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Nantucket County Financial Statements 2015 - FinalCOUNTY OF NANTUCKET, MASSACHUSETTS Report on Examination of Basic Financial Statements and Additional Information Year Ended June 30, 2015 Report on Internal Control Over Financial Reporting and On Compliance and Other Matters Year Ended June 30, 2015 COUNTY OF NANTUCKET, MASSACHUSETTS TABLE OF CONTENTS YEAR ENDED JUNE 30, 2015 Page INDEPENDENT AUDITORS' REPORT 1-2 MANAGEMENT’S DISCUSSION AND ANALYSIS 3-8 BASIC FINANCIAL STATEMENTS: Government-Wide Financial Statements: Statement of Net Position 9 Statement of Activities 10 Fund Financial Statements: Balance Sheet – Governmental Funds 11 Reconciliation of the Governmental Funds Balance Sheet Total Fund Balances to the Statement of Net Position 12 Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds 13 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 14 Notes to Basic Financial Statements 15-31 REQUIRED SUPPLEMENTARY INFORMATION: Schedule of the County’s Proportionate Share of the Net Pension Liability 32 Schedule of the County’s Contributions to Pension Plan 32 Schedule of Funding Progress and Contribution Funding – Other postemployment benefits 33 OTHER REPORTS: 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 34-35 INDEPENDENT AUDITORS' REPORT County Commissioners County of Nantucket, Massachusetts Nantucket, Massachusetts Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the County of Nantucket, Massachusetts, (the County) as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the County’s basic financial statements as listed in the table of contents. Management’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. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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 County as of June 30, 2015, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. County of Nantucket, Massachusetts Page 1 of 35 Basic Annual Financial Statements County of Nantucket, Massachusetts Page two Restatement of Prior Year Ending Balances As more fully described in Note IV, a restatement of prior year ending net position balance was made to record the County’s net pension liability. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, the schedule of the County’s proportionate share of the net pension liability and contributions to pension plan, and the funding progress and contribution funding for other postemployment benefits be presented to supplement the basic financial statements. Such information, although not part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Implementation of New Accounting Standards As disclosed in the Note III to the financial statements, the County implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27, and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment of GASB Statement No. 68, during the fiscal year 2015. Our opinion was not modified with respect to this matter. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 15, 2016 on our consideration of the County’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contract, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the County’s internal control over financial reporting and compliance. Roselli, Clark & Associates Certified Public Accountants Woburn, Massachusetts January 15, 2016 County of Nantucket, Massachusetts Page 2 of 35 Basic Annual Financial Statements Management’s Discussion and Analysis As the management of the County of Nantucket, Massachusetts (the County) we offer readers of these financial statements this narrative overview and analysis of the financial activities for the fiscal year ended June 30, 2015. We encourage readers to consider the information presented here in conjunction with their review of the basic financial statements, notes to the basic financial statements and required supplementary information found in this report. Financial Highlights  The County is a component unit of the Town of Nantucket. The Town’s financial statements include the County as a discretely presented component unit.  The assets and deferred outflows of the County exceeded its liabilities and deferred inflows at the close of the most recent fiscal year by approximately $6.6 million (total net position). Of this amount, $0.4 million (unrestricted net positon) may be used to meet the government’s on-going obligations to citizens and creditors.  The governmental net position increased approximately $0.4 million during the current fiscal year due to revenues in excess of expenditures in the Deeds Excise Fund.  At the close of the current fiscal year, the County’s general fund reported unassigned fund balance totaling $1.3 million, which was consistent with the prior year. Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the County’s basic financial statements. The basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. The governmental-wide financial statements provide both long-term and short-term information about the County as a whole. The fund financial statements focus on the individual components of the County government, reporting the County’s operations in more detail than the government-wide statements. Both presentations (government-wide and fund) allow user to address relevant questions, broaden the basis of comparison and enhance the County’s accountability. An additional part of the basic financial statements are the notes to the financial statements. This report also contains other required 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 finances, in a manner similar to a private-sector business. The statement of net position presents information on all of assets, liabilities, and deferred inflows/outflows of resources, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position is improving or deteriorating. The statement of activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). County of Nantucket, Massachusetts Page 3 of 35 Basic Annual Financial Statements Both of the government-wide financial statements distinguish functions that are principally supported by taxes and intergovernmental revenue (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges. The governmental activities include county administration, registry of deeds, corrections department, Cape Cod license plates and Town assessments. Fund Financial Statements - A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Fund accounting is used to ensure and demonstrate compliance with finance-related legal requirements. All of the County’s funds are reported as a governmental fund type. Governmental funds distinguish fund balance between amounts that are considered nonspendable, such as fund balance associated with inventories, and other amounts that are classified based on the relative strength of the constraints that control the purposes for which specific amounts can be spent. Beginning with the most binding constraints, fund balance amounts are reported in the following classifications: • Restricted – amounts constrained by external parties, constitutional provision, or enabling legislation • Committed – amounts constrained by a government using its highest level of decision- making authority • Assigned – amounts a government intends to use for a particular purpose • Unassigned – amounts that are not constrained at all will be reported in the general fund. Governmental Funds - Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Reconciliations are provided in the financial statements to facilitate this comparison. The County maintains a number of 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 general fund and deeds excise fund, which are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation. 