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750-1050 Word paper evaluating the financial health of a company (financials attached). Highlight importance of industry (county government financials attached) comparisons and trends.

ANNUAL FINANCIAL REPORT of LEON COUNTY, TEXAS For the Year Ended September 30, 2013 (This page intentionally left blank.) LEON COUNTY, TEXAS TABLE OF CONTENTS September 30, 2013 INTRODUCTORY SECTION List of Elected and Appointed Officials Organizational Chart Page 1 3 FINANCIAL SECTION Independent Auditors' Report 7 Management's Discussion and Analysis (Required Supplementary Information) 13 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position Statement of Activities 23 25 FUND FINANCIAL STATEMENTS Governmental Funds Financial Statements Balance Sheet - Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 26 28 31 Fiduciary Funds Financial Statements Statement of Fiduciary Net Postion - Agency Funds 33 Notes to Financial Statements 35 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual - General Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual - Road and Bridge Fund Schedule of Funding Progress - Texas County and District Retirement System Combining Statements and Schedules Combining Balance Sheet - Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual - Nonmajor Governmental Funds Combining Statement of Net Postion - Agency Funds 50 53 55 60 66 72 97 (This page intentionally left blank.) INTRODUCTORY SECTION (This page intentionally left blank.) LEON COUNTY, TEXAS LIST OF ELECTED AND APPOINTED OFFICIALS For the Year Ended September 30, 2013 COMMISSIONERS'COURT Byron Ryder Joey Sullivan David Ferguson Dean Stanford David Grimes County Judge Commissioner, Precinct # 1 Commissioner, Precinct # 2 Commissioner, Precinct # 3 Commissioner, Precinct # 4 DISTRICT COURTS Deborah Oakes Evans Kenneth Keeling Bascom W. Bentley, III Whitney T. Smith Diane Oden Davis Judge, 87th Judicial District Judge, 278th Judicial District Judge, 369th Judicial District District Attorney District Clerk COUNTYCOURT Byron Ryder James R. Witt Christie Wakefield County Judge County Attorney County Clerk JUSTICE COURTS Lori Reid Jack Keeling Doug Preston Justice of the Peace, Precinct # 1 Justice of the Peace, Precinct # 2 Justice of the Peace, Precinct # 4 LAW ENFORCEMENT Kevin Ellis Wade Thomas George Holleman Larry L.T. Watson Sheriff Constable, Precinct # 1 Constable, Precinct # 2 Constable, Precinct # 4 FINANCIAL ADMINISTRATION Susan Pugh Robin Shafer Brandi S. Hill County Auditor* Tax Assessor - Collector County Treasurer * Designated appointed official. All others elected. (This page intentionally left blank.) 2 LEON COUNTY, TEXAS ORGANIZATIONAL CHART For the Year Ended September 30, 2013 Leon County Citizens County Commissioners Joey Sullivan, Pct. 1 David Ferguson, Pct. 2 Dean Stanford Pct. 3 David Grimes, Pct. 4 County Clerk Christie Wakefield District Clerk Diane Oden Davis County Attorney James R. Witt Justices of the Peace Lori Reid, Pct. 1 Jack Keeling, Pct. 2 Doug Preston, Pct. 4 District Attorney Whitney T. Smith County Judge Byron Ryder Commissioners' Court Various Ad Hoc Committees 911 Mapping & Addressing Juvenile Probation Domestic Violence Senior Nutrition Veterans Officer Building Maintenance Elections Administrator County Treasurer Brandi S. Hill Tax Assessor - Collector Robin Shafer Leon County Health Resource Center Emergency Management County Sheriff Kevin Ellis Constables Wade Thomas, Pct. 1 George Holleman, Pct. 2 Larry L. T. Watson, Pct. 4 3 J District Judges Deborah O. Evans, 87t' Kenneth Keeling, 278th Bascom W. Bentley, III, 369 th Adult Probation County Auditor Susan Pugh Juvenile Board (This page intentionally left blank.) 4 FINANCIAL SECTION 5 (This page intentionally left blank.) 6 INDEPENDENT AUDITORS' REPORT To the Honorable County Judge and Members of the Commissioners' Court of Leon County, Texas: 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 Leon County, Texas (the "County"), as of and for the year ended September 30, 2013, 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 fmancial statements that are free from material misstatement, whether due to fraud or error. Auditors' 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. 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 County'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 County'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. 7 Partners Robert Belt, CPA Stephanie R. Harris, CPA Nathan Krupkc, CPA Houston 3210 Binglc Rd., Ste. 300 Houston, TX 77055 713.263.1123 Bellville 1304 South Front St. Bellville,TX 77418 979.865.3169 Austin 100 Congress Ave., Ste. 2000 Austin, TX 78701 512.381.0222 All Offices www.texasauditors.com info@txauditurs.com 713.263.1550 fax Governmental Audit Quality Center AIC PA 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 September 30, 2013, and the respective changes in financial position and, where applicable, cash flows thereof 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, budgetary comparison information, and schedule of funding progress, identified as Required Supplementary information on the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the Required Supplementary Information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the County's basic fmancial statements. The introductory section and combining statements and schedules are presented for purposes of additional analysis and are not required parts of the basic financial statements. The combining statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining statements and schedules are fairly stated in all material respects in relation to the basic financial statements as a whole. 8 The introductory section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. E -.T t sL AF^RRIS ^` CHAGEI , W Belt Harris Pechacek, LLLP Certified Public Accountants Houston, Texas January 27, 2014 9 (This page intentionally left blank.) 10 MANAGEMENT'S DISCUSSION AND ANALYSIS (This page intentionally left blank.) 