financial statements. As of 3anuary 1, 2011, the Ferry District made significant changes to the other post retirement benefits (OPEB) available to retiring employees. In 2010, before the changes were effective, the actuaries estimated the cost of the OPEB as $1,278,581. Tn 2011, after the changes were effective, the same actuaries estimated the cost of the revised OPEB as $422,080. These figures are reported in Note 9 to the financial statement. Reporting the OPEB liability is a relatively new requirement for governments. GASB allows the governments to phase in the total liability over 30 years on the actual face of the financial statements, but requires the total to be reported in the notes to the financial statements. For this reason, there is a dramatic change in the notes, but a minor change on the balance sheet. ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The Ferry District's elected and appointed officials considered many factors when setting the fiscal-year 2012 budget and rates including trying to anticipate an accurate level of ridership, budgeting for continued improvements to the systems while keeping expenditures in line, and planning for future capital needs. CONTACTING THE FERRY DISTRICT'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the Ferry District's finances and to show the Ferry District's accountability for the money it receives. Tf you have questions about this report or need additional financial information, contact: Board of Commissioners Fishers Tsland Ferry District P.O. Drawer H Fishers Tsland, NY 06390 Basic Financial Statements Fishers Island Ferry District Statement of Net Assets December 31, 2011 Exhibit 1 Assets Cash and cash equivalents Receivables, net of allowance for collection losses Prepaid expenses Capital assets, net of accumulated depreciation Nondepreciable Depreciable, net of accumulated depreciation Total assets Liabilities Accounts payable Accrued wages and benefits Unearned revenue Security deposit Noncurrent liabilities Due within one year Due in more than one year Total liabilities Net Assets Governmental Activities $ 811,742 174,223 73,511 41,717 11,058,184 12,159,377 158,118 62,664 129,617 1,329 926,875 2,187,398 3,466,001 8,549,901 143,475 $ 8,693,376 Invested in capital assets, net of related debt Unrestricted Total net assets 11 The notes to the financial statements are an integral part of this statement. Exhibit 3 Fishers Island Ferry District Balance Sheet Governmental Funds December 31, 2011 Assets Cash and cash equivalents Receivables Due from other governmental funds Prepaid expenditures Total assets Liabilities and fund balance Special Other Total General Aid Governmental Governmental Fund Fund Funds Funds $ 801,732 $ $ 10,010 $ 811,742 172,136 2,087 174,223 19,146 19,146 44,603 44,603 $ 1,018,471 $ 21,233 $ 10,010 $ 1,049,714 Liabilities Accounts payable 119,112 39,006 158,118 Accrued payroll 62,664 62,664 Unearned revenue 129,617 129,617 Security deposit 1,329 1,329 Due to other governmental funds 19,146 19,146 Total liabilities 331,868 39,006 370,874 Fund balances Nonspendable 44,603 44,603 Assigned 50,000 10,010 60,010 Unassigned 592,000 (17,773) 574,227 Total fu nd balances 686,603 ( 17,773) 10,010 678,840 Total liabilities and fund balances $ 1,018,471 $ 21,233 $ 10,010 Reconciliation of net assets to fund balances - total governmental funds: Less Long-term liabilities not due and payable in current period: Bonds, notes, capital leases payable and unamortized premiums on bond costs Compensated absences and special termination benefits Other post-employment benefits Accrued interest payable Plus Difference in treatment of insurance Net capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds Net assets reported on the government-wide financial statements (Exhibit 1) (2,550,000) (213,912) (323,155) (27,206) 28,908 11,099,901 $ 8,693,376 The notes to the financial statements are an integral part oflt~is statement. Exhibit 4 Property taxes Property management Grants Other Expenditures Current expenditures General government Transportation Miscellaneous Employee Benefits Capital outlay Debt service Fishers Island Ferry District Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended December 31, 2011 Special Other Total General Aid Governmental Governmental Fund Fund Funds Funds $ 2,473,944 $ $ $ 2,473,944 650,036 650,036 75,993 75,993 64,522 193,143 10,331 267,996 60,711 60,711 3,325,206 193,143 10,331 3,528,680 300,668 300,668 1,878,717 1,878,717 7,265 9,850 17,115 406,580 406,580 214,871 203,418 418,289 1,010,768 1,010,768 3,818,869 203,418 9,850 4,032,137 Excess (deficiency) of revenues over expenditures Other financing sources (uses) Proceeds from long-term debt (493,663) (10,275) 481 (503,457) 650,000 650,000 650,000 650,000 Excess (deficiency) of revenues over expenditures and other financing sources (uses) Fund balance, beginning ofthe year Fund balance, end ofthe year 156,337 (10,275) 481 146,543 530,266 (7,498) 9,529 532,297 $ 686,603 $ (17,773) $ 10,010 $ 678,840 Reconciliation of the statement of revenues, expenditures and changes in fund balance (above) to the statement of activities (Exhibit 2) Net change in fund balances - total governmental funds (above) $ 146,543 Transactions involving the treatment of capital outlays Plus Capital outlays treated as expenditures here, but capitalized on Exhibit 2 20,850 Less Depreciation/Amortization expense in Exhibit 2, but not in the fund statements (581,160) Transactions involving the treatment of long-term debt: Less Long-term debt issued or incurred Issuance of general obligation bonds (650,000) Plus Principal repayments Bonds and bond anticipation notes 925,000 Changes in other items not requiring the use of current financial resources Compensated absences benefits payable 2,297 Accrued interest payable 2,684 Post-employment benefits (21,018) Difference in the treatment of insurance expense 28,908 Revenue in the Statement of Activities (Exhibit 2) that was deferred in this statement last year Insurance reimbursement (24,931 ) Changes in net assets of governmental activities (Exhibit 2) $ (150,827) 14 The notes to the financial statements are an integral part of this statement. Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 Note 1 - Summary of Significant Accounting Policies The Fishers ]Island Ferry District was created in ].947 by a special act of legislation within the State of New York, known as the Ferry District Enabling Act. As a district, much like a school district or fire district, the Ferry District is allowed to levy and collect taxes in addition to collecting fares, in order to offset its expenses. The tax levy is assigned to the property owners of Fishers Tsland and the collections are kept separate from Southold Town funds. Although the Ferry District income and expenses are handled separately from the town's general fund, the Southold Town Supervisor is the fiscal officer of the Ferry District and along with the Town Board, reviews, approves and executes all of the Ferry District's financial obligations, including payroll. The Ferry District is controlled by a five member Board of Commissioners. Each Commissioner is elected independently from the populace of Fishers ]Island and serves a five year term. A chairman is elected on an annual basis. Tt is the duty of the Commission to oversee the operational, fiscal and administrative matters of the Ferry District. As the governing body of the Ferry District, all final decisions are resolved by the Board. The accounting policies of the Ferry District conform to generally accepted accounting principles for local governments units and the Uniform System of Accounts as prescribed by the State of New York. GASB is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the Fishers ]Island Ferry District's more significant accounting policies. A. Reporting entity Accounting principles generally accepted in the United States of America require that the reporting entity include (1) the primary government (or stand-alone entity), (2) organizations for which the primary government (or stand-alone entity) is financially accountable and (3) other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. The criterion, provided by the Government Accounting Standards Board (GASB), has been considered and there are no agencies or entities which should be presented with this government, although, the Fishers Tsland Ferry District is a component unit of the Town of Southold, New York. B. Government-wide and fund financial statements The government-wide financial statements (Exhibits I and 2) report information on all of the non-fiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements. Fiduciary funds, if any, are excluded from the government-wide financial statements. Governmenta/ activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business- type act/v/ties (if any), which rely to a significant extend on fees and charges for support. 15 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 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. When an expense is incurred for purposes for which both restricted and unrestricted resources are available, the Ferry District's policy is to use its restricted resources first. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) 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 genera/revenues. Separate fund financ/a/statements are provided for governmental funds and fiduciaw funds (if any) (Exhibits 3 and, 4- and 5, if applicable). Governmenta/act/vit/es, activities which normally are supported by taxes and intergovernmental revenues, are reported in the governmental funds. Hajor individual governmental funds are reported as separate columns in the fund financial statements. Fiduc/ary funds are used to report assets held in a trustee or agency capacity for others and therefore cannot be used to support the governments own programs. C. Measurement focus, accounting basis, and financial statement presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrua/bas/s of aocount/ng, as are the flduciaw 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. Governmental fund financial statements are reported using the current financ/a/ resources measurement focus and the mod~fled aocrua/ basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be ava//ab/e when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Ferry District considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Property taxes, grant income, ferry fees, rent, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so 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 Ferry District. Expenditures are generally 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. The Ferry District reports the following major governmental funds: 16 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 The Genera/Fund is the Ferry District's primary operating fund. ]~t accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Special Aid Fund is used to account for large, one time projects, financed by state and federal grants. Currently, transactions for improvements to the runways funded primarily by grants are booked in this fund. D, Assets, liabilities, and net assets Deposits and investments The Ferry District's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Tnvestments for the Ferry District, if any, are generally reported at fair value. Custodia/Credit Risk- Custodial credit risk is the risk that, in the event of a bank failure, the Ferry District's deposits may not be returned to it. The Ferry District's policy for custodial credit risk is to invest in obligations allowable under the New York General Municipal Law Article 10. Tn general this includes deposits in Federal Deposit ]~nsurance Corporation "FDTC" insured commercial banks or trust companies located within the State. The Fishers Tsland Ferry District is authorized to use demand deposit accounts, time deposit accounts and certificates of deposit. Permissible investments include obligations of the U.S. Treasury, U.S. Agencies, repurchase agreements and obligations of New York State or its political subdivisions. Collateral is required for demand deposit accounts, time deposit accounts and certificates of deposit at a minimum of 100% of all deposits not covered by Federal deposit insurance. The Ferry District has entered into custodial agreements with the various banks which hold their deposits. These agreements authorize the obligations that may be pledged as collateral. Such obligations include, among other instruments, obligations of the United States and its agencies and obligations of the State and its municipal and school district subdivisions. The Ferry District's aggregate bank balances that were not covered by depository insurance were not exposed to custodial credit risk at December 31, 2011 because of these custodial agreements. Credit Risk - Credit risk is the risk that an issuer or other counterparty will not fulfill its specific obligation even without the entity's complete failure. The Ferry District does not have a formal credit risk policy. Interest Rate Risk - Tnterest rate risk is the risk that the government will incur losses in fair value caused by changing interest rates. The Ferry District does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from changing interest rates. 17 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 Concentration of Credit Risk - Concentration of credit risk is the risk attributed to the magnitude of a government's investments in a single issuer. The Ferry District does not have a formal credit risk policy, Receivables Property taxes are assessed on property values as of July 1st, The tax levy is divided into two billings - the following December 1~t and May 31~t. This is used to finance the calendar year. The billings are considered due on those dates, however, the actual due date for each respective billing is January 10th and May 31~t. After this, the bill becomes delinquent and the applicable property is subject to lien, penalties and interest. The Town of Southold, New York is responsible for the billing and collection of the taxes through May, at which time collection responsibility is transferred to the County. At May 31~t, the county pays any unpaid taxes to the Town tax receiver and continues the collections process in the individual accounts. Taxes collected in advance of the calendar year that they are levied to finance are considered unearned until that year starts and are reported on the balance sheet as such. All receivables are shown net of an allowance for uncollectibles. The allowance is calculated using a formula based on prior experience. 