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. County of Nantucket, Massachusetts Page 4 of 35 Basic Annual Financial Statements New Significant Accounting Standards Implemented – In fiscal year 2015 the County adopted two new statements of financial accounting standards issued by the Governmental Accounting Standards board (GASB) that relate to pension activity: - Statement No. 68, “Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27,” and - Statement No. 71, “Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment of GASB Statement No. 68” Statement No. 68 (Statement) establishes standards of accounting and financial reporting, but not funding or budgetary standards, for the County’s defined benefit pension plan. This statement replaces the requirements of prior GASB statements impacting account and disclosure of pensions. The significant impact to the County of implementing Statement No. 68 is the reporting of the County’s unfunded pension liability on the full accrual basis of accounting government-wide financial statements. There are also new note disclosure requirements and supplementary schedules required by the Statement. In order to implement the Statement, a prior period adjustment was made to the County’s July 1, 2014 net position. This prior period adjustment decreased the County’s net position by $514,698 from $6,742,638 to $6,227,940 and reflects the reporting of net pension liabilities. Government-wide Financial Analysis The condensed statement of net position is as follows: June 30, June 30, 2015 2014 Assets Currrent and other assets 3,958,278$ 3,557,301$ Capital assets, net 3,310,433 3,326,425 Total assets 7,268,711 6,883,726 Deferred outflows of resources 888 - Liabilities Other liabilities 24,173 34,708 Long-term liabilities 644,262 106,380 Total liabilities 668,435 141,088 Deferred inflows of resources - - Net Position Net investment in capital assets 3,310,433 3,326,425 Restricted 2,912,552 2,121,457 Unrestricted 378,179 1,294,756 Net Position 6,601,164$ 6,742,638$ County of Nantucket, Massachusetts Page 5 of 35 Basic Annual Financial Statements As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. The assets and deferred outflows of the County exceeded its liabilities and deferred inflows at the close of the most recent fiscal year by approximately $6.6 million (total net position). By far the largest portion, approximately $3.3 million (50.1%) of the County’s net position reflects its investment in capital assets (e.g. land, buildings, machinery, and equipment) less any related debt used to acquire those assets that is still outstanding. The County uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. The County does not currently carry any debt related to its capital assets. An additional portion of the County’s net position, approximately $2.9 million (44.1%) represents resources that are subject to external restrictions on how they may be used. The remaining balance, approximately $0.4 million (5.7%) represents unrestricted net position, which the County may use to meet current obligations. The condensed statement of changes in net position is as follows: June 30, June 30, 2015 2014 Revenues Program revenues: Charges for services 974,357$ 945,151$ Operating grants and contributions 170,201 170,201 General revenues: Unrestricted investment income 11,159 8,413 Total revenues 1,155,717 1,123,765 Expenses County administration 27,465 17,094 Registry of deeds 413,310 421,312 Cape Cod license plate 91,718 102,121 Town assessment 250,000 250,000 Total expenses 782,493 790,527 Change in net position 373,224 333,238 Net position, beginning of year 6,742,638 6,409,400 Restatement for net pension liability (514,698) - Net position, beginning of year, as restated 6,227,940 6,409,400 Net position, end of year 6,601,164$ 6,742,638$ County of Nantucket, Massachusetts Page 6 of 35 Basic Annual Financial Statements Governmental Activities - The governmental net position increased approximately $0.4 million during the current fiscal year due to revenues in excess of expenditures in the Deeds Excise Fund. The County continues to see vibrant operations as deed excise taxes have been well above expenses due to the robust high-end real estate market on the island. The Town relies significantly on charges for services which are largely made up of receipts from the Registry of Deeds. During 2015, charges for services made up 84.3% of total revenues which is fairly consistent with 84.1% in the prior year. Additionally, operating grants and contributions comprised about 14.7% of total revenues, consistent with the 15.1% in the prior year. No other revenues were greater than 10% of the total revenues in fiscal year 2015 or 2014. The majority of expenses were directed to benefit the operation of the Registry of Deeds. Approximately 52.8% percent of total disbursements related to Registry of Deeds services, down slightly from 53.3% in the prior year. Town assessments comprised 31.9% of current year expenses, up slightly from the 31.6% in 2014. Cape Cod license plate expenses represented nearly 11.7% of total expenses, down slightly from 12.9% in the prior period. No other expenses represented greater than 10% of total expenses in the current or prior periods. Financial Analysis of the Government’s Funds As noted earlier, the County uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. Governmental Funds - The focus of governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. The general fund is the chief operating fund. At the end of the current fiscal year, unassigned fund balance, which represented all of the general fund balance, was approximately $1.3 million. As a measure of the general fund’s liquidity, it may be useful to compare fund balance to total fund expenditures. Unassigned fund balance and total fund balances represents approximately 200% of total general fund expenditures. The County’s governmental funds balance sheet reported a combined ending fund balance surplus of approximately $3.9 million. This represents an increase of approximately $0.4 million due to the excess of revenues over expenditures and transfers in the Deeds Excise Fund previously discussed. The Deeds Excise Fund is used to account for the proceeds from transactions at the Registry of Deeds. The fund is in a surplus position of $2.2 million due to the robust high-end real estate market on the island. The County’s General Fund reported an unassigned fund balance of approximately $1.3 million, which is consistent with the prior year. The County reported restricted fund balances of approximately $0.5 million in the combined nonmajor governmental funds, which is consistent with the prior year. County of Nantucket, Massachusetts Page 7 of 35 Basic Annual Financial Statements Capital Asset and Debt Administration Capital Assets - The County’s investment in capital assets for its governmental activities as of June 30, 2015, amounts to approximately $3.3 million (net of accumulated depreciation), which is consistent with the prior year as annual depreciation is minimal.. This investment in capital assets includes land and machinery and equipment. Additional information on the County capital assets can be found in Note II, Section D. of this report. Long-term Debt - At the end of the current fiscal year, the County had no long-term debt outstanding. Requests for Information This financial report is designed to provide a general overview of the County of Nantucket’s finances. For all those with an interest in the government’s finances, questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Office of the Finance Director, 37 Washington Street, Nantucket, Massachusetts 02554. County of Nantucket, Massachusetts Page 8 of 35 Basic Annual Financial Statements COUNTY OF NANTUCKET, MASSACHUSETTS (A COMPONENT UNIT OF THE TOWN OF NANTUCKET, MASSACHUSETTS) STATEMENT OF NET POSITION JUNE 30, 2015 Governmental Activities Assets Cash and cash equivalents 3,887,606$ Receivables, net of allowance for uncollectibles: Intergovernmental 70,672 Capital assets, not being depreciated 3,283,842 Capital assets, net of depreciation 26,591 Total Assets 7,268,711 Deferred Outflows of Resources 888 Liabilities Current liabilities: Warrants and accounts payable 18,456 Accrued payroll and withholdings 5,717 Noncurrent liabilities: Due in more than one year 644,262 Total Liabilities 668,435 Deferred Inflows of Resources - Net Position Net investment in capital assets 3,310,433 Restricted for: Other purposes 2,912,552 Unrestricted 378,179 Total Net Position 6,601,164$ See accompanying notes to basic financial statements. County of Nantucket, Massachusetts Page 9 of 35 Basic Annual Financial Statements COUNTY OF NANTUCKET, MASSACHUSETTS (A COMPONENT UNIT OF THE TOWN OF NANTUCKET, MASSACHUSETTS) STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2015 Net (Expenses) Revenues and Changes in Program Revenues Net Position Operating Capital Total Charges for Grants and Grants and Governmental Functions/Programs Expenses Services Contributions Contributions Activities Governmental Activities: County adminstration 27,465$ 280,704$ 170,201$ -$ 423,440$ Registry of Deeds 413,310 371,510 - - (41,800) Cape Cod license plates 91,718 72,143 - - (19,575) Town assessment 250,000 250,000 - - - Total Governmental Activities 782,493 974,357 170,201 - 362,065 