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HomeMy WebLinkAbout2014 TOWN OF SOUTHOLD SINGLE AUDIT REPORTS Year Ended December 31, 2014 , FINANCIAL SECTION Independent Auditors' Report 1-3 REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis 4-14 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 15 Statement of Activities 16 Fund Financial Statements Governmental Fund Financial Statements Balance Sheet and Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 17-18 Statement of Revenues, Expenditures, and Changes in Fund Balances and Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities 19-20 Fiduciary Fund Financial Statements Statement of Fiduciary Assets and Liabilities 21 Notes to Financial Statements 22-45 REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT DISCUSSION AND ANALYSIS Schedule of Revenues, Expenditures, and Changes in Fund Balance—Budget and Actual General Fund 46 Highway Fund 47 Community Preservation Fund 48 Postemployment Benefits Healthcare Costs—Schedule of Funding Progress 49 OTHER SUPPLEMENTARY INFORMATION Combining Fund Statements: Non-major Governmental Funds Combining Balance Sheet 50 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 51 OTHER REPORTS Schedule of Expenditures of Federal Awards 52-53 Notes to Schedule of Expenditures of Federal Awards 54-55 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 56-57 Independent Auditors' Report on Compliance for Each Major Program and on Internal Control Over Compliance as Required by OMB Circular A-133 58-59 Schedule of Findings and Questioned Costs 60-63 Summary Schedule of Prior Year Audit Findings 64 FINANCIAL SECTION (T 11,11L, CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT Honorable Supervisor and Town Board Town of Southold Southold, New York We have audited the accompanying financial statements of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Town of Southold, New York(`Town"), as of and for the year ended December 31, 2014, and the related notes to the financial statements, which collectively comprise the Town's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. c Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit.We did not audit the financial statements of two of the seven component units, Fishers Island Ferry District and Fishers Island Waste Management District, which represent 78.3%, 74.7%, and 79.3%, respectively, of the assets, net position, and revenues of the aggregate discretely presented component units. Those statements were audited by other auditors whose report thereon have been furnished to us, and our opinion, insofar as it relates to the amounts included for those two component units, is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors'judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Town's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Town's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of fl accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. PERSONAL SERVICE.TRUSTED ADVICE. —a— ALBRECHT,VIGGIANO,ZURECK&COMPANY,P.C. 245 PARK AVENUE,39TH FLOOR 25 SUFFOLK COURT NEW YORK, NY 10167 HAUPPAUGE, NY 11788-3715 ,%') T:212.792.4075 T 631 434.9500 F. 631.434.9518 www avz.com -1- INDEPENDENT MEMBER OF BKR INTERNATIONAL Basis for Qualified Opinion on the Aggregate Discretely Presented Component Units The financial statements of the five component units, Cutchogue-New Suffolk Park District, Southold Park District, Orient-East Marion Park District, Mattituck Park District and Orient Mosquito District have not been audited, and we were not engaged to audit these financial statements as part of our audit of the Town of Southold, New York's basic financial statements. These financial activities are included in the Town's basic financial statements as discretely presented component units and represent 21.7%, 25.3%, and 20.7%, respectively, of the assets, net position, and revenues of the Town's aggregate discretely presented component units. Qualified Opinion In our opinion, based on the reports of other auditors, except for the possible effects of the matter discussed in the "Basis for Qualified Opinion on the Aggregate Discretely Presented Component Units" paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of the aggregate discretely presented component units of the Town of Southold, New York, as of December 31, 2014, and the changes in financial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. , Unmodified Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund and the aggregate remaining fund information of the Town of Southold, New York as of December 31, 2014, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, postemployment benefits healthcare costs — schedule of funding progress, 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 have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Town of Southold, New York's financial statements. The combining and individual nonmajor fund financial statements are presented for purposes of additional analysis and are not a required part of the financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local " Governments, and Non-Profit Organizations, and is also not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and the schedule of expenditures of federal awards are the responsibility of management and were derived from and related directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, based on our audit, the information is fairly stated in all material respects in relation to the basic financial statements as a whole. -2- Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 24, 2015, on our consideration of the Town of Southold, New York's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over \ financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Town of Southold, New York's internal control over financial reporting and compliance. 4 r 4b �� s i--, n+ - 1 1 P ca Hauppauge, New York September 24, 2015 -3- Ll REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis �.-' TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 As management of the Town of Southold, New York (the "Town"), we offer readers of the financial statements this narrative overview and analysis of the financial activities for the year ended December 31,2014. FINANCIAL HIGHLIGHTS • The assets of the Town exceed its liabilities and deferred inflows at the close of 2014 by $98,187,403 (net position). • The Town's governmental net position increased by$2,179,348. • As of the close of 2014, the Town's governmental funds reported combined ending fund balances of $23,071,828. Of this amount, $1,361,275 is not in spendable form or is required to remain intact. The remaining of$21,710,553 or approximately 94% of total fund balance is in spendable form with various levels of spending constraint: restricted, assigned, or unassigned making them available for spending at the Town's discretion (See Note A.4.) • At the end of 2014, the Town's total fund balance for the general fund was $8,713,456, a decrease (.._‘ of $69,875 or .80%from the prior year. The assigned and unassigned fund balance for the general fund was $7,661,787 or 27.77% of total general fund expenditures and other uses. • The Town's total bonded debt was$35,235,000, and is a decrease of 6.44%from the prior year. OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis is intended to serve as an introduction to the Town's basic financial statements. The Town's basic financial statements comprise these components: 1) government-wide financial statements, 2) fund financial statements 3) fiduciary fund financial statements and 4) notes to basic financial statements. This report also contains supplementary information in addition to the basic financial statements themselves. Government-wide Financial Statements ' The government-wide financial statements are designed to provide readers with a broad overview of the Town's finances, in a manner similar to a private-sector business. The intent of the government-wide financial statements is to give the reader a long-term view of the Town's financial condition. The Statement of Net Position presents financial information on all of the Town's assets, liabilities, and deferred inflows of resources with the difference between the two reported as net position. This combines and consolidates the Town's current financial resources with capital assets and long-term obligations. Over time, increases or decreases in the Town's net position is one indicator of whether its financial health is improving or deteriorating. You will need to consider other nonfinancial factors, however, such as changes in the Town's property tax base and the condition of the Town's buildings, roads, drainage and other assets to assess the overall health of the Town. The Statement of Activities presents information showing how the Town's net position changed during the most recent year. Revenues and expenses are reported by activity to give the reader an understanding of how each of the Town's activities are being supported. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future periods. This method is known as the accrual basis of accounting and is different from the modified accrual basis of accounting used in the Town's fund financial statements. The Town's government-wide financial statements include both the governmental activities of the Town itself (known as the primary government) and of its legally separate component units for which the Town is financially accountable. Financial information for all component units is reported separately (discretely presented) from the financial information presented for the primary government. -4- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 OVERVIEW OF THE FINANCIAL STATEMENTS (continued) ( Government-wide Financial Statements (continued) Governmental Activities - The Town's basic services are reported here, including: general government support; public safety; public health; transportation; economic assistance and opportunity; culture and recreation and home and community services. Property taxes, mortgage taxes, franchise fees, fines, and ' state and federal grants finance these activities. The Town also charges fees to customers to help it cover the cost of certain services it provides. Component Units- Component units are legally separate organizations for which the Town is either financially accountable, or the nature and significance of their relationship with the Town is such that exclusion would cause the Town's financial statements to be misleading or incomplete. All of these entities are reported in a separate column in the government-wide statements as discretely presented. Information on separately issued financial statements is shown in Note E to the financial statements. Fund Financial Statements The fund financial statements focus on current available resources and are organized and operated on the basis of funds, each of which is defined as an accounting entity with a self-balancing set of accounts established for the purpose of carrying on specific or attaining certain objectives in accordance with special regulations, restriction or limitations. The Town, like other governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the Town can be divided into two categories: governmental funds and fiduciary funds. Governmental Funds t J The Town's activities are reported in governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating a government's near-term financial requirements. t Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term effect of the Town's near term financial decisions. Both the governmental fund balance sheet and governmental fund statement of revenues, expenditures, and change in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The Town maintains ten (10) individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the four (4) major funds. The general fund, highway fund, capital projects fund, and the community preservation fund are reported as major funds. Data from the six (6) other governmental funds are combined into a single, aggregated presentation. The Town adopts an annual appropriated budget for its general and special revenue funds, except for the capital projects fund and special grant fund. A budgetary comparison schedule for the general fund, highway fund, and community preservation fund can be found in the section labeled "Required Supplementary Information Other Than Management's Discussion and Analysis". Fiduciary Funds All of the Town's fiduciary activities are reported in a separate Statement of Fiduciary Assets and Liabilities. We exclude these activities from the Town's other financial statements because the Town cannot use these assets to finance its operations. The Town is responsible for ensuring that the assets reported in these funds are used for their intended purposes. -5- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 OVERVIEW OF THE FINANCIAL STATEMENTS (continued) Notes to the financial statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found following the basic financial statements. Other information In addition to the basic financial statements this report contains supplementary information immediately following the notes to the financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government's financial position. In the case of the Town, assets exceeded liabilities and deferred inflows by$98,187,403 at the close of the most recent year. Condensed Statement of Net Position Primary Governmental Activities r 1 December 31, 2014 2013 Assets Current and other assets $ 35,435,506 $ 33,857,503 Capital assets 155,619,414 151,264,299 Total Assets 191,054,920 185,121,802 Liabilities Current and other liabilities 8,353,746 5,991,799 Long-term liabilities 77,792,656 75,098,137 Total Liabilities 86,146,402 81,089,936 Deferred Inflows of Resources Unearned revenue from real property taxes 6,721,115 8,023,811 Total Deferred Inflows of Resources 6,721,115 8,023,811 Net Position Net Investment in Capital Assets 119,161,711 112,924,654 Restricted 11,632,416 10,544,634 Unrestricted (32,606,724) (27,461,233) Total Net Position $ 98,187,403 $ 96,008,055 Total assets of the primary government as of December 31, 2014 were $191,054,920, an increase of $5,933,118 from December 31, 2013. Total liabilities and deferred inflows as of December 31, 2014 were $92,867,517, which represents an increase of $3,753,770 from December 31, 2013. This resulted in a net position of $98,187,403 an increase of $2,179,348 from December 31, 2013. Of the Town's net position, $119,161,711 was invested in capital assets and $11,632,416 was restricted for future land acquisition and capital projects leaving a$32,606,724 unrestricted deficit. By far the largest portion of the Town's net position $119,161,711 reflects its investment in capital assets (i.e. land, buildings, machinery and equipment, intangibles, and infrastructure) less any related debt used to acquire those assets that is still outstanding. The Town uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the Town's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves will not be used to liquidate these liabilities. -6- ti TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 GOVERNMENT-WIDE FINANCIAL ANALYSIS (continued) The deficit in the unrestricted net position does not necessarily indicate fiscal stress. At the end of the current year, the Town is able to report a positive balance in the categories of investment in capital assets, and restricted net position. The same situation held true for the prior year. The deficit balance in unrestricted arose primarily due to long-term liabilities, which includes other postemployment benefits, compensated absences, and landfill closure and postclosure costs that will be funded through future budgetary appropriations when they become payable in future periods. Changes in Net Position Primary Governmental Activities For the years ended December 31, 2014 2013 Program Revenues Charges for services $ '4,452,922 $ 4,392,802 Operating grants and contributions 1,036,106 888,929 Capital grants and contributions 4,813,959 2,096,761 10,302,987 7,378,492 General Revenues Real property taxes 31,419,818 30,961,687 Other real property tax items 98,810 97,836 Non-property tax items 7,558,659 6,476,812 Interest earnings 76,504 82,495 State aid- unrestricted 1,177,660 1,242,058 Other 682,053 708,362 41,013,504 39,569,250 Total Revenues 51,316,491 46,947,742 Program Expenses General government support 10,338,569 9,458,248 Public safety 18,828,553 18,487,572 Public health 33,300 33,300 Transportation 7,218,831 7,196,909 Economic assistance and opportunity 2,169,613 2,094,274 Culture and recreation 509,010 546,772 Home and community services 8,663,270 6,802,623 Interest on debt 1,375,997 1,447,179 Total Expenses 4.9,137,143 46,066,877 Increase in Net Position $ 2,179,348 $ 880,865 / Net position,from all government activities, increased by$2,179,348 in the current year. Key elements of the governmental activities are: • Overall program revenues increased by $2,924,495 from the prior year. Capital grants increased by $2,717,198 which is primarily related to Federal aid received to fund land acquisitions in the current year of $1,832,493. In addition, the Town received $1,669,697 in federal funding for the Dike Repair Project. These increases were offset by decreases of $713,712 for one time grants that took place in the prior year. • General revenues increased $1,444,254 due to a combination of increased real property taxes of $458,131 and an increase in the transfer tax revenue of$1,081,847. • Overall expenses increased by $3,070,266. This is due to the Town receiving federal funding for construction costs in home and community services for dike repairs. These projects were not completed on Town owned properties and therefore have not been capitalized. These expenses amounted to $1,669,697. In addition, general government support increased $880,321, primarily due to salary increases due to the settlement of the CSEA contracts and hiring employees for vacant positions. Public safety expenditures increased $340,981 due to the increase in the compensated absences liability from the hiring of new officers and pay increases. 0_0 -7- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 GOVERNMENT-WIDE FINANCIAL ANALYSIS (continued) Total Cost of Services Net Cost of Services for Governmental Activities For the years ended December 31, Total Cost of Services Program Revenues Net Cost of Services 2014 2013 2014 2013 2014 2013 General government support $ 10,338,569 $ 9,458,248 $ 416,920 $ 463,797 $ (9,921,649) $ (8,994,451) Public safety 18,828,553 18,487,572 881,662 1,001,443 (17,946,891) (17,486,129) Public health 33,300 33,300 9,063 9,527 (24,237) (23,773) Transportation 7,218,831 7,196,909 500,809 558,961 (6,718,022) (6,637,948) Economic assistance and opportunity 2,169,613 2,094,274 469,217 443,405 (1,700,396) (1,650,869) Culture and recreation 509,010 546,772 303,110 288,018 (205,900) (258,754) Home and community services 8,663,270 6,802,623 7,722,206 4,613,341 (941,064) (2,189,282) Interest on debt 1,375,997 1,447,179 (1,375,997) (1,447,179) $ 49,137,143 $ 46,066,877 $ 10,302,987 $ 7,378,492 $ (38,834,156) $ (38,688,385) The total cost of all governmental activities this year was $49,137,143. The net cost of these services after being subsidized by program revenues of$10,302,987 was $38,834,156. $20,000,000 ----- ---_ Expenses and Program Revenues Governmental Activities $18,000,000 - x,- $16,000,000 BExpenses DPr agram Revenue- $14,000,000 - .o- $12,000,000 - - 11 .. $10,000,000 • ,,, •s' r" .