3) Activity between funds Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as "due to/from other funds" (i.e. the current portion of interfund loans) or "advances to/from other funds" (i.e. the non- current portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds". Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in appropriate governmental funds to indicate that they are not available for appropriation and are not expendable financial resources. 4) Inventories and prepaid items All inventories are valued at cost using the first-in/first-out (FTFO) method. ]Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. 18 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 5) Capita/assets Capital assets, which include property, plant, equipment, and infrastructure assets (docks, wharfs, parking lots and similar items), are reported in the governmental activities columns in the government-wide financial statements. Capital assets are defined by the Ferry District as assets with an initial, individual cost of more than the capitalization threshold for that asset type and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Land is considered inexhaustible and, therefore, not depreciated. Property, plant, and equipment of the Ferry District is depreciated using the straight line method over the following estimated useful lives: Capitalization Assets Years Threshold Land N/A $ 5,000 Buildings and improvements 20 to 40 $ 5,000 Ferries 10 to 40 $ 5,000 Vehicles 10 $ 5,000 Other equipment 5 to 10 $ 5,000 Tnfrastructure 20 $ 5,000 Compensated absences Tt is the Ferry District's policy to permit employees to accumulate earned but unused vacation and sick pay benefits. There is a liability for unpaid accumulated sick leave since the Ferry District has a policy to pay any amounts when employees separate from service with the Ferry District. All vacation pay is accrued when incurred in the government-wide financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. 7) long-term obligations Tn the government-wide financial statements long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. 19 Fishers Island Ferry District Notes to the Financial Statements Year Ended December 31, 2011 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. 8) Fund equity Fund equity for government-wide statements (Exhibit I and 2) is called Net Assets and is displayed in three components: Invested in Capital Assets, Net of Related Debt - this consists of capital assets, including restr/ctedcapital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted Net Assets - these are reported when constraints placed on net asset use are either (a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or, (b) imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Assets - is the residual classification of Net Assets. Fund equity for governmental funds (Exhibit 3 and 4) is called Fund Balance and is reported in classifications that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent: Nonspendable Fund Balance - includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Restricted Fund Balance - includes amounts that have constraints placed on the use of resources. These constraints must be either (a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or (b) imposed by law through constitutional provisions or enabling legislation. Committed Fund Balance - includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government's highest level of decision-making authority and cannot be used for any other purpose unless the government removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. 2O Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 Assigned Fund Balance - are amounts that are constrained by the government's /ntentto be used for specific purposes, but are neither restricted nor committed. Tntent should be expressed by (a) the governing body itself or (b) a body (a budget or finance committee, for example) or official to which the governing body has delegated the authority to assign amounts to be used for specific purposes. Unassigned Fund Balance - unassigned fund balance is the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund. When both restricted and unrestricted amounts of fund balance are available for use for expenditures incurred, it is the Ferry District's policy to use restricted amounts first and then unrestricted amounts as they are needed. For unrestricted amounts of Fund Balance, it is the Ferry District's policy to use Fund Balance in the following order: committed, assigned, and unassigned. E. Estimates The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F. Subsequent Events Subsequent events have been evaluated through the date of this report, October 17, 2012. This date represents the date the financial statements were available to be issued. G. Changes in Financial Statements The Ferry District implemented Governmental Accounting Standards Board (GASB): Statement 54 - Fund Ba/ance Reporting and Governmenta/ Fund Type De£/n/tions- This statement provides clearer fund balance classifications that can be more consistently applied. This resulted in no adjustment to beginning equity. Statement 59 - Financia/ Instruments Omnibus- This statement updates and improves existing standards regarding financial reporting and disclosure requirements of certain financial instruments and external investment pools. This resulted in no adjustments to beginning equity. 21 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 Note 2 - Budgeting A. Budget Basis A formal, legally approved, annual budget is adopted for the General Fund only. This budget is adopted on a basis consistent with Generally Accepted Accounting Principles (modified accrual basis) with the following exception: Long-Term Debt and Lease Financing - Revenues and expenditures from refunding or renewing long-term debt or issuing lease financing are included in the budget as the net revenues or expenditures expected. B. Budget Calendar The Board of Commissioners prepares detailed estimates of the revenues and expenditures for the next calendar. These estimates are reviewed at a public hearing held on or about August 20th each year. After the public hearing, the Board of Commissioners meets to increase or decrease the annual estimates and prepares final budget estimates. The Fishers ]~sland Ferry District's Board of Commissioners submits its budget estimates for the subsequent calendar year to the Town of Southold, New York's Supervisor on or before September 20th. The Town Supervisor adds estimates of debt service and incorporates the Fishers Tsland Ferry District budget into his Tentative Budget and files this with the Town of Southold, New York's Town Clerk no later than September 30th. The Town Clerk presents the Tentative Budget to the Town of Southold, New York's Town Board on or before October 5th. The