Total Primary Government 782,493$ 974,357$ 170,201$ -$ 362,065 General Revenues: Unrestricted investment income 11,159 Total general revenues and transfers 11,159 Change in Net Position 373,224 Net Position - beginning, as restated (see Note IV)6,227,940 Net Position - Ending 6,601,164$ See accompanying notes to basic financial statements. County of Nantucket, Massachusetts Page 10 of 35 Basic Annual Financial Statements COUNTY OF NANTUCKET, MASSACHUSETTS (A COMPONENT UNIT OF THE TOWN OF NANTUCKET, MASSACHUSETTS) GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2015 Nonmajor Total Deeds Excise Governmental Governmental General Fund Funds Funds Assets Cash and cash equivalents 949,006$ 2,462,779$ 475,821$ 3,887,606$ Receivables, net of allowance Due from other government 70,672 - - 70,672 Due from other funds 266,200 - - 266,200 Total Assets 1,285,878 2,462,779 475,821 4,224,478 Total Deferred Outflows of Resources - - - - Total Assets and Deferred Outflows of Resources 1,285,878$ 2,462,779$ 475,821$ 4,224,478$ Liabilities Warrants and accounts payable 8,608$ 280$ 9,568$ 18,456$ Accrued payroll 5,717 - - 5,717 Due to other funds - 266,200 - 266,200 Total Liabilities 14,325 266,480 9,568 290,373 Total Deferred Inflows of Resources - - - - Fund Balances Restricted - 2,196,299 466,253 2,662,552 Unassigned 1,271,553 - - 1,271,553 Total Fund Balances 1,271,553 2,196,299 466,253 3,934,105 Total Liabilities, Deferred Inflows of Resources, and Fund Balances 1,285,878$ 2,462,779$ 475,821$ 4,224,478$ See accompanying notes to basic financial statements. County of Nantucket, Massachusetts Page 11 of 35 Basic Annual Financial Statements COUNTY OF NANTUCKET, MASSACHUSETTS (A COMPONENT UNIT OF THE TOWN OF NANTUCKET, MASSACHUSETTS) RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TOTAL FUND BALANCES TO THE STATEMENT OF NET POSITION JUNE 30, 2015 Total Governmental Fund Balances 3,934,105$ Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds.3,310,433 Deferred outflows and inflows of resources to be recognized in future pension expense are not available resources and, therefore, are not reported in the funds: Net difference between projected and actual earnings on pension plan investments 888 Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the government funds: Other postemployment benefits (125,688) Net pension liability (518,574) Net Position of Governmental Activities 6,601,164$ See accompanying notes to basic financial statements. County of Nantucket, Massachusetts Page 12 of 35 Basic Annual Financial Statements COUNTY OF NANTUCKET, MASSACHUSETTS (A COMPONENT UNIT OF THE TOWN OF NANTUCKET, MASSACHUSETTS) GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2015 Nonmajor Total Deeds Excise Governmental Governmental General Fund Funds Funds Revenues: Excise taxes -$ 717,840$ -$ 717,840$ Intergovernmental 170,201 - - 170,201 Departmental 184,374 - 72,143 256,517 Investment income 9,024 2,135 - 11,159 Total Revenues 363,599 719,975 72,143 1,155,717 Expenditures: Current: County adminstration 23,428 - - 23,428 Registry of Deeds 363,374 15,384 - 378,758 Cape Cod license plates - - 88,843 88,843 Gift fund - - 3,176 3,176 Town assessment 250,000 - - 250,000 Total Expenditures 636,802 15,384 92,019 744,205 Excess (Deficiency) of Revenues Over (Under) Expenditures (273,203) 704,591 (19,876) 411,512 Other Financing Sources (Uses): Transfers in 250,000 - - 250,000 Transfers out - (250,000) - (250,000) Total Other Financing Sources (Uses)250,000 (250,000) - - Net Change in Fund Balances (23,203) 454,591 (19,876) 411,512 Fund Balances - Beginning 1,294,756 1,741,708 486,129 3,522,593 Fund Balances - Ending 1,271,553$ 2,196,299$ 466,253$ 3,934,105$ See accompanying notes to basic financial statements. County of Nantucket, Massachusetts Page 13 of 35 Basic Annual Financial Statements COUNTY OF NANTUCKET, MASSACHUSETTS (A COMPONENT UNIT OF THE TOWN OF NANTUCKET, MASSACHUSETTS) NOTES TO BASIC FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2015 I. Summary of Significant Accounting Policies The basic financial statements of the County of Nantucket, Massachusetts (the County) have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to state and local governments. GAAP is prescribed by the Governmental Accounting Standards Board (GASB), which is the primary standard-setting body for state and local governmental entities. The following is a summary of the more significant policies and practices used by the County: A. Reporting Entity The County of Nantucket adheres to the County Commissioner/County Manager form of government created under MGL Chapter 34A Section 18 and as voted by the citizens of the Town of Nantucket. The County is legally separate from the Town, but is included in the Town’s financial statements as a discretely presented component unit because the Town is financially accountable for, and can impose its will on, the County. The County shares the same geographical boundaries as the Town, and the Town’s Selectman serve ex-officio as the County Commissioners. The County operates a Registry of Deeds and Correction’s Office. For financial reporting purposes, the County has included all funds, organizations, account groups, agencies, boards, commissions and institutions. The County has also considered all potential component units for which it is financially accountable as well as other organizations for which the nature and significance of their relationship with the County are such that exclusion would cause the basic financial statements to be misleading or incomplete. It has been determined that there are no component units that meet the requirements for inclusion in the County’s financial statements. B. Government-Wide and Fund 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 County. These are considered Governmental activities because they are supported by intergovernmental revenues and departmental charges as opposed to business-type activities, which rely to a significant extent on user fees and charges for support. The County does not report any business-type activities. Separate financial statements are provided for governmental funds. Major individual government funds are reported as separate columns in the fund financial statements. Nonmajor funds are aggregated and presented in a single column. Major Fund Criteria – Major funds must be reported if both of the following criteria are met: 1) Total assets and deferred outflow of resources, liabilities and deferred inflow of resources, revenues, or expenditures/expenses of that individual governmental or enterprise funds are at least 10 percent of the corresponding total for all funds of that category or type, and County of Nantucket, Massachusetts Page 14 of 35 Basic Annual Financial Statements 2) Total assets and deferred outflow of resources, liabilities and deferred inflow of resources, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least 5 percent of the corresponding total for all governmental and enterprise funds combined. Additionally, any other governmental fund that management believes is particularly significant to the basic financial statements may be reported as a major fund. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Excise taxes are recognized as revenues in the fiscal year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider are met. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Other items not properly included among program revenues are reported instead as general revenues. For the most part, the effect of interfund activity has been removed from the government-wide financial statements. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized when susceptible to accrual (i.e. measurable and available). Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures are recorded when the related fund liability is incurred, except for interest on general long-term debt which is recognized when payment is due, certain compensated absences, claims and judgments which are recognized when the obligations are expected to be liquidated with current expendable available resources. The government reports the following major governmental funds: General Fund – is the government’s primary operating fund. It accounts for all financial resources of the general government except those required to be accounted for in another fund. Deeds Excise Fund – is used to account for the proceeds from transactions at the Registry of Deeds. Nonmajor Governmental Funds - consist of other special revenue and permanent funds that are aggregated and presented in the Nonmajor Governmental Funds column on the Governmental Funds financial statements. The following describes the general use of these fund types: County of Nantucket, Massachusetts Page 15 of 35 Basic Annual Financial Statements Special Revenue Funds - are used to account for the proceeds of specific revenue sources that are restricted or committed to expenditures for specified purposes other than debt service or capital projects. Capital Projects Funds - are used to account for financial resources that are restricted, committed or assigned to expenditures for capital outlays. Permanent Funds - are used to account for financial resources that are restricted to the extent that only earnings, not principal, may be used for purposes that support the governmental programs. D. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position or Equity Deposits and Investments – The County’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. County investments are reported at fair value. Receivables – The recognition of revenue related to accounts receivable reported in the government-wide financial statements are reported under the accrual basis of accounting. The recognition of revenue related to accounts receivable reported in the governmental funds financial statements are reported under the modified accrual basis of accounting. Departmental and other receivables consist of various departmental revenues earned at year-end and received subsequent to year-end, net of allowance for uncollectible accounts. Allowance for uncollectible accounts are estimated based upon historical trends and specific account analysis. Intergovernmental receivables consist of various federal and state grants for operating and capital purposes that are applied for and received annually. For non-expenditure driven grants, receivables are recognized as soon as all eligibility requirements imposed by the provider have been met. For expenditure driven grants, receivables are recorded when the qualifying expenditures are incurred and all other grant applications are met. These receivables are considered 100% collectible and therefore do not report an allowance for uncollectible accounts. Inventories – Inventories, which are not material to the basic financial statements, are considered to be expenditures at the time of purchase. Capital Assets – Capital assets, which include land, buildings and improvements, machinery and equipment, vehicles and infrastructure (e.g. roads, utility mains, and similar items), are reported in the applicable governmental columns in the government-wide financial statements. Capital assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at the estimated fair market value at the date of donation. All purchases and construction costs in excess of $10,000 whose expected lives are greater than one year are capitalized at the date of acquisition or construction. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. County of Nantucket, Massachusetts Page 16 of 35 Basic Annual Financial Statements Capital assets (excluding land) are depreciated using the straight line method over the following estimated useful lives: Machinery and equipment 5-7 years Interfund Balances – Activity between funds that are representative of lending arrangements outstanding at the end of the fiscal year are referred to as either due to/from other funds or advances to/from other funds. All other outstanding balances between funds are reported as due to/from other funds. Interfund Transfers – During the course of its operations, resources are permanently reallocated between and within funds. These transactions are reported as transfers in and transfers out in the individual fund statements. Investment Income – Investment income derived from major and nonmajor governmental funds is legally assigned to the general fund unless otherwise directed by state law. Long-term Obligations – Long-term debt is reported as liabilities in the government-wide statement of net position. Bond premiums and discounts are amortized over the life of the bonds using the effective interest method. Bond anticipation notes payable are reported net of the applicable bond premium or discount. In the governmental fund financial statements, the face amount of long-term debt issued is reported as other financing sources. Premiums received on a debt issuance are reported as other financing sources while discounts are reported as other financing uses. Issuance costs are exclusively reported as general government expenditures regardless of whether they are withheld from the actual proceeds. Deferred Outflows/Inflows of Resources – In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The County has one item that is reported on the government- wide statement of net position which relate to outflows from changes in the net pension liability. The deferred pensions will be recognized in pension expense in future years as more fully described in Note III, subsection A. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The County does not have any items that qualify for reporting as deferred inflows of resources. Net Position – In the government-wide financial statements, net position reported as “net investment in capital assets” includes capital assets, net of accumulated depreciation, less the principal balance of outstanding debt used to acquire capital assets. Unspent proceeds of capital related debt are not considered to be capital related debt. Net position is reported as restricted when amounts are not available for appropriation or are legally restricted by outside parties for a specific use. Net position has been restricted for the following: County of Nantucket, Massachusetts Page 17 of 35 Basic Annual Financial Statements Other purposes represent assets that are restricted by donors for specific governmental programs and uses. Fund Equity – In the fund financial statements, fund balance for governmental funds is reported in classifications that comprise a hierarchy based primarily on the extent in which the County is required to honor constraints on the specific purpose for which amounts in the funds can be spent. Fund balance is reported in five components – nonspendable, restricted, committed, assigned, and unassigned as described below: Nonspendable represents amounts that cannot be spent because they are either (a) not in spendable form (i.e. inventory or prepaid) or (b) legally or contractually required to be maintained intact as the corpus of the endowment. Restricted represents amounts that have constraints placed either externally by third-parties (creditors, grantors, contributors, or laws or regulations of other governments) or by law through constitutional provisions or enabling legislation. Enabling legislation authorizes the County to assess, levy, charge or otherwise mandate payment of resources (from external resource providers) and includes a legally enforceable requirement (compelled by external parties) that those resources be used only for the specific purposes stipulated in the legislation. Committed represents amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the County’s highest level of decision making authority, which consists of the County Commissioners. Those committed amounts cannot be used for any other purpose unless the County Commissioners remove or change the specified use by taking the same type of action it employed previously to commit those amounts. Assigned represents amounts that are constrained by the County’s intent to be used for specific purposes, but are neither restricted nor committed. Unassigned represents amounts that have not been restricted, committed or assigned to specific purposes within the general fund. The general fund is the only fund that reports a positive unassigned fund balance amount. Other governmental funds besides the general fund can only report a negative unassigned fund balance amount. When both restricted and unrestricted resources are available for use, it is the County’s policy to use restricted resources first, then unrestricted resources (committed, assigned and unassigned) as they are needed. When unrestricted resources (committed, assigned and unassigned) are available for use it is the County’s policy to use committed resources first, then assigned, and then unassigned as they are needed. The County has not established financial policies with respect to maintaining minimum fund balance amounts. The County does not report encumbrances in any of its