12 LEON COUNTY, TEXAS MANA GEMENT'S DISCUSSIONAND ANALYSIS For the Year Ended September 30, 2013 The purpose of the Management's Discussion and Analysis (MD&A) is to give the readers an objective and easily readable analysis of the financial activities of Leon County, Texas (the "County") for the year ended September 30, 2013. The analysis is based on currently known facts, decisions, or economic conditions. It presents short and long term analysis of the County's activities, compares current year results with those of the prior year, and discusses the positive and negative aspects of that comparison. Please read the MD&A in conjunction with the County's financial statements, which follow this section. THE STRUCTURE OF OUR ANNUAL REPORT The table of contents presented at the beginning of this report provides an overview of the structure of the County's report, as well as the page numbers where the respective sections can be located within the report, as more fully described below. Components of the Financial Section Management's Discussion and Analysis Independent Auditors' Report Basic Financial Statements Government-Wide Financial Statements Summary Required Supplementary Information Fund Financial Statements Notes to the Financial Statements Detail The County's basic financial statements include (1) government-wide financial statements, (2) individual fund financial statements, and (3) notes to the financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic fmancial statements themselves. GOVERNMENT-WIDE STATEMENTS The government-wide statements report information for the County as a whole. These statements include transactions and balances relating to all assets, including infrastructure capital assets. These statements are designed to provide information about cost of services, operating results, and financial position of the County as an economic entity. The Statement of Net Position and the Statement of Activities, which appear first in the County's financial statements, report information on the County's activities that enable the reader to understand the financial condition of the County. These statements are prepared using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account even if cash has not yet changed hands. The Statement of Net Position presents information on all of the County's assets, liabilities, and deferred inflows/outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the County 13 LEON COUNTY, TExAS MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) For the Year Ended September 30, 2013 is improving or deteriorating. Other non-financial factors, such as the County's property tax base and the condition of the County's infrastructure, need to be considered in order to assess the overall health of the County. The Statement of Activities presents information showing how the County's net position changed during the most recent 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 - the accrual method rather than modified accrual that is used in the fund level statements. In the Statement of Net Position and the Statement of Activities, the County has only one type of activity: 1. Governmental Activities - All of the County's basic services are reported here including general government, judicial, legal, public safety, public welfare, and public transportation. The government-wide financial statements can be found after the MD&A within this report. FUND FINANCIAL STATEMENTS Funds may be considered as operating companies of the parent corporation, which is the County. They are usually segregated for specific activities or objectives. The County uses fund accounting to ensure and demonstrate compliance with finance related legal reporting requirements. The two categories of County funds are governmental and fiduciary. 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 the County'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 County's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The County maintains 30 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 balance for the general, road and bridge, and capital expenditures funds, which are considered to be major funds. Although not technically a major fund, management has elected to present the capital expenditures fund as major due to its significance. The County adopts an annual appropriated budget for its general and road and bridge funds. A budgetary comparison schedule has been provided for the general and road and bridge funds to demonstrate compliance with these budgets. 14 LEON COUNTY, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) For the Year Ended September 30, 2013 Fiduciary Funds Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the County's own programs. The County maintains two fiduciary funds. The County's fiduciary activities are reported separately in a statement of fiduciary net position. Notes to Financial Statements The notes to the fmancial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes are the last section of the basic fmancial statements. Other Information In addition to basic financial statements, this MD&A, and accompanying notes, this report also presents certain Required Supplementary Information (RSI). The RSI includes budgetary comparison schedules for the general and road and bridge funds, as well as a schedule of funding progress for the Texas County and District Retirement System. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of the County's financial position. Assets exceed liabilities by $25,984,190 as of September 30, 2013. This compares with $25,548,539 from the prior fiscal year. A portion of the County's net position, 46 percent, reflects its investments in capital assets (e.g., construction in progress, building, equipment, and infrastructure) less any 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. Although the County'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 assets themselves cannot be used to liquidate these liabilities. 