-r: $8,000,000 - .� =s '':' $6,000,000 ., _;. ;' �'" '„m $4,000,000 ' g"� rt2�fr. o$2000,000 .. _ y Mil Y " - 7 - . $- Geremlgovernmenisupport Palm safely Pudic health Transpartahm Economic assistanceenO opportunly CWWre and recreation Horne and community senuces Interest on debt -8- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 GOVERNMENT-WIDE FINANCIAL ANALYSIS (continued) Revenues by Source—Governmental Activities for the Year ended December 31, 2014 Capital grants Operating grants and contributions and contributions 9% 2% Other general ^. revenues $$ Non-propertys , =,'{ tax items • t '" u`t2eal property„ ‘";;- Charges .Charges for services ,/ State aid- unrestricted 2% - Revenue by Source Primary Governmental Activities for the year ended December 31, 2014 2013 Real property taxes $ 31,419,818 $ 30,961,687 State aid- unrestricted 1,177,660 1,242,058 Charges for services 4,452,922 4,392,802 Non-property tax items 7,558,659 6,476,812 Other general revenues 857,367 888,693 Operating grants and contributions 1,036,106 888,929 Capital grants and contributions 4,813,959 2,096,761 $ 51,316,491 $ 46,947,742 FINANCIAL ANALYSIS OF THE TOWN'S FUNDS Governmental Funds The focus of the Town's governmental funds is to provide information on near term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Town's financing requirements. In particular, spendable fund balance may serve as a useful measure of a government's net resources available for spending at the end of the year. • Nonspendable fund balance - $1,361,275 (inherently nonspendable) includes the portion of net resources that cannot be spent because they must be maintained intact. • Restricted fund balance - $11,632,416 (externally enforceable limitations on use) includes amounts subject to limitations imposed by creditors, grantors, contributors, or laws and regulations of other governments. -9- ' TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 FINANCIAL ANALYSIS OF THE TOWN'S FUNDS (continued) , Governmental Funds (continued) • Assigned fund balance - $7,659,830 (limitation resulting from intended use) consists of amounts where the intended use is established by the highest level of decision making and negative fund balances in funds other than the general fund. • Unassigned fund balance - $2,418,307 (residual net resources) is the total fund balance in the L; general fund in excess of nonspendable, restricted and assigned fund balance and negative fund balances in funds other than the general fund. The following schedule presents a summary of the Governmental Funds - (general, special revenue, and capital projects) revenues and expenditures for the year ended December 31, 2014, and the amount of } change and percentage of total in relation to the prior year. Increase 2014 2013 (Decrease) REVENUES Real property taxes $ 31,419,818 $ 30,961,687 $ 458,131 Other real property tax items 98,810 97,836 974 - Non-property tax items 7,558,659 6,476,812 1,081,847 Departmental income 3,420,405 3,123,809 296,596 Intergovernmental charges 318,300 302,119 16,181 Use of money and property 259,523 255,816 3,707 Licenses and permits 501,587 608,834 (107,247) Fines and forfeitures 168,973 209,013 (40,040) r11 Sale of property and compensation for loss 567,921 676,643 (108,722) Miscellaneous local sources 242,048 273,158 (31,110) lnterfund revenues 30,000 30,000 -0- State aid 2,453,568 2,619,985 (166,417) Federal aid 4,347,817 1,266,434 3,081,383 Total Governmental Fund Revenues $ 51,387,429 $ 46,902,146 $ 4,485,283 ( ti General government support $ 6,035,878 $ 5,527,090 $ 508,788 Public safety 10,686,498 10,554,180 132,318 Public health 33,300 33,300 -0- Transportation 4,026,295 3,948,017 78,278 Economic assistance and opportunity 1,279,830 1,231,227 48,603 Culture and recreation 299,708 298,472 1,236 Home and community services 9,753,834 8,109,632 1,644,202 Employee benefits 11,796,493 11,859,095 (62,602) Capital Outlay 3,010,616 570,254 2,440,362 Debt service principal and interest 3,792,496 3,837,654 (45,158) Total Governmental Fund Expenditures $ 50,714,948 $ 45,968,921 $ 4,746,027 r- , Although the Town appropriated $3,593,065 of prior year fund balance to finance the 2014 operations, total fund balance increased $672,481. Governmental revenues increased by $4,485,283. The increase is due to the following: increases in real property taxes of $458,131 and an increase in non-property tax items of $1,081,847 which is mainly due to an increase in the 2%transfer tax. In addition, the Town received additional federal aid of $3,081,383 which includes $1,669,697 from the Department of Agriculture for the Dike Repair and an increase in $1,832,493 for Farm and Ranchland protection. These increases were offset by a decrease in federal aid of$555,497 from FEMA funds which were received in the prior year due to Superstorm Sandy. Overall, governmental expenditures increased $4,746,027. The increase is due to the following: increases in home and community expenditures of $1,644,202 due to more land being purchased with community preservation funds and federal aid than the prior year. In addition, there were increases in capital outlay of $2,440,362 due to the Town commencing larger projects in 2014 including the Dike Repair Project which was funded by federal aid. -10- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 FINANCIAL ANALYSIS OF THE TOWN'S FUNDS (continued) Governmental Funds (continued) General Fund The general fund is the chief operating fund of the Town. At the end of the current year, the total fund balance of the general fund was $8,713,456 decreasing by $69,875 or .80% from the prior year. Of this amount, $1,051,669 is not in spendable form (i.e. inventory and prepaid items). The remaining $7,661,787 of the fund balance is in spendable form as follows: $949,339 is assigned for insurance claims; $3,505,000 has been assigned by the Town Board for the subsequent year's budget and $191,455 has been assigned for encumbrances resulting from open purchase orders, and the remaining $3,015,993 represents spendable, unassigned fund balance. As a measure of the general funds' liquidity, it may be useful to compare spendable fund balance and total fund balance to total fund expenditures and other financing uses. Spendable and total fund balance represents 27.8% and 31.6%, respectively, of total general fund expenditures and other financing uses. The key elements of the fund balance decrease of$69,875 are as follows: • There was a planned fund balance reduction of$2,775,000, a result of appropriations in the current year's budget. • General government support was $717,687 under budget primarily due to lower than anticipated judgment and claims ($231,000), deer management program ($60,000), deferral of a portion of the interpretative signage project ($63,000), as well as the implementation of cost savings procedures ($434,000). • Public safety was $729,076 under budget due to less than budgeted PBA contract increases and new police officers hired much later in 2014 than originally anticipated. • Employee benefits were $714,564 under budget due to the Town conservatively budgeting for health insurance premiums and retirement contributions which amounted to approximately$551,000. In addition, the Town estimates Social Security benefits based on positions to be filled. The hiring in the police department took place later in the year.These costs were approximately$131,000 under budget. Highway Fund At the end of the current year,the total fund balance of the highway fund was$1,043,128 decreasing by$180,781 or 14.8% from the prior year. Of this amount, $165,309 is not in spendable form (i.e. prepaid items). The remaining $877,819 of the fund balance is in spendable form as follows: $460,640 has been assigned by the Town Board for the subsequent year's budget, $67,901 has been assigned for encumbrances resulting from open r, purchase orders, and the remaining$349,278 is assigned for highway purposes. The key elements of the fund balance decrease of$180,781 are as follows: • There was a planned fund balance reduction of $500,650, a result of appropriations in the current year's budget. • Employee benefits savings of $187,105 resulted from the Town conservatively budgeting for health - insurance premiums and retirement contributions. Capital Projects Fund At the end of the current year, the capital projects fund had a fund deficit of$597,686. The fund balance decreased in the capital projects fund by$625,228 from the prior year. • The decrease resulted from differences in timing between project expenditures and encumbrances and the recognition of corresponding permanent financing. -11- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 FINANCIAL ANALYSIS OF THE TOWN'S FUNDS (continued) Governmental Funds (continued) Community Preservation Fund At the end of the current year, the community preservation fund had a total restricted fund balance of $11,632,416 as a result of an increase in the 2% land preservation transfer tax of $1,036,921 and federal aid U of $1,832,493 over the prior year, which was then offset by additional purchases of land with these additional funds. Nonmajor Governmental Funds At the end of the current year, the total fund balance of the nonmajor governmental funds was $2,280,514, U increasing $433,041 from the prior year. Of this amount$144,297 is not in spendable form (i.e. prepaids). The remaining $2,136,217 of the fund balance is in spendable form as follows; $630,550 for subsequent year's budget, $10,810 assigned for` encumbrances resulting from open purchase orders, and the remaining $1,494,857 of fund balance is assigned for nonmajor governmental fund purposes. The key elements of the fund balance increase of$433,041 are as follows: • The Part Town's fund balance was $1,338,034 which is an increase of $318,595 from the prior year. Actual revenues exceeded budgeted expectations by $307,009. Overall, total expenditures were less than anticipated by $211,586. In addition, the Town appropriated $200,000 of fund balance from the prior year. • The Solid Waste Management District's fund balance was $848,617 at December 31, 2014 which is ,'m an increase of $103,092 from the prior year. Actual revenues exceeded budgeted expectations by $292,483. Overall, total expenditures were more than originally anticipated by $111,026. In addition, the Town appropriated $78,365 of fund balance from the prior year. General Fund Budgetary Highlights r•, The Town appropriated expenditures in the original general fund budget in excess of estimated revenues in the amounts of $2,867,200, inclusive of $92,200 of encumbrances, by assigning fund balance from the prior year. Actual revenues were more than anticipated by$204,059. Actual expenditures in all budgetary line items were less than the budgetary appropriation by$2,314,437. Over the course of the year, the Town Board revises the budget as needed so that expenditures do not exceed appropriations. In all Town funds, various transfers between appropriations were approved for this purpose. The following are the main components of the increase in appropriations: • Departmental income increased by$121,050 due to the Town Board appropriating additional funds for park and playground fees for park projects. • Federal aid increased by$99,200 due to additional grants being received. • Additional appropriations of $190,635 for public safety for payouts for retirees and $109,632 for .} employee benefits due to increases for unanticipated medical claims incurred for the self-funded plan. -12- 0 TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets As of December 31, 2014 the primary government had $155,619,414 in net capital assets including land and land development rights, buildings, improvements, machinery and equipment, and infrastructure. The Town's component units had 16,250,365 in net capital assets including land, buildings, improvements, machinery and equipment, and infrastructure. Capital Assets at December 31, Primary Government 2014 2013 Land $ 7,634,797 $ 7,540,466 Land development rights 116,878,970 112,046,093 Construction in progress 1,107,991 53,344 Buildings 13,270,215 13,234,190 Improvements other than buildings 15,765,606 15,756,291 Machinery and equipment 10,993,550 11,433,217 Software 1,109,657 1,055,638 Infrastructure 77,638,597 76,784,978 Total Capital Assets 244,399,383 237,904,217 Less: accumulated depreciation 88,779,969 86,639,918 Primary Government-Total Net Capital Assets $ 155,619,414 $ 151,264,299 Component Units Land $ 2,193,353 $ 2,193,353 Buildings 14,145,321 14,145,321 Improvements other than buildings 2,545,238 2,545,238 Machinery and equipment 4,003,629 3,625,245 Infrastructure 4,047,193 4,037,643 Total Capital Assets 26,934,734 26,546,800 Less: accumulated depreciation 10,684,369 9,844,927 Component Units-Total Net Capital Assets $ 16,250,365 $ 16,701,873 In 2014, the Town of Southold's major capital asset acquisitions were as follows: • Land and land development rights of$5,491,311 C,� • Construction in progress of$1,057,405 • Machinery and equipment of$601,919 • Highway resurfacing and drainage of$853,619 The capital program is a long range financing guide and not a definitive plan. Each appropriation must be authorized by Town Board resolution before being undertaken. Each may be financed by issuance of general obligation bonds, which, at times, are preceded by issuance of bond anticipation notes for various periods of time depending on the probable usefulness of the purpose of expenditure. The Town's three year capital plan is summarized below: 2015 2016 2017 Machinery and Equipment General Fund $ 248,995 62,000 62,000 Solid Waste District Fund 1,550,000 -0- -0- Buildinq and Improvements General Fund 218.000 -0- -0- Totals $ 2.016.995 $ 62.000 $ 62.000 Additional information on the Town's capital assets can be found in Note C.3 to the financial statements. -13- ._-' TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2014 CAPITAL ASSET AND DEBT ADMINISTRATION (continued) Long-Term Debt The Town of Southold's bond credit rating from Moody's Investors Services was Aa2 as of December 31, 2014. The Town's bond credit rating was upgraded to Aa1 as of July 1,2015. Debt Limit - The1Town has the power to contract indebtedness for any Town purpose so long as the principal amount thereof, subject to certain limited exceptions, shall not exceed seven percent of the average full L' valuation of taxable real estate of the Town, and subject to certain enumerated exclusions and deductions such as water and certain sewer facilities and cash or appropriations for current debt service. The constitutional method for determining full valuation is calculated by taking the assessed valuation of taxable real estate as shown upon the latest completed assessment roll and dividing the same by the equalization rate as determined by the State Board of Equalization and Assessment. The State Legislature is t;; required to prescribe the manner by which such ratio shall be determined. Average full valuation is determined by taking the sum of the full valuation of the last completed assessment roll and the four preceding assessment rolls and dividing such sum by five. Percentage of debt contracting power exhausted at December 31, 2014 was 5.48%. At December 31, 2014, the Town had approximately $36.6 million in long term general obligation bonds outstanding, of which $35.2 million was for the primary government. Also outstanding at year-end were bond anticipation notes in the amount of$3.0 million, $2.1 million which was for the primary government. Additional information on the Town's debt activity can be found in Note C.4 to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES (-) Property Tax The Town has adopted a budget for the 2015 fiscal year which factors in inflation and other adjustments to revenues and expenditures as well as prior year positive and negative fund balances. The 2015 budget includes an overall decrease in real property tax revenues from the prior year of approximately .80% for the general Town governmental activities. ( ; In June 2011, New York State enacted Chapter 97, Laws of 2011 Real Property Tax Levy Cap and Mandate Relief Provisions, which includes a 2% property tax cap for municipalities that affects the Town and its municipal component units. Beginning in 2012, and lasting through at least June 15, 2020, no local government is authorized to increase its property tax levy by more than 2%or the rate of inflation (whichever is less). Local governments can exceed the tax levy limit by a 60% vote of the governing body, or local law. There are permitted exceptions and adjustments. The Town is currently evaluating the effect of the cap on _ future year's budgets. State Aid and Local Assistance The Town receives financial assistance from New York State and from Suffolk County. During 2014, financial assistance included state aid consisting of mortgage tax of$1,142,523, consolidated highway aid of $422,755, $678,225 in capital grants and other state aid of approximately $288,154. State aid per capita was $88,328 t and County local government assistance was $250,803. Additionally, if the State should not adopt its budget in a timely manner, municipalities and school districts in the State, including the Town, may be affected by a delay in the payment of state aid. The State is not constitutionally obligated to maintain or continue state aid to the Town.The Town's 2015 budget included similar amounts for this financial assistance. CONTACTING THE TOWN'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and creditors with a general overview of the Town's finances and to show the Town's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Town of Southold, Office of the Town Comptroller, Southold, New York. -14- C4 BASIC FINANCIAL STATEMENTS t; t _f TOWN OF SOUTHOLD GOVERNMENT-WIDE FINANCIAL STATEMENT STATEMENT OF NET POSITION December 31, 2014 Primary Nonmajor Governmental Component Activities Units ASSETS Current Assets: Cash and investments $ 30,507,960 $ 2,502,073 Accounts receivable 469,219 49,033 State and federal aid receivables 1,168,421 Due from other governments 1,928,631 Due from primary government 506,293 Inventory of material and supplies 2,230 Prepaids 1,359,045 116,945 Total Current Assets 35,435,506 3,174,344 Noncurrent Assets: Non-depreciable capital assets 125,621,758 2,193,353 Depreciable capital assets, net of depreciation 29,997,656 14,057,012 Total Noncurrent Assets 155,619,414 16,250,365 Total Assets 191,054,920 19,424,709 LIABILITIES Current Liabilities: Accounts payable and accrued liabilities 1,701,848 343,828 Claims and judgments payable 810,302 Accrued interest payable 355,966 21,872 Bond anticipation notes payable 2,110,000 849,000 Due to component units 506,293 Due to other governments 1,579 Unearned revenue 185,663 Noncurrent liabilities due within one year General obligation bonds payable 2,425,000 175,000 Compensated absences 230,000 103,535 Estimated liability for landfill closure and postclosure care costs 27,095 Total Current Liabilities 8,353,746 1,493,235 Noncurrent Liabilities: General obligation bonds payable 