Town Board makes revisions and prepares a Preliminary Budget. The Town Board holds a public hearing by the Thursday following the November election. The Town Board then considers the estimates and any other matters brought to their attention at a public meeting held subsequent to the public hearing and prior to the budget adoption. The Town Board adopts the budget no later than November 20th. C. Budget Control As a rule, no expenditure may be made, or any liability incurred, unless an amount has been appropriated for the particular purpose. ]~f, during the year, the Board of Commissioners or Town Board determines that sufficient revenues will not be generated to finance the total appropriations provided for in the original budget, the Board of Commissioners (subject to the approval of the Town Board) generally may reduce appropriations to prevent making expenditures of money available. An appropriation may not be reduced below the minimum amount required by law, nor generally be reduced by more than the unexpended balance less the outstanding and unpaid claims chargeable to it. 22 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 The Fishers Tsland Ferry District (subject to the approval of the Town Board) may make supplemental appropriations These may be provided by transfer from the unexpended balance of an appropriation, from the appropriation for contingencies within a fund (if any), or by borrowing pursuant to the Local Finance Law. The expected unreserved fund balance at the end of the current year may be utilized for this purpose. During the year $32,500 of additional appropriations were made. Note 3 - Receivables Receivables as of yearend for the Ferry District's individual major funds and nonmajor in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: Other General Governmental Fund Funds Next year's property taxes held by Southold $ 129,410 $ Ferry fees 53,259 Rent 3,699 Grant revenues 2,087 Gross receivables 186,368 2,087 Less: allowance for uncollectibles (14,232) Net total receivables $ 172r136 $ 2f087 Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At the end of the current fiscal year, the various components of deferred revenue and unearned revenue reported in the governmental funds were as follows: Taxes paid in advance Rent paid in advance Total deferred/unearned revenue for governmental funds Unavailable Unearned $ $ 128,679 938 $ $ 129,617 23 Fishers Island Ferry District Notes to the Financial Statements Year Ended December 31, 2011 Note 4 - Capital Assets Capital asset activity for the year was as follows: Capital assets not being depreciated: Land Capital assets being depreciated: Buildings and improvements Ferries, machinery and equipment Infrastructure Less: Accumulated depreciation: Capital assets, net Beginning Ending Balance Increases Decreases Balance $ 41,717 $ $ $ 41,717 12,583,229 8,375 2,894,638 12,475 2r304r523 - _ 17,782,390 20,850 (6,163,896) (581,160) - 11,618,494 (560,310) $ 11,660,211 $ (560,310) $ 12,591,604 2,907,113 2r304t523 17,803,240 (6,745,056) 11,058,184 $ 11,099,901 Depreciation expense in the amount of $581,160 was charged to Ferry Operations. Note 5 - Inter-fund Activities - Due to/from other funds At year end, the General Fund owed the Special Aid Fund $19,146 in temporary borrowings between funds. These are either expected to be paid off within one year or have no agreed payment terms. Note 6 - Long-Term Debt A. Changes in long-term liabilities LongIterm liability activity for the year December 31, 2011, was as follows: General Obligation Bonds: Ferry Terminal/Wharf Bonds Ferry Terminal/Wharf BANs Total bonds payable 2,825,000 650,000 Accrued Interest on Bonds 29,890 83,104 Other Post Employment Benefits 302,137 21,018 Compensated Absences 216~209 - $ 3~373~236 $ 754,122 Opening Ending Due Within Balance Additions Redud:Jons Balance One Year $ 2,075,000 $ $ (175,000) $ 1,900,000 $ 175,000 750,000 650,000 (750,000) 650,000 650,000 (925,000) 2,550,000 (85,788) 27,206 323,155 (2~297) 213,912 $ (1,013,085) $ 3,114,273 825,000 27,206 22,340 52~329 $ 926,875 24 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 B. General Obligation Bonds The Town of Southold, on behalf of the Ferry District, issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds are direct obligations and pledge the full faith and credit of the Town of Southold. These bonds generally are issued as 20 year serial bonds with equal amounts of principal maturing each year. Payments on these bonds have been made out of the General Fund and are all charged to expenditures. Bond anticipation notes have been, or are expected to be, rewritten when due at a market rate of interest. The bonds outstanding at year end were rewritten, in the amount of $550,000 at an annual interest rate of .40%, on April 12, 2012. General obligation bonds and bond anticipation notes currently outstanding are as follows: Original Interest Year End Purpose Amount Matures in Rates Balance New London Ferry Terminal/Wharf $ 3,000,000 2021 3.75-4.00% New London Ferry Terminal/Wharf $ 650,000 2012 0.85% $ 1,900,000 650~000 $ 2,550,000 Annual debt service requirements to maturity for general obligation bonds and bond anticipation notes are as shown in the following schedule. Principal Interest 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total $ 825 000 $ 77 475 175 000 65 388 175 000 58 825 175 000 52 263 200 000 45 700 200 000 38 200 200 000 30 700 200 000 23 200 200 000 15 600 200~000 ~000 $ 2~550r000 415~351 Total interest costs incurred and expensed during the year was $83,084. C. Other Post Employment Benefits Other post employment benefits (OPEB) are generally insurance benefits earned by employees for service to the Fishers Tsland Ferry District, but paid after the employee leave or retires from the Ferry District. These are discussed in Note 9. 25 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 D. Compensated Absences Compensated absences include vacation and compensatory time earned by employees and carried over to the next calendar year. A maximum of 8 days is allowed to be carried into the next calendar year. Compensated absences also include sick time that may be paid in cash when an employee leaves. Employees hired prior to May 1, 2009 are eligible for payment on up to 120 days of accumulated sick time. Employees hired after May 1, 2009 are eligible for payment on up to 40 days of accumulated sick time. Each of these benefits is describe more fully in the Ferry District's Employee Benefit Package. E. Debt Limitations The New York State Constitution sets debt limits for most classes of local government, and establishes numerous other conditions related to the issuance and repayment of debt. ]~n addition, the Local Finance Law (LFL) regulates the issuance of debt by local governments. Under the LFL, a local government, including the Fishers ]~sland Ferry District, must authorize debt through a resolution of its local board. The Town of Southold's Town Board must also authorize debt issued on behalf of the Fishers Tsland Ferry District though a resolution of the Town Board, which is subject to permissive referendum at the District level. Furthermore, a local government must comply with certain regulations and statutory provisions for the private or public sale of its debt. Other provisions set limits on the use of bond proceeds, refunding protocols, and the maximum number of years that certain projects, goods or services can be debt-financed based upon probable useful life. Note 7 - Equity A. Nonspendable Fund Balance At year end, the General Fund had $44,603 in nonspendable fund balance. This was the balance of prepaid expenses that was not in spendable form. B. Assigned Fund Balance At year end, the General Fund had $50,000 in assigned fund balance. This was used to balance the 2012 budget. At year end, the Other Governmental Funds had $10,010 assigned for employee recreation. 