adam h. edelen auditor of public accounts

REPORT OF THE AUDIT OF THE WARREN COUNTY

FISCAL COURT

For The Fiscal Year Ended June 30,2011

ADAM H. EDELEN AUDITOR OF PUBLIC ACCOUNTS

www.auditor.ky.gov

209 ST. CLAIR STREET FRANKFORT, KY 40601-1817 TELEPHONE (502) 564-5841 FACSIMILE (502) 564-2912

AUDIT EXAMINATION O F THE WARREN COUNTY FISCAL COURT

June 30,2011

The Auditor of Public Accounts has completed the audit of the Warren County Fiscal Court for fiscal year ended June 30,201 1.

We have issued unqualified opinions on the governmental activities, husiness-type activities, each major fund, and aggregate remaining fimd information of Warren County, Kentucky.

We have issued an adverse opinion, on the aggregate discretely presented component units of the Warren County Fiscal Court, which include the Southern Kentucky Performing Arts Center, Inc. (SKyPAC), the South Central Kentucky Regional Development Authority (RDA), and the Warren County Downtown Economic Development Authority, Inc., because the financial statements do not include the financial data of the Warren County Downtown Economic Development Authority, Inc.

In accordance with OMB Circular A-133, we have issued unqualified opinions on the compliance requirements that are applicable to Warren County's major federal programs: Department of Justice JAG Program Cluster (CFDA #'s 16.804, 16.803, and 16.738), Edward Byrne Memonal Competitive Grant (CFDA #16.808, and Homeland Security Grant Program (CFDA #97.067).

Financial Condition:

The fiscal court had total net assets of $61,992,440 as of June 30, 2011. The fiscal court had unrestricted net assets of $24,246,273 in its governmental activities as of June 30, 2011, with total net assets of $61,501,677. In its business-type activities, total net cash and cash equivalents were $446,400 with total net assets of $490,763. The fiscal court's discretely presented component units had restricted net assets of $495,267 as of June 30,2011, with total net assets of $4,448,601 as of June 30,201 1. The fiscal court had total debt principal as of June 30, 201 1 of $65,740,000 with $2,235,000 due within the next year. The discretely presented component unit, South Central Kentucky Regional Development Authority, had total debt principal of $241,468,119 as of June 30,201 1.

Reaort Comments:

2011-01 The Fiscal Court Has A Lack Of Segregation Of Duties Over Receipts, Cash And Cash Transfers, And Payroll

Deaosits:

The Fiscal Court's deposits were insured and collateralized by bank securities.

The Fiscal Court's component unit, Southern Kentucky Performing Arts Center, Inc.'s deposits as of June 30,201 1, were exposed to custodial credit risk as follows:

Uncollateralized and Uninsured $132,547

The Fiscal Court's component unlt, South Central Kentucky Regional Development Authority's deposits were insured and collateralized by bank securities.

CONTENTS PAGE

INDEPENDENT AUDITOR'S REPORT ............................................................................................................... 1

WARREN COUNTY OFFICIALS ..... 4 MANAGEMENT'S DISCUSSION AND ANALYSIS ............................................................................................. 5

STATEMENT OF NET ASSETS -MODIFIED CASH BASIS STATEMENT OF ACTIVITIES -MODIFIED CASH BASIS. BALANCE SHEET - GOVERNMENTAL FUNDS -MODIFIED CASH BASIS ..................................................... 24 STATEMENT OFREVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS -MODIFIED CASH BASIS ..... : .............................................. 28 RECONCILlATlON OF THE STATEMENT OF REVENUES, EXPEND~RES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES -MODIFIED CASH BASIS ...................... .... 33

STATEMENT OF FUND NET ASSETS -PROPRIETARY FUND -MODIFIED CASH BASIS ................................... 37 STATEMENT OF R E V E ~ S , EXPENSES, AND CHANGES IN FUND NET ASSETS - PROPIUETAW FUND -MODIFIED CASH BASIS ........................................................................................... 41 STATEMENT OF CASH FLOWS -PROPRIETARY FUND -MODIFIED CASH BASIS ............................................ 45

.............................. STATEMENT OF FIDUCIARY NET ASSETS - FIDUCIARY FUND - MODIFIED CASH BASIS 49

STATEMENT OF NET ASSETS - COMPONENT UNITS .................................................................................. 53 STATEMENT OF ACTIVITIES -COMPONENT UNITS ......................................... NOTES TO FINANCIAL STATEMENT BUDGETARY COMPARISON SCHED NOTES TO REQUIRED SUPPLEMENTARY INFORMATION COMBINING BALANCE SHEET - NON-MAJOR GOVERNMENTAL FUNDS -MODIFIED CASH BA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AN

............................... IN FUND BALANCES - NON-MAJOR GOVERNMENTAL FUNDS -MODIFIED CASH BASIS 102

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS ............................... 107

NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS ...................................................... 109 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 STANDARD 113

REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM

........... AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 117

SCHEDULE OF FINDINGS AND QUESTIONED COSTS 121

APPENDIX A: Certification Of Compliance - Local Government Economic Assistance Program

To the People of Kentucky Honorable Steven L. Beshear, Govemor Lori H. Flanery, Secretary Finance and Administration Cabinet Honorable Michael 0. Buchanon, Warren County Judge~Executive Members of the Warren County Fiscal Court

Independent Auditor's Report

We have audited the accompanying financial statements of the governmental activities, the business- type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Warren County, Kentucky, as of and for the year ended June 30, 201 1, which collectively comprise the basic financial statements of the County, as listed in the table of contents. These financial statements are the responsibility of the Warren County Fiscal Court. Our responsibility is to express opinions on these fmancial statements based on our audit.

We did not audlt the financial statements of the Southem Kentucky Performing Arts Center, Inc. (SKyPAC) and the South Central Kentucky Regional Development Authority (RDA), discretely presented component units of the Warren County Flscal Court, which represent 100% of the assets and revenues, respectively, of the fmanclal data presented for the d~scretely presented component units presentation. Those financial statements were audited by other auditors, whose reports thereon have been fumxshed to us, and our opinion, insofar as it relates to the amounts included for SKyPAC and RDA are based on the reports of the other aumtors.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, and the Audit Guide for Fiscal Court Audits issued by the Auditor of Public Accounts, Commonwealth of Kentucky. Those standards require that we plan and perfom the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of the other auditors provides a reasonable basis for our opinions.

As described in Note 1, Warren County, Kentucky, prepares its financial statements in accordance with the modified cash basis, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.

The financial statements do not include the financial data of the Warren County Downtown Economic Development Authority, Inc. This entity meets the criteria to be reported as a discretely presented component unit of Warren County, Kentucky, in accordance with accounting principles generally accepted in the United States of America.

2 0 9 ST. C L A I R STREET T E L E P H O N E 5 0 2 . 5 6 4 . 5 8 4 1

F R A N K F O R T , K Y 4 0 6 0 1 - 1 8 1 7 F A C S I M I L E 5 0 2 . 5 6 4 . 2 9 1 2 W W W . A ! J D I T O R . K Y . G O V

A N E Q U A L O P P o R T L N l T I E M P L O Y E R M l F l D

To the People of KentncIc, Honorable Steven L. Beshear, Governor Lori H. Flanery, Secretary F~nance and Administration Cabinet Honorable Michael 0. Buchanon, Warren County JudgeIExecutive Members of the Warren County Fiscal Court

Page 2

In ow opinion, based on our report and the reports of the other auditors, because of the effects of the matter discussed in the previous paragraph, the financial statements referred to above do not present fairly, in all material respects, the financial position of the aggregate discretely presented component uoits of Warren County, Kentucky, as of June 30,201 1, and the changes in financial position thereof for the year then ended in confomty with the modified cash basis of accounting described in Note 1.

In addition, in ow opinion, the fmancial statements referred to above present fairly, in all material respects, the respective financial position of the govepmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of Warren County, Kentucky, as of June 30, 201 1, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with the modified cash basis of accounting described in Note 1.

The county has implemented Governmental Accountmg Standards Board Statement 54 as it related to the modified cash basis of accounting as descnbed in Note 1, which has altered the format and content of the basic financial statements.

The management's discussion and analysis and budgetary comparison information are not a required part of the basic financial statements, but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise Warren County, Kentucky's basic financial statements. The combining fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A- 133, Audits of States, Local Governments and Non-Profit Oreanizations, and is also not a required part of the basic financial statements. The combining fund financial statements and the schedule of expenditures of federal awards have been subjected to the auditing procedures applied in the audit qf the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

In accordance with Government Auditine Standards, we have also issued our report dated March 8, 2012 on our consideration of Warren County, Kentucky's intemal control over financial reporting and on ow tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of intemal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the intemal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

To the People of Kentucky

Honorable Steven L. Beshear, Governor Lori H. Flanery, Secretary Finance and Administration Cabinet Honorable Michael 0. Buchanon, Warren County JudgeIExecutive Members of the Warren County Fiscal Court

Based on the results of our audit, we present the accompanying schedule of fmdings and questioned costs included herein, which discusses the following report comment:

201141 The Fiscal Court Has A Lack Of Segregation Of Duties Over Receipts, Cash And Cash Transfers, And Payroll

Respectfully submitted,

March 8,2012

Adam H. Edelen Auditor of Public Accounts

Fiscal Court Members:

Michael 0. Buchanon

James T. Kaelin

Darrell Traughber

Tony Payne

Thomas Hunt

Terry W. Young

Dan Rudloff

Other Elected Officials:

Amy M i e n

Jackie Strode

Dorothy Owens

Pat Howell Goad

Jerry Gaines

Bob Branstetter

Kevin Kirby

Appointed Personnel:

Jeny Pearson

Marie Smith

Benda Hale

WARREN COUNTY OFFICWS

For The Year Ended June 30,201 1

County Judge/Executive

Magistrate

Magistrate

Magistrate

Magistrate

Magistrate

Magistrate

County Attorney

Jailer

County Clerk

Circuit Court Clerk

Sheriff

Property Valuation Administrator

Coroner

Page 4

County Treasurer

Deputy JudgeiExecutive

Fiscal Court Clerk

Management's Discussion and Analysis June 30,2011

The financial management of Warren County, Kentucky offers readers of Warren County's fmancial statements this narrative overview and analysis of the financial activities of Warren County for the fiscal year ended June 30, 201 1. We encourage readers to consider the information presented here in conjunction with other information that we have furnished in our letter of transmission and the notes to the financial statements.

Financial Highlights.

. Warren County had total net assets of $61,992,440 as of June 30, 201 1. The Fiscal Court had unrestricted net assets of $24,246,273 m the governmental activities as of June 30, 201 1, with total net assets of $61,501,677. In the business-type activities, cash and cash equivalents were $446,400 with total net assets of $490,763.

The governmental activities' total net assets increased by $6,547,998 from the prior year.

At the close of the current fiscal year, Warren County governmental funds reportcd fund balance of $36,632,389. Of th~s amount, $21,168,043 is classified as unassigned.

. Warren County's total indebtedness at the close of fiscal year June 30,201 1 was $65,740,000, of which $63,505,000 is long-term (due after 1 year) and $2,235,000 1s short-term (to be paid wlthin 1 year). Debt additions were $13,250,000 and debt reductions were $3,540,000 for a net increase of $9,710,000 for the year.

Overview of the Financial Statements.

This management discussion and analysis is intended to serve as an introduction to Warren County's basic financial statements. Warren County's basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementaly information in addition to the basic financial statements themselves.

429 EAST IOTH STREET BOWLING GREEN, KENTUCKY 42101 AN EQUAL OPPWRTUNtTY EMPLOYER

Warren County Management's Discussion and Analysis June 30,2011 (Continued)

Page 6

Government-wide Financial Statements.

The government-widefnancial statements are designed to provide readers with a broad overview of Warren County's finances, in a manner similar to a private-sector business.