15 LEON COUNTY, TEXAS MANAGEMENT'S DISCUSSIONAND ANALYSIS (Continued) For the Year Ended September 30, 2013 Statement of Net Position: The following table reflects the condensed Statement of Net Position: 2012 14,865,716 11,504,477 26,370,193 Total Assets 2013 15,051,553 11,901,824 26,953,377 Total Liabilities 308,191 660,996 969,187 267,510 554,144 821,654 11,901,824 3,029,665 11,052,701 11,504,477 3,188,632 10,855,430 $ Current and other assets Capital assets, net Long-term liabilities Other liabilities Net Position: Net investment in capital assets Restricted Unrestricted Total Net Position $ 25,984,190 $ $ 25,548,539 A portion of the County's net position, $3,029,665 or 12 percent, represents resources that are subject to external restriction on how they may be used. The remaining balance of unrestricted net position, $11,052,701 or 42 percent may be used to meet the County's ongoing obligation to citizens and creditors. The County's total net position increased by $435,651 during the current fiscal year. This was primarily a result of a decrease in expenses in general government and public safety expenses during the year. 16 LEON COUNTY, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) For the Year Ended September 30, 2013 Statement of Activities The following table provides a summary of the County's changes in net position: 2013 Revenues Program revenues: Charges for services Operating grants and contributions General revenues: Property taxes Sales taxes Investment income Other revenue $ 1,212,725 576,474 2012 $ 1,120,623 1,599,824 Total Revenues 7,308,795 2,184,155 225,503 703,235 12,210,887 8,027,492 2,095,433 212,969 828,670 13,885,011 Total Expenses 4,156,346 891,230 182,680 1,794,022 666,747 4,084,211 11,775,236 5,574,489 712,105 180,685 1,991,599 625,923 3,590,106 12,674,907 Change in Net Position 435,651 1,210,104 25,548,539 24,338,435 Expenses General government Judicial Legal Public safety Public welfare Public transportation Beginning net position Ending Net Position 17 $ 25,984,190 $ 25,548,539 LEON COUNTY, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) For the Year Ended September 30, 2013 Graphic presentations of selected data from the summary tables follow to assist in the analysis of the County's activities. Governmental Revenues Sales taxes 18% Governmental Functional Expenses For the year ended September 30, 2013, revenues from governmental activities totaled $12,210,887, compared with $13,885,011 in the prior year. This $1,674,124 decrease occurred as the result of a $718,697 decrease in property tax revenue and also a reduction of $1,023,350 in grant revenue, offset by slight increases/decreases in other revenues and expenditures. The decrease in operating grant revenue is primarily due to a grant received in fiscal year 2012. Property tax revenue decreased as a result of a decrease in property collection rates. Investment earnings increased in the current year due to the increase in cash and investment in certificates of deposit. Investment earnings increased by $12,534 which is an increase of 6 percent. Governmental expenses decreased by $899,671. This decrease is primarily due to decreases in general government and public safety expenses which can be attributed to decreases in grant expenditures for both areas during the year. 18 LEON COUNTY, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) For the Year Ended September 30, 2013 FINANCIAL ANALYSIS OF THE, COUNTY'S FUNDS As noted earlier, fund accounting is used to demonstrate and ensure compliance with finance-related legal requirements. Governmental Funds - The focus of the County's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the County's financing requirements. In particular, the unassigned fund balance may serve as a useful measure of the County's net resources available for spending at the end of the fiscal year. The County's governmental funds reflect a combined fund balance of $13,395,898, an increase of $289,935 over the prior year. Of this, $5,303 is nonspendable for prepaids, $1,970,391 is restricted for road and bridges, $34,997 for capital projects, $561,563 for law enforcement, $23,084 for social services, and $439,630 for other purposes. The net increase of the general fund balance of $447,651 contributed to the overall increase of $289,935 in the combined governmental fund balance. As a measure of the general fund's liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures. Both unassigned fund balance and total fund balance represent 174 percent of total general fund expenditures. The road and bridge fund experienced a slight increase in fund balance of $98,372, due primarily to lower public transportation project expenditures. Capital expenditures fund had an increase in fund balance of $9,380 due to the financing of ongoing capital projects during the year. GENERAL FUND BUDGETARY HIGHLIGHTS Actual general fund revenues were over final budgeted revenues by $936,571 during the year. This net positive variance is attributable to sales taxes, fines and forfeitures, investment income and property taxes exceeding the anticipated amount in the original budget projections. General fund disbursements were under the final budget by $704,943. Transfers out also had a positive variance of $51,137, with an ending total net positive variance for the general fund of $1,692,651. CAPITAL ASSETS At the end of the year, the County's governmental activities funds had invested $11,901,824 net of accumulated depreciation in a variety of capital assets. Major capital asset events during the year included the following: Construction in progress of $1,069,629 New radio tower for $76,500 Two patrol vehicles totaling $60,395 Road and bridge equipment for a total of $364,425 More detailed information about the County's capital assets is presented in the notes to the financial statements. 19 LEON COUNTY, TEXAS MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) For the Year Ended September 30, 2013 ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The County is beginning to experience an increase in ad valorem revenue due to oil and gas evaluations. This will become more apparent in fiscal year 2014. Because of elected/appointed officials' cost cutting measures, the County has continued to provide services to the residents of Leon County at a superior level. The budgets for fiscal year 2014 and fiscal year 2015 will allow the County to maintain services, improve employee compensation, and invest in capital projects while maintaining the same tax rate of .417777. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the County's finances. Questions concerning this report or requests for additional financial information should be directed to Susan Pugh, County Auditor, Leon County, P.O. Box 898, Centerville, Texas 75833. 