26 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 Note 8 - Employee Retirement Systems and Pension Plan A. Plan Description The Fishers Tsland Ferry District, a component unit of the Town of Southold, participates in the New York Employees' Retirement System (the "System"). This is a cost-sharing multiple- employer retirement system. The System provides retirement benefits as well as death and disability benefits to plan members. The New York State Retirement and Social Security Law (the "NYSRSSL") govern obligations of employers to contribute benefits to employees. As set forth in the NYSRSSL, the Comptroller of the State of New York serves as sole trustee and administrative head of the System. The Comptroller shall adopt and may amend rules and regulations for the administration and transactions of the business of the System and for the custody and control of their funds. The System issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing the New York State and Local Retirement System, Gov. Alfred E. Smith State Office Building, 110 State Street, Albany, NY 12244. B. Funding Policy Funding Policy - The system is non-contributory except for employees in tiers 3 and 4 that have let than 10 years of service, who contribute 3% of their salary and employees in tier 5 who also contribute 3% of their salaries for the employee retirement system (the "ERS") without regard to their years of service. Contributions to ERS are certified by the State Comptroller and expressed as a percentage of members' salary. Contribution rates are actuarially determined and based upon membership tier and plan. Contributions to ERS consist of a life insurance portion and regular pension contributions. The Fishers Tsland Ferry District is not a separate employer under this plan. The Ferry District is included in the plan as a part of the Town of Southold. There are no separate financial statistics available for the Ferry District. The Ferry District contributes at an actuarially determined rate. The District's contributions made to the System were equal to 100% of the contributions required for each year. Contribution rates for the year ended [Vlarch 31, 2012 are as follows: ERS Tier Plan Option Rate (%) 1 75i 41~1 21.5 2 75i 41~1 19.7 3 A14 41.1 15.8 4 A15 41.1 15.8 5 A15 41.1 12.7 Contributions were equal to 100% of the actuarially required contribution for each year. Contributions made to the System for the current and two preceding years were charged to the General Fund as follows: 27 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 Year Contribution 2011 $163,777 2010 $108,814 2009 $79,210 Since 1989, the Systems' billings have been based on Chapter 62 of the Laws of 1989 of the State of New York. This legislation requires participating employers to make payments on a current basis, while amortizing existing unpaid amounts relating to the Systems' fiscal years ending March 31, 1988, and 1989, (which otherwise were to have been paid on 3une 30, 1989, and 1990, respectively) over a 17-year period, with an 8.75% interest factor added. Local governments were given the option to prepay this liability. The Town elected to make the full payment on December 15, 1993, by issuing serial bonds to replace this debt. Note 9 - Other Post Employment Benefits (OPEB) A. Plan Description The Fishers Island Ferry District Other Post Employment Benefit Program is a single- employer defined benefit plan administered by the Fishers Tsland Ferry District. The benefits have been established by the Board of Commissioners and can be amended by the Board. The plan does not issue a separate financial statement and is unfunded. Eligibility Cost Sharing The district provides medical, prescription drug and behavioral health to retirees and their covered dependents. The District pays up to $3,000 of the cost for retirees, disabled retirees, spouses and dependents. All active employees who retire or are disabled directly from the District and meet the eligibility criteria will participate. Eligibility criteria is age 55 and 10 years of service with the District (20 years if hired after .luly 1, 2003.) Retirees pay the balance of the premium over $3,000 per year. B. Actuarial Assumptions and Methods Latest Actuarial Date Actuarial Cost Method Discount Rate Medical ]Inflation Amortization Method Remaining amortization Healthy Mortality Turnover 3anuary 1, 2011 Projected Unit Credit 3.50% Initial rate of 10% grading down to an ultimate inflation rate of 5% after 2017. Level percentage of projected payroll 26 years, closed Based on male and female pre-retirement mortality rates provided. Based on male and female rates for age and years of service provided. 28 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 Retirement Disability Based on male and female rates for age and years of service provided. Based on male and female rates for age and years of service provided. C. Schedule of Funding Progress There is no requirement for funding and the plan has not been funded. The District has not established a formal funding plan or a trust at this time. Below is a schedule of funding progress: Actuarial Actuarial Actuarial Unfunded Funded Covered UAL as a % Valuation Value of Accrued Accrued Liability Ratio Payroll of Covered Date Assets (a) Liability (b) (UAL) (b-a) (a/b) (c) Payroll ((b-a)/c) 1/1/2011 $ $ 422,080 $ 422,080 0.00% $ 922,554 45.75% 1/1/2010 $ $ 1,278,581 $ 1,278,581 0.00% $ 1,023,395 124.94% 1/1/2009 $ $ 1,146,345 $ 1,146,345 0.00% $ 974,567 117.63% D. Schedule of Employer Contributions The District finances the plan on a pay-as-you-go basis. The schedule of employer contributions is as follows: Annual Actual Year Ended Required Contributions Percentage December 31 Contributions IVlade Contributed 2011 $ 28,373 $ 10,639 37% 2010 $ 126,611 $ 17,011 13% 2009 $ 115,897 $ 17,235 15% E. Annual Required Contribution (ARC) The Annual Required Contribution (ARC) for the OPEB program consists of two pieces: Past Service Cost (a catch-up accrual to amortize the Unfunded Accrued Liability). The amortization period is 30 years starting on 3anuaw 1, 2009. The ARC is assumed to be paid at the beginning of the fiscal year. ]~nterest is also calculated on the Unfunded Accrued Liability and added to the Annual Required Contribution. Normal Cost is the present value of the portion of the projected benefit attributable to the current year (the cost of benefits earned each year should be accrued in that year). The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortized any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. 