funds. County of Nantucket, Massachusetts Page 18 of 35 Basic Annual Financial Statements The following table reflects the County’s fund equity categorizations: E. Deficits During the fiscal year ended, the County did not report any fund deficits. F. Use of Estimates The preparation of basic financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure for contingent assets and liabilities at the date of the basic financial statements and the reported amounts of the revenues and expenditures/expenses during the fiscal year. Actual results could vary from estimates that were used. II. Detailed Notes to All Funds A. Deposits and Investments A cash and investment pool is maintained that is available for use by all funds. Each fund type’s portion of this pool is displayed on the balance sheet as “cash and cash equivalents”. The deposits and investments of trust funds are held separately from those of other funds. State laws and regulations require the County to invest funds only in pre-approved investment instruments which include but are not necessarily limited to bank deposits, money markets, certificates of deposit, U.S. obligations, repurchase agreements, and State Treasurer’s investment pool (“the Pool”). In addition, the statutes impose various limitations on the amount and length of investments and deposits. Repurchase agreements cannot be for a period of over ninety days, and the underlying security must be a United States obligation. During the fiscal year, the County did not enter into any repurchase agreements. Custodial Credit Risk: Deposits- The County has adopted a deposit policy which requires that the Treasurer review each bank doing business with the County on a quarterly basis. The policy does not restrict the value of uninsured or uncollateralized investments held at any time. At year-end, the carrying amount of the County's deposits was $3,887,606 and the bank balance of $3,923,097 was covered by federal depository insurance or fully collateralized. Nonmajor General Deeds Excise Intergovernmental Fund Fund Funds Total Restricted: County adminstration -$ 874,010$ -$ 874,010$ Registry of Deeds - 1,320,882 - 1,320,882 Corrections Department - 1,407 - 1,407 Cape Cod license plates - - 283,717 283,717 State and Federal grants - - 182,536 182,536 Unassigned 1,271,553 - - 1,271,553 1,271,553$ 2,196,299$ 466,253$ 3,934,105$ County of Nantucket, Massachusetts Page 19 of 35 Basic Annual Financial Statements Custodial Credit Risk: Investments- The County has adopted an investment policy regarding custodial credit risk that requires all securities not held directly by the Treasurer must be held by a third party custodian approved by the Treasurer in the County’s name and tax identification number At year-end, the County’s investments consisted of certificates of deposit totaling $42,941 which were covered by federal depository insurance and were not subject to custodial credit risk. These have been classified as cash equivalents due to their maturities. Interest Rate Risk - The County limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. The policy limits investments of operating funds to one year or less and limits investment maturities of trust funds and other special funds to periods no longer that seven years, maintaining an average maturity no greater than three years for the investment portfolio Credit Risk - The County restricts the investment of operating funds to U.S. Treasury or Agency securities which carry “AAA” ratings. Trust and other special funds which are longer-term investments may invest in fixed-income securities which are held principally for capital preservation and income potential and corporate debt that carries a rating of “A” or better by either Standard and Poor’s or Moody’s rating services. If a security falls below the “A” rating, the security will be monitored by the Treasurer and advisor and will be noted as an exception to the policy if held in the investment portfolio. The Treasurer will sell the securities if a decline in value is expected Concentration of Credit Risk – The County does not place a limit on the amount that may be invested in any one issuer. B. Receivables Receivables as of year-end for the County’s individual major governmental funds in the aggregate, including the applicable allowances for uncollectible accounts, are as follows: C. Interfund Receivables, Payables and Transfers The composition of interfund balances for the fiscal year ended June 30, 2015, is as follows: Gross Allowance for Net Amount Uncollectibles Amount Receivables: Intergovernmental 70,672$ - 70,672$ 70,672$ -$ 70,672$ Amount General Fund Deeds Excise Fund 266,200$ Total 266,200$ Receivable Fund Payable Fund County of Nantucket, Massachusetts Page 20 of 35 Basic Annual Financial Statements The outstanding balances between funds results mainly from the timing differences between the dates that the transactions occur and the transfers of cash to the individual funds are made. Interfund transfer for the fiscal year ended June 30, 2015, are summarized as follows: D. Capital Assets Capital asset activity for the year ended June 30, 2015 was as follows: General Fund Deeds Excise Fund 250,000$ (1) Total 250,000$ (1) Transfer to the general fund for Town assessments. Transfers In Transfers Out Beginning Ending Balance Increases Decreases Balance Governmental Activities: Capital assets not being depreciated: Land 3,283,842$ -$ -$ 3,283,842$ Total capital assets not being depreciated 3,283,842 - - 3,283,842 Capital assets being depreciated: Machinery and equipment 187,927 - - 187,927 Total capital assets being depreciated 187,927 - - 187,927 Less accumulated depreciation for: Machinery and equipment (145,344) (15,992) - (161,336) Total accumulated depreciation (145,344) (15,992) - (161,336) Total capital assets being depreciated, net 42,583 (15,992) - 26,591 Governmental activities capital assets, net 3,326,425$ (15,992)$ -$ 3,310,433$ Depreciation expense was charged to functions/programs as follows: Governmental Activities: County adminstration 861$ Registry of Deeds 12,256 Cape Cod license plates 2,875 15,992$ County of Nantucket, Massachusetts Page 21 of 35 Basic Annual Financial Statements E. Long–Term Obligations The following reflects the current year activity in the long-term liability accounts: The long-term obligations are expected to be liquidated from the general fund. Annually, the County is assessed by the Town of Nantucket for debt the Town has in its’ name relating to “Sheriff Space”. Since the debt is in the Town’s name it is shown as a town assessment in the County’s financial statements. During the year ended June 30, 2015, the assessment was $250,000. III. Other Information A. Retirement System Pension Plan Description – The County of Nantucket contributes to the Barnstable County Retirement System (Retirement System), a cost-sharing multiple-employer defined benefit pension plan. The Retirement System was established under Chapter 32 of Massachusetts General Laws. The Retirement System is administered by the County and is part of the reporting entity. Stand-alone financial statements for the year ended December 31, 2014 were issued and are available at the Retirement Office, 750 Attucks Lane, Hyannis, Massachusetts 02601. Current membership in the Retirement System for all employers as of December 31, 2014 was as follows: Retirees and beneficiaries currently receiving benefits 2,729 Active plan members 4,696 Inactive plan members 651 Total 8,076 Benefit Terms – Membership in the Retirement System is mandatory for all full-time employees and non-seasonal, part-time employees who, in general, regularly work more than twenty hours per week. Teachers and certain administrative personnel employed by the school department participate in a separate pension plan administered by the Massachusetts Teachers’ Retirement System, which is the legal responsibility of the Commonwealth of Massachusetts. Members of the Retirement System do not participate in the federal Social Security retirement system. Massachusetts contributory retirement system benefits are uniform from retirement system to retirement system. The Retirement System provides for retirement allowance benefits up to a maximum of 80% of a participant’s highest three-year or five-year average annual rate of regular Beginning Ending Due within Balance Additions Deletions Balance one year Governmental Activities: Other postemployment benefits 106,380$ 27,847$ (8,539)$ 125,688$ -$ Net pension benefits *514,698 51,714 (47,838) 