32,810,000 1,200,000 Due to employees retirement system 66,909 Compensated absences 8,308,674 109,897 Claims and judgments payable 342,690 Estimated liability for landfill closure and postclosure care costs 868,835 Other postemployment benefits payable 35,395,548 334,379 Total Noncurrent Liabilities 77,792,656 1,644,276 Total Liabilities 86,146,402 3,137,511 DEFERRED INFLOWS OF RESOURCES Unearned revenue from real property taxes 6,721,115 506,292 NET POSITION Net Investment in Capital Assets 119,161,711 13,477,544 Restricted 11,632,416 Unrestricted (32,606,724) 2,303,362 Total Net Position $ 98,187,403 $ 15,780,906 See notes to the financial statements. -15- C TOWN OF SOUTHOLD GOVERNMENT-WIDE FINANCIAL STATEMENT STATEMENT OF ACTIVITIES Year Ended December 31, 2014 Net Expenses and Program Revenues Change in Net Position Operating Capital Charges for Grants and Grants and Pnmary Component Function/Program Expenses Services Contributions Contributions Government Units PRIMARY GOVERNMENT Government Activities: General government support $ 10,338,569 $ 223,570 $ 108,063 $ 85,287 $ (9,921,649) Public safety 18,828,553 673,827 207,835 (17,946,891) Public health 33,300 9,063 (24,237) Transportation 7,218,831 52,948 57,879 389,982 (6,718,022) Economic assistance and opportunity 2,169,613 204,712 264,505 (1,700,396) Culture and recreation 509,010 303,110 (205,900) Home and community services 8,663,270 2,994,755 388,761 4,338,690 (941,064) Interest on debt 1,375,997 (1,375,997) Total Primary Government 49,137,143 4,452,922 1,036,106 4,813,959 (38,834,156) COMPONENT UNITS General government support 132,299 $ (132,299) Public health 70,596 (70,596) Transportation 3,570,585 2,792,071 18,716 398 (759,400) Culture and recreation 946,792 30,503 (916,289) Home and community services 776,982 48,812 (728,170) Interest on debt 62,794 (62,794) Total Component Units $ 5,560,048 $ 2,871,386 $ 18,716 $ 398 (2,669,548) s GENERAL REVENUES Real property taxes 31,419,818 2,311,551 Other real property tax items 98,810 Non-property tax items 7,558,659 Interest earnings 76,504 8,056 State aid-unrestricted 1,177,660 Other _ 682,053 64,736 Total General Revenues 41,013,504 2,384,343 Change in Net Position 2,179,348 (285,205) Net Position at Beginning of Year 96,008,055 16,066,111 ` Net Position at End of Year $ 98,187,403 $ 15,780,906 See notes to financial statements. -16- TOWN OF SOUTHOLD BALANCE SHEET GOVERNMENTAL FUNDS December 31, 2014 MAJOR GOVERNMENTAL FUNDS Non-Major Capital Community Governmental General Highway Projects Preservation Funds Totals ASSETS Cash and investments $ 14,881,168 $ 667,341 $ 1,648,252 $ 11,044,890 $ 2,266,309 $ 30,507,960 c. Accounts receivable 108,537 253 302 41,858 318,269 469,219 Due from other funds 648,763 1,063,265 355,262 828,088 2,895,378 State and federal aid receivable 101,161 260,034 677,171 527 129,528 1,168,421 Due from other governments 1,029,099 572,654 1,601,753 Inventory of material and supplies 2,230 2,230 Prepaids 1,049,439 165,309 144,297 1,359,045 Total Assets $ 17,820,397 $ 2,156,202 $ 2,680,987 $ 11,659,929 $ 3,686,491 $ 38,004,006 LIABILITIES Accounts payable and accrued liabilities $ 621,879 $ 80,002 $ 464,205 $ 27,513 $ 508,249 $ 1,701,848 Judgments and claims 810,302 810,302 Bond anticipation notes payable 2,110,000 2,110,000 Due to other funds 2,151,175 31,735 704,468 8,000 2,895,378 Due to component units 506,293 506,293 Due to other governments 1,419 160 1,579 Unearned revenue 13,954 171,709 185,663 Total Liabilities 4,105,022 111,897 3,278,673 27,513 687,958 8,211,063 DEFERRED INFLOWS OF RESOURCES Unearned revenue from real property taxes 5,001,919 1,001,177 718,019 6,721,115 FUND BALANCE Nonspendable 1,051,669 165,309 144,297 1,361,275 Restricted 11,632,416 11,632,416 Assigned 4,645,794 877,819 2,136,217 7,659,830 Unassigned 3,015,993 (597,686) 2,418,307 Total Fund Balance(Deficit) 8,713,456 1,043,128 (597,686) 11,632,416 2,280,514 23,071,828 Total Liabilities,Deferred Inflows of Resources and Fund Balance(Deficit) $ 17,820,397 $ 2,156,202 $ 2,680,987 $ 11,659,929 $ 3,686,491 $ 38,004,006 U J See notes to the financial statements. -17- TOWN OF SOUTHOLD RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION December 31, 2014 Total Fund Balances- Governmental Funds $ 23,071,828 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets less accumulated depreciation are included in the Statement of Net Position: Capital assets-non-depreciable $ 125,621,758 Capital assets-depreciable 118,777,625 Accumulated depreciation _ (88,779,969) 155,619,414 Long-term liabilities applicable to the Town's governmental activities are not due and payable in the current period and accordingly are not reported in the funds. However these liabilities are included in the Statement of Net Position: General obligation bonds payable (35,235,000) Due to employees retirement system (66,909) Compensated absences (8,538,674) Claims and judgments payable (342,690) Estimated liability for landfill closure and postclosure care costs (895,930) Other postemployment benefits payable (35,395,548) (80,474,751) r Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. 326,878 Interest payable applicable to the Town's governmental activities are not due and payable in the current period and accordingly are not reported in the funds. However these liabilities are included in the Statement of Net Position. (355,966) Net Position of Governmental Activities $ 98,187,403 See notes to financial statements. -18- TOWN OF SOUTHOLD STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the year Ended December 31, 2014 I- MAJOR GOVERNMENTAL FUNDS Non-Major Capital Community Governmental General Highway Projects Preservation Funds Totals REVENUES Real property taxes $ 23,042,527 $ 4,719,206 $ 3,658,085 $ 31,419,818 Other real property tax items 90,140 7,532 1,138 98,810 Non-property tax items 885,473 $ 6,060,255 612,931 7,558,659 Departmental income 506,796 2,913,609 3,420,405 Intergovernmental charges and local aid 318,300 318,300 Use of money and property 221,700 7,927 $ 1,982 18,407 9,507 259,523 Licenses and permits 323,828 20,821 156,938 501,587 Fines and forfeitures 168,973 168,973 Sale of property and compensation for loss 148,833 33,181 385,907 567,921 Miscellaneous local sources 239,221 1,922 905 242,048 Interfund revenues 30,000 30,000 State aid 1,333,819 391,204 522,963 527 205,055 2,453,568 Federal aid 212,069 12,735 1,379,893 2,602,246 140,874 4,347,817 Total Revenues 27,521,679 5,192,606 1,906,760 8,681,435 8,084,949 51,387,429 EXPENDITURES Current General government support 5,965,043 7,215 63,620 6,035,878 Public safety 9,363,682 1,322,816 10,686,498 Public health 33,300 33,300 Transportation 488,925 3,537,370 4,026,295 Economic assistance and opportunity 1,279,8301,279,830 Culture and recreation 299,708 299,708 Home and community services 354,646 5,216,999 4,182,189 9,753,834 r Employee benefits 8,753,791 1,769,381 1,273,321 11,796,493 Capital Outlay 3,010,616 3,010,616 Debt Service Pnncipal 513,400 70,000 1,297,300 519,300 2,400,000 Interest 159,203 24,573 1,051,812 156,908 1,392,496 Total Expenditures 27,211,528 5,408,539 3,010,616 7,566,111 7,518,154 50,714,948 Excess(Deficiency)of Revenues Over (` Expenditures 310,151 (215,933) (1,103,856) 1,115,324 566,795 672,481 Other Financing Sources(Uses) Transfers in 88,152 478,628 566,780 Transfers out (380,026) (53,000) (133,754) (566,780) Total Other Financing Sources(Uses) (380,026) 35,152 478,628 -0- (133,754) -0- Net Change in Fund Balance (69,875) (180,781) (625,228) 1,115,324 433,041 672,481 Fund Balances at Beginning of Year 8,783,331 1,223,909 27,542 10,517,092 1,847,473 22,399,347 Fund Balances(Deficit)at End of Year $ 8,713,456 $ 1,043,128 $ (597,686) $ 11,632,416 $ 2,280,514 $ 23,071,828 See notes to the financial statements. -19- TOWN OF SOUTHOLD RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES For the Year Ended December 31, 2014 Net Change in Fund Balance $ 672,481 Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. The amount by which capital outlay exceeds depreciation in the current period is: Capital outlay $ 8,100,855 Depreciation expense (3,142,344) Loss on dispositions (603,396) 4,355,115 Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. (40,938) The issuance of long-term debt and increase in obligations under capital leases provides current financial resources to governmental funds, while the repayment of the principal of long term debt and capital leases consumes the current financial resources of governmental funds. Neither transaction has any effect on net position. Repayment of bond principal 2,400,000 Due to employees retirement system 62,242 Compensated absences (300,677) Claims and judgments payable (342,690) Estimated liability for landfill closure and postclosure care costs 25,805 Other postemployment benefits payable (4,668,489) Accrued interest payable 16,499 Change in Net Position of Governmental Activities $ 2,179,348 See notes to financial statements. -20- TOWN OF SOUTHOLD STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES December 31, 2014 Totals ASSETS Cash and investments $ 20,467,076 Other receivables 558 Total Assets $ 20,467,634 LIABILITIES Due to other governments $ 20,002,400 Other liabilities 221,552 Deposits held 243,682 Total Liabilities $ 20,467,634 6 ` i See notes to financial statements. -21- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Town of Southold (the `Town"), which was established in 1640, is governed by Town Law and other general laws of the State of New York and various local laws. The Town Board is the legislative body responsible for overall operations. The Town Board consists of the Supervisor who is elected for a term of four years and five council members who are elected for terms of four years. The Town Board appoints the Town Attorney and Town Comptroller. The Town Clerk, Receiver of Taxes, Superintendent of Highways, Justices and Town Trustees are all elected and serve for four years, respectively. The Town provides a full range of municipal services, including public safety, transportation, home and community services, public works and road maintenance, recreation and parks, and general and administrative services. The financial statements of the Town of Southold have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the government's accounting policies are described below. 1. REPORTING ENTITY The financial reporting entity consists of: (a) the primary government, which is the Town of Southold; (b) organizations for which the primary government is financially accountable; and (c) 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 decision to include a potential component unit in the Town of Southold reporting entity is based on several criteria including legal standing, dependency and financial accountability. The current guidance also clarifies the status as major or nonmajor component unit. Based on the application of these criteria, the following is a summary of certain entities considered in determining the Town's reporting entity. Discretely Presented Component Units: The following entities are discretely presented component units of the Town of Southold: a) Fishers Island Ferry District was established in 1947 by a special act of legislation within the State of New York, known as the Ferry District Enabling Act. The Board of Commissioners is the legislative body responsible for the overall operations. The Board of Commissioners consists of five members, all of whom are elected by the residents of the District. The primary function of the District is to provide ferry operations and services to district residents. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations. Budgets and tax rates are not approved by the Town. Tax levies of the District are collected by the Town Receiver of Taxes. This district is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. b) Fishers Island Waste Management District was established in 1952 and is governed by the laws of New York State. The Board of Commissioners is the legislative body responsible for the overall operations. The Board of Commissioners consists of five members, all of whom are elected by the residents of the District. The primary function of the District is to provide waste management and disposal services to district residents. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations. Tax levies of the District are collected by the Town Receiver of Taxes. This district is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. -22- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) 1. REPORTING ENTITY(continued) Discretely Presented Component Units(continued): c) Cutchogue-New Suffolk Park District was established in 1953 and is governed by the laws of New York State.The Board of Commissioners is the legislative body responsible for the overall operations. The Board of Commissioners consists of three members, all of whom are elected by the residents of the District.The primary function of the District is to maintain and operate the specific private beaches of residents who reside within the park district. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations. Tax levies of the District are collected by the Town Receiver of Taxes. This district is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. d) Southold Park District was established in 1907 and is governed by the laws of New York State. The Board of Commissioners is the legislative body responsible for the overall operations. The Board of Commissioners consists of three members, all of whom are elected by the residents of the District. The primary function of the District is to maintain and operate the specific private beaches of residents who reside within the park district. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations. Tax levies of the District are collected by the Town Receiver of Taxes. This district is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. e) Orient-East Marion District was established in 1969 and is governed by the laws of New York State. The Board of Commissioners is the legislative body responsible for the overall operations. The Board of Commissioners consists of three members, all of whom are elected by the residents of the District. The primary function of the District is to maintain and operate the specific private beaches of residents who reside within the park district. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations. Tax levies of the District are collected by the Town Receiver of Taxes. This district is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. f) Mattituck Park District was established in 1941 and is governed by the laws of New York State. The Board of Commissioners is the legislative body responsible for the overall operations. The Board of Commissioners consists of three members, all of whom are elected by the residents of the District. The primary function of the District is to maintain and operate the specific private beaches of residents who reside within the park district. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations. Tax levies of the District are collected by the Town Receiver of Taxes. This district is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. g) Orient Mosquito District was established in 1916 and is governed by the laws of New York State.The Board of Commissioners is the legislative body responsible for the overall operations. The Board of Commissioners consists of five members, all of whom are elected by the residents of the District.The primary function of the District is to provide pest control services to district residents. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations.Tax levies of the District are collected by the Town Receiver of Taxes. This district is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. All of the Town of Southold's discretely presented component units are considered non-major. -23- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS The Town's basic financial statements include both government-wide (reporting the Town as a whole) and fund financial statements (reporting the Town's major funds). Government-wide Financial Statements The government-wide financial statements (i.e. the Statement of Net Position and the Statement of Activities) report information on all of the non-fiduciary activities of the Town as a whole with separate columns for the primary governmental activities as well as the discretely presented component units. For the most part, the effect of interfund activity has been eliminated from the government-wide financial statements, except for interfund services provided and used. The government-wide Statement of Activities demonstrates the degree to which the direct expenses of a given function are offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function. 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, (2) grants and contributions that are restricted to meeting the operation and capital requirements of a particular function, (3) interest earned on grants or capital projects that is required to be used to support a particular program or project. Taxes and other items not properly included among program revenues are reported as general revenues. The Town does not allocate indirect expenses to specific functions in the Statement of Activities. Fund Financial Statements Separate financial statements are provided for governmental funds and fiduciary funds, even though the fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements. The accounts of the Town are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, deferred inflows of resources, fund balances, revenues, and expenditures, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. The various funds are presented by type in the fund financial statements. Certain funds of the Town are utilized to account for resources derived from and/or expenditures applicable to an area less than the entire Town. The focus of the governmental funds financial statements is on the major funds. Accordingly, the Town maintains the following fund types: Governmental Funds-Governmental funds are those through which most governmental functions are financed. The acquisition, use and balances of expendable financial resources and the related liabilities are accounted for through governmental funds. The measurement focus of the governmental funds is upon the determination of financial position and changes in financial position. Governmental funds are further classified as major and nonmajor funds. The Town reports the following major governmental funds: General Fund - is the principal operating fund of the Town. This fund is used to account for all financial resources not accounted for and reported in another fund. Special Revenue Funds - are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditures for specified purposes other than debt service or capital projects. -24- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (continued) Fund Financial Statements (continued) Governmental Funds(continued) Highway Fund - is a Special Revenue Fund used to account for revenues and expenditures for highway purposes. The major areas of expenditures are repairs and improvements to roadways, machinery, snow removal and miscellaneous.The major source of revenue is real property taxes. Community Preservation Fund - is used to account for and report financial resources that are restricted for the purchase of land and land development rights. Capital Projects Fund - used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of major capital facilities and other capital assets. Additionally,the Town accounts for and reports the following non-major funds: General Fund Part Town — is used to account for revenues and expenditures for certain services provided by the area of the Town located outside of the Village of Greenport. The major source of revenue is real property taxes and building permits. Special Grant Fund — is used to account for federal aid for the Community Development Block Grant Program. Special District Funds — are used to account for taxes or other revenues, which are raised or received to provide special services to areas that encompass less than the whole town. The Special District Funds consist of a number of separate districts, which are administered by the Town Board as follows: East-West Fire Protection District, Southold Wastewater District, Fishers Island Sewer District and Solid Waste Management District. Fiduciary Funds - Fiduciary Funds are used to account for assets held by the Town in a trustee or custodial capacity. Agency Fund - is used to account for money (and/or property) received and held in the capacity of trustee, custodian or agent. 3. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION Measurement focus refers to what is being measured whereas the basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurement made, regardless of the measurement focus applied. The government-wide statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred, 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. -25- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION (continued) Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measureable and available. Revenues are considered available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Town generally considers revenues to be available if they are collected within 60 days after the year end. In certain circumstances this application of the Town's normal availability period for a given revenue source might distort revenue trends from one year to the next. In such unusual circumstances, revenues may be considered available if received beyond 60 days. However, to the extent the revenue remains uncollected after one year the Town would classify the fund balance as nonspendable. Revenues susceptible to accrual include Suffolk County local assistance at year end on behalf of the Town, franchise fees, mortgage taxes and certain charges for services and intergovernmental revenues. Permits, fees, and other similar revenues are not susceptible to accrual because generally they are not measurable until they are received in cash. In those instances where expenditures are the prime factor in determining eligibility for state and federal grants, revenues are recognized when the expenditure is incurred. In the governmental funds, long-term debt is recognized as revenue upon receipt of the proceeds. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to due to New York State employees' retirement system, compensated absences, claims and judgments, landfill closure and postclosure care costs, and other postemployment healthcare cost benefits are recorded when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt is reported as other financing sources and uses. Because governmental fund statements are presented using a measurement focus and a basis of accounting different from that used in the government-wide statements governmental column, a reconciliation is presented that briefly explains the adjustment necessary to reconcile ending net position and the change in net position. 4. ASSETS, LIABILITIES, DEFERRED OUTFLOWS/INFLOWS OF RESOURCES, AND NET POSITION/FUND BALANCE CASH AND INVESTMENTS Cash consists of funds deposited in demand accounts, time deposit accounts and certificates of deposit with maturities of less than three months. State statutes govern the Town's investment policies.The Town's investments are governed by a formal investment policy. The Town's monies must be deposited in FDIC-insured commercial banks or trust companies located within the State. The Town is authorized to use demand accounts and certificates of deposit. Permissible investments include obligations of the U.S. Treasury, U.S. Agencies and investments made by the Cooperative Liquid Asset Security System (CLASS). Collateral is required for demand deposits and time deposit accounts at 100% of all deposits not covered by federal deposit insurance. Obligations that may be pledged as collateral include obligations of the United States and its agencies, obligations of the State and its municipalities, and school districts. The Town's collateral agreements are based on the Town's available balance. -26- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) 4. ASSETS, LIABILITIES DEFERRED OUTFLOWS/INFLOWS OF RESOURCES, AND NET POSITION/FUND BALANCE (continued) RECEIVABLES Receivables include amounts due from Federal, State and other governments or entities for services provided by the Town. Receivables are recorded and revenues recognized as earned or as specific program expenditures are incurred. DUE FROM/TO OTHER FUNDS During the course of operations the government has activity between funds for various purposes. Any residual balance outstanding at year-end are reported as due from/due to other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. INVENTORY AND PREPAID ITEMS Inventory is valued at cost and consists of supplies on hand. Inventory in these funds is accounted for under the consumption method. Certain payments to vendors reflect costs applicable to future accounting periods and are reported as prepaid items in both the government-wide and fund financial statements. Prepaids in the general and special revenue funds represent health insurance and retirement benefits that will benefit a future period. In governmental funds, amounts reported as inventories and prepaid items are equally offset by nonspendable fund balance amounts, indicating that they do not constitute "available spendable resources"even though they are a component of net current assets. CAPITAL ASSETS Capital assets purchased or acquired with an original cost of $5,000 or more are reported at historical cost or estimated historical cost. Donated assets are reported at estimated fair market value as of the date of donation. Additions, improvements and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Depreciation and amortization on all assets is provided on the straight-line basis over the following estimated useful lives: Buildings 10-40 years Improvements and other 20 years Machinery and equipment 5-10 years Software 5-10 years Infrastructure 20-30 years Infrastructure assets, consisting of certain improvements other than buildings including roads, curbs, sidewalks, bridges, and street lighting are capitalized along with other capital assets. Intangible assets lack physical substance, are nonfinancial in nature, and have an estimated useful life extending beyond a single reporting period. The term depreciation, as used in these footnotes, includes amortization of intangible assets. In the fund financial statements, capital assets are recorded as capital outlay expenditures in the governmental fund upon acquisition. -27- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) _`. 4. ASSETS, LIABILITIES, DEFERRED OUTFLOWS/INFLOWS OF RESOURCES, AND NET/POSITION/FUND BALANCE (continued) UNEARNED REVENUE Unearned revenues, reported as liabilities in the fund and government-wide financial statements, are those which asset recognition criteria have been met, but which revenue recognition criteria have not been met for exchange type transactions. Such amounts include collections in advance for fee income relating to 2015. DEFERRED OUTFLOWS/INFLOWS OF RESOURCES In addition to assets, the Statement of Net Position will sometimes report a separate section for deferred outflows of resources. Deferred outflows of resources represent a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expenditures/expense) until that time. In addition to liabilities,the Statement of Net Position will sometimes report a separate section for deferred inflows of resources. This separate financial element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenues) until that time. The Town's governmental funds report unearned revenues which relate to the advance collections of real estate taxes for the subsequent year. The unearned revenues, relating to the collection of real estate taxes for a future period, are accordingly reported as a deferred inflow in the government-wide Statement of Net Position as well as the governmental funds Balance Sheet. LONG-TERM OBLIGATIONS In the government-wide financial statements, liabilities for long-term obligations consisting of general obligation bonds, compensated absences, claims and judgments, liability for landfill closure and postclosure costs, other postemployment benefits, and due to employees retirement system are recognized in the statement of net position. Bond premiums or discounts are deferred and amortized on a straight-line basis over the life of the bonds. Bonds payable are reported net of applicable bond premium or discount. Bond issuance costs are expensed as incurred. i In the fund financial statements, governmental funds recognized bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of the 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 actual debt proceeds received, are reported as debt service expenditures. INTERFUND TRANSACTIONS Interfund transactions, exclusive of interfund services provided and used, have been eliminated from the government-wide financial statements. In the funds statements, interfund transactions include: a) Interfund Revenues In the general fund, interfund revenues, which are quasi-external transactions, represent amounts charged for services or facilities provided by the general fund. The amount paid by the fund receiving the benefit of the service or facilities is reflected as an expenditure of that fund. b) Transfers Transfers primarily represent payments to the capital projects fund from the other funds for their appropriate share of the capital project costs or related BAN debt service amounts. / -28- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ASSETS, LIABILITIES, DEFERRED OUTFLOWS/INFLOWS OF RESOURCES, AND NET/POSITION/FUND BALANCE (continued) NET POSITION AND FUND EQUITY CLASSIFICATIONS In the government-wide statements, equity is classified as net position and displayed in three components: a) Net investment in capital assets — Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Accounts payable in the capital projects fund are capital related debt and are used in the calculation of net investment in capital assets. b) Restricted net position — Consists of net position with constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments; or(2) law through constitutional provisions or enabling legislation. c) Unrestricted — All other net position that does not meet the definition of "restricted" or "net investment in capital assets." In the fund financial statements, governmental funds report aggregate amounts for five classifications of fund balances based on the constraints imposed on the use of these resources; they are (1) nonspendable, (2) restricted, (3) committed, (4) assigned, or(5) unassigned. 1) Nonspendable fund balance includes amounts that cannot be spent because they are either (a) not in spendable form (i.e. prepaid items or inventories), or (b) will not convert to cash within the current period (i.e. long-term receivables and financial assets held for resale), or (c) legally or contractually required to be maintained intact (i.e. the principal of a permanent fund). The spendable portion of the fund balance comprises the remaining four classifications: restricted, committed, assigned, and unassigned. 2) Restricted fund balance reflects the constraints imposed on resources either (a) externally by creditors, grantors, contributors, or laws or regulation of other governments; or (b) imposed by law through constitutional provisions or enabling legislation. 3) Committed fund balance reflects amounts that can only be used for specific purposes by a government using its highest and most binding level of decision making authority. The Town's highest decision making authority is the Town Board, who by adoption of a Town ordinance prior to year end, can commit fund balance. Those committed amounts cannot be used for any other purpose unless the Town Board removes or changes the specified use by taking the same type of action imposing the commitment. 4) Assigned fund balance reflects the amounts constrained by the Town's "intent" to be used for specific purposes, but are neither restricted nor committed. The Town Board has the authority to assign amounts to be used for specific purposes. Assigned fund balances include all remaining amounts (except negative balances) that are reported in governmental funds, other than the general fund,that are not classified as nonspendable and are neither restricted nor committed. 5) Unassigned fund balance is the residual classification for the general fund. It is also used to report negative fund balances in other governmental funds. -29- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 4. ASSETS, LIABILITIES, DEFERRED OUTFLOWS/INFLOWS OF RESOURCES, AND NET POSITION/FUND BALANCE (continued) NET POSITION AND FUND BALANCE FLOW ASSUMPTIONS When outlays for a particular purpose can be funded from both restricted and unrestricted net position resources it is the Town's policy to consider restricted — net position to have been depleted before unrestricted—net position is applied. When both restricted and unrestricted resources are available for use, it is the Town's default policy to use restricted resources first, and then unrestricted resources —committed, assigned and unassigned —in order as needed. FUND BALANCE POLICIES The Town has, by resolution, adopted a fund balance policy that states the Town must maintain a minimum unassigned fund balance in the general fund equal to 10% of general fund expenditures. In the event that the balance drops below the established minimum level, the Town's Board will develop a plan to replenish the fund balance to the established minimum level within the current or ensuing fiscal year. 5. REVENUES AND EXPENDITURES REAL PROPERTY TAX ASSESSMENT AND COLLECTION PROCEDURES Real property taxes are levied annually no later than December 1st and are recognized as revenue January 1st of the year for which they were levied. The Town has its own Assessor's Office whose responsibilities are independent and distinct from those of the Receiver of Taxes ("Receiver"). The Town assessment rolls are used for the levy of property taxes by the Town and the school districts, as well as by the County of Suffolk, New York("County") and by special districts based upon a single tax bill. The Town of Southold Receiver of Taxes collects all real property taxes for the Town, Suffolk County, Town Special Districts and School Districts. These taxes are levied on December 1, and are due in two installments, 50% on December 1 and 50% on May 10, payable without penalty to January 10 and May 31, respectively. Penalties are imposed thereafter at the rate of one-twelfth of the rate of interest determined by the State Commissioner of Taxation and Finance, after which taxes are payable to the County Treasurer. The Town retains the total amount of Town, Highway and Town Special Districts levies from the amount collected, and forwards the balance collected to the County which assumes collection responsibility. The Town and Town's Special Districts therefore realize annually the 100% collection of real property taxes. OTHER POSTEMPLOYMENT BENEFITS In addition to providing pension benefits, the Town provides health insurance coverage and survivor benefits for retired employees. Substantially all of the Town's employees may become eligible for these benefits if they reach normal retirement age while working for the Town. Health care benefits in accordance with New York State Health Insurance Rules and Regulations (administered by the New York State Department of Civil Service), are provided through the New York State Empire Plan (the "Empire Plan") whose premiums are based on the benefits paid throughout the State during the year or under the Town of Southold's self-insurance plan which is further described in Note D. The Town recognizes the cost of providing benefits by recording its share of insurance premiums as an expenditure in the year paid. The Town's union contracts and ordinances require that it provide its eligible enrollees with Empire Plan benefit coverage, or if another provider is utilized, the equivalent coverage. Under the provisions of the Empire Plan, premiums are adjusted on a prospective basis for any losses experienced by the Empire Plan.The Town has the option to terminate its participation in the Empire Plan at any time without liability for its respective share of any previously incurred loss. The liability for other postemployment benefits payable is recorded as a non-current liability in the government-wide statements.The current year increase in the liability is based on the most recent actuarial valuation. -30- t TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) '__ 5. REVENUES AND EXPENDITURES(continued) COMPENSATED ABSENCES The liability for vested or accumulated vacation or sick leave (compensated absences) is recorded as current and non-current obligations in the government-wide statements. The current portion of this debt is estimated based on historical trends and currently known facts. Compensated absence liabilities and expenses are reported in governmental funds only if they have matured, for example, as a result of employee resignations, terminations, and retirements. The amount that is expected to be liquidated with expendable available financial resources is reported as expenditures and a liability in the funds statement in the respective fund that will pay the liability. ENCUMBRANCES Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditures of monies are recorded for budgetary control purposes, is employed in the governmental funds. Encumbrances are reported as restrictions, commitments, or assignments of fund balances since they do not constitute expenditures or liabilities. Expenditures for such commitments are recorded in the period in which the liability is incurred. 6. USE OF ESTIMATES The preparation of basic financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and deferred inflows of resources and, disclosure of contingent amounts, at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period.Actual results could differ from those estimates. 