Tlie Statement of Net Assets presents information on Warren County's assets and liabiliues, with the difference between the two reported as net assets. Over tlme, increases or decreases in net assets may serve as a useful indicator of whether the fmancial posihon of Warren County is ~mproving or deteriorating.

The Statement of Activrties presents information showing how the government's net assets changed during the fiscal year. All changes in net assets are reported on a mod~fied cash basis of accounting. Basis of accounting is a reference to when financial events are recorded, such as timing for recognizing revenues, expenses, and related assets and liabilities.

Under the County's modified cash basis of accounting, revenues and expenses and related assets and liabilities are recorded when they result from a cash transaction, except for the recording of depreciation expenses on capital assets in the government-wide financial statements for all activities and in the hnd financial statements for the proprietary fund financial statements.

As a result of the use of the modified cash basis of accounting, certain assets and their related revenues (such as amounts billed for services provided, but not collected) and accounts payable (expenses for goods and services received but not paid) or compensated absences are not recorded.

Both of the government-wide financial statements distinguish functions of the County that are principally supported by taxes and intergovenunental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type aclivities). Warren County's governmental activities include general government, protection to persons and property, general health & sanitation, roads, recreation and culture, social services, airport, debt service, capital projects, and administration. Warren County has one business type activity - Jail Canteen.

The government-wide financial statements not only include Warren County itself (known as the primary government), but also legally separate entities, which have a significant operational or financial relationship with the County. Warren County has three such entities described as major Discretely Presented Component Units, they are:

Southern Kentucky Performing Arts Center, Incorporated South Central Kentucky Regional Development Authority

Warren County Downtown Economic Development Authority

The financial statements include the financial data of the Southern Kentucky Performing Arts Center, Inc. and South Central Kentucky Regional Development Authority. These two entities have prepared and presented in their separate audit reports a management's discussion and analysis. We encourage readers to read the MD&A of these separate entities.

Fund Financial Statements. Ajiind is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Warren County, like other state and local governments, uses fund accounting to ensure and demonstrate co~npliance with finance- related legal requirements. All of the funds of Warren County can be divided into three broad categories: governmental, proprietary, ar?dJdzrciary.

Warren County Page 7 Management's Discussion and Analysis June 30,2011 (Continued)

Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the govemment-wide fmancial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on current 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 current financing requirements.

Because the focus of govemmental funds is narrower than that of the govemment-wlde fmanclal statements, it is useful to compare the information presented for governmental funds with simlar 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 current financing decisions. Both the govemmental fund balance sheet and the govemmental fund statement of revenues, expenditures, and changes m fund balances provide a reconc~liat~on to facilitate this comparison between govemmental funds and governmental activitzes.

Warren County maintains (12) twelve individual govemmental funds. Information is presented separately m the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances.

Major Funds: General Fund Jail Fund Transient Room Tax Fund General Obligation Bond Fund

Non-major Funds: Road and Bridge Fund Local Government Economic Ass~stance Fund State Grant Fund Emergency 91 1 Fund . Federal Drug Forfeitllre Fund Storm Water Fund . County Bond Sinlung Fund Justice Center Expansion Corporation Fund

Warren County adopts an annual appropriated budget. A budgetary comparison statement has been provided for the General Fund, Jail Fund and Transient Room Tax Fund to demonstrate compliance with their budgets.

Proprietary Funds. Proprietary funds provide the same type of information as the govemment-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the Jail Canteen Fund.

Fiduciary Funds Financial Statements. These funds are used to account for resources held for custodial purposes. Fiduciary funds are not reflected in the government-wide financial statements because the resources of these funds are not available to support the programs of the County. The accounting used for fiduciary funds is much like that used for proprietary funds. The County's fiduciary fund is the Jail Inmate Fund.


Page 8

Component Units: As mentioned above, Component Units are operations for which the County has some financial accountability, but also have certain independent qualities as well. The govemmeut- wide financial statements present information for the following discretely presented component units, the Southern Kentucky Performing Arts Center, Inc. and South Central Kentucky Regional Development Authority withm a single column of the statement of net assets. Also, information on the statement of activities presents the component units. The combining statement of net assets and the combining statement of actwities provide details for the component units.

The County also presents financial statements for the following blended component nmts: Warren County Regional Jail Corporation and Warren County Justice Center Expansion Corporation.

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.

Net Assets. As noted earlier, net assets may serve over time as a useful Indicator of a government's financial position.

Table 1 Warren County's Net Assets

Governmental Activities Business-type Activities Total 2010 2011 2010 2011 2010 2011

Restated Assets Current and

GtherAssets $ 28,704,925 $ 36,785,599 $ 393,286 $ 446,400 $ 29,098,211 $ 37,231,999 Receivable -Long

Tern 700,000 655,000 700,000 655,000 Net Capltal

Assets 81,578,754 89,909,288 54,259 44,363 81,633,013 89,953,65 1 Total Assets 110,983,679 127,349,887 447,545 490,763 1 1 1,43 1,224 127,840,650

Liabilities Current and

GtherLiabilities 2,040,000 2,235,000 Long-term

L~ababdlt~es 53,990,000 63,505,000 53,990,000 63,505,000 Total Labllltles 56,030,000 65,740,000 56,030,000 65,740,000

Net Assets Invested m

Capital Assets, Net of Related

Debt 26,248,754 24,169,288 54,259 44,363 26,303,013 24,213,651 Restricted 7,343,521 13,086.1 16 7,343,521 13,086,116 Unrestricted 21,361,404 24,246,273 393,286 446,400 21,754,690 24,692,673 TotalNetAssets $ 54,953,679 $ 61,501,677 $ 447,545 $ 490,763 $ 55,401,224 $ 61,992,440

Warren County Management's Discussion and Analysis J u n e 30,2011 (Continued)

Changes in N e t Assets.

T a b l e 2 Warren County's Changes in N e t Assets

Governmental Activities Business-iype Activities Total 2010 2011 2010 2011 2010 2011

Program Rewnues Charges for Services $ 7,588,581 $ 7,882,680 $ 664,638 $ 540,549 $ 8,253,219 $ 8,423,229 Gmnts & Contributions 7,822,576 6,766,547 7,822,576 6,766,547 Capital Gmnts & Contributions 2,248,696 2,248,696 General Revenues Taxes 14,355,476 14,714,688 14,355,476 14,714,688 Miscellaneous & Other 2,056,016 3,923,584 1,878 1,173 2,057,894 3,924,757 Total Revenue 31,822,649 35,536,195 666,516 541,722 32,489,165 36,077,917

Jhpnses General Government 10,527,475 11,570,186 10,527,475 11,570,186 Protection to Persons &

propern 6,819,284 7,066,288 6,819,284 7,066,288 GenemlHealth and Sanitation 745,630 927,099 745,630 927,099 Social Services 216,523 238,828 216,523 238,828 Recreation and Culture 2,273,808 3,688,471 2,273,808 3,688,471 Transpoltation Facilities and Sewices 1,202,847 1,202,847 Roads 1,892,225 1,119,245 1,892,225 1,119,245 Airports 130,559 158,593 130,559 158,593 Interest on Long- term Debt 2,558,712 ' 2,461,066 2,558,712 2,461,066 Capital Projects 1,380,619 555,574 1,380,619 555,574 Ja~l Canteen 556,742 498,504 556,742 498,504 Total Expenses 26,544,835 28,988,197 556,742 498,504 27,101,577 29,486,701

Change In Net Assets 5,277,814 6,547,998 109,774 43,218 5,387,588 6,591,216

Net Assets - Begmnmg (Restated for 2010) 49,675,865 54,953,679 337,771 447,545 50,013,636 55,401,224 Net Assets - End~ng $ 54,953,679 $ 61,501,677 S 447,545 $ 490,763 $ 55,401,224 $ 61,992,440


Page 10

Changes in Net Assets. (Continued)

Governmental Activities. Warren County's net assets increased by $6,547,998 during the fiscal year ended June 30,201 1. Key elements of this are as follows:

Current assets and cash increased $7,972,464, due to the issuance of Hotel Tax Revenue Bonds.

. Investment in capital assets and infrastructure, net of related debt decreased $2,079,466 due to issuance of new debt and refunding old debt.

Business-fype Activities. Warren County's net assets increased by $43,218 during the fiscal year ended June 30,201 1. Key elements are as follows:

. Investment in vehicles and equipment, net of related debt decreased $9,896 due depreciation expense.

Financial Analysis of the County's Funds. As noted earlier, Warren County uses fund accounting to ensure and demonstrate compliance with finance-related requirements.

Governmental Funds Overview. The focus of Warren County governmental funds is to provide information on current inflows, outflows, and balances of spendable resources. Such information is useful in assessing the County's financing requirements. In particular, assigned and unassigned fund balance may serve as a useful measure of a government's net resources available for spendmg at the end of the fiscal year.

As of the end of June 2011 fiscal year, the combined ending fund balances of the County's governmental funds were $36,632,389, which consists of $21,168,043 in unassigned fund balance, which is available as working capital and for current spending in accordance with the purposes of the specific funds.

The County has (4) four major governmental, and (8) eight non-major funds

Major Funds General Fund Jall Fund Transient Room Tax Fund Genera1 Obligation Bond Fund

Non-major Funds Road and Bridge Fund Local Government Economic Assistance Fund State Grant Fund Emergency 9 1 1 Fund Federal Drug Forfeiture Fund Storm Water Fund County Bond Sinking Fund Justice Center Expansion Corporation


Page 11

Financial Analysis of the County's Funds. (Continued)

Governmental Funds Overview. (Continued)

Major Funds:

1. The General Fund is the chief operating fund of Warren County. At the end of the June 30, 201 1 fiscal year, fund balance of the General Fund was $21,520,913. The County received $13,415,271 in real and personal properly, motor vehicle, and other taxes for approximately 61% of the county's general revenues. Various other service fees and miscellaneous revenues contribute to the remaining 39% of revenues.

2. The Jail Fund is used to account for the operahon of the county's detention program. The Jail Fund had a deficit balance at June 30, 2011 of $108,210. The Jail Fund received $5,424,525 for intergovernmental fees, primarily for housing prisoners. The General Fund contnbuted $550,000 to the jail operations.

3. Transient Room Tax Fund had a balance of $12,535,107 as of June 30,201 1. These funds are restricted for debt reduction and capital projects.

4. The General Obligation Bond Fund had a balance of $145 as of June 30, 2011. These funds are restncted for debt reduction.

Non-Major Funds:

5. The Rood and Bridge Fund is the fund rclatcd to county road a11J hridgc construction and ~nnin~:nnncc. The R o d and Bridgc Fund liad a $IUb,361 fund h~l31lie at June 30, 201 1. 'l'l~e fiscol yeor 201 1 cupcnditurcs fix llood and Bridge F'u~id were $2,75d,LJ00.

6. The Local Government Economic Assistance Fund had a fund balance of $401,705 as of June 30,2011.

7. The State Grant Fund had a fund balance of $189,002 as of June 30,201 1.

8. The Emergency 911 Fund accounts for the operation of the CityICounty emergency operations communications. The Emergency 9-1-1 Fund had a fund balance of $25,305 at the end of June 30,201 1 fiscal year. Tax revenue from telephone and cell phones for the fiscal year was $322,269. These funds are used for the operations of 9-1-1

9. The Federal Dmg Forfeiture Fund had a fund balance of $72,147 as of June 30,2011. The funds are restricted, and can only be used as directed by approved budgeted appropriation.

10. The Stonn Water Fund had a balance of $1,883,757 as of June 30,201 1. This revenue is generated from fees accessed on water meters located within the County and are restricted.

11. The County Bond Sinking Fund had a fund balance of $1 as of June 30, 2011, for the construction of the new regional parks and courthouse renovations. These funds are restricted for parks construction and courthouse renovations.

12. The Justice Center Expansion Corporation had a fund balance of $6,156 as of June 30, 2011.


Page 12

Financial Analysis of the County's Funds. (Continued)

Proprietav Funds Overview. The County's proprietary fund statements provide the same type of information found in the govemment-wide statements, but in more detail.