518,574 - Total Governmental Activities 621,078$ 79,561$ (56,377)$ 644,262$ -$ * Restated due to GASB 68 implementation (See Note III subsection E for more details) County of Nantucket, Massachusetts Page 22 of 35 Basic Annual Financial Statements compensation, depending on the participant’s date of hire. Benefit payments are based upon a participant’s age, length of creditable service, level of compensation and job classification. The most common benefits paid by the Retirement System include normal retirement, disability retirement and survivor benefits. Normal retirement generally occurs at age 65. However, participants may retire after twenty years of service or at any time after attaining age 55, if hired prior to April 2, 2012 or at any time after attaining age 60 if hired on or after April 2, 2012. Participants with hire dates subsequent to January 1, 1978 must have a minimum of ten years’ creditable service in order to retire at age 55. Participants become vested after ten years of service. Benefits commencing before age 65 are provided at a reduced rate. Members working in certain occupations may retire with full benefits earlier than age 65. Ordinary disability retirement is where a participant is permanently incapacitated from a cause unrelated to employment. Accidental disability retirement is where the disability is the result of an injury or illness received or aggravated in the performance of duty. The amount of benefits to be received in such cases is dependent upon several factors, including the age at which the disability retirement occurs, the years of service, average compensation and veteran status. Survivor benefits are extended to eligible beneficiaries of participants whose death occurs prior to or following retirement. Cost-of-living adjustments granted to members of Massachusetts retirement systems granted between 1981 and 1997 and any increases in other benefits imposed by the Commonwealth during those years have been the financial responsibility of the Commonwealth. Beginning in 1998, the funding of cost-of-living amounts became the responsibility of the participating units like the Retirement System. Contributions Requirements – The Retirement System has elected provisions of Chapter 32, Section 22D (as amended) of Massachusetts General Laws, which require that a funding schedule be established to fully fund the pension plan by June 30, 2040. Under provisions of this law, participating employers are assessed their share of the total retirement cost based on the entry age, normal actuarial cost method. The County contributed $47,838 to the Retirement System in fiscal year 2015, which equaled the actuarially-determined contribution requirement for the fiscal year. The County’s contributions as a percentage of covered payroll was approximately 19.9% in fiscal year 2015. Net Pension Liability – At June 30, 2015, the County reported a liability of $518,574 for its proportionate share of the net pension liability. The net pension liability was measured as of January 1, 2014 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. These figures were updated by the independent actuary to December 31, 2014. There were no material changes made in this update to the actuarial assumptions (see below) nor were there any material changes to the Retirement System’s benefit terms since the actuarial valuation. The County’s proportion of the net pension liability is based on a projection of the County’s long- term share of contributions to the Retirement System relative to the projected contributions of all employers. The County’s proportion was approximately 0.092% at December 31, 2014, which was consistent with the proportion measured at January 1, 2014. County of Nantucket, Massachusetts Page 23 of 35 Basic Annual Financial Statements Pension Expense – The County recognized $50,825 in pension expense in the statement of activities in fiscal year 2015. Deferred Outflows of Resources and Deferred Inflows of Resources – At June 30, 2015, the County reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual Experience $ — $ — Changes of assumptions — — Net difference between projected and actual earnings on pension plan investments 888 — Changes in proportion and differences between County contributions and proportionate share of contributions — — County contributions subsequent to the measurement date — — Total $ 888 $ — The deferred outflows of resources and deferred inflows of resources are expected to be recognized in the County’s pension expense as follows: Year ended June 30, 2016 $ ( 222) 2017 ( 222) 2018 ( 222) 2019 ( 222) Actuarial Valuation – The measurement of the Retirement System’s total pension liability is developed by an independent actuary. The latest actuarial valuation was performed as of January 1, 2014. The significant actuarial assumptions used in the January 1, 2014 actuarial valuation included: Actuarial cost method: Entry Age Normal Cost Method Amortization method: Payment increase at 4.0% except for 2010 Early Retirement Incentive, which is a level payment Remaining amortization period: 22 years from July 1, 2014 for 2002 and 2003 Early Retirement Incentives, retiree sheriffs liability and remaining unfunded liability, and 8 years from July 1, 2014 for Early Retirement Incentive. County of Nantucket, Massachusetts Page 24 of 35 Basic Annual Financial Statements Asset valuation method: Sum of actuarial value at beginning of the year, contributions and investment earnings based on the actuarial interest assumption less benefit payments and operating expenses plus 20% of the market value at the end of the year in excess of that sum, plus additional adjustment toward market value as necessary so that final actuarial value is within 20% of market value. Investment rate of return: 7.75% Projected salary increases: Varies by length of service with ultimate rates of 4.25% for Group 1, 4.50% for Group 2, and 4.75% for Group 4 Cost of living adjustments: 3% of first $15,000 Mortality rates: Pre-retirement rates reflect the RP-2000 Employees table projected 12 years with Scale AA (gender distinct). Post-retirement rates reflect the RP-2000 Healthy Annuitant table projected 12 years with Scale AA (gender distinct). Disabled life mortality: For disabled retirees, the table is set forward 3 years for males. It is assumed that 55% of pre-retirement deaths are job-related for group 1and 2 members and 90% are job-related for group 4 members. For members retired under an Accidental Disability, 40% of deaths are assumed to be from the same cause as the disability. The investment rate of return assumption is a long-term assumption and is based on capital market expectations by asset class, historical returns and professional judgment. The market expectations analysis used a building-block approach, which included expected returns by asset class and the target asset allocation. The target allocation and best estimates of arithmetic real returns for each major asset class are summarized in the following table: Asset Class Target Allocation Long-term Expected Real Rate of Return Domestic equity 20.0% 6.60% International developed markets equity 16.0% 7.10% International emerging markets equity 7.0% 9.40% Core fixed income 13.0% 2.20% High-yield fixed income 10.0% 4.70% Real estate 10.0% 4.40% Commodities 4.0% 4.40% Hedge funds 10.0% 3.90% Private equity 10.0% 11.70% County of Nantucket, Massachusetts Page 25 of 35 Basic Annual Financial Statements Discount Rate – The discount rate used to measure the total pension liability in the January 1, 2014 actuarial valuation report was 7.75%, which was a reduction from the previous discount rate of 7.875%. The projection of cash flows used to determine the discount rate assumed plan member contributions were made at the current contribution rate and that employer contributions will be made at rates equal to the actuarially-determined contribution rates and the member rate. Based on those assumptions, the Retirement System’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity Analysis – The following presents the County’s proportionate share of the net pension liability calculated using the discount rate of 7.75% as well as the County’s proportionate share of the net pension liability using a discount rate that is one percentage point lower (6.75%) or one percentage point higher (8.75%) than the current rate: 1% Decrease (6.75%) Current Discount (7.75%) 1% Increase (8.75%) County’s proportionate share of the net pension liability $ 668,521 $ 518,574 $ 391,426 B. Other Postemployment Benefits (OPEB) Plan Description – Nantucket County’s employees participate in the multiple-employer defined benefit healthcare plan administered by the Town. The Plan provides health and life insurance benefits to current and future retirees, their dependents and beneficiaries in accordance with Massachusetts General Law Chapter 32B. Specific benefit provisions and contribution rates are established by collective bargaining agreements, state law, and Town ordinance. All benefits are provided through the Town’s self-funded insurance program described previously. The Plan does not issue a stand–alone financial report. The number of participants in the Plan consists of 490 active employees and 311 retired employees for a total of 801. Funding Policy – The contribution requirements of Plan members and the County are established and may be amended by the Town, through negotiation with the County employee unions. Retirees contribute 10 – 20 percent of the calculated contribution through pension benefit deductions. The remainder of the cost is funded by the County. The County pays the remainder. The County currently contributes enough money to the Plan to satisfy current obligations on a pay-as-you-go basis. The costs of administering the Plan are paid by the Town. Annual OPEB Cost and Net OPEB Obligation – The County's annual OPEB cost is calculated based on the annual required contribution (ARC) of the employer, and actuarially determined amount that is calculated in accordance with GASB Statement number 45. 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 liabilities over a period not to exceed thirty years. County of Nantucket, Massachusetts Page 26 of 35 Basic Annual Financial Statements The following table reflects the activity regarding the County's OPEB obligation: Trend information regarding County’s annual OPEB cost, the percentage of the annual OPEB cost contributed and the net OPEB obligation is as follows: Fiscal Year Ending Annual OPEB Cost (AOPEBC) Percentage of AOPEBC Contributed Net OPEB Obligation June 30, 2015 $ 27,847 31% $ 125,688 June 30, 2014 $ 28,435 38% $ 106,380 June 30, 2013 $ 24,071 41% $ 88,699 The Annual OPEB Cost at June 30, 2015 was charged to the Registry of Deeds functional expense. Funding Status and Funding Progress – The funded status of the Plan at June 30, 2015, based on the most recent actuarial valuation performed as of June 30, 2014, was as follows (in millions): Actuarial Value of Assets (A) Actuarial Accrued Liability (AAL) Entry Age Normal Cost (B) Unfunded AAL (UAAL) (B – A) Funded Ratio (A/B) Covered Payroll (C) UAAL as a Percentage of Covered Payroll ((B-A)/C) $0.25 $88.8 $88.8 0.28% N/A N/A Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events into the future. Amounts determined regarding the funded status of the Plan and the ARC of the employer are subject to continual revision as estimates are compared to actual results and past expectations. The schedules of funding progress, presented as required supplementary information (RSI) following the notes to the financial statements, present multi-year trend information about whether the actuarial values of plan assets are increasing or decreasing over time relative to the AAL for benefits. Annual required contribution (ARC)26,902$ Interest on net OPEB obligation 5,632 Adjustment to ARC (4,687) Annual OPEB cost 27,847 Contributions made (8,539) Increase in net OPEB obligation 19,308 Net OPEB obligation at beginning of year 106,380 Net OPEB obligation at end of year 125,688$ County of Nantucket, Massachusetts Page 27 of 35 Basic Annual Financial Statements Methods and Assumptions – Projections of benefits for financial reporting purposes are based on the substantive Plan and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and the Plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. The significant methods and assumptions as of the latest valuation are as follows: Valuation date: June 30, 2014 Actuarial cost method Projected Unit Credit Amortization method 4.0 percent increasing Remaining amortization period: 30 years (open) Interest discount rate: 4.5 percent Inflation rate: 4.0 percent Healthcare/Medical cost trend rate: 10.0% decreasing by 0.5% for 10 years to an ultimate level of 5.0% per year C. Risk Financing The County is exposed to various risks of loss related to torts: theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the County carries commercial insurance. The amount of claim settlements has not exceeded insurance coverage in any of the previous three years. D. Commitments and Contingencies The County is party to certain legal claims, which are subject to many uncertainties, and the outcome of individual litigation matters in these situations cannot be reasonably estimated. Although the amount of liability, if any, in these situations at June 30, 2015, cannot be ascertained, management believes that the resulting liability, if any, should not materially affect the basic financial statements of the County at June 30, 2015. Other amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal and state governments. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the County expects such amounts, if any, to be immaterial. E. Implementation of New GASB Pronouncements Current Year Implementation In June 2012, the GASB issued GASB Statement No. 67, Financial Reporting for Pension Plans. This Statement replaces the requirements of Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans and Statement 50 as they relate to pension plans that are administered through trusts or similar arrangements meeting certain criteria. This Statement builds upon the existing framework for financial reports of defined benefit pension plans, which includes a statement of fiduciary net position (the amount held in a trust for paying retirement benefits) and a statement of changes in fiduciary net position. Statement 67 enhances note disclosures and RSI for both defined benefit and defined contribution pension plans. Statement 67 also requires the presentation of new information about annual money-weighted rates of return in the notes to the financial statements and in 10-year RSI schedules. The provisions of this Statement became effective for financial statements for periods County of Nantucket, Massachusetts Page 28 of 35 Basic Annual Financial Statements beginning after June 15, 2013 and impact the financial reports of the pension systems that communities participate in and not the financial statements of the communities themselves. In June 2012, the GASB issued GASB Statement No. 68, Accounting and Financial Reporting for Pensions — an amendment of GASB Statement No. 27. Statement 68 replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers and Statement No. 50, Pension Disclosures, as they relate to governments that provide pensions through pension plans administered as trusts or similar arrangements that meet certain criteria. Statement 68 requires governments providing defined benefit pensions to recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. The Statement also enhances accountability and transparency through revised and new note disclosures and required supplementary information. The provisions of GASB 68 became effective for the County in fiscal year 2015 and had a material effect on its financial statements. In January 2013, the GASB issued GASB Statement No. 69, Government Combinations and Disposals of Government Operations. GASB 69 established accounting and financial reporting standards to government combinations and disposals of government operations. The provisions of GASB 69 became effective for the County in fiscal 2015 and did not have a material effect on its financial statements. In April 2013, the GASB issued GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees. The objective of GASB 70 is to improve accounting and financial reporting by governments that extend and receive nonexchange financial guarantees. The provisions of GASB 70 became effective for the County in fiscal year 2015 and did not have a material effect on its financial statements. In November 2013, the GASB issued GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68. The objective of GASB 71 is to address an issue regarding application of the transition provisions of GASB 68. The issue relates to amounts associated with contributions, if any, made by a state or local government employer or nonemployer contributing entity to a defined pension plan after the measurement