7. NEW ACCOUNTING PRINCIPLES The Town has adopted all of the current Statements of the Governmental Accounting Standards Board (GASB)that are applicable for the year ended December 31, 2014: GASB Statement No. 69 "Governmental Combinations and Disposals of Governmental Operations," which establishes accounting and financial reporting standards related to governmental combinations and disposals of governmental operations. As used in this Statement, the term government combination includes a variety of transactions referred to as mergers, acquisitions, and transfers of operations. This Statement had no effect on the Town's financial statements. GASB Statement No. 70 `Accounting and Reporting for Nonexchange Financial Guarantees," was established to improve accounting and financial reporting by state and local governments that extend and receive nonexchange financial guarantees. This Statement had no effect on the Town's financial statements. - 8. SUBSEQUENT EVENTS Management has evaluated subsequent events for disclosure and/or recognition in the financial statements through the date of the financial statements. B. STEWARDSHIP,COMPLIANCE AND ACCOUNTABILITY 1. BUDGETARY INFORMATION Budgets are adopted annually on a basis consistent with generally accepted accounting principles. Appropriations authorized for the current year are increased by the amount of encumbrances carried forward from the prior year. -31- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 B. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY(continued) 1. BUDGETARY INFORMATION (continued) Budgets for the general and special revenue funds exclusive of the special grant fund, are legally adopted for each year. The budgets are adopted on a basis of accounting consistent with GAAP, except that appropriations authorized for the current year are increased by the amount of encumbrances carried forward from the prior years. In the event that unanticipated revenues are received (i.e. specific grant revenues) and exceed budgeted amounts, additional budgetary appropriations may be made. The capital projects and special grant funds are budgeted on a project or grant basis. The Town follows the procedures enumerated below in establishing the budgetary data reflected in the financial statements: a) No later than October 1, the Supervisor submits a tentative budget to the Town Board for the fiscal year commencing the following fiscal year. The tentative budget includes the proposed means of financing for all funds. b) After public hearings are conducted to obtain taxpayer comments, no later than November 20, the Town Board adopts the budget. c) The Town Board must approve all modifications of the budget. However, the Supervisor is authorized to transfer certain budgeted amounts within departments. d) In June 2011, New York State enacted Chapter 97, Laws of 2011 Real Property Tax Levy Cap and Mandate Relief Provisions, which includes a 2% property tax cap for municipalities. Beginning in 2012 and lasting through at least June 15, 2020, no local government is authorized to increase its property tax levy by more than 2% or the rate of inflation (whichever is less); however local governments can exceed the tax levy limit by a 60% vote of the governing body and annually adopting a local law. 2. FUND BALANCE The following table provides the detail regarding fund balance categories and classifications for the governmental funds which show components of nonspendable fund balances, as well as the purposes for restricted, and assigned fund balance.The unassigned fund balance is also shown. Capital Community Other General Highway Projects Preservation Governmental Fund Fund Fund Fund Funds Total Fund Balances Nonspendable Inventory $ 2,230 $ 2,230 Prepaid items 1,049,439 $ 165,309 $ 144,297 1,359,045 Total Nonspendable 1,051,669 165,309 $ -0- $ -0- $ 144,297 1,361,275 Restncted for Other reserves 11,632,416 11,632,416 Total Restncted -0- -0- -0- 11,632,416 -0- 11,632,416 Assigned to Subsequent year's budget 3,505,000 460,640 630,550 4,596,190 Purchases on order or contractual obligations 191,455 67,901 10,810 270,166 Special revenue funds 349,278 1,494,857 1,844,135 Judgments and claims 949,339 949,339 Total Assigned 4,645,794 877,819 -0- -0- 2,136,217 7,659,830 Unassigned,reported In General Fund 3,015,993 3,015,993 Capital Projects (597,686) (597,686) Total Unrestricted 3,015,993 -0- (597,686) -0- -0- 2,418,307 Total Fund Balances $8,713,456 $1,043,128 $ (597,686) $11,632,416 $2,280,514 $23,071,828 -32- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 B. STEWARDSHIP,COMPLIANCE AND ACCOUNTABILITY(continued) 3. FUND DEFICIT The Capital Projects Fund deficit of $597,686 at December 31, 2014 resulted from differences in timing between project expenditures and encumbrances and the recognition of corresponding permanent financing sources. This deficit will be eliminated as short-term debt is redeemed or converted to permanent financing. C. DETAILED NOTES ON ALL FUNDS 1. CASH AND INVESTMENTS Custodial Credit Risk— Deposits/ Investments — Custodial credit risk for deposits exists when, in the event of the failure of a depository financial institution, a government may be unable to recover deposits, or recover collateral securities that are in possession of an outside agency. Custodial credit risk for investments exists when, in the event of the failure of the counterparty, a government will not be able to recover the value of its investments or collateral securities that are in possession of an outside party. CLASS is a cooperative investment plan consisting of U.S. Treasury Obligations and repurchase agreements relating to treasury obligations. Investments are stated at cost, which approximates market value. CLASS was established as a cooperative investment arrangement organized under the CLASS Municipal Cooperation Agreement made pursuant to New York General Municipal Law, Article 3A and 5- G. Collateral is required for demand deposits and certificates of deposit not covered by federal depository insurance. Obligations that may be pledged as collateral are obligations of the United States and its agencies and obligations of the state and its municipalities and school districts. Deposits are required to be disclosed as exposed to custodial credit risk if they are not covered by depository insurance, and the deposits are either: • Uncollateralized • Collateralized with securities held by the pledging financial institution, or • • Collateralized with securities held by the pledging financial institution's trust department or agent but not in the Town's name At December 31, 2014, the Town's cash book balance was approximately$50,975,986. This amount is inclusive of fiduciary fund deposits of$20,467,076 but exclusive of petty cash of$950. The available bank balance was $51,410,620. Of the bank balance, $2,631,883 was covered by Federal deposit insurance, and $48,303,459 was covered by collateral held by the Town's agent, a third-party financial institution, in the Town's name and$475,278 was uncollateralized.The Town's$53,783 CLASS investment consists of U.S Treasury Obligations and repurchase agreements relating to Treasury obligations and is not subject to risk categorization. Credit Risk—State law and Town law limit investments to those authorized by State statutes. The Town has a written investment policy. Interest-Rate Risk— Interest-rate risk arises because potential purchasers of debt securities will not agree to pay face value for those securities if interest rates substantially increase, thereby affording potential purchasers more favorable rates on essentially equivalent securities. Accordingly, such investments would have to be held to maturity to avoid a potential loss. Concentration of Credit Risk — Credit risk can arise as a result of failure to adequately diversify investments. Concentration risk disclosure is required for positions of 5 percent or more in securities of a single issuer. As of December 31, 2014, the Town did not have any investments subject to credit risk, interest-rate risk or concentration of credit risk. -33- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 C. DETAILED NOTES ON ALL FUNDS (continued) 2. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS Interfund receivable and payable balances for the primary government at December 31, 2014 are expected to be paid currently. These balances represent various temporary loans, recharges, and reimbursements between funds for operating and capital expenditures and are stated as follows: Amount Amount Receivable Payable Major Governmental Funds: General Fund -Town wide $ 648,763 $ 2,151,175 Highway Fund 1,063,265 31,735 Capital Projects Fund 355,262 704,468 Subtotal 2,067,290 2,887,378 Non-Major Governmental Funds: General Fund- Part Town 154,823 Special Grant 8,000 East-West Fire Protection District 164,519 Southold Wastewater District 23,307 Fishers Island Sewer District 12,446 Solid Waste Management District 472,993 Subtotal 828,088 8,000 Total $ 2.895,378 $ 2,895.378 Interfund transfer balances for the primary government at December 31, 2014 represent primarily the payment of BAN debt service expenditures and capital project transfers and are stated as follows: Transfers Transfers In Out Major Governmental Funds: General Fund-Town wide $ 380,026 Highway Fund $ 88,152 53,000 Capital Projects Fund 478,628 Subtotal 566,780 433,026 Non-Major Governmental Funds: General Fund—Part Town 23,754 Southold Wastewater District 110,000 Subtotal -0- 133,754 Total $ 566,780 $ 566.780 J -34- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 C. DETAILED NOTES ON ALL FUNDS (continued) 3. CAPITAL ASSETS Balance Balance Primary government 1/1/14 Additions Deletions 12/31/14 Capital assets not being depreciated Land $ 7,540,466 $ 658,434 $ 564,103 $ 7,634,797 Land development rights 112,046,093 4,832,877 116,878,970 Construction in progress 53,344 1,057,405 2,758 1,107,991 Total capital assets not being depreciated 119,639,903 6,548,716 566,861 125,621,758 Depreciable capital assets Buildings 13,234,190 36,025 13,270,215 Improvements other than buildings 15,756,291 9,315 15,765,606 Machinery and equipment 11,433,217 601,919 1,041,586 10,993,550 Software 1,055,638 54,019 1,109,657 Infrastructure 76,784,978 853,619 77,638,597 Total depreciable capital assets 118,264,314 1,554,897 1,041,586 118,777,625 Less accumulated depreciation Buildings 4,528,414 361,204 4,889,618 Improvements other than buildings 6,505,013 547,857 7,052,870 Machinery and equipment 9,263,426 583,589 1,002,293 8,844,722 Software 627,692 141,585 769,277 Infrastructure 65,715,373 1,508,109 67,223,482 Total accumulated depreciation $ 86,639,918 $ 3,142,344 $ 1,002,293 $ 88,779,969 Total net depreciable capital assets 29,997,656 Total net capital assets $ 155,619,414 Depreciation expense was charged to governmental functions as follows: General government support $ 392,656 Public safety 303,706 Transportation 1,842,082 Economic assistance and opportunity 17,192 Culture and recreation 41,737 Home and community services 544,971 $ 3,142,344 -35- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 C. DETAILED NOTES ON ALL FUNDS (continued) 3. CAPITAL ASSETS (continued) The Town evaluates prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. The Town's policy is to record an impairment loss in the period when the Town determines that the carrying amount of the asset will not be recoverable. At December 31, 2014,the Town has not recorded any such impairment losses. Balance Balance Nonmajor component units 1/1/14 Additions Deletions 12/31/14 Capital assets not being depreciated Land $ 2,193,353 $ 2,193,353 Total capital assets not being depreciated 2,193,353 $ -0- $ -0- 2,193,353 Depreciable capital assets Buildings 14,145,321 14,145,321 Improvements other than buildings 2,545,238 2,545,238 Machinery and equipment 3,625,245 378,384 4,003,629 Infrastructure 4,037,643 9,550 4,047,193 Total depreciable capital assets 24,353,447 387,934 -0- 24,741,381 Less accumulated depreciation Buildings 3,954,841 452,398 4,407,239 Improvements other than buildings 664,028 97,814 761,842 Machinery and equipment 3,162,038 132,875 3,294,913 Infrastructure 2,064,020 156,355 2,220,375 Total accumulated depreciation $ 9,844,927 $ 839,442 $ -0- 10,684,369 Total net depreciable capital assets 14,057,012 Total net capital assets $ 16,250,365 4. INDEBTEDNESS SHORT TERM DEBT Bond Anticipation Notes (BANs)— Bond anticipation notes (BANs) are used as a temporary means of financing capital expenditures in the capital projects fund. State law requires that BANs issued for capital purposes be converted to long-term obligations within five years after the original issue date. The notes or renewal thereof may not extend more than two years beyond the original date of issue unless a portion is redeemed within two years and within each 12 month period thereafter. Liabilities for BANs are generally accounted for in the capital projects fund. BANs are expected to be paid from the proceeds of future bond issues after renewal of these notes. These BANs bear interest at various rates from .73% to .74% and are due at various dates through 2015. A summary of changes in BANs for the year ended December 31,2014 is as follows: Balance Balance 1/1/14 Increases Reductions 12/31/14 Primary Government $ 573,000 $ 1,810,000 $ 273,000 $ 2,110,000 Component Units 950,000 101,000 849,000 $ 1,523.000 $ 1.810.000 $ 374.000 $ 2.959.000 The reduction in the BANs payable for the primary government is included as a transfer in for the capital projects fund. -36- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 C. DETAILED NOTES ON ALL FUNDS (continued) 4. INDEBTEDNESS (continued) LONG TERM DEBT General Obligation Bonds-The Town borrows money in order to acquire land, equipment or construct buildings and improvements. This enables the cost of these capital assets to be borne by the present and future taxpayers receiving the benefit of the capital assets. These long-term liabilities are backed by the full faith and credit of the Town, including bonds of the Town Special Districts which are payable from tax revenues of the general fund and special revenue funds. Interest rates on these bonds vary from 2.00% to 5.00% and have maturity dates in 2015 through 2030. Future principal and interest payments to maturity for both the primary government and the component - units are as follows: Primary Government Component Units Years Ending December 31, Principal Interest Totals Principal Interest Totals 2015 $ 2,425,000 $ 1,317,324 $ 3,742,324 $ 175,000 $ 52,263 $ 227,263 2016 2,360,000 1,239,004 3,599,004 200,000 45,700 245,700 2017 2,440,000 1,156,153 3,596,153 200,000 38,200 238,200 2018 2,505,000 1,064,740 3,569,740 200,000 30,700 230,700 2019 2,085,000 979,938 3,064,938 200,000 23,200 223,200 2020-2024 10,495,000 3,744,563 14,239,563 400,000 23,600 423,600 2025-2029 10,705,000 1,643,825 12,348,825 2030 2,220,000 63,147 2,283,147 Total $35,235,000 $ 11,208,694 $46,443,694 $ 1,375,000 $ 213,663 $ 1,588,663 CHANGES IN LONG-TERM LIABILITIES Long-term liability activity for the year ended December 31,2014 is as follows: - Noncurrent Balance Balance liabilities due Noncurrent 1/1/14 Increases Reductions 12/31/14 within one year liabilities Primary Government: General obligation bonds $37,635,000 $ 2,400,000 $35,235,000 $ 2,425,000 $32,810,000 Due to Employees Retirement System 129,151 62,242 66,909 66,909 Compensated absences 8,237,997 $ 427,105 126,428 8,538,674 230,000 8,308,674 General claims and judgments liability 215,842 342,690 215,842 342,690 342,690 Estimated liability for landfill closure and postclosure care costs 921,735 25,805 895,930 27,095 868,835 Other postemployment benefits payable 30,727,059 5,906,329 1,237,840 35,395,548 35,395,548 Component Units: General obligation bonds 1,550,000 175,000 1,375,000 175,000 1,200,000 Compensated absences 182,056 31,376 213,432 103,535 109,897 Other postemployment benefits payable 331,079 31,317 28,017 334,379 334,379 The liabilities for compensated absences, amounts due to employee's retirement system, and other postemployment benefits payable will be liquidated through future budgetary appropriations in the funds that gave rise to the liability. In most instances these amounts will be liquidated from the general funds, highway fund, and certain special revenue funds. Payments for estimated claims and judgments will be liquidated primarily from the general fund. The estimated liability for landfill closure and postclosure costs will be liquidated by the solid waste management fund. -37- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 C. DETAILED NOTES ON ALL FUNDS (continued) 5. RETIREMENT SYSTEM Plan Description The Town of Southold participates in the New York State and Local Employees' Retirement System (NYSERS) and Local Police and Fire Retirement System (PFRS). This is a cost-sharing multiple- employer retirement system. The System provides retirement benefits as well as death and disability benefits. Obligation of employers and employees to contribute and benefits to employees are governed by the New York State Retirement and Social Security Law (NYSRSSL). As set forth in the NYSRSSL, the Comptroller of the State of New York (Comptroller) serves as sole trustee and administrative head of the System. The Comptroller shall adopt and may amend rules and regulations for the administration and transaction of the business of the System and for the custody and control of their funds. The System issues a publicly available financial report that includes financial statements and required supplemental information. That report may be found at http://www.osc.state.nv.us/retire/publications/ index.php or obtained by writing to the New York State and Local Retirement System, 110 State Street, Albany, NY 12244-0001. Funding Policy The System is noncontributory except for employees who joined the New York State and Local Employees' Retirement System after July 27, 1976 who contribute 3%of their salary for the first ten years of membership, employees who joined on or after January 1, 2010 who are required to contribute at least 3% of their salary for the entire length of service, and employees who joined on or after April 1, 2012 who contribute 3% to 6% of their salary, depending upon their annual wages, for the entire length of service. Under the authority of the NYSRSSL, the Comptroller annually certifies the actuarially determined rates expressed as proportions of payroll members, used in computing the employers' contributions based on salaries paid during the System's fiscal year ending March 31. The Town is required to contribute at an actuarially determined rate. The actual contributions were equal to 100%of the actuarially required amounts and also include additional contributions to fund various early retirement incentives made available to the Town employees. The credits and miscellaneous adjustments represent modifications made by the NYSERS to the prior year's contributions due to differences between estimated and actual salaries for the plan year. The required contributions,for the Town,for the current year and two preceding years,were: ERS PFRS 2014 $ 2,266,683 $ 1,455,243 2013 2,554,814 2,073,878 2012 2,066,738 1,209,715 Pursuant to Chapter 105 of the Laws of 2010, the New York State Legislature authorized local governments to make available a retirement incentive program with estimated total costs to the Town of $312,837. The cost of the program is being billed and paid over five years beginning in 2012 and will include interest at 7.5%. The 2015 installment was paid during 2014. Future principal and interest payments to maturity are as follows: Total Principal Principal Interest and Interest For years ending December 31, 2016 $ 66,909 $ 5,019 $ _ 71,928 Totals $ 66.909 $ 