Warren County has (1) one enterprise-type proprietary fund, it is:

Jail Canteen Fund

The Jail Canteen Fund's unrestricted net assets as of June 30,201 1, amounted to $446,400 and total net assets were $490,763.

General Fund Budgetary Highlights. Warren County's general fund budget for expenditures was amended during the fiscal year increasing the budgeted amount by $3,419,389. Budget amendments were made to vanous expenditures due to grants awarded in the fiscal year, participation in the Kentucky Advance Revenue Program, and an increase in actual revenue.

Actual revenues of the General Fund were $1,400,658 more than budget. This variance mainly was due to anincrease in monies received from the state and in taxes.

Capital Assets and Debt Administration.

Capital Assets. Warren County's inveshnent in capital assets for its government and business type activities as of June 30, 2011, amount to $89,953,651 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements to land other than buildings, machinery and equipment, vehicles, and infrastructure.

Additional information on the County's capital assets can be found in Note 7 of this report.

Table 3 Warren County's Capital Assets, Net of Accumulated Depreciation

Governmental Activities Business-type Activities Total 2010 2011 2010 2011 2010 2011

Restated Assets Infiastmcture Assets $ 24,811,731 $ 26,267,692 $ $ $ 24,811,731 $ 26,267,692 Land 6,970,281 10,707,873 6,970,281 10,707,873 C ~ n s t ~ c t l o n In Progress 3,499,302 6,970,281 3,499,302 6,970281 Bu~ldmgs 39,922,584 39,366,444 39,922,584 39,366,444 Other Equipment 1,099,578 1,172,467 3,099,578 1,172,467 Land Improvements 2,423,340 2,533,286 2,423,340 2,533,286 Veh~cles &

E ~ u ~ P 2,851,938 2,891,245 54,259 44,363 2,906,197 2,935,608

Total Net Capltal Assets $ 81,578,754 $ 89,909,288 $ 54,259 $ 44,363 $ 81,633,013 $ 89,953,651


Page 13

Capital Assets and Debt Administration. (Continued)

Long-Term Debt. At the end of the fiscal year ended June 30,2011, Warren County had total bonded debt outstanding of $65,740,000. The totals are as follows: General Obligation Bonds $19,350,000 and First Mortgage Revenue Bonds $23,195,000. The County issued Hotel Tax Revenue Bonds in the amount of $10,150,000. The County has (2) two financing obligations totaling $13,045,000. Additional information on the County's long-term debt can be found in Note 9 of this report.

Other Matters. The following factors are expected to have a significant effect on the County's financial position or results of operations and were taken into account in developing the budget for the fiscal year ending June 30,201 1:

Economic factors indicate a recovery for new housing, sales of real estate, expansion of existing, and the development of new business. There were several new industries that announced their intent to locate in the region, which has a positive financial impact on the County. Our Economic Development Authority continues to generate interest in the recruitment of new indushy in accordance with anticipated goals for the area. Warren County continues to he a desirable location for business and industry due to its location and proximity to large population centers.

Requests For Information. This financial report is designed to provide a general overview of Warren County's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this fmancial report or requests for additional financial information should be addressed to the Warren County Treasurer, 429 East 10Ih Street, Second Floor, Bowling Green, KY 42101.

Questions concerning the audit report of the Southern Kentucky Performing Arts Center, Inc. should be addressed to Warren County Treasurer, 429 East 10" Street, Second Floor, Bowlmg Green, KY 42101.

THIS PAGE LEFT BLANK INTENTIONALLY

WARREN COUNTY STATEMENT OF NET ASSETS -MODIFIED CASH BASIS

June 30,2011

WARREN COUNTY

STATEMENT OF NET ASSETS -MODIFIED CASH BASIS

June 30,2011

ASSCrS Current Assets:

Cash and Cash Equivalents Investments Other Assets

Receivables: Lease Receivable Community Action

of Southern Kentucky Total Current Assets

Noncurrent Assets: Receivable - Cornunity Action

of Southern Kentucky Capital Assets -Net ofAccumulated

Depreciation Land and Land Improvements Constmction in Progress Buildings and Building Improvements Other Equipment Land hqxovements Vehicles and Equipment InfraSt~Ct~re

TotalNoncurrent Assets Total Assets

Primary Gowrnment Governmental Bnsiness-Type Component

Actidties Actinties Totals Units

The accompanying notes are an integral part of thc financial statements

WARREN COUNTY STATEMENT OF NET ASSETS -MODIFIED CASH BASIS June 30,2011 (Continued)

Primary Government Governmental Business-Type Component

Activities Activities Totals Units

Current Liabilities: Geneml Obligation Bonds Payable $ 1,145,000 $ $ 1,145,000 $ Revenue Bonds Payable 825,000 825,000 Hotel TaxRevenne Bonds Payable 130,000 130,000 Financing Obligations Payable 135,000 135,000 Due to Related Party

Total Current Liabilities

Noncurrent Liabilities: Bonds Payable General Obligation Bonds Payable 18,205,000 Revenue Bonds Payable 22,370,000 Hotel TaxRevenue Bonds Payable 10,020,000 Financing Obligations Payable 12,910,000 12,910,000

Total Noncurrent Liabilities 63,505,000 63,505,000 241,410,878 Total Liabilities 65,740,000 65,740,000 241,468,119

NFTASSEIS Invested in Capital Assets,

Net of Related Debt Restricted For:

General Government Protection to Persons and Property Social Services General Health and Sanitation Debt Service Capital Projects

Unrestlicted Total Net Assets

The accompanymg notes are an integral part of the financ~al statements.

WARREN COUNTY STATEMENT OF ACTIVITIES - MODIFlED CASH BASIS

For The Year Ended June 30,2011

WARREN COUNTY STATEMENT OF ACTIVITIES -MODIFIED CASH BASIS

Page 20


ProgramRe~enues Receiwd

mnctions/Programs Reporting Fhtily Primary Cowrnment: Governmental Activities:

General Government Protection to Persons and Propelty GeneralHeakh and Sanitation Social Services Recreation and Culture Transpoltation Facilities and Services Roads Aiyolls Interest On Long-termDebt Capital Projects

TotalGoveminental Activities

Business-tvoe Activities: Jail ~antkkn

TotalBusiness-type Activities

Operating Cafital Charges for Grants and Grants and

l?xpnses Senices Contributions Conhibutions .

Total Prirrary Government $ 29,486,701 $ 8,423,229 $ 6,766,547 $ 2,248,696

Component Units: Southem Kentucky Perfoming Alts Center, Inc. $ 329,350 $ $ $ South Central Kentucky Regional Development Authority 4,743,682 4,738,888

Total Component Units $ 5,073,032 $ 4,738,888 $ $

General Rewnues: Taxes:

Real and Personal Propelly Taxes Motor Vehicle Taxes In Lieu Payments Occupational License FeeITax Transient RoomTax OtherTaxes

Excess Fees Insurance Reimbursement Telephone Commissions Miscellaneous Revenues Investment Eammgs Net Realized Cams

Total General Revenues Change in Net Assets

Net Assets -Beginning (Restated)

Net Assets -Ending

The accompanying notes are an integral palt of the financial statements.

WARREN COUNTY STATEMENT OF ACTMTIES -MODIFIED CASH BASIS For The Year Ended June 30,2011 (Continued)

Net W n s e s ) R e ~ n n e s and Changes in Net Assets

Primary Gowrnment

Governmental Bnsiness-Type Component Activities Activities Totals Units

The accompanying notes are an integral pan of the financia'l statements

WARREN COUNTY BALANCE SHEET - GOVERNMENTAL FUNDS -MODIFIED CASH BASIS

June 30,2011

WARREN COUNTY

BALANCE SHEET - GOVERNMENTAL FUNDS -MODIFIED CASH BASIS

June 30,2011

Transient General General Jail Room Tax Obligation

Fund Fund Fund BondFund

Cash and Cash Equivalents $ 9,921,771 $ $ 12,535,107 $ 145 Investments 11,599,142

Total Assets 21,520,913 12,535,107 145

LIABILWBB AND FUND BALANCES

LIABILITIES Cash Shortage 108,210

Total Liabilities 108,210

mTND BALANCES Restricted For:

General Government Protectton to Persons and Property Social Services General Health and Sanitation Debt Service Capital Projects

Committed To: Protection to Persons and Property General Health and Sanitation Debt Service

AssignedTo: General Govemment Protectton to Persons and Property Soc~al Services Roads Administration

Unassigned 21,276,253 (108,210)

Total Fund Balances 21,520,913 (108,210) 12,535,107 145 Total Liabilities and

Fund Balances $ 21,520,913 $ 12,535,107 $ 145

The accompanying notes are an integral part of the financial statements

WARREN COUNTY BALANCE SHEET - GOVERNMENTAL FUNDS -MODIFIED CASH BASIS June 30,2011 (Continued)

Non- Major Total

Governmental Governmental Funds Funds

The accompanying notes are an integral part of the financial statements.

WARREN COUNTY BALANCE SHEET -GOVERNMENTAL FUNDS -MODIFIED CASH BASIS June 30,2011 (Continued)

Reconciliation ofthe Balance Sheet - Go\ernmental Fun& to Statement of Net Assets:

Total Fund Balances Amounts Reported For Governmental Activities In The Statement

OfNet Assets Are Different Because: Capital Assets Used in Governmental Activities Are Not Financial Resources

And Therefore AreNot Reported in the GovernmentalFunds Accumulated Depreciation Receivable Is Not Due and Collectible in the Current Period and, 'Ilerefore, Is Not

Repolted in the GovemmentalFunds. Cormunity Action ofSouthern Kentucws Portion OfKADD2007 Series KDebt

Long-temDebt Is Not Due and Payable in the Current Period and, Therefore, Is Not Reported in the Governmental Funds:

Due Within One Year -Bond and Financing Obligation PrincipalPayments Due In More Than One Year -Bond and Financing Obligation PrincipalPayments

Net Assets OfGovemmental Activities

Page 26


WARREN COIJNTY --. ~ ~

STXI'E\IENI' O K REVENUES, EXl'ENl)ITURES, AND CllANCES IN IWND BALANCES - GOVEKNMENI'AL FUNDS - hlODIFIED CASII RASlS


WARREN COUNTY

ST.4TEMENT OF REVENUES, EXPENDITURES, AND CHAVGES IN FUND BALANCES - GOVERNI\IENT,a FUNDS - IIODIFIED CASH BASIS


Transient General General Jail Room Tax Obligation

Fund Fund Fund Bond Fund

REvmms Taxes In Lieu Tax Paymnts k e s s Fees Licenses and Permits Intergovernmental Charges for Services Miscellaneous Interest

Total Revenues

EXPmITURES Geneml Governmnt Protection to Persons and Property General Health and Sanitation Social Services Recreation and Culture Transportation Facilities and Services Roads Airports Debt Service Capital Projects Administration

Total Expenditures

Excess (Deficiency) of Revenues Over Expenditures Before Other Financing Sources (Uses)

Other Elnancing Sources (Uses) Debt Issuance Discount On Bond Issuance Transfers To Other Funds Transfers From Other Funds

Total Other Financing Sources (Uses)

Net Change in Fund Balances Fund Balances -Beginning (Restated) Fund Balances -Ending


WARREN COUNTY STATEMENT OF REVENUF,S, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS - MODIFIED CASH BASIS For The Year Ended June 30,2011 (Continued)

Non- Total Major Gmrnmental Funds Funds


WARREN COUNTY RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF

GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES -MODIFIED CASH BASIS


WARREN COUNTY

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF

GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTMTIES - MODIFIED CASH BASIS


Reconciliation to the Statement of Actidties:

Net Change in Fund Balances -Total Governmental Funds

Governmental Funds Report Capital Outlays As Ekpenditures. However, In The Statement OfActivities, The Cost Of Those Assets Are Allocated Over Their Estimated Useful Lives And Reported As Depreciation Ekpense.