29 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 The annual calculation of Annual Pension Cost (APC) and Net Pension Obligation (NPO) is as follows: Past Service Cost Normal Cost Interest Annual Required Contribution (ARC) 22,173 5,241 959 $ 28,373 F. Annual OPEB Cost and Net OPEB Obligation The following table shows the components of the annual OPEB cost for the year, the amount actually contributed to the plan, and the changes in the District's net OPEB obligation: Annual required contribution (ARC) Tn~erest on net OPEB obligation Adjustment to annual required contribution Annual OPEB cost Contributions made Increase (decrease) in net OPEB obligation Net OPEB obligation (asset), beginning of year Net OPEB obligation (asset), end of year $ 28,373 10,901 (7,617) 31,657 10,639 21,018 302,137 $ 323,155 The Net OPEB Obligation history is as follows: Year Annual Actual Percentage Net Pension Ended OPEB Contribution of APC Obligation December 31, Cost Made Contributed (Asset) 2011 $ 31,657 $ 10,639 33.6% $ 323,155 2010 $ 123,261 $ 17,011 13.8% $ 302,137 2009 $ 114,335 $ 17,235 15.1% $ 195,887 G. Other Disclosures There were significant changes to the benefits provided to the employees as of 3anuary 1, 2011. In prior years, the District had committed to pay 90% of the employee's premium. This did not have a cap for inflation. Starting in 2011, the District will only pay up to $3,000 per year per employee. This has no provision for inflation. In addition, for employees retiring before age 65, coverage ends after 18 months instead of after 60 months. These changes led to significant decreases in the actuarial accrued liability as well as the current year costs. 3O Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 The calculations are based on the benefits provided under the terms of the substantive plan in effect at the time of each valuation and on the pattern of sharing costs between the employer and plan members to that point. The actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as results are compared to past expectations and new estimates are made about the future. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. Note 10 - Risk Management The Ferry District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters for which the Ferry District carries commercial insurance. There have been no significant reductions in insurance coverage. Settlement amounts have not exceeded insurance coverage for the current year or three prior years. Note 11 - Contingent Liabilities A. Grants Amounts received or receivable from grant 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 that may be disallowed by the grantor cannot be determined at this time, although the Ferry District expects such amounts, if any, to be immaterial. B. Litigation The Ferry District, in common with other governmental entities, receives numerous notices of claims for monetary damages arising from property damage or personal injury. Of all the claims currently pending, none are expected to have a material effect on the Ferry District's financial position if adversely settled. Note 12 - Commitments Tn its December 22, 2010 Board of Commissioners meeting, the Fishers ]~sland Ferry District committed to appropriate up to $10,000 per year for the next three years to the Fishers ]~sland Habitat proposal for the airport properties. 31 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 Note 13 - Subsequent Events On June 24, 2011, the Governor of New York signed Chapter 97 of the Laws of 2011 (~'max Levy Limitation Law'9. This applies to all local governments in New York, including the Ferry District. This is written into Article 2, Section 3-c of the New York General Municipal Finances. The Tax Levy Limitation Law has established a limit upon real property tax levies. This will be effective for the 2012 year. Essentially, this law will limit the tax levy to the prior year's tax levy times an allowable levy growth factor - the lesser of two percent or the annual increase in the consumer price index. Certain adjustments would be permitted as defined by Section 1220 of the Real Property Tax Law. The Ferry District could exceed the tax levy limitation only if the budget is approved by at least 60% of the vote. There are certain exemptions to the tax levy limitation, such as expenditures made on account of certain tort settlements and certain increases in the actuarial contribution rates of the various public employee retirement systems. Note 14 - GASB Pronouncements Tssuedf But Not Yet Effective The following are statements which have been approved by GASB, but are not yet effective: GASB Statement 60 - Accounting and Financial Reporting for Service Concession Arrangements. This statement provides guidance for governments that are either transferors or operators of service concession arrangements. A service concession arrangement is one in which the transferor conveys to an operator the right and related obligation to provide services through the use of infrastructure or another public asset in exchange for significant considerations, and the operator collects and is compensated by fees from third parties. This statement is effective for periods beginning after December 15, 2011. GASB Statement 61 - The Financial Reporting Entity: Omnibus - This statement modifies certain requirements for inclusion of component units in the financial reporting entity, amends the criteria for reporting component units, and clarifies the reporting of equity interests in legally separate organizations. This statement is effective for periods beginning after June 15, 2012. GASB Statement 62 -Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements - This statement incorporates certain authoritative literature into the GASB codification. This statement is effective for periods beginning after December 15, 2011. GASB Statement 63 - Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position - This statement discusses transactions that result in the consumption or acquisition of net assets in one period that are applicable to future periods and provides guidance for reporting them. This statement is effective for periods beginning after December 15, 2011. 32 Fishers Tsland Ferry District Notes to the Financial Statements Year Ended December 31, 2011 GASB Statement 64 - Derivative Instruments: Appfication of Hedge Accounting Termination Provisions - This statement clarifies whether an effective hedging relationship continues after the replacement of a swap counterparty or a swap counterparty's credit support provider. This statement is effective for periods beginning after June 15, 2011. GASB Statement 65 - Items Previously Reported as Assets and Liabilities - This statement further clarifies that appropriate use of the financial statement elements of deferred outflows and deferred inflows of resources to ensure consistency in financial reporting. This statement is effective for periods beginning after December 15, 2012. GASB Statement 66 - Technical Corrections - 2012 - This statement resolves conflicting guidance. This statement is effective for periods beginning after December 15, 2012. GASB Statement 68 - Accounting and Financial Reporting for Pensions - This statement, and GASB Statement 67 applicable to pension plans, improves information provided by state and local government employers for better decision making, accountability, interperiod equity, and creating additional transparency. 