date of the government’s beginning net pension liability. The provisions of GASB 71 became effective for the County in fiscal year 2015 and had a material effect on its financial statements. Future Year Implementation In February 2015, the GASB issued GASB Statement No. 72, Fair Value Measurement and Application. GASB 72 addresses accounting and financial reporting issues relating to fair value measurements by providing guidance for determining a fair value measurement for financial reporting purposes. The provisions of this Statement are effective for financial reporting periods beginning after June 15, 2015 (fiscal year 2016). The County is currently evaluating whether adoption will have a material impact on the financial statements. In June 2015, the GASB issued GASB Statement No. 73, Accounting and Financial Reporting for Pension and Related Assets That Are Not within the Scope of GASB Statement No. 68 and Amendments to Certain Provision of GASB Statement No. 67 and No. 68. The objective of GASB 73 is to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. This Statement establishes requirements for defined benefit pensions that are not within the scope of Statement No. 68, Accounting and Financial Reporting for County of Nantucket, Massachusetts Page 29 of 35 Basic Annual Financial Statements Pensions, as well as for the assets accumulated for purposes of providing those pensions. In addition, it establishes requirements for defined contribution pensions that are not within the scope of Statement 68. The provisions of this Statement are effective for financial reporting periods beginning after June 15, 2015 (fiscal year 2016) – except those provisions that address employers and governmental nonemployer contributing entities for pensions that are not within the scope of GASB Statement No. 68, which are effective for fiscal years beginning after June 15, 2016 (fiscal year 2017). The County is currently evaluating whether adoption will have a material impact on the financial statements. In June 2015, the GASB issued GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans. GASB 74’s objective is to improve the usefulness of information about postemployment benefits other than pensions included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. The provisions of this Statement are effective for financial reporting periods beginning after June 15, 2016 (fiscal year 2017). The County is currently evaluating whether adoption will have a material impact on the financial statements. In June 2015, the GASB issued GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pension Plans. GASB 75 established new accounting and financial reporting requirements for governments whose employees are provided with OPEB, as well as for certain nonemployer governments that have a legal obligation to provide financial support for OPEB provided to the employees of other entities. The provisions of this Statement are effective for financial reporting periods beginning after June 15, 2017 (fiscal year 2018). The County is currently evaluating whether adoption will have a material impact on the financial statements. In June 2015, the GASB issued GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The objective of GASB 76 is to identify – in the context of the current governmental financial reporting environment – the hierarchy of generally accepted principles (GAAP). This Statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. The provisions of this Statement are effective for financial reporting periods beginning after June 15, 2015 (fiscal year 2016). The County is currently evaluating whether adoption will have a material impact on the financial statements. IV. Prior Period Restatements A prior period adjustment was made to decrease the County’s beginning net position to reflect the net pension liability with the implementation of GASB 68. A summary of the restatements is as follows: * * * * * * Prior year as presented 6,742,638$ Record net pension liability (514,698) As restated 6,227,940$ County of Nantucket, Massachusetts Page 30 of 35 Basic Annual Financial Statements COUNTY OF NANTUCKET, MASSACHUSETTS (A COMPONENT UNIT OF THE TOWN OF NANTUCKET, MASSACHUSETTS) RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES JUNE 30, 2015 Net Change in Fund Balances - Total Governmental Fund Balances 411,512$ 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. This amount represents the net amount of depreciation expense in excess of capital outlay. The amounts are represented here as reconciling items: Depreciation expense (15,992) Net effect of reporting capital assets (15,992) Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in the governmental funds: Other postemployment benefits (19,308) Pension benefits (2,988) Net effect of reporting long-term liabilities (22,296) Change in Net Position of Governmental Activities 373,224$ See accompanying notes to basic financial statements. County of Nantucket, Massachusetts Page 31 of 35 Basic Annual Financial Statements COUNTY OF NANTUCKET, MASSACHUSETTS REQUIRED SUPPLEMENTARY INFORMATION - PENSIONS YEAR ENDED JUNE 30, 2015 SCHEDULE OF THE COUNTY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY Year Ended December 31, 2014 County's proportion of the net pension liability (asset)0.09% County's proportionate share of the net pension liability (asset)518,581$ County's covered-employee payroll *240,934$ County's proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll 215.2% Plan fiduciary net position as a percentage of the total pension liability 65.5% SCHEDULE OF THE COUNTY'S CONTRIBUTIONS TO PENSION PLAN Year Ended December 31, 2014 Actuarially determined contribution 47,839$ Contributions in relation to the actuarially determined contribution 47,839 Contribution deficiency (excess) -$ County's covered-employee payroll * 240,934$ Contributions as a percentage of covered-employee payroll 19.9% * Covered employee payroll as reported in the actuarial valuation report. This schedule is presented to illustrate the requirement to show information for ten years. However, until a full ten-year trend is compiled, information is presented for those years in which information is available. See accompanying independent auditor's report. County of Nantucket, Massachusetts Page 32 of 35 Basic Annual Financial Statements COUNTY OF NANTUCKET, MASSACHUSETTS REQUIRED SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2015 SCHEDULE OF FUNDING PROGRESS Other Postemployment Benefits UAAL as a Actuarial Actuarial Unfunded Percentage Actuarial Value of Accrued AAL Funded Covered of Covered Valuation Assets Liability (AAL)(UAAL)Ratio Payroll Payroll Date (a)(b)(b-a)(a/b)(c)(b-a/c) 6/30/2014 -$ 416,517$ 416,517$ 0.0%N/A N/A 6/30/2012 - 272,602 272,602 0.0%N/A N/A 6/30/2010 - 83,358 83,358 0.0%N/A N/A SCHEDULE OF CONTRIBUTION FUNDING Other Postemployment Benefits Annual Year Ended Required Actual Percentage June 30,Contributions Contributions Contributed 2015 27,847$ 8,539$ 30.7% 2014 28,435 10,754 37.8% 2013 24,071 9,789 40.7% See accompanying independent auditor's report. County of Nantucket, Massachusetts Page 33 of 35 Basic Annual Financial Statements 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 County Commissioners County of Nantucket, Massachusetts Nantucket, Massachusetts We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the County of Nantucket, Massachusetts (the “County”), as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the County’s basic financial statements and have issued our report thereon dated January 15, 2016. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the County’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the County’s internal control. Accordingly, we do not express an opinion on the effectiveness of the County’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. 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. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. County of Nantucket, Massachusetts Page 34 of 35 Basic Annual Financial Statements County of Nantucket, Massachusetts Page Two Compliance and Other Matters As part of obtaining reasonable assurance about whether the County’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to 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 entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Roselli, Clark & Associates Certified Public Accountants Woburn, Massachusetts January 15, 2016 County of Nantucket, Massachusetts Page 35 of 35 Basic Annual Financial Statements