Capital Outlay 10,329,233 Depreciation W e n s e (1,986,449) BookValue - Disposed Capital Assets (12,250)

Governmental Fund Report Amounts Collected On Receivable As Revenues, However, In The Statement Of Activities The Amount Collected On Receivables Has No Effect On Revenues. The Amount Collected Reduces Receivables Included In Net Assets.

Cornunity Action of Sountem Kentucky's Portion of KADD 2007 Series KDebt Collected (40,000) The Issuance of Long-tennDebt (e.g. Bonds, Financing Obligations) Provides Current Financial Resources to Governmental Funds, While Repayment of Principal on Long-temDeht Consumes the Current Financial Resources of Governmental Funds. These Transactions, However, Have no Effect on Net Assets.

Debt Issuance Financing Obligations Principal Payments Bond Principal Payments

Change in Net Assets ofGovemmental Activities


WARREN COUNTY STATEMENT OF FUND NET ASSETS - PROPRIETARY FUND -MODIFIED CASH BASIS

June 30,2011

WARREN COUNTY

STATEMENT OF FUND NET ASSETS - PROPRIETARY FUND -MODIFIED CASH BASIS

June 30,2011

Business-Type ActiGties

Fhterprise Fund

Jail Canteen

Fund Assets Cur~ent Assets:

Cash and Cash Equivalents $ 446,400 Total Current Assets 446,400

Noncurrent Assets: Capital Assets:

Vehicles and Equipment 164,732 Less Accumlated Depreciation (120,369)

TotalNoncurrent Assets 44,363 Total Assets 490,763

FundNet Assets Invested in Capital Assets Unrestlicted

Total Fund Net Assets


WARREN COUNTY STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS -

PROPRIETARY FUND -MODIFIED CASH BASIS


WARREN COUNTY - - - ~ ~~

STATKMENI'OF REVENUES, EXPENSES, AND CHANGES IN FLTD S E T ASSEI'S - PROI'RIFI'ARY FUND - \IODIFIED CASH BASIS


Business-llpe Activities

Fhterprise Fund

Operating Revenues Canteen Receipts

Total Operating Revenues

Operating Expnses Cost of Sales Educational and Recreational Depreciation

Total Operating Expenses Operating Income

Jail Canteen

Fund

Nonoperating Relenues M n s e s ) - Interest Income 1,173

TotalNonoperating Revenues (Fapenses) 1,173

Change In FundNet Assets 43,218

TotalFund Net Assets -&ginning TotalFund Net Assets -Ending

The accompanyilig notes are an integal part of the financial statements

WARREN COUNTY STATEMENT OF CASH FLOWS - PROPRlETARY FUND -MODIFIED CASH BASIS


WARREN COUNTY

STATEMENT OF CASH FLOWS -PROPRIETARY FUND -MODIFIED CASH BASIS


Bnsiness-Type Actidties

Fnterprise Fund

Jail Canteen

Fund Cash Flows Fromoperating Actidties

Cash Receipts FromCustomers $ 540,549 Cash Payments To Suppliers For Goods and Services (249,156) Cash Payments For Other (234,252)

Net Cash Provided By Operating Activites 57,141

Cash Flow From Inwsting Actidties Capital Assets Purchased (5,200) Interest Earned 1,173

Net Cash (Used) By Investing Activities (4,027)

Net Increase in Cash and Cash Equivalents 53,114 Cash and Cash Equivalents -July 1,2010 393,286

Cash and Cash Equivalents -June 30,201 1 $ 446,400

Reconciliation of Operating Income to Net Cash Provided by Operating Actinties Operating Income $ 42,045 Adjustments to Reconcile Operating Income To

Net Cash Provided By Operating Activities: Depreciation Evpense 15,096

TotalCash Provided By Operating Activities $ 57,141

The accornpanylng notes are an integral part of the financial statements.

WARREN COUNTY STATEMENT OF FIDUCIARY NET ASSETS - FIDUCIARY FUND -MODIFIED CASH BASIS

June 30,2011

WARREN COUNTY

STATEMENT OF FIDUCIARY NET ASSETS -FIDUCIARY FUND -MODIFIED CASH BASIS

June 30,2011

Agency Fund

Jail lnmate Fund

Assets Cumnt Assets:

Cash and Cash Equivalents $ 68,741 Total Assets 68,741

Liabilities Cument Liabilities:

Amounts Held In Custody Forothers 68,741 Total Liabilities 68,741

Tlie accompanying notes are an integral part of the financial statements.

WARREN COUNTY STATEMENT OF NET ASSETS - COMPONENT UNITS

June 30,2011

WARREN COUNTY

STATEMENT OF NET ASSETS - COMPONENT UNITS

June 30,2011

South Central Southern Kentucky Kentucky Regional

Performing Arts Development Center, Inc. Authority Totals

Assets Current Assets:

Cash and Cash Equivalents Unrestricted Restricted

Investments Other Assets Receivables -

Lease Receivable TotalCurrent Assets

Noncurrent Assets: Capital Assets:

Const~uction in process TotalNoncurrent Assets Total Assets

Liabilities Current Liabilities:

Due to Related Party Total Current Liabilities

Noncurrent Liabilities: Bonds Payable

TotalNoncurrent Liabilities TotalLiabilities

Net Assets Invested in Capital Assets Restricted for Capital Projects Unrestricted

TotalNet Assets


WARREN COUNTY STATEMENT OF ACTMTIES - COMPONENT UNITS


WARREN COUNTY STATEMENT O F ACTIVITIES - COMPONENT UNITS

Page 56


PrngramRewnues Receiwd

Operating Capital

FunctionslPrograms Charges for Grants and Grants and Reporting Ehtity m n s e s Services Contributions Contributions

Southern Kentucky Perfomdng Arts Center, Inc.:

Fine Arts and Education: Program Services $ 329,350 $ $ $

Total Southern Kentucky Perfomung Arts Center, Inc. 329,350

South Central Kentucky Regional Development Authority:

Operations 183 4,738,888 Interest on bng-TennDebt 4,743,499

Total South CentralKentucky Reg~onal Development Authority 4,743,682 4,738,888

Total Component Units $ 5,073,032 $ 4,738,888 $ $

General Revenues: Investment Earnings Net Realized Gains

Total GeneralRevenues Change in Net Assets

Net Assets - Begmnmg (Restated)

Net Assets -Ending

The accompanying notes are an iiitegral part of the financial statements

WARREN COUNTY STATEMENT OF ACTIVITIES -COMPONENT UNITS For The Year Ended June 30,2011 (Continued)

Net m n s e s ) Revenue and Changes in Net Asests

South Central Southern Kentucky Kentucky Regional

Arts Center, Development Component Inc. Authority Units

Page 57

n l e accompanying notes are an integral part ofthe financial statements.

INDEX FOR NOTES

TO THE FINANCIAL STATEMENTS

NOTE 1 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES .......................................................... 59 NOTE 2 . DEPOSITS AND INVESTMENTS ............................................................................................. 69 NOTE 3 . SOUTHERN KENTUCKY PERFORMING ARTS CENTER, INC . INVESTMENTS ......................... 71 NOTE 4 . RECEIVABLE - COMMUNITY ACTION OF SOUTHERN KENTUCKY ...................................... 72

NOTE 5 . SOUTH CENTRAL KENTUCKY REGIONAL DEVELOPMENT AUTHORITY LEASES ................ 72 NOTE 6 . SOUTH CENTRAL KENTUCKY REGIONAL DEVELOPMENT AUTHORITY DUE TO

................................................................................................................. RELATED PARTY 73 NOTE 7 . CAPITAL ASSETS ................................................................................................................. 74

NOTE 8 . INTERFUND TRANSACT~ONS ............................................................................................... 76

. ............................................................................................................... NOTE 9 LONG-TERM DEBT 77 ................................................................................ NOTE 10 . COMMITMENTS AND CONTINGENCIES 84

NOTE 1 1 . EMPLOYEE RETIREMENT SYSTEM ...................................................................................... 86 NOTE 12 . DEFERRED COMPENSATION ................................................................................................ 87

............................................................. NOTE 14 . ESTIMATED I N F R A S T R U C ~ HISTORICAL COST 88 ..................... NOTE 15 . SOUTHERN KENTUCKY PERFORMING ARTS CENTER. INC . FACILITY PLANS 88

............................................................................................. NOTE 16 . PRIOR PERIOD ADJUSTMENTS 89 .................................................................................... NOTE 17 . CHANGE IN ACCOUNTING METHOD 89

NOTE 18 . SUBSEQUENT EVENTS ......................................................................................................... 90

WARREN COUNTY

NOTES TO FINANCIAL STATEMENTS

June 30,2011

Note 1. Summary of Signifreant Accounting Policies

A. Basis of Presentation

The management of Warren County Fiscal Court presents its government-wide and fund financial statements in accordance with a modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. Under this basis of accounting, assets, liabilities, and related revenues and expenditures are recorded when they result from cash transactions, with a few exceptions. This modified cash basis recognizes revenues when received and expenditures when paid. Notes receivable are recognized on the Statement of Net Assets, but notes receivable are not included and recognized on~alance Sheet - Governmental Funds. Property tax receivables, accounts payable, compensated absences, and donated assets, among other items, are not reflected in the fmancial statements.

The State Local Finance Officer does not requlre the county to report capital assets and infrastructure; however, the value of these assets are included in the Statement of Net Assets and their corresponding depreciation expense is included on the Statement of Activities.

B. Reporting Entity

The financial statements of Warren County include the funds, agencies, boards, and entities for which the Fiscal Court is financially accountable. Financial accountability, as defined by Section 2100 of the Governmental Accounting Standards Board (GASB) Codification of Governmental Accountine and Financial Reporting Standards, as amended by GASB 14 and GASB 39, was determined on the basis of the government's ability to significantly influence operations, select the governing authority, participate in fiscal management and the scope of public service. Consequently, the reporting entity includes organizations that are legally separate from the primary government. Legally separate organizations are reported as component units if either the county is financially accountable or the organization's exclusion would cause the county's financial statements to be misleading or incomplete. Component units may be blended or discretely presented. Blended component units either provide their services exclusively or almost entirely to the primary government, or their governing bodies are substantively the same as the primary government. All other component units are discretely presented.

Blended Component Units (Continued)

Warren County Regional Jail Corporation

The Warren County Fiscal Court appoints a voting majority of the Regional Jail Corporation's governing board and has the ability to impose its will on the governing board. In addition, the Fiscal Court is financially accountable and legally obligated for the debt of the Regional Jail Corporation. Financial information for the Warren County Regional Jail Corporation is blended within Warren County's financial statements and its activity is included in the General Obligation Bond Fund and the County Bond Sinking Fund.

WARREN COUNTY NOTES TO FWANCIAZ. STATEMENTS June 30,2011 (Continued)

Page 60

Note 1. Summary of Significant Accounting Policies (Continued)

B, Reporting Entity (Continued)

Blended Component U ~ t s

Warren County Justice Center Expansion Corporation

Warren County Fiscal Court must approve issue of bonded debt for the Justice Center Expansion Corporation; therefore, the Justice Center Expansion Corporation is fiscally dependent. In addition, the Fiscal Court leases the justice center from the Justice Center Expansion Corporation for the amount of the bond payments. Financial informailon for the Warren County Justice Center Expansion Corporation is blended w~thm Warren County's financial statements.

Discretely Presented Comoonent Units -

Southern Kentucky Performing Arts Center, Inc.

The Southern Kentucky Performing Arts Center, Inc. (SKyPAC) was created under the provisions of KRS 273.161 through 273.390 and 58.180 for the purpose of performance of public, civic, and governmental activities in Warren County, Kentucky. SKyPAC acts as the agent and instrumentality and the constituted authority of Warren County in the acquisition and financing of public projects and public facilities which includes among other things, public buildings and educational facilities; and in conjunction with Western Kentucky University, to organize, study, develop, implement, acquire and finance public facilities for facilitating the construction and maintenance of a fine arts and educational facility. SKyPAC is governed by no less than 10 directors and no more than 25 directors of the board. All of SKyPAC's Board of Directors are appointed by the Warren County JudgeExecutive subject to the approval of the Warren County Fiscal Court. SKyPAC can provide a financial benefit to or impose a financial burden on the Warren County Fiscal Court.