20 BASIC FINANCIAL STATEMENTS 21 (This page intentionally left blank.) 22 LEON COUNTY, TEXAS STATEMENT OF NET POSITION September 30, 2013 Primary Government Governmental Activities Assets Cash and cash equivalents Investments Receivables, net Prepaids $ Non-depreciable capital assets Net depreciable capital assets 5,428,731 8,176,143 1,441,376 5,303 15,051,553 1,596,617 10,305,207 11,901,824 Total Assets 26,953,377 Liabilities Current: Accounts payable and accrued liabilities 660,996 660,996 Noncurrent liabilities: Long-term liabilities due within one year Long-term liabilities due in more than one year 277,372 30,819 308,191 Total Liabilities 969,187 Net Position Net investment in capital assets Restricted for: Road and bridges Capital projects Law enforcement Social services Other purposes Unrestricted 11,901,824 1,970,391 34,997 561,563 23,084 439,630 11,052,701 Total Net Position See Notes to Financial Statements. 23 $ 25,984,190 (This page intentionally left blank.) 24 LEON COUNTY, TEXAS STATEMENT OF ACTIVITIES For the Year Ended September 30, 2013 Functions/Programs Primary Government: Governmental Activities: General government Judicial Legal Public safety Public welfare Public transportation Total Governmental Activities Total Primary Government Program Revenues Operating Charges for Grants and Services Contributions Expenses $ $ Net (Expense) Revenue and Changes in Net Position Governmental Activities 4,156,346 891,230 182,680 1,794,022 666,747 4,084,211 11,775,236 11,775,236 $ $ 42,900 1,169,825 1,212,725 1,212,725 $ 475,427 101,047 - $ - $ 576,474 576,474 (3,638,019) 379,642 (182,680) (1,794,022) (666,747) (4,084,211) (9,986,037) (9,986,037) General Revenues: Property taxes Sales taxes Investment income Other revenue Total General Revenues 7,308,795 2,184,155 225,503 703,235 10,421,688 Change in Net Position 435,651 Beginning net position Ending Net Position See Notes to Financial Statements. 25 25,548,539 $ 25,984,190 LEON COUNTY, TEXAS BALANCE SHEET GOVERNMENTAL FUNDS September 30, 2013 Road and Bridge General Assets Cash and cash equivalents Investments Receivables, net Prepaids $ Liabilities Accounts payable and accrued liabilities Due to others Other liabilities $ $ 11,517,137 $ Total Assets 3,557,446 6,825,865 1,133,826 345,057 Nonmaj or Governmental Funds $ 35,016 $ $ 780,430 1,320,000 246,613 2,347,043 $ 35,016 $ $ 117,113 $ 19 $ 107,118 452,175 15,052 132,165 701,872 1,055,839 30,278 12,637 5,303 1,104,057 23,326 53,311 Deferred Inflows of Resources Unavailable revenue - property taxes 244,487 - 19 1,970,391 76,637 - Total Liabilities Fund Balances Nonspendable Prepaids Restricted for: Road and bridge Capital projects Law enforcement Social services Other purposes Unassigned Total Fund Balances Total Liabilities, Deferred Inflows of Resources and Fund Balances Capital Expenditures 5,303 34,997 - 561,563 23,084 439,630 (2,160) 1,027,420 10,363,090 10,363,090 $ 11,517,137 1,970,391 $ 2,347,043 34,997 $ 35,016 $ 1,104,057 Adjustments for the Statement of Net Position: Capital assets used in governmental activities are not current financial resources and, therefore, not reported in the governmental funds. Non-depreciable capital assets Depreciable capital assets Accumulated depreciation Other long-term assets are not available to pay for current period expenditures and, therefore, are deferred in the governmental funds. Deferred revenue - delinquent property taxes Long-term liabilities, including compensated absences, are not due and payable in the current period and, therefore, are not reported in the funds. Non-current liabilities due in one year Non-current liabilities due in more than one year Court fines receivable, net of related allowance, are not current financial resources and, therefore, are not reported in the governmental funds. Net Position of Governmental Activities See Notes to Financial Statements. 26 Total Governmental Funds $ $ $ 5,428,731 8,176,143 1,393,076 5,303 15,003,253 485,515 53,311 122,170 660,996 946,359 5,303 1,970,391 34,997 561,563 23,084 439,630 10,360,930 13,395,898 1,596,617 17,257,412 (6,952,205) 946,359 (277,372) (30,819) $ 48,300 25,984,190 27 LEON COUNTY, TEXAS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended September 30, 2013 Road and Bridge General Revenues Property taxes Sales taxes Intergovernmental revenue Charges for services Fines and forfeitures Investment income Other revenue $ 5,546,363 1,586,892 136,325 $ 1,056,205 168,860 46,367 8,541,012 Total Revenues Expenditures Current: General government Judicial Legal Public safety Public welfare Public transportation Capital outlay 1,916,258 597,263 Capital Expenditures $ Nonmaj or Governmental Funds $ 440,149 192,657 20,987 19,146 405,304 1,078,243 37,497 251,564 2,802,582 2,161,220 543,644 180,381 2,357,377 641,325 1,261,204 347,586 - Total Expenditures 60,395 5,944,342 3,573,308 177,124 3,750,432 623,370 623,370 251,190 1,859,980 Excess (Deficiency) of Revenues Over (Under) Expenditures 2,596,670 (947,850) (623,370) (781,737) 1,000,000 632,750 516,269 46,222 1,046,222 632,750 516,269 447,651 98,372 9,380 (265,468) 9,915,439 1,872,019 25,617 Other Financing Sources (Uses) Transfers in Transfers (out) Sale of capital assets Total Other Financing Sources (Uses) (2,149,019) (2,149,019) Net Change in Fund Balances Beginning fund balances Ending Fund Balances $ 10,363,090 See Notes to Financial Statements. 28 $ 1,970,391 $ 34,997 1,292,888 $ 1,027,420 Total Governmental Funds $ 7,462,621 2,184,155 576,474 192,657 1,077,192 225,503 703,235 12,421,837 3,422,424 891,230 180,381 2,357,377 641,325 3,573,308 1,112,079 12,178,124 243,713 2,149,019 (2,149,019) 46,222 46,222 289,935 13,105,963 $ 13,395,898 29 (This page intentionally left blank.) 30 LEON COUNTY, TEXAS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES For the Year Ended September 30, 2013 Net changes in fund balances - total governmental funds $ 289,935 Amounts reported for governmental activities in the Statement of Activities are different because: 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. Capital outlay Depreciation expense Net effect of capital disposals 1,598,847 (1,027,497) (174,003) Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. Deferred revenue Fines and fees receivable (153,826) (57,124) 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. This adjustment reflects the net change on the accrual basis of accounting for compensated absences. (40,681) Change in Net Position of Governmental Activities See Notes to Financial Statements. 