5,019 $ 71,928 -38- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 C. DETAILED NOTES ON ALL FUNDS (continued) 6. OTHER POSTEMPLOYMENT BENEFITS (OBLIGATIONS FOR HEALTH INSURANCE) In the government-wide financial statements, the cost of postemployment healthcare benefits, like the cost of pension benefits, generally should be associated with the period in which the cost occurs, rather than in the future year when it will be paid. The Town recognizes the costs of postemployment healthcare in the year when the employee benefits are received, reports the accumulated liability from prior years, and provides information useful in assessing potential demands on the Town's future cash flows. Recognition of the liability accumulated from prior years will be phased in over 30 years, which commenced with the 2008 liability. Plan Description The Town, as a single-employer defined benefit OPEB plan, per its contracts with employees, will pay full premium costs for medical (currently provided by the Empire Plan and the Town's self-funded medical plan) insurance coverage at retirement. Employees are eligible for retiree health insurance provided that the employee has been eligible for coverage under the Town's health insurance plan for at least 10 consecutive years and is employed by the Town on the last date immediately prior to retirement. The retiree and spouse are eligible for full Medicare premium reimbursement. Healthcare benefits for non-union employees are similar to those of union employees. Surviving spouses of deceased employees may continue coverage by paying the premium equivalent for participants. The number of participants as of January 1,2013,the effective date of the OPEB valuation is as follows. Active employees 191 Retirees and dependents 202 Surviving spouses 3 Total 396 There have been no significant changes in the number or type of coverage since that date. Funding Policy The Town currently pays for postemployment health care benefits on a pay-as-you-go basis. Annual Other Postemployment Benefits Cost and Net Obligation For the year ended December 31, 2014, the Town's annual other postemployment benefits cost (expenses) were $5,906,329. Considering the annual expense as well as the payment of current health insurance premiums, which totaled $1,237,840 for retirees and their beneficiaries, the result was an increase in the other postemployment benefits liability of $4,668,489 for the year ended December 31, 2014.The Town's component units annual other postemployment benefits cost(expenses)were$31,317. Considering the annual expense as well as the payment of current health insurance premiums, which totaled $28,017 for retirees, the result was an increase in the other postemployment benefits liability of $3,300 for the year ended December 31,2014. Benefit Obligations and Normal Cost as of December 31,2014 Governmental Activities Retired employees $ 28,646,753 Active employees 39,354,835 Unfunded actuarial accrued liability(UAAL) $ 68.001.588 -39- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 C. DETAILED NOTES ON ALL FUNDS (continued) 6. OTHER POSTEMPLOYMENT BENEFITS(OBLIGATIONS FOR HEALTH INSURANCE) (continued) Annual Other Postemployment Benefits Cost and Net Obligation: (continued) The Town's annual other postemployment benefit cost is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially deterrnined. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The Town's unfunded actuarial accrued liability for the year ended December 31,2014 amounted to$68,001,588. The Town's annual other postemployment benefits cost, the amount actually paid and changes to the Town's net other postemployment benefits obligation to the Plan for the year ended December 31, 2014 are as follows: Normal Cost $ 2,709,388 Amortization of unfunded actuarial liability(UAAL)over 30 years 3,572,306 Interest 219,859 Annual required contribution (ARC) 6,501,553 Interest on net other postemployment benefits obligation 1,075,447 Adjustment to ARC (1,670,671) Annual OPEB cost(expense) 5,906,329 Less:contribution for year ended December 31,2014 1,237,840 Increase in net OPEB obligation 4,668,489 Net OPEB obligation -beginning of year 30,727,059 Net OPEB obligation-end of year $ 35.395.548 Percent of annual OPEB cost contributed 20.96% Funded Status and Funding Progress: The percentage contributed, as it relates to the Town of Southold, for the current year and preceding year was: - Annual Annual Contribution Percentage Net OPEB OPEB Cost Made Contributed Obligation 2014 $ 5,906,329 $ 1,237,840 20.96% $ 35,395,548 2013 6,161,498 1,498,955 24.33% 30,727,059 2012 7,438,199 1,178,894 15.85% 26,064,516 The schedule of funding progress presents trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. -40- - TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 . C. DETAILED NOTES ON ALL FUNDS(continued) y_ 6. OTHER POSTEMPLOYMENT BENEFITS (OBLIGATIONS FOR HEALTH INSURANCE) (continued) Funded Status and Funding Progress (continued): The funded status of the plan projected as of January 1,2014 is as follows: Actuarial Accrued Unfunded URAL as a Percentage Value of Liability ML Funded Covered of Assets (AAL) (UAAU Ratio Payroll Payroll Town $ -0- $ 68,001,588 $ 68,001,588 0% $ 14,982,384 453.88% ' Component Units -0- 440,133 440,133 0% 1,016,360 43.3% Actuarial Methods and Assumptions: The projection of future benefits for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of future events far into the future. Amounts determined regarding the funded status of a plan and the employer's annual required contributions are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term liability in actuarial accrued liabilities, consistent with the long- term perspective of the calculations. In the January 1, 2013 actuarial valuation, the liabilities were computed using the projected unit credit cost method, level dollar amortization method, and an open year amortization period to amortize the initial unfunded liability. The actuarial assumptions utilized a 4%discount rate. The valuation assumes a 9% healthcare cost trend increase for the year, reduced by decrements down to 5% in fiscal year 2020. 7. COMPENSATED ABSENCES Town employees are granted vacation and sick leave and earn compensatory absences in varying amounts. In the event of termination or upon retirement, an employee is entitled to payment for accumulated vacation and sick leave and unused compensatory absences at various rates subject to certain maximum limitations. Estimated vacation, sick leave and compensatory absences accumulated - by governmental fund type employees have been recorded in the Statements of Net Position. Payment of vacation time and sick leave is dependent upon many factors; therefore, timing of future payments is not readily determinable. However, management believes that sufficient resources will be made available for the payments of vacation, sick leave and compensatory absences when such payments become due. As of December 31, 2014,the value of the accumulated vacation time and sick leave was$8,538,674 for the primary government. D. COMMITMENTS AND CONTINGENCIES Risk Management In common with other municipalities, the Town receives numerous notices of claims. The Town established a self-insurance risk management program for general liability and health insurance which are both accounted for in the general fund. Although the eventual outcome of these claims cannot presently determined, the Town has estimated unsettled claims and litigation to be $342,690 which is included as claims and judgments payable in the government-wide financial statements and $810,302 is included as judgments and claims payable as a current liability in the fund financial statements. The Town is of the opinion that the ultimate settlement of the outstanding claims will not result in a material adverse effect on the Town's financial position. -41- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 D. COMMITMENTS AND CONTINGENCIES (continued) Risk Management(continued) For the year ended December 31, 2014, the Town has a deductible liability exposure of $50,000 per claim for general liability, $25,000 per claim for automobile liability, police liability and employee benefits, and $10,000 per claim for public officials and employment practices. Any liability exposure above the deductible amounts is covered by primary insurance policies up to $1,000,000 per claim for general liability, public officials, police and employment practices, and employee benefits. Aggregate exposures are $1,000,000 per claim for public officials, police and employment practices, $3,000,000 for employee benefits and general liability. After primary policy limits are exhausted, the excess exposure above the per claim or aggregate limits is covered by an umbrella liability policy of $10,000,000 per claim and $10,000,000 in the aggregate. In relation to the health insurance benefits that are self-insured, the Town purchased an insurance policy which provided coverage for part of the year for specific medical cases in excess of $175,000 incurred during a 12-month period and paid within three months after that period end, but subsequently dropped coverage mid-term in anticipation of ending the Town's self-insured medical plan. The self-funded plan was terminated as of December 31, 2014 and coverage was provided through the New York State Insurance Program's Empire Plan as of January 1, 2015. There have been no significant reductions in insurance coverage as compared to the prior year and there were no settlements in excess of insurance coverage over the last three years. The Town reserves for general liability claims are determined by a third party administrator, and are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. Claims reserves for general liability claims are re-evaluated periodically to take into consideration recently settled claims and any new developments and changes. The Town's liabilities for medical claims outstanding at year end are reported by the third party administrator and are recorded when the claim has been incurred and paid within 60 days of the year end. The Town's discretely presented component units are not included in the Town's self-insurance risk management program for any claims. Fund balance is assigned for future catastrophic losses and is not available for other uses. Changes in the liability for claims and judgments for the year ended December 31, 2014 and 2013 are as follows: General Medical Liability 2014 2013 2014 2013 Unpaid Claims as of December 31, prior year $ 200,999 $ 279,106 $ 14,843 $ 17,415 Incurred Claims: Provision for insured events of the current fiscal year 4,195,052 3,448,897 395,484 56,231 Increase(decrease) in net provision for insured events of prior fiscal years 4,944 7,172 (1,585) -0- Total Incurred Claims and Claim adjustments 4,400,995 3,735,175 408,742 73.646 Payments of: Claims during the current year 3,598,486 3,534,176 58,259 58,803 Unpaid Claims as of December 31, current year $ 802.509 $ 200.999 $ 350,483 $ 14,843 -42- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 D. COMMITMENTS AND CONTINGENCIES(continued) Contingent Liabilities Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal and state 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 Town expects such amounts, if any,to be immaterial. Landfill Closure and Post-Closure Care Costs State and federal laws and regulations required the Town to place a final cover on its landfill sites and to perform certain maintenance and monitoring functions at the sites for thirty years after closure. The Town ceased accepting waste at its Cutchogue landfill as of October 8, 1993. Accordingly, as of December 31, 2014 the Town has recorded a liability of $895,930, in the government-wide financial statements which represents the provision to be made in future budgets for unfunded closure and postclosure landfill costs. As the liability is based on 100% of capacity there are no estimated costs of closure or postclosure remaining to be recognized. Actual costs may vary due to inflation or deflation, changes in technology, or changes in regulations or applicable laws. Construction and Other Capital Acquisition Commitments The Town is committed to capital improvements to its various facilities and infrastructure. At December 31, 2014,these commitments amounted to $1,515,605 in the capital projects fund. Animal Shelter Agreement In May 2011, the Town entered into an agreement with the North Fork Animal Welfare League to operate and manage the Town of Southold Animal Shelter. The agreement is for a term of four years commencing on June 1, 2011. The future payments associated with this agreement are as follows: 2015 $ 90,618 $ 90,618 Lease Commitments and Leased Assets The Town leases property and equipment under operating leases. Total rental expenditures on such leases for the year ended December 31, 2014 were $250,068. Future obligations over the primary terms of the Town's leases as of December 31,2014 are as follows: 2015 $ 242,692 2016 155,310 2017 125,200 2018 104,102 2019 25,356 2020-2023 100,988 Total $ 753.648 -43- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 E. CONDENSED FINANCIAL STATEMENTS FOR THE DISCRETELY PRESENTED COMPONENT UNITS The following represents condensed financial statements for the discretely presented component units as of and for the year ended December 31,2014: Condensed Statement of Net Position: Due from Capital Assets Other Current Pnmary Net of Current Long-Term Net Assets Government Depreciation Liabilities Liabilities Position Fishers Island Ferry Distnct $ 1,254,274 $ 169,524 $ 10,156,835 $ 1,464,793 $ 1,644,276 $ 8,302,041 Fishers Island Waste Management Distnct 630,254 120,166 2,883,343 20,317 3,493,280 Cutchogue-New Suffolk Park Distnct(unaudited) 115,375 30,114 115,836 231,211 Southold Park Distnct(unaudited) 81,869 70,494 836,922 918,791 Onent-East Manon Park Distnct(unaudited) 29,094 8,604 432,985 462,079 Mattituck Park Distnct(unaudited) 524,238 88,741 1,824,444 7,586 ' 2,341,096 Onent Mosquito Distnct(unaudited) 32,947 18,650 539 32,408 $ 2,668,051 $ 506,293 $ 16,250,365 $ 1,493,235 $ 1,644,276 $ 15,780,906 Condensed Statement of Activities: Program General Revenue Net Position Property Expenses Revenue Net Expense Tax Other Change 1/1/14 12/31/14 Fishers Island Ferry Distnct $3,778,301 $2,811,185 $ 967,116 $ 772,668 $ 900 $ (193,548) $ 8,495,589 $ 8,302,041 Fishers Island Waste Management Distnct 776,982 48,812 728,170 547,714 3,870 (176,586) 3,669,866 3,493,280 Cutchogue-New Suffolk Park Distnct(unaudited) 124,850 124,850 140,000 1,041 16,191 215,020 231,211 Southold Park Distnct(unaudited) 336,447 8,328 328,119 321,300 32,712 25,893 892,898 918,791 Orient-East Manon Park Distnct(unaudited) 30,248 30,248 40,000 373 10,125 451,954 462,079 Mattituck Park Distnct(unaudited) 442,624 22,175 420,449 404,869 33,874 18,294 2,322,802 2,341,096 Onent Mosquito District(unaudited) 70,596 70,596 85,000 22 14,426 17,982 32,408 $5,560,048 $2,890,500 $2,669,548 $2,311,551 $ 72,792 $ (285,205) $16,066,111 $15,780,906 Complete financial statements of these component units can be obtained from their respective administrative offices: Orient Mosquito District Fishers Island Waste 145 Platt Road Management District Orient, NY 11957 Fishers Island, NY 06390 , Cutchogue-New Suffolk Orient-East Marion Park District Park District P.O. Box 311 P.O. Box 12 Cutchogue, NY 11935 Orient, NY 11957 Southold Park District Mattituck Park District P.O. Box 959 P.O. Box 1413 Southold, NY 11971 Mattituck, NY 11952 Fishers Island Ferry District P.O. Box H Fishers Island, NY 06390 I -44- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS December 31, 2014 F. 2%TRANSFER TAX Transfer tax receipts are recorded in the Community Preservation Fund, and are used for the purchase and/or preservation of agricultural land, open space, parks, or historic preservation sites. The tax applies to sales of vacant land amounts in excess of$100,000 or sales of improved land in excess of$250,000. Conveyance of real property for open space, parks or historic preservation purposes are exempt from this tax. G. SUBSEQUENT EVENTS In April 2015, the Town redeemed a portion of a $915,000 BAN resulting in a BAN renewal of $729,000. The interest rate is 1.27%and is due April 2016. In July 2015, the Town issued $9,020,000 Refunding Serial Bonds to refinance $1,200,000 of outstanding 2005 Fishers Island Ferry District Serial Bonds and $8,300,000 outstanding 2007 Various Purpose Serial r Bonds. Interest rates on the refunded bonds vary between 2.5% and 5% payable on March 1st and September 1st of each year with principal payments due on March 1st. The final maturity of the Refunding Bonds is March 1, 2030. In August 2015, the Town redeemed a portion of and added $2,044,000 on the $1,810,000 BAN resulting in a BAN renewal of$2,800,000. The effective net interest rate is .07% and is due April 2016. H. NEW PRONOUNCEMENTS The Governmental Accounting Standards Board (GASB) has issued Statement No. 68 `Accounting and Financial Reporting for Pensions"—an amendment of GASB Statement No. 27. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for y pensions. It also improves information provided by state and local governmental employers about financial 1_ ' support for pensions that is provided by other entities. The requirements of the new statement become effective for fiscal periods beginning after June 15,2014. The Governmental Accounting Standards Board (GASB) has issued Statement No. 71 "Pension Transition for Contributions Made Subsequent to the Measurement Date–an amendment of GASB Statement No.68."The objective of this Statement is to improve accounting and financial reporting for a governmental financial reporting entity by resolving conflicting guidance that resulted from the issuance of two pronouncements, Statements No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, and No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The provisions of this Statement should be applied simultaneously with the provisions of Statement 68. { . The Town is currently evaluating the impact of the above pronouncements. -45- f REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT DISCUSSION AND ANALYSIS TOWN OF SOUTHOLD GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL Year Ended December 31, 2014 Variance Original Final Positive Budget Budget Actual Encumbrances (Negative) (- REVENUES Real property taxes $ 23,042,527 $ 23,042,527 $ 23,042,527 Other real property tax items 88,000 88,000 90,140 $ 2,140 Non-property tax items 885,473 885,473 885,473 Departmental income 356,600 477,650 506,796 29,146 Intergovernmental charges and local aid 467,569 467,569 318,300 (149,269) Use of money and property 256,000 256,000 221,700 (34,300) Licenses and permits 318,720 318,720 323,828 5,108 Fines and forfeitures 185,500 185,500 168,973 (16,527) Sale of property and compensation for loss 77,625 100,973 148,833 47,860 Miscellaneous local sources 225,665 239,765 239,221 (544) Interfund revenues 30,000 33,225 30,000 (3,225) State aid 1,112,500 1,115,518 1,333,819 218,301 Federal aid 7,500 106,700 212,069 105,369 r, Total Revenues 27,053,679 27,317,620 27,521,679 204,059 EXPENDITURES Current General government support 6,774,686 6,772,854 5,965,043 $ 90,124 717,687 Public safety 10,001,872 10,192,507 9,363,682 99,749 729,076 Public health 34,800 34,800 33,300 1,500 r. Transportation 514,748 516,329 488,925 27,404 Economic assistance and opportunity 1,359,919 1,338,253 1,279,830 1,381 57,042 Culture and recreation 327,210 325,516 299,708 200 25,608 Home and community services 393,261 395,305 354,646 40,659 Employee benefits 9,358,723 9,468,355 8,753,791 714,564 Debt service. Principal 513,400 513,400 513,400 Interest 160,100 160,100 159,203 _ 897 Total Expenditures 29,438,719 29,717,419 27,211,528 191,454 2,314,437 Excess(Deficiency)of Revenues Over Expenditures (2,385,040) (2,399,799) 310,151 (191,454) 2,518,496 Other Financing Uses Transfers out (482,160) (613,981) (380,026) 233,955 Total Other Financing Uses (482,160) (613,981) (380,026) -0- 233,955 Net Change in Fund Balance $ (2,867,200) $ (3,013,780) (69,875) $ (191,454) $ 2,752,451 Fund Balance at Beginning of Year 8,783,331 Fund Balance at End of Year $ 8,713,456 See notes to the financial statements. -46- ' TOWN OF SOUTHOLD HIGHWAY FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL Year Ended December 31, 2014 Variance Original Final Positive Budget Budget Actual Encumbrances (Negative) KtVtNUIS Real property taxes $ 4,716,206 $ 4,719,206 $ 4,719,206 Other real property tax items 7,700 7,700 7,532 $ (168) Use of money and property 9,500 9,500 7,927 (1,573) Licenses and permits 10,000 10,000 20,821 10,821 Sale of property and compensation for loss 2,000 35,862 33,181 (2,681) State aid 421,100 471,183 391,204 (79,979) Federal aid 107,472 12,735 (94,737) r Total Revenues 5,166,506 5,360,923 5,192,606 (168,317) EXPENDITURES Current: General government support 8,450 8,450 7,215 1,235 Transportation 3,564,641 3,914,639 3,537,370 $ 67,901 309,368 Employee benefits 1,956,486 1,956,486 1,769,381 187,105 ( Debt Service: Principal 70,000 70,000 70,000 Interest 24,900 25,020 24,573 447 Total Expenditures 5,624,477 5,974,595 5,408,539 67,901 498,155 Excess(Deficiency)of Revenues Over Expenditures (457,971) (613,672) (215,933) (67,901) 329,838 r Other Financing Sources and Uses Transfers In 25,000 88,152 (63,152) Transfers out (50,120) (53,000) (53,000) -0- Total Other Financing Sources and Uses (50,120) (28,000) 35,152 -0- (63,152) Net Change in Fund Balance $ (508,091) $ (641,672) (180,781) $ (67,901) $ 266,686 Fund Balance at Beginning of Year 1,223,909 Fund Balance at End of Year $ 1,043,128 (- s. See notes to the financial statements. -47- C TOWN OF SOUTHOLD COMMUNITY PRESERVATION FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL Year Ended December 31, 2014 r- L Variance Original Final Positive REVENUES Budget Budget Actual (Negative) Non-property tax items $ 3,888,000 $ 4,680,000 $ 6,060,255 $ 1,380,255 Use of money and property 7,500 7,500 18,407 10,907 State aid 50,000 50,000 527 (49,473) Federal aid 2,602,246 2,602,246 Total Revenues 3,945,500 4,737,500 8,681,435 3,943,935 EXPENDITURES Current: Home and community services 3,046,300 5,515,550 5,216,999 298,551 Debt service: Principal 1,297,300 1,297,300 1,297,300 1,297,300 Interest 1,051,900 1,051,900 1,051,812 1,051,900 (Th Total Expenditures 5,395,500 7,864,750 7,566,111 2,647,751 Excess(Deficiency)of Revenues Over Expenditures (1,450,000) (3,127,250) 1,115,324 6,591,686 Net Change in Fund Balance $ (1,450,000) $ (3,127,250) 1,115,324 $ 6,591,686 Fund Balance at Beginning of Year 10,517,092 Fund Balance at End of Year $ 11,632,416 See notes to the financial statements. -48- TOWN OF SOUTHOLD POSTEMPLOYMENT BENEFITS HEALTHCARE COSTS -SCHEDULE OF FUNDING PROGRESS Year Ended December 31, 2014 Unfunded Actuarial Actuarial Liability as a Valuation Date Actuarial Value Accrued Unfunded Percentage of January 1, of Assets Liability Liability Funded Ratio Covered Payroll Covered Payroll 2014 $ -0- $ 68,001,588 ** $ 68,001,588 0.00% $ 14,982,384 453.88% 2013 -0- 65,881,679 * 65,881,679 0.00% 14,268,937 461.71% 2012 -0- 82,121,236 ** 82,121,236 0.00% 14,316,488 573.61% * The significant decrease in the Actuarial Accrued Liability is due to the Town's changes to various actuarial assumptions used the actuarial calculation of the liability. ** These amounts are projected based on the rollforward calculation by the actuary. i^ -49- r OTHER SUPPLEMENTARY INFORMATION C TOWN OF SOUTHOLD COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS December 31, 2014 C Special Revenue Funds East-West Fire Southold Fishers Solid Waste Total General Fund Special Protection Wastewater Island Sewer Management Non-Major Part Town Grant District District District District Funds C, ASSETS Cash and investments $ 1,011,311 $ 26,950 $ 19,160 $ 49,021 $1,159,867 $ 2,266,309 Accounts receivable 156,019 1 1,904 160,345 318,269 Due from other funds 154,823 164,519 23,307 12,446 472,993 828,088 State and federal aid receivables 62,863 $ 43,145 23,520 129,528 Prepaids 71,735 72,562 144,297 Total Assets $ 1,456,751 $ 43,145 $ 191,470 $ 42,467 $ 63,371 $1,889,287 $ 3,686,491 r. LIABILITIES Accounts payable and accrued liabilities $ 18,338 $ 35,145 $ 13,136 $ 2,543 $ 439,087 $ 508,249 Due to other funds 8,000 8,000 Unearned revenue 37,236 134,473 171,709 Total Liabilities 55,574 43,145 13,136 2,543 573,560 687,958 DEFERRED INFLOWS OF RESOURCES (Th Unearned revenue from real property taxes 63,143 164,519 $ 23,247 467,110 718,019 FUND BALANCE Nonspendable 71,735 72,562 144,297 Assigned 1,266,299 13,815 19,220 60,828 776,055 2,136,217 Total Fund Balance 1,338,034 -0- 13,815 19,220 60,828 848,617 2,280,514 Total Liabilities,Deferred Inflows of Resources 'Th and Fund Balance $ 1,456,751 $ 43,145 $ 191,470 $ 42,467 $ 63,371 $1,889,287 $ 3,686,491 -50- l'-`, - TOWN OF SOUTHOLD COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES- NON-MAJOR GOVERNMENTAL FUNDS For the Year Ended December 31, 2014 Special Revenue Funds East-West Fire Southold Fishers Solid Waste Total General Fund Special Protection Wastewater Island Sewer Management Non-Major Part Town Grant Distnct District District District Funds REVENUES Real property taxes $ 669,307 $ 771,184 $ 105,200 $2,112,394 $3,658,085 Other real property tax items 1,069 18 2 49 1,138 Non-property tax items 612,931 612,931 Departmental income 823,957 920 $ 46,020 2,042,712 2,913,609 Use of money and property 3,013 475 181 83 5,755 9,507 Licenses and permits 19,400 137,538 156,938 Sale of property and compensation for loss 385,907 385,907 Miscellaneous local sources 905 905 r State aid 148,879 56,176 205,055 Federal aid $ 140,593 281 140,874 Total Revenues 2,278,556 140,593 771,677 106,303 46,103 4,741,717 8,084,949 EXPENDITURES General government support 42,017 21,603 63,620 Public safety 550,148 772,668 1,322,816 Home and community services 716,143 140,593 281 18,891 3,306,281 4,182,189 f__t Employee benefits 627,899 645,422 1,273,321 Debt service: Principal 6,000 513,300 519,300 Interest 1,254 3,635 152,019 156,908 Total Expenditures 1,936,207 140,593 772,668 1,535 28,526 4,638,625 7,518,154 Excess(Deficiency)of Revenues Over Expenditures 342,349 -0- (991) 104,768 17,577 103,092 566,795 Other Financing Uses: Transfers out (23,754) (110,000) (133,754) Total Other Financing Uses (23,754) -0- -0- (110,000) -0- -0- (133,754) Net Change in Fund Balance 318,595 (991) (5,232) 17,577 103,092 433,041 Fund Balances at Beginning of Year 1,019,439 14,806 24,452 43,251 745,525 1,847,473 Fund Balances at End of Year $1,338,034 $ -0- $ 13,815 $ 19,220 $ 60,828 $ 848,617 $2,280,514 r -51- OTHER REPORTS c-' TOWN OF SOUTHOLD SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year ended December 31,2014 Pass- Federal Through I:'' Federal Grantor/Pass-through Grantor/ CFDA Identifying Federal Program or Cluster Title Number Number Expenditures U.S. Department of Housing and Urban Development Pass-through program from: C Suffolk County, New York Community Development Block Grant Program 14.218 $ 140,592 U.S. Department of Agriculture Direct program from: National Resource Conservation Service Farm and Ranchland Protection Program 10.913 2,491,750 Direct program from: National Resource Conservation Service Emergency Watershed Protection Program 10.923 1,280,617 (_,' U.S. Department of Health and Human Services Pass-through program from: Suffolk County, New York Special Programs for the Aging—Title III, Part C—Nutrition 93.045 SCS10000001792 38,841 Special Programs for the Aging—Title III, Part C—Home Delivered Meals 93.045 SCS10000001792 48,145 Nutrition Services Incentive Program 93.053 SCS10000001792 24,757 U.S. Department of Transportation Pass-through program from: New York State Highway Planning and Construction 20.205 CO22403/D030245 43,921 Pass-through program from: New York State _, Safety Incentive Grants for the Use of Seatbelts 20.604 PT-5259081 7,469 Pass-through program from: New York State DWI Crackdown Enforcement Program 20.600 10,826 U.S. Department of the Interior Pass-through program from: New York State Clean Vessel Act 15.616 6,481 Subtotal $ 4,093,399 (continued) See accompanying notes to schedule of expenditures of federal awards -52- TOWN OF SOUTHOLD SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Year ended December 31,2014 Pass- Federal Through Federal Grantor/Pass-through Grantor/ CFDA Identifying Federal Program or Cluster Title Number Number Expenditures (brought forward from previous page) $ 4,093,399 U.S. Department of Homeland Security C, Pass-through program from: New York State Severe Storms and Flooding, March 2010 97.036 FEMA-1899-DR-NY 281 Severe Winter Storm, December 2010 97.036 FEMA-1957-DR-NY 7,335 Hurricane Sandy, October 2012 97.036 FEMA-4085-DR-NY 245,821 Pass-through program from: New York State and Suffolk County Homeland Security Grant Program 97.067 952 Total expenditures of federal awards $ 4.347.788 See accompanying notes to schedule of expenditures of federal awards -53- TOWN OF SOUTHOLD NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS December 31, 2014 Note A—Basis of Presentation The accompanying schedule of expenditures of federal awards (the `Schedule') includes the federal grant activity of the primary government of the Town of Southold, New York under programs of the federal government for the year ended December 31, 2014. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. As the schedule presents only a selected portion of the operations of the Town of Southold, it is not intended to and does not present the financial position and changes in net position for the Town of Southold. Note B—Summary of Significant Accounting Policies (1) Expenditures reported on the Schedule are reported on the modified accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments,wherein certain types of expenditures are not allowable or are limited as to reimbursement. (2) Pass-through entity identifying numbers are presented where available. (3) Federal grants received by the Town are subject to audit and adjustment. If any expenditures are disallowed by the grantor agencies as a result of such an audit,the grantor agencies could make claims for reimbursement,which would become a liability of the Town. (- (4) The federal expenditures for U.S. Department of Homeland Security and Federal Emergency Management Agency CFDA# 97.036 include expenditures related to the following federally declared disasters: • Hurricane Sandy—FEMA 4085 DR NY • Severe Storm—FEMA 1957 DR NY • Severe Storm—FEMA 1899 DR NY The federal disaster declaration 4085 DR NY enables the reimbursement of certain costs incurred related to debris removal and approved permanent work through the Federal Emergency Management Agency (FEMA) of the U.S. Department of Homeland Security. Significant costs incurred include permanent work costs during 2012,2013 and 2014. The federal disaster declaration 1957 DR NY enables the reimbursement for certain costs incurred related to snow removal through FEMA of the U.S. Department of Homeland Security. Significant costs were incurred during 2014. The federal disaster declarations 1899 DR NY enables for certain costs incurred related to damage -, sustained for coastal flooding and erosion through FEMA of the U.S. Department of Homeland Security. Significant costs were incurred during 2010. -54- C TOWN OF SOUTHOLD NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS December 31, 2014 Note B—Summary of Significant Accounting Policies(continued) ' Below is a summary of the program expenditures related to the declared disasters reported on the Schedule of Expenditures of Federal Awards for which there is an approved project worksheet: Project Reportable Federal Expenditures Incurred during the Year Ended: Worksheet Federal Prior to Number Expenditures December 31,2014 December 31,2013 December 31,2012 December 31,2012 4085 DR NY: 02831 $ 5,542 $ 5,400 $ 142 03943 113,084 110,496 2,588 03488 10,555 $ 10,555 04471 116,640 116,640 1957 DR NY 00085 7,335 7,335 1899 DR NY: 00519 281 $ 281 C, Total $ 253,437 $ 239,871 $ 2,730 $ 10,555 $ 281 -55- 11111°- MUM CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Honorable Supervisor and Town Board Town of Southold Southold, New York We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Town of Southold, New York, as of and for the year ended December 31, 2014, and the related notes to the financial statements, which collectively comprise the Town of Southold, New York's basic financial statements and have issued our report thereon dated September 24, 2015. Our report includes a reference to other auditors who audited the financial statements of Fishers Island Ferry District and the Fishers Island Waste Management District, as described in our report on the Town of Southold, New York's financial statements. This report does not include the results of the other auditors' testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. The financial statements of the Fishers Island Waste Management were not audited in accordance with Governmental Auditing Standards. The financial statements of the Town of Southold's discretely presented component units with the exception of the two referenced above were not audited as of the report date, nor were we able to satisfy ourselves as to those financial activities by other auditing procedures. The unaudited discretely presented component units represent 21.7%, 25.3%, and 20.7%, respectively, of the assets, net position, and revenues of the aggregate discretely presented component units. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Town of Southold, New York's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Town of Southold, New York's internal control. Accordingly, we do not express an opinion on the effectiveness of the Town of Southold, New York's internal control. rl Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the Town of Southold, New York's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described in the accompanying schedule of findings and questioned costs as 2014-001 to be a material weakness. PERSONAL SERVICE.TRUSTED ADVICE. -<— ALBRECHT,VIGGIANO,ZURECK&COMPANY, P.C. 245 PARK AVENUE,39TH FLOOR 25 SUFFOLK COURT NEW YORK, NY 10167 HAUPPAUGE, NY 11788-3715 0 T:212.792 4075 T:631 434.9500 F 631 434.9518 www avz.com -56- INDEPENDENT MEMBER OF BKR INTERNATIONAL - Internal Control Over Financial Reporting(continued) A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiencies described in the accompanying schedule of findings and questioned costs as 2014- ' 002 through 2014-003 to be significant deficiencies. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Town of Southold, New York's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, L- regulations, contracts,and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. ,� We noted certain other matters that we reported to management of the Town of Southold in a separate letter dated September 24,2015. Town of Southold, New York's Response to Findings The Town of Southold, New York's responses to the findings identified in our audit are described in the C accompanying schedule of findings and questioned costs. The Town of Southold, New York's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Town of Southold, New York's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Town of Southold, New York's internal control and compliance.Accordingly, this communication is not suitable for any other purpose. OLORIXAVIO 1 VaTi.to- ,7Lti2 4 (Qt4n 4 P. c. . Hauppauge, New York September 24,2015 -57- RillAll' CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE AS REQUIRED BY OMB CIRCULAR A-133 Honorable Supervisor and Town Board Town of Southold Southold, New York Report on Compliance for Each Major Federal Program We have audited the Town of Southold, New York's compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the Town of Southold, New York's major federal programs for the year ended December 31,2014.The Town of Southold, New York's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs. The Town of Southold, New York's financial statements include the operations of the Fishers Island Ferry District, which received $19,879 in federal awards which is not included in the schedule of federal awards during the year ended December 31, 2014. Our audit, described below, did not include the operations of Fishers Island Ferry District because the organizational unit engaged other auditors to perform an audit in accordance with OMB Circular A-133 and the amount of federal awards expended is under the threshold for requiring an audit. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditors' Responsibility Our responsibility is to express an opinion on compliance the Town of Southold, New York's major federal programs based on our audit of the types of compliance requirements referred to above.We conducted our audit t7 of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on vl a test basis, evidence about Town of Southold, New York's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of Town of Southold, New York's compliance. PERSONAL SERVICE.TRUSTED ADVICE. ALBRECHT,VIGGIANO,ZURECK&COMPANY, P.C. 245 PARK AVENUE,39TH FLOOR 25 SUFFOLK COURT NEW YORK, NY 10167 HAUPPAUGE, NY 11788-3715 T:212.792.4075 T:631.434.9500 F 631.434.9518 www.avz.com INDEPENDENT MEMBER OF BKR INTERNATIONAL -58- Opinion on Each Major Federal Program In our opinion, the Town of Southold, New York, complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2014. Report on Internal Control Over Compliance Management of Town of Southold, New York, is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit,we considered the Town of Southold, New York's internal control over compliance with the requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with,OMB Circular A- 133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Town of Southold, New York's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions,to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of,a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in iternal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Purpose of this Report The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly,this report is not suitable for any other purpose. V�, 3J ft Ccwt1P0 ' ( c. Hauppauge, New York September 24,2015 -59- TOWN OF SOUTHOLD SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended December 31, 2014 SUMMARY OF AUDITORS' RESULTS 1. The auditors' report expresses a qualified opinion on the basic financial statements of the Town of Southold, New York. 2. There are three control deficiencies relating to the audit of the financial statements, which are reported in the "INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS': One of the deficiencies is reported as material weaknesses. 