South Central Kentucky Regional Development Authority

The South Central Kentucky Regional Development Authority (RDA) was established by the Warren County Fiscal Court pursuant to KRS 154.50-301 through 154.50-346. The RDA was created and organized by the Fiscal Court as a non-profit, industrial development authority for the purpose of the acquisition, retention and development of land for industrial and commercial purposes in Kentucky. RDA was created and organized solely for public, civic and governmental purposes as an agency and instrumentality and the constituted authority of the county for the purpose of financing public projects on behalf of the county, and thereby accomplishing public purposes of the county. The RDA is governed by six members appointed by the Warren County Judge/~xecutive. The Fiscal Court exercises organizational control over the RDA and retains the authority to alter or change the structure, organization, programs, or activities of the RDA, including the power to terminate its existence.

WARREN COUNTY NOTES TO FINANCIAL STATEMENTS June 30,2011 (Continued)

Page 61


B. Reporting Entity (Continued)

Discretelv Presented Component Units (Continued)

Warren County Downtown Economic Development Authority, Inc

The Warren County Dohtown Economic Development Authority, Inc. was created under the provisions of ~ ~ S 2 7 3 . 1 6 1 through 273.390 and 58.180 for.the purpose of performance of public, civic, and governmental activities in Warren County, Kentucky. The Warren County Downtown Economic Development Authority, Inc. acts as the agent and instrumentality and the constituted authority of Warren County in the development, acquisition, financing, construction and the operation of public projects and public facilities. The Warren County Downtown Economic Development Authority, Inc. is governed by no less than 3 directors and no more than 5 directors of the hoard. All of the Warren County Downtown Economic Development Authority, Inc.'s, Board of Directors are appointed by the Warren County JudgelExecutive subject to the approval of the Warren County Fiscal Court. The Warren County Downtown Economic Development Authority, Inc. can provide a financial benefit to or impose a financial burden on the Warren County Fiscal Court.

C. Warren County Elected Officials

Kentucky law provides for election of the below officials from the geographic area constihlting Warren County. Pursuant to state statute, these officials perform various services for the Commonwealth of Kentucky, its judicial courts, the fiscal court, various cities, and special districts within the county, and the hoard of education. In exercising these responsibilities, however, they are required to comply with state laws. Audits of their financial statements are issued separately and individually and can be obtained from their respective administrative offices.

Circuit Court Clerk County Attorney . Property Valuation Administrator County Clerk County Sheriff

D. Government-wide and Fund Financial Statements

The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its non-fiduciary component units. For the most part, the effect of interfund activities has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on sales, fees, and charges for support. Business-type revenues come mostly from fees charged to external parties for goods or services. Fiduciary funds are not included in these financial statements due to the unavailability of fiduciary funds to aid in the support of government programs.


Page 62


D. Government-wide and Fund Financial Statements (Continued)

The statement of net assets presents the reporting entity's non-fiduciary assets and liabilities, the difference between the two being reported as net assets. Net assets are reported in three categories: 1) invested in capital assets, net of related debt - consisting of capital assets, net of accumulated depreciation and reduced by outstanding balances for debt related to the acquisition, construction, or improvement of those assets; 2) restricted net assets -resulting from constraints placed on net assets by creditors, grantors, contributors, and other external parties, including those constraints imposed by law through constitutional provisions or enabling legislation; 3) unrestricted net assets -those assets that do not meet the definition of restricted net assets or invested in capital assets.

The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program revenues include: I) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function; 2) operating grants and contributions; and 3) capital grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Internally dedicated resources such as taxes and unrestricted state funds are reported as general revenues.

Generally and except as otherwise provided by law, property taxes are assessed as of January 1, levied (mailed) November 1, due at discount November 30, due at face value December 31, delinquent January 1 following the assessment, and subject to lien and sale 90 days following April 15".

Funds are characterized as either major or non-major. Major funds are those h d s whose assets, liabilities, revenues, or expenditureslexpenses are at least ten percent of the corresponding total (assets, liabilities, etc.) for all funds or type (governmental or proprietary) and whose total assets, liabilities, revenues, or expendituresiexpenses are a least five percent of the corresponding total for all governmental and enterprise funds combined. The fiscal court may also designate any fund as major.

Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds. Major individual governmental funds and major enterprise funds are reported as separate columns in the financial statements.


Page 63



Governmental Funds

The primary government reports the following major governmental funds:

General Fund - This is the pnmary operating fund of the Fiscal Court. It accounts for all financial resources of the general government, except where the Department for Local Government requires a separate fund or where management requues that a separate fund be used for some function.

Jail Fund - The primary purpose of this fund is to account for the jail expenditures of the Fiscal Court. The primary sources of revenue for this fund are reimbursements from the state and federal government, payments from other counties for housing prisoners, and transfers from the General Fund. The Department for Local G o v e b e n t requires the Fiscal Court to maintain these receipts and expenditures separately from the General Fund.

Transient Room Tax Fund - The prinmy purpose of this fund is to account for transient room tax. The taxes collected are to be used solely for the retirement of the SKyPAC bonds.

General Obligation Bond Fund - The primary purpose of this fund is to account for the activities of the County's long-term debt. Debt service funds are to account for the accumulation of resources for, and the payment of general long-term debt principal and interest. The D e p a m n t for Local Government does not require the Fiscal Court to report or budget these funds.

The primary government also has the following non-major funds: Road and Bridge Fund, Local Government Economic Assistance Fund, State Grant Fund, Emergency 911 Fund, Federal Dmg Forfeiture Fund, Storm Water Fund, County Bond Sinking Fund,' and Justice Center s expansion Corporation Fund.

Special Revenue Funds:

The Road and Bridge Fund, Jail Fund, Local ~overnme& Economic Assistance Fund, State Grant Fund, Emergency 91 1 Fund, Federal Drug Forfeiture Fund, Storm Water Fund, and Transient Room Tax Fund are presented as special revenue funds. Special revenue funds are to account for the proceeds of specific revenue sources and expenditures that are legally restricted for specific purposes.

Capital Prolects Fund:

The County Bond Sinking Fund is presented as a capital projects fund. Capital projects funds are to account for the financial resources to be used for the acquisition or construction of major capital facilities.




Governmental Funds (Continued)

Debt Service Funds:

The General Obligation Bond Fund and Justice Center Expansion Corporation Fund are presented as debt service funds. Debt service funds are to account for the accumulation of resources for, and the payment of general long-term debt principal and interest.

Proprietary Funds

Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with proprietruy funds' principal ongoing operations. All revenues and expenses not meeting this definition are reported as nou-operating revenues and expenses.

Enterprise Fund

The principal operating revenues of the county's enterprise fund are charges to customers for sales in the Jail Canteen Fund. Operating expenses for the enterprise fund include the cost of sales and services, administrative expenses, and depreciation on capital assets. The governtnent has elected not to adopt Financial Accounting Standards Board (FASB) Statements or Interpretations issued after November 30, 1989, unless the Governmental Accounting Standards Board (GASB) specifically adopts such FASB Statements or Interpretations.

The prlmary govemment reports the follow~ng major propnetary fund:

Jail Canteen Fund - The canteen operations are authorized pursuant to KRS 441.135(1), which allows the jailer to sell snacks, sodas, and other items to inmates. The profits generated from the sale of those items are to he used for the benefit or recreation of the inmates. KRS 441.135(2) requires the jailer to maintain accounting records and report annually to the county treasurer the receipts and disbursements of the Jail Canteen Fund.

Fiduciarv Funds

Fiduciary funds report only those resources held in a trust or custodial capacity for individuals, private organizations, or other governments. The county's agency fund is used to account for monies held by the county in the Jail Inmate Fund for custodial purposes only. Unlike other funds, the agency fund reports assets and liabilities only; therefore, it has no measurement focus.

The primaly government reports the following fiducialy fund:

Jail Inmate Fund - This fund accounts for funds received from jail inmates and remitted for jail canteen expenses, booking fees, or returned to the jail inmate.

WARREN COUNTY NOTES TO FINANCIAL STATEMENTS

Page 65

June 30,2011 (Continued)



Presentation of Component Units

Detailed presentation of the financial statements for Southern Kentucky Performing Arts Center, Inc. (SKyPAC), and South Central Kentucky Regional Development Authonly (RDA), major discretely presented component units of the Watren County Fiscal Court are ava~lable from the separately Issued fmancial statements of these component units.

E. Deposits and Investments

The government's cash and cash equivalents are considered to be cash on hand, demand deposits, certificates of deposit, and short-term investments with original maturities of three months or less from the date of acquisition.

KRS 66.480 authorizes the county to invest in the following, including but not limited to, obligations of the United States and of its agencies and instrumentalities, obligations and contracts for future delivery or purchase of obligations hacked by the full faith and credit of the United States, obligations of any corporation of the United States government, bonds or certificates of indebtedness of this state, and certificates of deposit issued by or other interest-bearing accounts of any bank or savings and loan institution which are insured by the Federal Deposit Insurance Corporation (FDIC) or which are collateralized, to the extent uninsured, by any obligation permitted by KRS 41.240(4).

F. Capital Assets

Capital ass&,' which include land, land improvements, buildings, furniture and office equipment, building improvements, machinery, equipment, and infrastructure assets (roads and bridges) that have a useful life of more than one reporting .period based on the government's capitalization policy, are reported in the applicable governmental or business-type activities of the government-wide financial statements. Such assets are recorded at historical cost or estimated historical cost when purchased or constructed.

Cost of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset's life are not capitalized. Land and Construction In Progress are not depreciated. Interest incurred durmg construction is not capitalized. Capital assets and infrastructure are depreciated using the straight-line method of depreciation over the estimated useful life of the asset.

Capdalization Useful L~fe Threshold (Years)

Land Improvements $ 25,000 Bulldmgs and Bullding Improvements $ 50,000 Machinery and Equipment $ 5,000 Veh~cles $ 5,000 Infrastructure $ 25,000

WARREN COUNTY NOTES TO FINANCIAL STATEMENTS

Page 66

June 30,2011 (Continued)


G. Long-term Obligations

In the government-wide financial statements and proprietary funds in the fund financial statements, long term debt and other long-term obligations are reported as liabilities in the applicable financial statements. The principal amount of bonds, notes, and fmancing obligations are reported.

In the fund fmancial statements, governmental funds recognize bond interest, as well as bond Issuance costs when received or when pad, dur~ng the current period. The principal amount of the debt and interest are reported as expend~tures. Issuance costs, whether or not milheld from the actual debt proceeds received, are reported as expenhtures. Debt proceeds are reported as other fmancmg sources.

H. FundEquity

In the fund financial statements, the difference between the assets and l~ab~l~ties of governmental funds is reported as fund balance. Fund balance is d~vided Into non-spendable and spendable components, if apphcable.

Non-spendable includes amounts that must be maintained intact legally or contractually.

Spendable include the following: ~estricted-amounts constrained, for a specific purpose by external parties, constitutional provisions, or enabling legislation. Committed-amounts constrained for a specific purpose by the county using its highest level of decision making authority. Assigned-for all governmental funds, other than general fund, any remaining positive amounts not classified as non-spendable, restricted, or committed. For the general fund, amounts constrained by intent to be used for a specified purpose by the County or the delegated county committee or official given authority to assign amounts. Unassigned-for the general fund, amounts not classified as non-spendable, restricted, committed or assigned. For all other governmental funds, amount expended in excess of resources that are non-spendable, restricted, committed or assigned.

For resources considered committed, the county issues an ordinance or resolution that can only be changed with another corresponding ordinance or resolution.

For resources considered assigned, the county has designated the County Treasurer to carry out the intent of the fiscal court.