31 $ 435,651 (This page intentionally left blank.) 32 LEON COUNTY, TEXAS STATEMENT OF FIDUCIARY NET POSITION AGENCY FUNDS September 30, 2013 Total Agency Funds Assets Cash and investments $ Liabilities Due to others Total Liabilities See Notes to Financial Statements. 33 $ 1,948,366 $ Total Assets 1,948,366 1,948,366 $ 1,948,366 (This page intentionally left blank.) 34 LEON COUNTY, Toms NOTES TO FINANCIAL STATEMENTS For the Year Ended September 30, 2013 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity Leon County, Texas (the "County") is an independent governmental entity created in 1846 by an act of the Texas Legislature. The County is governed by Commissioners' Court, which is composed of four County Commissioners and the County Judge, all of whom are elected officials. The County's financial statements include the accounts of all County operations. The County provides a vast array of services including general government, judicial, legal, public safety, public welfare, and public transportation. Considerations regarding the potential for inclusion of other entities, organizations, or functions in the County's financial reporting entity are based on criteria prescribed by generally accepted accounting principles. These same criteria are evaluated in considering whether the County is a part of any other governmental or other type of reporting entity. The overriding elements associated with the prescribed criteria considered in determining that the County's financial reporting entity status is that of a primary government are that it has a separately elected governing body, it is legally separate, and it is fiscally independent of other state and local governments. Additionally, prescribed criteria under generally accepted accounting principles include considerations pertaining to organizations for which the primary government is financially accountable, and considerations pertaining to 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. Blended Component Unit Leon County Juvenile Probation Department The Leon County Juvenile Probation Department is a legally separate entity from the County but is so closely related to the County that it is, in essence, an extension of the County. This entity is considered a blended component unit for reporting purposes. The financial data of this unit is combined with that of the County since the unit is, in substance, part of the County's operations. The financial statements of the unit are separately audited as of their fiscal year end (August 31) to meet the reporting requirements of their major funding source (the State of Texas). Audited financial statements for the blended component unit can be obtained by contacting the Leon County Auditor, P.O. Box 898, Centerville, Texas 75833. B. 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 nonfiduciary activities of the primary government and its component units. All fiduciary activities are reported only in the fund financial statements. Governmental activities, which normally are supported by taxes, intergovernmental revenues, and other nonexchange transactions, are reported separately from business-type activities, which rely to a significant extent on fees and charges to external customers for support. The County does not report any business-type activities. 35 LEON COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013 C. Basis of Presentation - Government-Wide Financial Statements While separate government-wide and fund financial statements are presented, they are interrelated. The governmental activities column incorporates data from governmental funds. Separate financial statements are provided for governmental funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments in lieu of taxes where the amounts are reasonably equivalent in value to the interfund services provided. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. D. Basis of Presentation - Fund Financial Statements The fund financial statements provide information about the County's funds, including its fiduciary funds. Separate statements for each fund category - governmental and fiduciary - are presented. The emphasis of fund financial statements is on major governmental funds. All remaining governmental funds are aggregated and reported as nonmajor funds. Major individual governmental funds are reported as separate columns in the fund financial statements. The County reports the following governmental funds: The general fund is used to account for all financial transactions not properly includable in other funds. The principal sources of receipts include local property taxes, sales taxes, fines and forfeitures, and charges for services. Disbursements include general government, judicial, legal, public safety, and public transportation. The general fund is always considered a major fund for reporting purposes. The special revenue funds are used to account for and report the proceeds of specific revenue 'sources that are legally restricted or committed to expenditure for specified purposes other than debt service or capital projects. The special revenue funds are considered nonmaj or funds for reporting purposes except one fund. The road and bridge fund is a major fund for reporting purposes. Capital project funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition or construction of capital facilities and other capital assets. The capital expenditures fund accounts for the acquisition or construction of major capital projects within the County. The capital expenditures fund is considered to be a nonmajor fund, however, the County has chosen to report it as a major fund due to its significance. Additionally, the County reports the following fund types: Fiduciary funds are used to account for resources held for the benefit of parties outside the County. The County maintains one type of fiduciary fund, agency funds. The agency funds are custodial in nature and do not present results of operations or have a measurement focus. Agency funds are accounted for using the accrual basis of accounting. These funds are used to account for assets that the County holds for others in an agency capacity. 