33 Required Supplementary Znformation Fishers Island Ferry District Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual {Budgetary Basis) General Fund For the Year Ended December 31, 2011 Revenues Ferry Revenues Ferry opemtions Charte~ U.S. mail Property Tax Revenues Property taxes Interest and penalties ~ real estate taxes Property Management Revenue Service to other governments Theater Federal capital grant Other Revenues Interest earnings ATM commissions Refund prior year expense Other Transfers and Original Additional Final Budget Appropriations Budget Actual Variance 2,275,000 $ - $ 2,275,000 $ 2,455,523 $ 180,523 10,000 10,000 18,421 8,421 27,000 27,000 26,913 2,312,000 2,312,000 2,500,857 188,857 650,000 650,000 650,000 36 36 650,000 650,000 650,036 36 73,000 73,000 66,386 (6,614) 7,000 7,000 9,607 2,607 80,000 80,000 75,993 (4,007) 64,522 64,522 64,522 64,522 1,000 1,000 1,757 757 7,000 7,000 2,925 (4,075) 1,887 1,887 27,229 27,229 8,000 8,000 33,798 25,798 3,050,000 3,050,000 3,325,206 275,206 Totalrevenues Expenditures General Government Accounting and finance Legal fees Insurance Insurance claims Property taxes MTA payroll tax Other Expense Transportation Elizabeth airport Dock repairs, capital Ferry operations, personal services Ferry operations, equipment Ferry operations, contractual expense Office expense, contractual expense Commissioner fees U.S. mail, contractual expense Miscellaneous Theater, contractual expense Employee Benefits NYS retirement Social security Unemployment insurance Medical insurance Total general government expenditures 15,000 57,500 72,500 79,112 (6,612) 18,000 26,000 44,000 99,338 (55,338) 87,000 (19,400) 67,600 67,521 79 5,000 1,000 6,000 5,621 379 48,000 (1,767) 46,233 46,064 169 5,000 (900) 4,100 4,100 3,012 (3,012} 178,000 62,433 240,433 300,668 (60,235} 23,000 (400) 22,600 16,544 6,056 280,000 (95,800) 184,200 50,307 133,893 1,248,000 (17,000) 1,231,000 1,230,642 358 170,000 (15,188) 154,812 164,564 (9,752) 487,000 128,300 615,300 609,207 6,093 20,000 (12,100) 7,900 7,224 676 6,000 100 6,100 6,100 9,000 9,000 9,000 2,243,000 (12,088) 2,230,912 2,093,588 137,324 8,000 8,000 7,265 735 8,000 8,000 7,265 735 135,000 135,000 163,777 (28,777) 95,000 (5,200) 89,800 93,822 (4,022) 5,000 1,500 6,500 6,373 127 145,000 /2,000) 143,000 142,608 392 380,000 (5,700) 374,300 406,580 (32,280) 2,809,000 44,645 2,853,645 2,808,101 45,544 (Continued) 35 See Accountant' Report Fishers Island Ferry District Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual {Budgetary Basis) General Fund For the Year Ended December 31, 2011 Debt Service Principal Serial bond Bond anticipation note Interest Serial bond Bond anticipation note Total debt service Total expenditures Transfers and Original Additional Final Budget Appropriations Budget Actual Variance 175,000 175,000 175,000 100,000 100,000 100,000 275,000 275,000 275,000 83,000 (4,400) 78,600 78,513 87 15,000 (7,745) 7,255 7,255 98,000 (12,145} 85,855 85,768 87 373,000 (12,145} 360,855 360,768 87 3,182,000 32,500 3,214,500 3,168,869 45,631 Excess (deficiency) of revenues over expenditures $ (132,000) $ 132,500) $ Adjustments to Generally Accepted Accounting Principles (GAAP) Bond Anticipation Note proceeds netted with retirement of Bond Anticipation Note Retirement of Bond Anticipation Note netted with Bond Anticipation Note proceeds Excess (deficiency) of revenues and other financing sources over expenditures and other financing (uses) - GAAP basis (164,500) $ 156,337 $ 320,837 650,000 (650,000) $ 156,337 Notes to Required Supplementary Information: A formal, legally approved, annual budget is adopted for the General Fund only. This budget is adopted on a basis consistent with Generally Accepted Accounting Principles (modified accrual basis) with the following exceptions: (1) Revenues and expenditures from refunding or renewing long-term debt or issuing lease financing are included in the budget as the net revenues or expenditures expected. 36 See Accountant' Repod Combining and Individual Fund Financial Statements Fishers Tsland Ferry District Fund Descriptions Special Revenue Funds: Recreation Fund - This fund uses the revenue from two vending machines, one on the ferry and one in the New London terminal, to fund employee welfare and benefit activities. 38 Fishers Island Ferry District Balance Sheet Governmental Funds December 31, 2011 Statement i Assets Cash and cash equivalents Total assets Liabilities and fund balance Liabilities Accounts payable Total liabilities Fund balance Assigned Total fund balance Total liabilities and fund balance Total Other Recreation Governmental Fund Funds $ 10,010$ 10,010 $ 10,010$ 10,010 $ $ 10,010 10,010 10,010 10,010 $ 10,010$ 10,010 See Accountants' Report 39 Statement 2 Fishers Island Ferry District Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds Year Ended December 31, 2011 Revenues Grants Other Recreation Fund Total Other Governmental Funds $ 10,331$ 10,331 10,331 10,331 9,850 9,850 9,850 9,850 481 481 9,529 9,529 $ 10,010$ 10,010 Expenditures Current expenditures Miscellaneous Capital outlay Excess (deficiency) of revenues over expenditures Fund balance, beginning of the year Fund balance, end of the year See Accountants' Report 40 Government Auditinq Standards Report O'CONNOR DAVI ES 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 The Board of Commissioners Fishers Island Ferry District Independent Auditors' Report We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Fishers ]Island Ferry District as of and for the year ended December 31, 2011 and have issued our report thereon dated October 17, 2012. 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/iudit/ng Standards, issued by the Comptroller General of the United States. Tnternal Control over Financial Reporting Management of the Fishers Tsland Ferry District is responsible for establishing and maintaining effective internal control over financial reporting, lin planning and performing our audit, we considered the Fishers ]Island Ferry District's internal control over financial reporting as a basis for designing our auditing procedures 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 Fishers Tsland Ferry District's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Fishers Tsland Ferry District's internal control over financial reporting. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses. A de£/c/ency/n/nterna/contro/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 mater/a/ weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiencies described in the O'CONNOR DAVIES, LLP ZOO Great Meadow Road, Wethersfield, CT 06109 ITeh 860.257.1870 I Fax: 860.257.Z875 I www.odpkf.com Government Auditina Standards Report (Continued) accompanying schedule of findings as items MW-lO-l, MW-lO-3 and MW-lO-7 to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Fishers Island Ferry District's financial statements are free of 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 an instance of noncompliance or other matters that is required to be reported under E/overnment Auditing Standards and which are described in the accompanying schedule of findings as item NC- 10-1. The Fishers Island Ferry District's response to the findings identified in our audit is described in the accompanying schedule of findings. We did not audit the Fishers Island Ferw District's response and, accordingly, we express no opinion on it. This report is intended for the information and use of the management, Board of Commissioners, others within the Fishers Island Ferry District, and federal and state awarding agencies and pass- through entities and is not intended to be and should not be used by anyone other than these specified parties. Wethersfield, Connecticut October 17, 2012 43 Fishers Tsland Ferry District Schedule of Findings For the Year Ended December 31, 2011 Findinqs on Tnternal Controls MW-lO-1 - Entity Level Controls Condition: Internal controls are a coordinated set of policies and procedures that management uses to achieve their objectives and meet their fundamental responsibilities for effectiveness, efficiency, compliance and financial reporting. The literature recognizes five sections of internal control published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO Report) in Internal Control - Inteqrated Framework. These five interrelated components include: Contro/Environment- A favorable control environment exists when management is knowledgeable about controls (entity wide and specific), is committed to establishing controls and communicates its support for internal controls to all individuals involved. Risk Assessment- This involves management's continual identification and assessment of the potential risks that might prevent management from fulfilling its responsibilities and achieving its objectives. Information and Communication Systems- These are the systems used to assure that appropriate individuals have timely and accurate information to carry out their responsibilities. Contro/Act/v/t/es- These are management's response to the risks identified. These are the specific policies and procedures that are put in place to alert management of undesired actions in a timely manner. /~on/tor/ng- There is a responsibility of management to follow up on the controls that have been put in place to assure that they continue to function and function properly, effectively and efficiently. The Fishers Island Ferry District does not have a framework established to deal with each of the interrelated entity level controls over and above the specific control policies and procedures that have been developed. Recommendation: We recommend that as part of developing an accounting manual, the Fishers Island Ferry District consider the entity wide controls as discussed above. Management's Response: We have been working to develop a coordinated set of policies and procedures. We have been working in the most critical areas first. Ultimately, these will all be addressed. 44 Fishers Tsland Ferry District Schedule of Findings For the Year Ended December 31~ 2011 MW-10-3 - Segregation of Duties - Revenues Condition: The Ferry District does not maintain an adequate segregation of duties for proper internal control over the financial transactions in certain areas. Proper internal control relies on the following three aspects of processing transactions being performed by separate individuals: authorizing transactions, custody of assets, and record keeping. This weakness in internal controls could lead to funds being expended in a manner not consistent with the intentions of management. These weaknesses were noted in the following areas: · Ticket Sales - Sales that are "no charge" are authorized and recorded by the same individual. · Ticket Books - Ticket Books have the same individuals able to authorize the purchase, have custody of the physical books and cash collected and do the record keeping for the sale. · Freight Sales - Freight is not always counted by the freight agent. This is not noted and corrected at the other end. Cash payments are collected and recorded by the same individual. Tndividuals are able to collect payment, record transactions and delete transactions from the system. · Recording Revenues - ]Individuals are able to collect payment, record transactions and delete transactions from the system or write off transactions in the system. Management's Response: We have been working to develop a coordinated set o f policies and procedures. We have been working in the most critical areas first. Ultimately, these will all be addressed. Recommendation: The Ferry District should review the segregation of duties involved in all the cash receipts functions. The duties of the individuals involved should be analyzed and restructured as necessary to provide for a better system of checks and balances. A segregation of duties is not the only tool used in internal controls, where a segregation of duties is not possible, alternate internal control tools should be implemented. Once a better system has been devised, it should be written, approved by the Board of Commissioners and distributed to the individuals involved. Management's Response: We have been working to develop a coordinated set of policies and procedures. We have been working in the most critical areas first. Ultimately, these will all be addressed. 45 Fishers Tsland Ferry District Schedule of Findings For the Year Ended December 31~ 2011 MW-10-7 - Documentation of the Components of Tnternal Control over Processes Condition: The Fishers ]Island Ferry District has numerous internal controls in place over significant processes and accounts. Not all of these controls are formally documented. Tt is possible for controls to change over time or not be completely understood by the individuals involved in the processes. Recommendation: We recommend that the Fishers Tsland Ferry District make a listing of its significant processes and accounts. Controls in each area should be documented in a procedures manual. Each of the procedures should be reviewed to determine if controls are adequate. Management's Response: We have been working to develop a coordinated set of policies and procedures. We have been working in the most critical areas first. As we move through this process, we will document our policies and procedures. Findinqs on Compliance NC-lO-1 Non-collusion Statements The enabling act states in Section 13: All contracts for public work and all purchase contracts shall be let to the lowest responsible bidder after advertisement for bids where so required by section one hundred three of the general municipal law. Section 103-d of the New York General Municipal Law requires a statement of non- collusion in bids and proposals to political subdivision of the state. Currently, the Fishers Tsland Ferry District does not have a policy to obtain, nor does it obtain, any statements of non-collusion in its bids and proposals. 46