It is the policy of the County to spend restricted resources first, when both restricted and unrestricted resources are available to spend on the activity. Once restricted resources are exhausted, then committed, assigned and unassigned resources will be spent in that order on the activity.

Encumbrances, although not reported on the balance sheet, are purchase orders that will be fulfilled in a subsequent fiscal period. Although the purchase order or contract creates a legal commitment, the fiscal court incurs no liability until perfonnance has occurred on the part of the party with whom the fiscal court has entered into the arrangement. When a government intends to honor outstanding commitments in subsequent periods, such amounts are encumbered. Due to the modified cash basis of accounting, encumbrances can also include invoices for goods or services received at June 30, but not yet paid and not included as an accounts payable. Significant encumbrances at year end are reported by major funds and non-major funds in the aggregated and included with the commitments and contingencies note disclosure, if applicable.


Page 67


I. Use Of Estimates

The preparatlon of fmancial statements in conformity with the modified cash basls of accounting requires management to make estimates and assumptions that affect certain reported amounts at the date of the financial statements. Actual results could differ kom those estimates.

J. Budgetary Information

Annual budgets are adopted on a cash basis of accounting and according to the laws of Kentucky as required by the State Local Finance Officer.

The County JudgelExecutive is requ~red to submit esbmated receipts and proposed expend~tures to the fiscal court by May 1 of each year. The budget is prepared by fund, function, and act~vity and is requued to be adopted by the fiscal court by July 1.

The fiscal court may change the original budget by transfemng appropnations at the activity level; however, the fiscal court may not Increase the total budget without approval by the State Local Finance Officer. Expenditures may not exceed budgeted appropriations at the activity level.

K. Related Organizations, Joint Venture, and Jointly Governed Organizations

A related organization is an entity for which a primary govemment is not financially accountable. It does not impose will or have a fmancial benkfit or burden relationship, even if the primruy govemment appoints a voting majority of the related organization's governing board. The primary government's accountability for related organizations does not extend beyond making appointments. Based on these criteria, the following are considered related organizations of Warren County Fiscal Court: Animal Control Board, Codes Enforcement Board, Industrial Development Authority, and Warren County Water District.

A joint venture is a legal entity or other organization that results from a contractual agreement and that is owned, operated, or governed by two or more participants as a separate activity subject to joint control, in which the participants retain (a) an ongoing financial interest or (b) an ongoing financial responsibility. Based upon these criteria, the Joint City-County Planning Commission, Bowling Green SPE and the Inter-Modal Transportation Authority, Inc. are considered joint ventures of the Warren County Fiscal Court.

The Warren County Fiscal Court has maintained an ongoing financial responsibility for the Joint City- County Planning Commission (Planning Commission). The Planning Commission is a joint venture between Fiscal Court and Cities of Bowling Green, Plum Springs, Smiths Grove, Woodbum, and Oakland to assist and promote the orderly development of the county and cities. The Fiscal Court and City of Bowling Green are each responsible for fifty percent of the basic administration included in the budget of the Planning Commission. During fiscal year 2011, the Fiscal Court contributed $496,600 to the Planning Commission.


Page 68


K. Related Organizations, Joint Venture, and Jointly Governed Organizations (Continued)

The Inter-Modal Transpoitation Authority, Inc. (the Authority) was organized by the Warren County Fiscal Court. In October 1998, the fiscal court incorporated the Authority pursuant to KRS 273.161, through 273.390 and 58.180. The Authority began as a component unit of Warren County, Kentucky (the County). However, on December 27, 2007, the Authority restated their Articles of Incorporation which states the Authority has become an agency and instrumentality of the County and the City of Bowling Green (the City). The Authority's primary purpose is the design, promotion and constmction of a mu1ti:modal commerce and distribution center and industrial park in the Warren County area. The Authority's primary sources'of funding are land sales, county wage assessment tax receipts, state grants, portions of County and City tax revenues provided for under the Kentucky Increment Financing Act, and rental income from residential and farm leases. Of the 24 member board, half of the members are appointed by the County. During fiscal year 2011, the Fiscal Court contributed $814,947 to the Authority.

A jointly governed organization is a regional government or other multi-governmental arrangement that is governed by representatives from each of the governments that created the organization, but that is not a joint venture because the participants do not retain an ongoing financial interest or responsibility. Based on these criteria, the following are considered jointly governed organizations of the Warren County Fiscal Court: Bowling Green-Warren County Regional Airport Board, Joint City-County Board of Adjustment, Contractors Licensing Board, Depot Development Authority, Design Review Board, Historic Preservation Board, Bowling Green Area Convention and Visitors Bureau, Military Liaison Board, and Bowling Green-Warren County w re en belt Advisory Committee.

L. Interfund Transactions

The Warren County Fiscal Court has the following type of interfund transactions:

Interfund Transfers - Transfers presented in the fund fmancial statements represent the flow of assets (such as goods or cash) without equivalent flow of assets in retum or requirement of repayment. The composition of the interfund transfers is presented in Note 7. Note that at the entity-wide level, the interfund transfers have been eliminated. This is to avoid revenues and expenses ffom being reported more than once.


Note 2. Deposits and Investments

A. Deposits

The primary government and component units, maintained deposits of public funds with depository institutions insured by the Federal Deposit Insurance Corporation (FDIC). as required by KRS 66.480(1)(d). According to KRS 41.240(4), the depository institution should pledge or provide sufficient collateral which, together with FDIC insurance, equals or exceeds the amount of public funds on deposit at all times. In order to be valid against the FDIC in the event of failure or insolvency of the depository institution, this pledge or provision of collateral should be evidenced by an agreement between the county and the depository institution, signed by both parties, that is (a) in writing, 01) approved by the board of directors of the depository institution or its loan committee, which approval must be reflected in the minutes of the board or committee, and (c) an official record of the depository institution. The primary government and its discretely presented component unit met these requirements.

Custodial Credit Risk - Deposits

Custodial credit risk is the risk that in the event of a depository institution's failure, the government's deposits may not be returned to it. The primary government and its discretely presented component units do not have deposit policies for custodial credit risk but rather follow the requirements of KRS 41.240(4). As of June 30,2011, the primary government's public funds were covered by FDIC insurance or pledged securities and a properly executed collateral security agreement. As of June 30, 2011, $132,547 of deposits of Southem Kentucky Performing Arts Center, Inc., a discretely presented component unit was exposed to custodial credit risk as being uninsured and uncollateralized. As of June 30, 2011, all deposits of South Central Kentucky Regional D.eve1opment Authority, a discretely presented component unit were covered by federal depository insurance.


Page 70

Note 2. Deposits and Investments (Continued)

B. Investments

As of June 30,201 1, the primary government had the following investments and average maturities: Fair Value

(Cost) <1 Yr. >I Yr.

U. S. Government & Agency Obligations $ 4,706,104 $ 1,642,738 $3,063,366 Certificates of Deposits 8,517,116 5,932,207 2,584,909

Total $ 13,223,220 $ 7,574,945 $5,648,275

Standard & Poor'siMoody's Credit Ratlngs Not

Aaa Aa3 Rated U. S. Government &

Agency Obhgations $ 2,916,439 $ 1,642,738 $ 146,927

Total Investnlents

Interest Rate Risk - Investments

Warren County Fiscal Court does not have formal investment policies that limit investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates.

Credit Risk and Concentration of Credit Risk - Investments

KRS 66.480, Warren County Fiscal Court (Fiscal Court) limits its investments in the following: obligations of the United States and its agencies and instnunentalities, including obligations subject to repurchase agreements, obligations and contracts for future delivery or purchase of obligations backed by the United States or its agencies and obligations of any corporation of the United States Government; celtificates of deposit issued by or other interest hearing accounts of any bank or savings and loan institution rated in one of the three highest categories by a nationally recognized rating agency; bankers acceptances for banks rate in one of the three highest categories by a nationally recognized rating agency; commercial paper rated in one of the three highest categories by nationally recognized rating agency; bonds or certificates of indebtedness of this state and of its agencies and instrumentalities; securities issued by a state or local government, or any instrumentality of agency thereof, in the United States and rated in one of the three highest categories by a nationally recognized rating agency; and shares of mutual funds meeting specific characteristics outlined in the statute shall be eligible investments. Fiscal Court has an investment policy that states that no investment may be purchased on a margin basis or through the use of any similar leveraging techniques and that amounts over FDIC or SPIC coverage must be insured or collateralized. Also, Fiscal Court is limited to investing no more than 20% in any one of the following investments as allowed by KRS 66.480: certificates of deposit issued by a bank or savings and loan institution rated in one of the three highest categories by a nationally recognized rating agency, bankers acceptances for banks rated in one of the three highest categories by a nationally recognized rating agency, commercial paper rated in the highest category by a nationally recognized rating agency, or securities issued by a state or local government, or any instrumentality or agency thereof, in the United States, and rated in one of the three highest categories by a nationally recognized agency. Fiscal Court has no investment policies that would further limit its investment choices.


Note 2. Deposits and Investments (Continued)

B. Investments (Continued)

Custodial Credit Risk - Investments

For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the government will not be able to recover the value of its investments held in the possession of an outside party. Fiscal Court does not have an investment policy for custodial credit risk. As of June 30, 201 1, the investments of the primary government were held by the County or County's agent m the County's name.

Note 3. Southern Kentucky Performing Arts Center, Inc. Investments

As of June 30,201 1, the discretely presented component unit of the Warren County Fiscal Court had the following investments and maturities:

Investment Type Fair Value Certifcate of Deposit $ 25,000 US Government Obligations:

Federal Home Loan Mortgage Corp 34,935 Federal Home Loan Mortgage Corp 149,207

~. ~

Federal National Mortgage Association 62,827 Federal National Mortgage Association 276,760 Federal National Mortgage Association 14,067 Federal National Mortgage Association 3,526 US Treasury Note 27,132 US Treasury Note 10,344 US Treasury Note 67,875

$ 671,673

Interest Rate Risk - Investments

Credit Rating Maturity NIR 6/1/2012

AAA 9/11/2038 AAA 11/1/2040 AAA 3/1/2041 AAA 3/1/2041 AAA 11/1/2036 AAA 8/1/2037 AAA 2/29/20 12 AAA 5/15/2019

A U 511 512021

The Southern Kentucky Performing Arts Center, Inc. does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates.


Note 3. Southern Kentucky Performing Arts Center, Inc. Investments (Continued)

Credit and Concentration Risk - Investments

Under KRS 66.480, the Southern Kentucky Performing Arts Center, Inc. (SKyPAC) is authorized to invest in obligations of the United States and its agencies and instnunentalities, obligations and contracts for future delivery or purchase of obligations backed by the full faith and credit of the United States or its agencies, obligations of any corporation of the United States Government, certificates of deposit, commercial paper and securities issued by a state or local governments rated in one of the three highest categories by a nationally recognized rating agencies and shares in mutual h d s . SKyPAC has no investment policy that would further limit its investments choices.

As of June 30, 2011, more than 5 percent of SKyPAC's investments are in Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, and US Treasury Notes. These investments are 29%, 55%, and 16%, respectively, of SKyPAC's total investments as of June 30,2011.

Risk and Uncertainties - Investments

SkyPAC invests in various investment securities. Investment securities are exposed to various risks such as interest rate risk, market risk, and credit risk. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in values of investment securities will occur in the near term and that such changes could be significant.

Note 4. Receivable - Community Action of Southern Kentucky

In September 2007, the Warren County Fiscal Court issued financing obligations of $820,000 to the Community Action of Southern Kentucky (CASC). F~nancing proceeds were paid directly to CASC. CASC makes the lease payments directly to the trustee of the note to pay principal and interest. The receivable reflects the principal amount due from CASC of $700,000 outstanding as of June 30,2011. The amount receivable corresponds to the CASC liability outstanding as of the end of the fiscal year.

Note 5. South Central Kentucky Regional Development Authority Leases

South Central Kentucky Regional Development Authority's (RDA) leasing activities, as a lessor, consist of financing property, plant and equipment under a leasing agreement extending through 2029.