36 LEON COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013 During the course of operations, the County has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/to other funds and advances to/from other funds. While these balances are reported in fund fmancial statements, certain eliminations are made in the preparation of the government-wide financial statements. Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements, these amounts are reported at gross amounts as transfers in/out. While reported in fund fmancial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. E. Measurement Focus and Basis of Accounting The accounting and fmancial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the fmancial statements. The government-wide and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the County considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of long-term debt and acquisitions under capital leases are reported as other financing sources. Property taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Entitlements are recorded as revenues when all eligibility requirements are met, including any time requirements, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year end). Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year end). All other revenue items are considered to be measurable and available only when cash is received by the County. 37 LEON COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013 F. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance 1. Cash and Cash Equivalents 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. 2. Investments In accordance with GASB Statement No. 31, Accounting and Reporting for Certain Investments and External Investment Pools, the County reports all investments at fair value, except for "money market investments" and "2a7-like pools." Money market investments, which are short-term highly liquid debt instruments that may include U.S. Treasury and agency obligations, are reported at amortized costs. Investment positions in external investment pools that are operated in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940, such as TexPool and TexStar, are reported using the pools' share price. The County has adopted a written investment policy regarding the investment of its funds as defined in the Public Funds Investment Act, Chapter 2256, Texas Government Code. In summary, the County is authorized to invest in the following: Fully collateralized certificates of deposit and money market accounts 3. Inventories and Prepaid Items Inventories are valued at cost using the first-in/first-out (FIFO) method. The costs of governmental fund type inventories are recorded as expenditures when the related liability is incurred (i.e., the purchase method). Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. 4. Receivables and Payables Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the year are referred to as either "interfund receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the noncurrent portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds." Advances between funds are offset by a fund balance reserve account in applicable governmental funds to indicate they are not available for appropriation and are not expendable, available fmancial resources. All trade receivables are shown net of an allowance for uncollectible amounts. 38 LEON COUNTY', TEXAS NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013 5. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g. roads, bridges, sidewalks, and similar items), are reported in the applicable governmental activities column in the government-wide financial statements. Capital assets are defined by the County as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Major outlays for capital assets and improvements are capitalized as projects are constructed. 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. Property, plant, and equipment of the County are depreciated using the straight-line method over the following estimated useful years. Estimated Useful Life 30 years 15-30 years 40 years 5 years 5-10 years Asset Description Buildings Building improvements Infrastructure Vehicles Equipment and machinery The costs of a significant portion of capital assets have been estimated based on management's estimated historical cost. 6. 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 no items that qualify for reporting in this category. 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 has only one type of item, which arises only under a modified accrual basis of accounting, that qualifies for reporting in this category. Accordingly, the item, unavailable revenue, is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues from property taxes. This amount is deferred and recognized as an inflow of resources in the period that the amount becomes available. 39 LEON COUNTY', TEXAS NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013 7. Compensated Employee Absences It is the County's policy to permit employees to accumulate earned but unused vacation and compensatory time. Amounts accumulated may be paid to employees upon termination of employment or during employment in accordance with the County's personnel policy. The estimated amount of compensation for services provided that is expected to be liquidated with expendable, available financial resources is reported as an expenditure and a fund liability of the governmental fund that will pay it when it matures or becomes due. Amounts of vested or accumulated vacation leave that are not expected to be liquidated with expendable, available financial resources are maintained separately and represent a reconciling item between the fund and government-wide presentations. 8. Net Position Flow Assumption Sometimes the County will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted-net position and unrestricted-net position in the governmentwide financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the County's policy to consider restricted-net position to have been depleted before unrestricted-net position is applied. 