3. No instances of noncompliance material to the financial statements of the Town of Southold, New York were disclosed during the audit. 4. No deficiencies relating to the audit of the major federal award programs are reported in the "INDEPENDENT AUDITORS' REPORT ON COMPLIANCE ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLANCE REQUIRED BY OMB CIRCULAR A-133". 5. The auditors' report on compliance for the major federal awards programs for the Town of Southold, New York expresses an unmodified opinion on all major federal programs. 6. There were no audit findings that are required to be reported in accordance with Section 510(a) of OMB Circular A-133. 7. The programs tested as major programs were: CFDA Number Name of Federal Program or Cluster 10.923 Emergency Watershed Protection Program 10.913 Farm and Ranchland Protection Program 8. The threshold for distinguishing Types A and B programs was $300,000. 9. The Town of Southold was not determined to be a low-risk auditee. -60- TOWN OF SOUTHOLD SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended December 31, 2014 FINDINGS AND QUESTIONED COSTS—FINANCIAL STATEMENTS AUDIT 2014-001 JUSTICE COURT—CASH AND CASH RECEIPTS—MATERIAL WEAKNESS Criteria Although the size of the Justice Court's office staff limits the extent of separation of duties, we believe certain steps could be taken to separate incompatible duties. Proper segregation of duties states that for each employee, there should be separation of all of the following: 1) physical custody of assets; 2) authorization or approval of related transactions affecting those assets, and 3) recording or reporting of related transactions. To aid in the preparation of bank reconciliations and to reflect an accurate cash balance in the financial statements, all checks outstanding more than one year should be investigated. These funds should then be turned over to the State Comptroller as abandoned property or paid back into the Town's general fund. In addition, differences and any old reconciling items should be investigated and adjusted if deemed necessary. A good system of internal control provides for a proper segregation of the various accounting functions including proper review and approval of reconciliations. Condition We noted that the following deficiencies in internal controls over the Justice Court's cash receipts process: • Lack of segregation of duties over the receipting, depositing and reconciling the bank accounts cycle. • Improper preparation of bank reconciliations including old reconciling items and stale dated checks that are not being addressed or adjusted • There was no evidence that the bank reconciliations are being reviewed for correctness and completeness. Effect Intentional or unintentional errors could be made and go undetected. Recommendation As cash is received, in addition to filling out the receipt in the receipt book, we recommend that when bail is delivered by the police or collected at court it is entered on a daily control sheet and signed by the clerk and the police officer. This control sheet would include the receipt number, date, defendant's name, type of receipt (cash, check) and amount of bail collected. This would allow the other clerk who will be preparing the deposit slip to ensure that all receipts collected for the day have been properly accounted. The control sheet should then be used to prepare the deposit slip and entered into the system. Deposits at the bank can then be made by the first clerk. A copy of the deposit slip should be attached to the daily control sheet. Monthly bank reconciliations should be done separately/independently and compared to the computer system. In addition, the bank statements should be mailed directly to the Justices who should then review them prior to giving them to the clerks for reconciliation. Once the bank reconciliation is prepared by the clerks, it should be reviewed and initialed by the Town Justice. Management's Response Effective January 2015,the following procedures are now in place: • All clerks in the court have a designed duty on the same day each week. This allows for the segregation of duties. Although all clerks handle all matters in the court, the daily"chore chart" helps to distinguish and identify those tasks. • The case management system that the court uses (SEI) allows for consecutive, unalterable numbered receipts. This allows us to track receipts as well as a safeguard against misuse of court money. All monies are receipted and prepared on a daily deposit slip. Bank runs are done within 72 hours of the receipting of monies. -61- TOWN OF SOUTHOLD SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended December 31, 2014 FINDINGS AND QUESTIONED COSTS—FINANCIAL STATEMENTS AUDIT (continued) 2014-001 JUSTICE COURT—CASH AND CASH RECEIPTS—MATERIAL WEAKNESS (continued) Management's Response(continued) • Bail that is taken at the police station is delivered to the court by a police officer. The money is entered into the system and receipted. The case generated receipt is produced. Three receipts are printed: one for the court file, one for the police officer, and the third to follow the deposit. The monies are re-counted by another clerk and put in the safe until the deposit day. • Monies that are set for the bank run are counted by one of the clerks and then recounted by another. Those monies are put in a sealed envelope and are initialed by both clerks. One of the court clerks drives the monies to the bank, unarmed and unassisted, wherein the envelope is not opened until the bank teller opens it. The bank generated deposit slip is brought back to the court and attached to the daily cashbook report printed from SEI. • Bank statements are reconciled by cross referencing the monthly cashbook report to the deposit slips to the bank statements. This procedure is done by a court clerk, given to the Court Director for correctness and then to the Judges for their review and signatures. • Outstanding checks are in the process of being turned over to the Town as per the NYS Comptroller's requirements. 2014-002 RECEIVER OF TAXES—SEGREGATION OF DUTIES(Repeat Finding) Criteria Internal controls should be in place to provide for segregation of duties within accounting functions relating to cash receipts, check signing and bank reconciliations to reduce the risk of potential errors and fraud. Condition We noted a lack of segregation of duties within the Office of the Receiver of Taxes. The Receiver of Taxes is the only authorized check signer, prepares the deposit slips, brings the deposit to the bank, receives the bank statements, and reconciles the bank accounts. Effect Intentional or unintentional errors could be made and go undetected. Recommendation We recommend that the Receiver of Taxes separate these duties relating to the cash receipts and reconciliation cycle to another employee so that no one person handles all elements of a single transaction. We recommend that the Receiver of Taxes duties of preparing the bank deposit, depositing the funds and reconciling the bank statement be assigned to some other employee in order to establish a proper segregation of duties over cash receipts. Management's Response A policy of segregation of bank deposit preparation, the delivery of the deposit to the bank and the monthly bank reconciliation has been instituted. A schedule indicating the individuals involved with those individuals initialing their function is now a document retained for review. A further cash reconciliation is now in place. In addition to the cash being counted four times, a schedule reconciling cash deposits to bank deposits is now a document retained for review. A general ledger system to account for the cash balances for the various bank accounts has been instituted and facilitates the bank reconciliation process. -62- TOWN OF SOUTHOLD SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended December 31, 2014 FINDINGS AND QUESTIONED COSTS—FINANCIAL STATEMENTS AUDIT 2014-003 SEGREGATION OF DUTIES—RECREATION (Repeat Finding) Criteria Although the small size and availability of the Town's recreation department staff limits the extent of separation of duties, we believe certain steps could be taken to separate incompatible duties. Proper segregation of duties states that for each employee, there should be separation of all of the following: 1) physical custody of assets; 2) authorization or approval of related transactions affecting those assets, and 3) recording or reporting of related transactions. Condition During the 2014 audit, we noted a lack of segregation of duties within the recreation department. Employees share in the daily accounting functions, including: access to cash receipts, recording receipts in the department's records and depositing cash receipts into the bank account. Effect Intentional or unintentional errors could be made and go undetected. Recommendation We recommend that the recreation department consider separating the accounting functions as described above to mitigate significant risks of error and/or misappropriation of the Town's assets. Such consideration could include one Recreation employee receipting cash receipts and preparing deposit slips, while a second employee could verify cash receipts. Management's Response The recreation department is a small department consisting of 1 full-time Recreation Supervisor and 1 part- time Principal Clerk, which makes segregation of duties difficult. The Town has implemented procedures which Management believes is adequate to minimize the risk of error and/or misappropriation of the Town's assets. These procedures include the following: • A registration form documenting the participant's name, address, phone, the program name, the method of payment (credit card, check, or cash) and the amount paid are accepted with payments by either the Recreation Supervisor or the Principal Clerk. • The Recreation Supervisor verifies the accuracy of all receipts and records them in an Excel spreadsheet. • The Recreation Supervisor prepares all bank deposit slips and takes all deposits to the Bank in a separate bank account designed for Recreation Department receipts. • The part-time Clerk reviews and verifies the deposit receipt and both employees sign off on a document listing the deposit details. • Bank deposit receipts and credit card batches are sent to the Accounting & Finance Department for recording in the Town's financial accounting system. • Account reconciliation is performed by the Accounting & Finance Department. • The Recreation Department has access to only make deposits to the bank account designed for Recreation Department receipts. -63- TOWN OF SOUTHOLD SUMMARY SCHEDULE OF PRIOR YEAR AUDIT FINDINGS Year Ended December 31, 2014 FINDINGS AND QUESTIONED COSTS- MAJOR FEDERAL AWARD PROGRAMS SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS 2013-07 ALLOWABLE COSTS Federal Program Disaster Grants, Public Assistance, 1899 DR NY, 4085 DR NY, 4111 DR NY—CFDA Number 97.036 Criteria OMB Circular A-87 establishes principles and standards for determining allowable direct and indirect costs for Federal awards. Additionally, in accordance with OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, all eligible costs must be supported by adequate documentation. Additionally, the New York State Office of Emergency Management Public Assistance Handbook of Policies and Procedures (the "Handbook"), addresses cost reimbursement as well. Reimbursement of wages should be based on compensation paid in accordance with Town policy. The Town is responsible for reviewing project worksheets before submitting them for reimbursement. f. , Condition During the course of our audit we noted instances where the employee hourly payroll rate per the payroll register did not agree to amounts submitted for reimbursement as indicated on the FEMA Force Account Labor Record as part of the respective project worksheet. The instances identified were isolated to Federal Disaster 4085 DR NY. Recommendation We recommend the Town establish policies to review the supporting documentation to the project worksheets prepared by FEMA before submitting them for reimbursement to ensure the pay rates agree to the Town's payroll records. Current Status Corrective action has been taken. -64- 11(11111A- A RECEIVED CERTIFIED PUBLIC ACCOUNTANTS OCT - 8 2015 September 24, 2015 Southold Town Clerk Honorable Supervisor and Town Board Town of Southold Southold, New York We have audited the financial statements of the governmental activities, the aggregate discretely presented component units, each major fund and the aggregate remaining fund information of the Town of Southold, New York (the "Town") for the year ended December 31, 2014. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, Governmental Auditing Standards and OMB Circular A-133, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated October 1, 2013. Professional-standards also require that we communicate to you the following information related to our audit. Significant Auditing Practices Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the Town of Southold, New York are described in Note 1 to the financial statements. As described in Note A.7 to the financial statements, the Town adopted the following Statement of Governmental Accounting Standards Statements: • GASB Statement No. 69, Governmental Combinations and Disposals of Governmental Operations. • GASB Statement No. 70, Accounting and Reporting for Nonexchange Financial Guarantees. We noted no transactions entered into by the Town during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were as follows: • Management's estimate of depreciation expense of approximately $3,142,000 is based on the estimation of the useful lives of the fixed assets determined by the Town. We evaluated the key factors and assumptions used to develop the depreciation expense in determining that it is reasonable in relation to the financial statements taken as a whole. PERSONAL SERVICE.TRUSTED ADVICE. —� ALBRECHT,VIGGIANO,ZURECK&COMPANY, P.C. 245 PARK AVENUE,39TH FLOOR 25 SUFFOLK COURT NEW YORK, NY 10167 HAUPPAUGE, NY 11788-3715 T-212.792.4075 T:631.434 9500 F:631.434.9518 www avz.com INDEPENDENT MEMBER OF BKR INTERNATIONAL f Town Board Town of Southold Page 2 Significant Auditing Practices (continued) Qualitative Aspects of Accounting Practices (continued) • Management's estimate of the liability for compensated absences of approximately $8,539,000 is based on vested or accumulated vacation or sick leave for the Town's employees as of the balance sheet date. We evaluated the key factors and assumptions used to develop the liability for compensated absences in determining that it is reasonable in relation to the financial statements taken as a whole. • Management's estimate for landfill closure and post closure care costs of approximately $896,000 is based on what the Town expects to pay for the monitoring and maintenance costs of their landfill over thirty years based on an estimate provided by engineers. We evaluated the key factors and assumptions used to develop the landfill closure and post- closure care costs in determining that it is reasonable in relation to the financial statements taken as a whole. • Management's estimate of other postemployment benefits unfunded actuarial accrued liability of approximately $68,002,000 of which approximately $35,396,000 is recorded as a liability at December 31, 2014 is based on what the Town expects to pay in medical insurance costs and benefits to retired employees currently and over the next twenty four years, respectively, based on certain assumptions provided by an actuary. We evaluated the key factors and assumptions used to develop the other post-employment benefits liability in determining that it is reasonable in relation to the financial statements taken as a whole. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. The attached schedule summarizes uncorrected misstatements of the financial statements. Management has determined that their effects are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. In our judgment, none of the adjustments we proposed, whether recorded or unrecorded by the Town, either individually or in the aggregate, indicate matters that could have a significant effect on the Town's financial reporting process. Disagreements with Management For purposes of this letter, a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated September 24, 2015. { Town Board Town of Southold Page 3 Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the governmental unit's financial statements or a determination of the type of auditor's opinion that may be expressed to those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Town's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to the management's discussion and analysis, budgetary caparison schedules and the schedule of funding progress for other postemployment benefits, which are required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding 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 did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the combining nonmajor funds financial statements which accompany the financial statements but are not RSI. With respect to supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and • complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were also engaged to report on the schedule of expenditures of federal awards and the schedule of New York State transportation assistance expended, which are included in the Town of Southold's Single Audit Reports and the Town of Southold's New York State Department of Transportation Single Audit Report, respectively. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing the it has not changed from the prior period, and the information is appropriate and complete in relation to the audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. Town Board Town of Southold Page 4 Restriction on Use This information is intended solely for the use of the Town Board and management of the Town of Southold and is not intended to be, and should not be, used by anyone other than these specified parties. Very truly yours, e , J Q cg,,,n e. C Albrecht, Viggiano, Zureck & Company, P.C. Hauppauge, New York September 24, 2015 1 � Town of Southold Passed Adjustments 12/31/2014 Highway Fund Dr Federal/State Aid 24,428 29 Cr Federal and State Aid Receivable 24,428 29 (To record an adjustment for uncollectibility of FEMA reimbursement) Dr Prepaid Expense 8,755 25 Cr Retirement Expense 8,755 25 (To adjust prepaid expense for NYSERS bill) $ (15,673 04)Net Effect to Change in Fund Balance(Highway Fund) Capital Fund Dr Federal Aid 1,166 40 Cr Federal and State Aid Receivable 1,166 40 (To adjust for overaccrual of federal aid) $ (1,166 40)Net Effect to Change in Fund Balance(Capital Fund) Non-Major Funds Dr Sewer Rents 11,925 00 Cr Deferred Revenue 11,925 00 (To adjust for rents that related to 2015) Dr Permits-Residential 16,800 00 Cr Fund Balance 16,800 00 (To adjust for permit income that should have been recorded in 2014) $ 4,875 00 Net Effect to Change in Fund Balance(Non Major) $ (11,964 44) Total Net Effect to Change in Fund Balance