9. Fund Balance Flow Assumptions Sometimes the County will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund fmancial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the County's policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. 10. Fund Balance Policies Fund balances of governmental funds are reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The County itself can establish limitations on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance). Amounts that cannot be spent because they are either not in spendable form or legally or contractually required to be maintained intact are classified as nonspendable fund balance. Amounts that are externally imposed by creditors, grantors, contributors or laws or regulations of other governments; or imposed by law through constitutional provisions are classified as restricted fund balance. The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the County's highest level of decisionmaking authority. The Commissioners' Court is the highest level of decision-making authority for the County that can, by adoption of an ordinance prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the ordinance remains 40 LEON COUNTY, TEXAS NOTES TO FINANCL4L STATEMENTS (Continued) For the Year Ended September 30, 2013 in place until a similar action is taken (the adoption of another ordinance) to remove or revise the limitation. Amounts in the assigned fund balance classification are intended to be used by the County for specific purposes but do not meet the criteria to be classified as committed. The Commissioners' Court may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year's appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. 11. Estimates The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting period. Actual results could differ from those estimates. G. Revenues and Expenditures/Expenses 1. Program Revenues Amounts reported as 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 (including special assessments) that are restricted to meeting the operational or capital requirements of a particular function or segment. All taxes, including those dedicated for specific purposes, and other internally dedicated resources are reported as general revenues rather than as program revenues. 2. Property Taxes General property taxes are recorded as receipts when levied for the current year and due, payable, and collected in the current year. The property tax calendar dates are: Levy date - October 1 Due date - October 1 Collection dates - October 1 through January 31 Lien date - January 1 (following year) 41 LEON COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013 II. STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY The original budget is adopted by the Commissioners' Court prior to the beginning of the period. The legal level of control is the department level. Management may not amend the budget without the approval of Commissioners' Court. The final amended budget is used in this report. Budgets are adopted for the general fund and most special revenue funds. All funds that adopted a budget did so in accordance with generally accepted accounting principles. Several supplemental budget appropriations were made for the period ended September 30, 2013. III. DETAILED NOTES ON ALL FUNDS A. Deposits and Investments As of September 30, 2013, the County had the following investments: Investment Type Certificates of deposit Weighted Average Maturity (Years) Fair Value $ 8,176,143 8,176,143 $ 0.43 Interest rate risk In accordance with its investment policy, the County manages its exposure to declines in fair values by structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations and invest operating funds primarily in short-term securities. Custodial credit risk - deposits. In the case of deposits, this is the risk that in the event of a bank failure, the County's deposits may not be returned to it. The County's investment policy requires funds on deposit at the depository bank to be collateralized. As of September 30, 2013, bank balances were sufficiently covered by FDIC and market values of pledged securities. B. Receivables Amounts are aggregated into a single accounts receivable (net of allowance for uncollectibles) line for certain funds and aggregated columns. Below is the detail of receivables for the general fund, the road and bridge fund, and the nonmajor governmental funds in the aggregate, including the applicable allowances for uncollectible accounts. General Property taxes Other Less allowance Total Receivables $ $ 779,858 431,954 (77,986) 1,133,826 Nonmajor Governmental Funds Road and Bridge 271,652 2,126 (27,165) 246,613 $ $ 42 $ Total Funds $ 12,637 $ 12,637 $ 1,051,510 446,717 (105,151) 1,393,076 LEON COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013 C. Capital Assets A summary of changes in capital assets for the year end is as follows: Beginning Balance Governmental Activities: Capital assets not being depreciated: Land Construction in process Total Capital Assets Not Being Depreciated $ 526,988 526,988 Increases $ 1,069,629 1,069,629 Ending Balance Decreases $ - $ 526,988 1,069,629 1,596,617 Other capital assets: Buildings and improvements Infrastructure Equipment Vehicles Total Other Capital Assets 8,056,768 1,366,631 6,631,363 1,005,027 17,059,789 104,398 364,425 60,395 529,218 (302,795) (28,800) (331,595) 8,161,166 1,366,631 6,692,993 1,036,622 17,257,412 Total Capital Assets 17,586,777 1,598,847 (331,595) 18,854,029 (1,521,642) (136,664) (3,673,733) (750,261) (6,082,300) (275,760) (34,166) (603,044) (114,527) (1,027,497) 128,792 28,800 157,592 (1,797,402) (170,830) (4,147,985) (835,988) (6,952,205) (498,279) (174,003) 10,305,207 Less accumulated depreciation for: Buildings and improvements Infrastructure Equipment Vehicles Total Accumulated Depreciation Total Capital Assets Being Depreciated, Net Governmental Activities Capital Assets, Net 10,977,489 $ 11,504,477 $ 571,350 $ (174,003) Depreciation was charged to governmental functions as follows: General government Legal Public safety Public welfare Public transportation $ Total Governmental Activities Depreciation Expense 43 298,032 2,299 419 36,622 690,125 $ 1,027,497 $ 11,901,824 LEON COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013 D. Long - Term Liabilities The following is a summary of changes in the County's total governmental long-term liabilities for the year ended September 30, 2013. Beginning Balance Governmental Activities: Compensated absences Total Governmental Activities Ending Balance (Reductions) Additions (71,206) (71,206) $ $ 308,191 308,191 Long-term liabilities due in more than one year $ $ $ Due Within One Year $ $ 30,819 267,510 267,510 $ $ 111,887 111,887 $ $ E. Interfund Transactions Transfers between funds during the year were as follows: $ General Road and bridge Capital expenditures Nonmajor governmental funds Transfer Out 2,149,019 Transfer In $ Total $ 2,149,019 $ 1,000,000 632,750 516,269 2,149,019 Amounts transferred between funds relate to amounts collected or received by the general fund and transferred to road and bridge, capital expenditures, and various nonmajor special revenue funds for various governmental expenditures. IV. OTHER INFORMATION A. Risk Management 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. In addition, the County participates along with 279 other entities in the Texas Association of Counties Workers' Compensation Self-Insurance Fund (the "Pool"). This pool was created by the Texas Association of Counties in 1974 to insure the County for workers' compensation related claims. This Pool purchases commercial insurance at group rates for participants in the Pool. The County has no additional risk or responsibility to the Pool in which it participates, outside of payment of insurance premiums. The County has not significantly reduced insurance coverage or had settlements that exceeded coverage amounts for the past three fiscal years. B. Related Party Transactions The County purchases fuel and other related costs from Ryder Oil Company. Ryder Oil is a family-owned business by Judge Byron Ryder. Fuel payments and other related costs totaled $303,608 for the fiscal year 2013. The Judge has not voted in any matter related to Ryder Oil Company. In instances where there were discussions or decisions related to Ryder Oil Company, the Judge removed himself from the discussion and abstained from voting. 44 277,372 277,372 LEON COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013 C. Contingent Liabilities Amounts received or receivable from granting agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount 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. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Claim liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts, and other economic and social factors. No claim liabilities are reported at year end. D. Pension Plan Plan Description The County provides retirement, disability, and death benefits for all of its full-time employees through a nontraditional defined benefit pension plan in the statewide Texas County and District Retirement System (TCDRS). The Board of Trustees of TCDRS is responsible for the administration of the statewide agent multiple-employer public employee retirement system consisting of 641 nontraditional defined benefit pension plans. TCDRS in the aggregate issues a comprehensive annual financial report (CAFR) on a calendar year basis. The CAFR is available upon written request from the TCDRS Board of Trustees at P.O. Box 2034, Austin, Texas 787682034. The plan provisions are adopted by Commissioners' Court within the options available in Texas state statutes governing TCDRS (TCDRS Act). Members can retire at ages 60 and above with eight or more years of service, or when the sum of their age and years of service equals 75 or more, or with 20 years of service, regardless of age. Members are vested after eight years of service, but must leave their accumulated contributions in the plan to receive any employerfinanced benefit. Members who withdraw their personal contributions in a lump sum are not entitled to any amounts contributed by their employer. Benefit amounts are determined by the sum of the employee's deposits to the plan, with interest, and employer-financed monetary credits. The level of these monetary credits is adopted by the Commissioners' Court within the actuarial constraints imposed by the TCDRS Act so that the resulting benefits can be expected to be adequately financed by the employer's commitment to contribute. At retirement, death, or disability, the benefit is calculated by converting the sum of the employee's accumulated contributions and the employer-financed monetary credits to a monthly annuity using annuity purchase rates prescribed by the TCDRS Act. Funding Policy The County has elected the annually determined contribution rate (ADCR) plan provisions of the TCDRS Act. The plan is funded by monthly contributions from both employee members and the employer based on the covered payroll of employee members. Under the TCDRS Act, the contribution rate of the employer is actuarially determined annually. The County contributed 45 LEON COUNTY, TEXAS NOTES TO FINANCIAL STATEMENTS (Continued) For the Year Ended September 30, 2013 using the actuarially determined rate of 3.11 percent for the months of the accounting year in 2012 and 2.80 percent for the months of the accounting year in 2013. The contribution rate payable by the employee members for calendar year 2013 is the rate of seven percent as adopted by Commissioners' Court. The employee contribution rate and the employer contribution rate may be changed by Commissioners' Court within the options available in the TCDRS Act. Annual Pension Costs The required contribution was determined as part of the December 31, 2012 actuarial valuation using the entry age actuarial cost method. The actuarial assumptions at December 31, 2012 included (a) an eight percent investment rate of return (net of administrative expenses), and (b) projected salary increases of 5.4 percent. Both (a) and (b) included an inflation component of 3.5 percent. The actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a ten-year period. The unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on an open basis. The remaining amortization period at December 31, 2012 was