RDA has entered into a financing lease agreement with a tenant (lessee) in a local industrial park. RDA has provided the funding to the tenant to purchase the necessaq assets in constructing a facility and related equipment on land, which RDA had bare legal title, as defined in the lease agreement. The tenant is responsible for construction of the facility and equipment with RDA only providing the financing. RDA has issued industrial revenue bonds which are used to provide the financing for the lease agreement (see Note 9). RDA's lease payments from the tenant are equivalent to RDA's debt service costs incurred from industrial revenue bonds. The lease agreement further states that the tenant can take ownership of the assets once the financing amounts have been paid in full. At June 30,201 1, RDA's lease receivable is $241,410,878.


Note 6. South Central Kentucky Regional Development Authority Due to Related Party

South Central Kentucky Regional Development Authority (RDA) has received advances for operating needs from the Inter-Modal Transportation Authority, a related party. This is a non-interest bearing advance which is to be repaid at such time as RDA has available funds.

Short-term debt activity for the year ended June 30,201 1 was as follows:

Beginning Ending Balance Additions Reductions BaJance

WARREN COUNTY NOTES T O FINANCIAL STATEMENTS June 30,2011 (Continued)

Page 74

Note 7. Capital Assets

Capital asset activity for the primary government for the year ended June 30,201 1 was as follows:

Reporting Entity Beeinnine Endme

Primary Government: Governmental Activities:

Capital Assets Not Being Depreciated: Land and Land Improvements Construction in Progress

Total Capital Assets Not Being Depreciated

Capital Assets, Being Depreciated: Buildings and Building Improvements Other Equipment Land Improvements Vehicles and Equipment Infrastructure

Total Capital Assets Being Depreciated

Less Accumulated Depreciation For: Buildings and Building Improvements Other Equipment Land lmprovements Vehicles and Equipment infrastructure

Total Accumulated Depreciation Total Capital Assets, Being

Depreciated, Net Governmental Activities Capital

Assets, Net

- glance- Increases Decreases Balance

(Restated)


Note 7. Capital Assets (Continued)

Primary Government: (Continued) Ehsiness-Twe Activities:

Reporting Entity Beginning Ending Balance Increases Decreases Balance

Capital Assets, Bemg Depreciated: Vehicles and Equipment $ 159,532 $ 5,200 $ $ 164,732

Total Capital Assets Being Depreciated 159,532 5,200 164,732

Less Accumulated Depreciat~on For: Vehlcles and Equ~pment (105,273) (15,096) (120,369)

Total Accumulated Depreciation (105,273) (15,096) (120,369) Total Capital Assets, Belng

Depreciated, Net 54,259 (9,896) 44,363 Busmess-Type Activities Capital

Assets, Net $ 54,259 $ (9,896) $ 0 $ 44,363

Depreciation expense was charged to functions of the primary government as follows:

Governmental Activities: General Government $ 420,752 Protection to Persons and Property 610,845 General Health and Sanitation 2,340 Recreation and Culture 319,956 Roads, Including Depreciation of General Infrashucture Assets 632,556

Total Depreciation Expense - Governmental Activities $ 1,986,449

Business-Type Activities Jail Canteen

Total Depreciation Expense - Business Activities $ 15,096


Note 7. Capital Assets (Continued)

Capital asset activity for the Southern Kentucky Performing Arts Center, Inc. a discretely presented component unit of the Warren County Fiscal Cowt for the year ended June 30,201 1 was as follows:

Reporting Entity Discretelv Presented Beginning Endine -

Component Units: E&nceU Increases Decreases Balance Governmental Activities:

Capital Assets Not Being Depreciated:

Construction in Progress $ 3,492,039 $ $ $ 3,492,039 Total Capital Assets Not Being

Depreciated 3,492,039 3,492,039

Capital Assets, Net $ 3,492,039 $ 0 $ 0 $ 3,492,039

Note 8. Interfund Transactions

The table below shows the interfund operating transfers for fiscal year 201 I

Non-Major General Jail Governmental Total Fund Fund Funds Transfers In

General Fund $ $ 550,000 $ 77,129 $ 627,129 Jail Fund 550,000 550,000 Translent Room Tax Fund 7,762 7,762 General Obhgation 610,609 716,321 1,326,930 Non-Major 816,811 816,811

Total Transfers Out $ 1,985,182 $1,266,321 $ 77,129 $3,328,632


Page 77

Note 9. Long-term Debt

A. General Obligation Improvement Bonds, Series 2002

The Warren County Fiscal Court issued obligations, dated December 1,2002 akd payable in 15 annual installments beginning August I, 2003, with the term bonds due on February 1 of the years 2020,2024, 2026, and 2028; semi-annual interest payments at rates ranging fkom 4.00% to 4.50%. The fiscal court issued the bonds for the following purposes: i) completing major public parks, land acquisition and development plan; ii) remodeling the existing Warren County Courthouse; and, iii) paying the costs of issuance on the bonds. As of June 30, 2011, bonds outstanding were $4,405,000. Future principal and interest requirements are:

Fiscal Year Ended June 30 Principal Interest

2012 $ 180,000 $ 194,373 2013 190,000 187,173 2014 195,000 179,097 2015 205,000 170,810 2016 215,000 162,097 2017-2021 1,205,000 663,600 2022-2026 1,510,000 368,550 2027-2028 705,000 47,925

Totals $ 4,405,000 $ 1,973,625

B. General Obligation Improvement Bonds, Series 2004

The Warren C o d y Fiscal Court issued obligations, dated March 1, 2004 &d payable in 11 annual installments beginning March 1,2005, with $1,600,000 term bonds due on March 1 of the years 2018, 2021, and 2024; and semi-annual interest payments on the first of March and September at varying rates from 2.00% to 4.30%. The Fiscal Court issued the bonds for the purpose of i) completing a major public parks land acquisition and development plan; ii) remodeling of the existing Warren County Courthouse; and iii) paying the costs of issuance on the bonds. As of June 30,201 1, bonds outstanding were $1,155,000. Future principal and interest requirements are:

Fiscal Year Ended June 30 Prlncrpal Interest

2012 $ 70,000 $ 44,711 2013 70,000 42,436 2014 75,000 40,056 2015 75,000 37,394 2016 80,000 34,675 2017-2021 455,000 125,560 2022-2024 330,000 28,475

Totals $ 1,155,000 $ 353,307 -


Note 9. Long-term Debt (Continued)

C. General Obligation Refunding Bonds, Series 2004B

Tbe Warren County Fiscal Court issued obligations, dated September 9, 2004, for i) refundmg the outstanding Public Project Revenue Bonds (Warren County Class D Facility), Series 1996, of the Warren County Regional Jail Corporation, an agency and instrumentality of the Fiscal Court; and, il) paying the cost of issuance on the Bonds. The issue amount of the bonds was $2,620,000. The interest rate varies from 2.00% to 3.70% with semi-annual interest payments on the first of December and June. As of June 30, 2011, bonds outstanding were $1,185,000. Future principal and interest requirements are:

Flscal Year Ended June 30 Principal Interest

2012 $ 220,000 $ 37,278 2013 230,000 29,908 2014 235,000 22,059 2015 245,000 13,656 2016 255,000 4,653

Totals $ 1,185,000 $ 107,554

D. First Mortgage Refunding Revenue Bonds, Series 2005

The Warren County Justice Center Expansion Corporation (the "Corporation") adopted a Resolution on November 18,2005, authorizing the issuance of the Bonds from which the net proceeds thereof will be used to (i) purchase an escrow scheduled to mature at such times and in such amounts as are necessary and will he adequate, with investment or reinvestment thereof, to pay the accruing interest on and refund in advance of the 'scheduled maturity of the Warren County Justice Center .Expansion Corporation First Mortgage Revenue Bonds (AOC Judicial Facility), Series 1997A, dated'June 1, 1997 (the "1997A Bonds") and the Warren County Justice Center Expansion Corporation First Mortgage Revenue Bonds (AOC Judicial Facility), Series 1999B, dated July 1, 1999, (the "1999B Bonds") (collectively, the "Prior Bonds"), and (ii) pay the cost of the Bond issuance expenses. 'The Corporation was created by the County to act as the agency and instrumentality of the County in acquiring, developing, and financing public improvements and public projects. As a result, the Series 1997A and Series 1999B are considered to be partially defeased and the partial liability for those honiis has been removed from the govemment-wide statement of net assets.

Interest on the Bonds is payable each March 1 and September 1, beginning March 1, 2007. The Bonds mature as to principal on March 1, 2007 and September 1, 2007 and each September 1 thereafter as shown below. The Bonds are being issued as fully registered and will be available for purchase in principal amounts of $5,000 and integral multiples thereof. The outstanding balance as of June 30, 201 1 was $23,195,000. Future principal and interest requirements are:


Page 79


D. First Mortgage Refunding Revenue Bonds, Series 2005 (Continued)


2012 $ 825,000 $ 969,543 2013 860,000 936,874 2014 895,000 901,774 2015 930,000 865,273 2016 965,000 827,373 2017-2021 5,465,000 3,498,989 2022-2026 6,765,000 2,203,878 2027-2030 6,490,000 590,253

Totals $ 23,195,000 $ 10,793,957

E. KADD 2007 Series K

On September 25, 2007, the Warren County Fiscal Court entered into a lease by participating in a KADD issue (Kentucky Area Development Districts Financing Trust Lease Certificates of Participation) in the amount of $820,000. Interest payments are due Marc2 20" and September 20" beginning March 20,2008. Principal payments are due every September 20 beginning September 20, 2008. The final installment is due on September 20, 2022. The effective interest rate is 3.75%. The proceeds were disbursed to Community Action of Southern Kentucky (CASC), to acquire, construct and equip a building to serve low-income families. The County entered into a sublease with CASC simultaneously with the KADD lease. The sublease term and rental payments are the same as those of the County's lease with the KADD. Principal outstanding as of June 30, 2011 totaled $700,000. Future principal and interest requirements are:


2012 $ 45,000 $ 32,885 2013 45,000 30,860 2014 50,000 28,723 2015 50,000 26,447 2016 55,000 23,532 2017-2021 3 10,000 78,263 2022 145,000 8,624

Totals $ 700,000 $ 229,334



F. Fire Trucks (Pumpers)

On June 19,2007, the Warren County Fiscal Court entered into a lease by participating in a KPAD issue (Kentucky Public Agency Development Lease Certificates of Participation) in the amount of $920,000. Interest payments are due December 1%' and June lS' beginning December 1,2008.. Principal payments are due eveIy June lS' beginning June 1, 2008. The h a 1 installment is due on June 11, 2017. The effective interest rate is 4.00%. The Fiscal Court used the proceeds to purchase five fue trucks (pumpers). Principal outstanding as of June 30, 2011 totaled $595,000. Future principal and interest requirements are:


Totals

G. General Obligation Refunding Bonds, Series 2009

The Warren County Fiscal Court issued obligations, dated July 2,2009, for i) refunding the outstanding General Obligation Improvement Bonds, Series 1999 and, ii) paying the cost of issuance on the Bonds. The issue amount of the bonds was $4,265,000. The interest rate varies from 1.00% to 3.75% with semi-annual interest payments on the first of March and September. As of June 30, 2011, bonds outstanding were $3,535,000. Future principal and interest requirements are:


Totals $ 3,535,000 $ 577,288



H. General Obligation Refunding Bonds, Series 2009B

The Warren County F~scal Court issued obligations, dated December 1, 2009, for i) refunding the outstanding General Obligation Improvement Bonds, Series 2000 and, ii) paying the cost of issuance on the Bonds. The issue amount of the bonds was $9,490,000. The interest rate varies from 1.00% to 4.00% with semi-annual interest payments on the iirst of March and September. As of June 30, 2011, bonds outstanding were $9,070,000. Future principal and interest requirements are:


2012 $ 325,000 $ 295,980 2013 330,000 292,375 2014 340,000 286,995 2015 350,000 280,095 2016 360,000 272,455 2017-2020 2,070,000 1,197,095 2021-2025 2,590,000 802,423 2026-2030 2,705,000 228,700

Totals $ 9,070,000 $ 3,656,118

I. Hotel Tax Revenue Bonds, Series 2010, Build America Bonds-Direct Payment, Southern Kentucky,Performing Arts Center Project

The Warren County Fiscal Court issued obligations, dated February 18,2010, to finance. a performing arts center for Southem Kentucky Performing Arts Center, Inc (SKyPAC), (a discretely presented component unit). The issue amount of the bonds was $10,150,000. The interest rate varies from 3.00% to 8.00% with semi-annual interest payments on the first of July and January. The bonds are limited obligations of the county, payable solely from proceeds of the County Hotel Tax and any amounts received from the U.S. treasury with respect to the Series 2010 Bonds pursuant to Section 6431 of the Internal Revenue Code. As of June 30, 2011, bonds outstanding were $10,150,000. Future principal and interest requirements are:


2012 2013 2014 2015 2016 2017-2021 2022-2026 2027-203 1 2032-2036 2037-2041

Totals



J. KADD 2011 Series A

On March 17, 2011, the Warren County Fiscal Court entered into a lease by participating in a KADD issue (Kentucky Area Development Districts ~in'ancing Trust Lease Certificates of Participation) in the amount of $1 1,750,000. Interest payments are due March 1'' and September 1" beginning September 1, 2011. Principal payments are due eveIy September 20 '~ beginning September 20, 2011. The fmal installment is due on March 1, 2013. The effective interest rate is 3.00%. The proceeds are being used to: (i) fmance the acquisition, construction, and installation of a portion of the Southern Kentucky Performing Arts Center, and (ii) retire on March 17,201 1, the County's 2010 Taxable Tax and Revenue Anticipation Notes, which provided interim fmancing for the construction of a portion of the Southern Kentucky Performing Arts Center. As of June 30, 2011, bonds outstanding were $1 1,750,000. Future principal and interest requirements are:


2012 $ $ 336,833 2013 11,750,000 352,500

Totals $ 11,750,000 $ 689,333

K. Taxable Tax and Revenue Anticipation Note

On December 20,2010, the Warren County Fiscal Court entered into a financing agreement with Ross Sinclair and Associates in the amount of $1,500,000. Interest payment is due June 30'. Principal payment is due on June 30,201 1. The final installment is due on June 30,201 1. The effective interest rate is 4.00%. The proceeds of the Warren County, Kentucky Series 2010 Taxable Tax and Revenue Anticipation Notes will be used to pay a portion of the costs of constructing, fumishmg, and equipping the Southern Kentucky Performing Arts Center ("SKyPAC"). The development consists of a performing arts center, &creative learning center, a dance studio, music practice rooins'and classrooms in Bowling Green, Kentucky. The Project will cost approximately $25,000,000. It will be funded, in part, with monies from private donations and state funding totaling $5,000,000. The remaining amount has been or will be financed with tax increment financing bonds ("TIF"). TIF bonds will be secured by a pledge of certain incremental sales tax, income tax, and real property tax revenues to be collected by the State, the City of Bowling Green, and Warren County. Principal of $1,500,000 was paid on March 17,201 1 and the balance at June 30,201 1 was $0.

WARREN COUNTY NOTES TO FDIANCIAI, STATEMENTS June 30,2011 (Continued)

Page 83


L. South Central Kentucky Regional Development Authority Taxable Industrial Building Revenue Bonds, Series 2004 A, Series 2004 B and Series 2009

South Central Kentucky Regional Development Authority Taxable Industrial Building Revenue Bonds, Series 2004 A and Series 2004 B (referred to collectively as the "Bonds") in the aggregate amount up to $167,000,000 (authorized to issue Series A up to $100,200,000 and Series B up to $66,800,000); maturing as to principal on October 1,2024; interest at 5% payable semi-annually on January 1 and July 1; secured by the assignment of the lease payments that are to be made by the lessee under a financing lease agreement, as discussed in Note 5. The lessee of the lease also entered into a loan agreement with RDA further guaranteeing the payment of the Series B Bonds. Prepayments of the Bonds may be made, in whole or in part, at any time, at the option of the lessee.

South Central Kentucky Regional Development Authority Taxable Industrial Building Revenue Bonds, Series 2009 in the aggregate amount of up to $126,000,000; maturing as to principal May 1, 2029; interest at 5% payable quarterly on June 1, September 1, December 1, and March 1; secured by the assignment of the lease payments that are to be made by the lessee under a financing lease agreement, as discussed in Note 5. The lessee of the lease also entered into a loan agreement with RDA further guaranteeing the payment of the bonds. Prepayments of the Bonds may be made, in whole or in part, at any time, at the option of the lessee.

Long-term debt consists of the following at June 30,201 1:

Industrial Building Revenues Bonds, Series 2004 A and B (a) $ 167,000,000

Industrial Building Revenues Bonds, Series 2009 (b) 74,410,878

Total Long-Term Debt $ 241,410,878

Principal outstanding as of June 30, 2011 totaled $241,410,878. Future principal and interest requirements are:

Year Ending June 30, Principal Interest


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M. Changes In Long-term Liabilities

Long-term liability activity for the primary government for the year ended June 30, 2011, was as follows:

Beginning Ending Due Within Balance Additions Reductions Balance One Year

Primary Government: Governmental Activities.

General Obligation Bonds $20,475,000 $ $ 1,125,000 $19,350,000 $ 1,145,000 Revenue Bonds 23,985,000 790,000 23,195,000 825,000 Hotel Tax Revenue Bonds 10,150,000 10,150,000 130,000 Financing Obligat~ons 1,420,000 13,250,000 1,625,000 13,045,000 135,000

Governmental Activities Long-term Liabilities $56,030,000 $13,250,000 $ 3,540,000 $65,740,000 $ 2,235,000

Beginning Endiig Balance Additions Reductions Balance

Discretely Presented Component Units: Governmental Activities:

Industrial Revenue Bonds $ 233,734,314 $ 7,676,564 $ $ 241,410,878

Business-type Activities Long-term Liabilities $ 233,734,314 $ 7,676,564 $ $ 241,410,878

Note 10. Commitments and Contingencies

A. Lovers Lane Soccer Complex

During 1996, the Warren County Fiscal Court entered into an agreement with the City of Bowling Green to fund 20% of construction costs associated with the Lovers Lane Soccer Complex. The City of Bowling Green Municipal Project Corporation issued $2,365,000 of Series 1995 Lease Revenue Bonds to finance the project. The Fiscal Court's commitment as of June 30, 2011, totaled $21,588 payable at varying amounts semiannually in conjunction with the principal and interest payments due on the bonds, which mature November 1,201 5.


Note 10. Commitments and Contingencies (Continued)

B. Historic Railroad Depot

An lnterlocal Cooperation Agreement relating to the Historic Railroad Depot was entered into on Februiuy 2,2001 by and between the City of Bowling Green (City) and the Warren County Fiscal Court (County). The Clty and the County authonzed the creation of jointly governed organnation, a public non-profit corporation known as the Depot Development Authonty, a corporation, to act as the agent, instrumentality and constihlted authority of the City and the County in connection with the planning, promotion, development, financing, and acquisition by the corporation of the historic railroad station located in Bowling Green. The Clty and County have agreed to borrow up to $1,000,000 to repay the debt of the Authortty and finlsh the renovation of the Depot. The City and County have agreed to equally share the costs of this loan over a twenty-year period and to share equally the responsibility and the costs of the remaintng renovation, promotion, development, financmng, management and malntenance of the historic depot. During fiscal year ended June 30,201 1, the County made payments totaling $86,653.

C. Health Department

The Warren County Fiscal Court established a county health department under KRS 212.040. Upon the resolution betng passed establishing the county health department, the Fiscal Court was requlred to appropnate a sufficient amount for the creation, establishment, and malntenance of the county health department. For the fiscal year ended June 30,2009, and all subsequent years, no monies are budgeted due to the implementation of a health department tax. The health department tax, effective July 1,2007, 1s a tax on personal and real property collected and remitted directly to the health department by the Sheriff.

D. Southern Kentucky Performing Arts Center, Inc.

Southern Kentucky Performing Arts Center, Inc. (SKyPAC) receives funding fiom state agencies, non- public grants and private donations. These funds may be required to be used for designated purposes. If the grantors' review indicates that the funds have not been used for the intended purpose, the grantors may request a refund of monies advanced. The amount of such future refunds, if any, is not expected to be significant. Continuation of SKyPAC's grant program is predicated upon the grantors' satisfaction that the funds being provided are being spent as intended and the grantors' intent to continue their programs.

SKyPAC has entered into contracts relating to the performing arts facility. As of June 30, 2011, construction commitments were approximately $25,000,000 with any outstanding obligations to be paid by the County of Warren, Kentucky with bond proceeds and other sources. SKyPAC has entered into a contract for management services and related occupancy costs for $95,000 annually.

E. South Central Kentucky Regional Development Authority

The bondholders of the industrial revenue bonds and the lessee of the financing lease are related parties. As of July 1, 2009, the two parties agreed to modify the interest rate to 2% on the outstanding bonds which reduces the lease payments to the South Central Kentucky Regional Development Authority (RDA) from the lessee; however, the industrial bonds issued by RDA have a stated interest rate of 5% and the bond agreement had not been modified for the change in rate structure. Should the bondholders pursue the unpaid stated rate amount, RDA would require the lessee to fund the additional cost as defined in the lease agreement.


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Note 11. Employee Retirement System

The Warren County Fiscal Court has elected to participate in the County Employees Retirement System (CERS), pursuant to KRS 78.530 administered by the Board of Trustees of the Kentucky Retirement Systems. This is a cost sharing, multiple-employer defmed benefit pension plan, which covers all eligible full-time employees and provides for retirement, disability, and death benefits to plan members. Benefit contributions and provisions are established by statute.

Nonhazardous covered employees are required to contribute 5 percent of theu salary to the plan. Non hazardous covered employees who begin participation on or after September 1, 2008 are requ~red to contribute 6 percent of the~r salary to the plan. The county's contribution rate for nonhazardous employees was 16.93 percent.

Hazardous covered employees are required to contribute 8 percent of theu salary to the plan. Hazardous covered employees who begm participation on or after September 1, 2008 are requued to contribute 9 percent of their salary to be allocated as follows: 8 percent will go to the member's account and 1 percent will go to the KRS insurance fund. The county's contributmn rate for hazardous employees was 33.25 percent.

The county's contribution for FY 2009 was $746,697, FY 2010 was $940,959, and FY 2011 $1,032,561.

Benefits fully vest on reaching five years of service for nonhazardous employees. Aspects of benefits for nonhazardous employees include retirement after 27 years of service or age 65. Nonhazardous employees who begin phicipation on or after September 1, 2008 must meet the rule of 87 (members age plus years of service credit must equal 87, and member must be a minimum of 57 years of age) or the member is age 65, with a minimum of 60 months service credit.

Aspects of benefits for hazardous employees include retirement after 20 years of service or age 55. For hazardous employees who begin participation on or after September 1,2008 aspects of benefits include retirement after 25 years of service or the member is age 60, with a minimum of 60 months of service credit.

CERS also prov~des post retirement health care coverage as follows:

For members partlclpating prior to July 1, 2003, years of service and respective percentages of the maxlmum contribution are as follows:

As a result of House Bill 290 (2004 General Assembly), medical insurance benefits are calculated differently for members who began participation on or after July 1, 2003. Once members reach a minimum vesting period of ten years, non-hazardous employees whose participation began on or after July 1, 2003, earn ten dollars per month for insurance benefits at retirement for every year of earned service without regard to a maximum dollar amount.

Years of Service 20 or more

15-19 10-14 4-9

Less than 4

% paid by Insurance Fund 100% 75% 50% 25% 0%

% Paid by Member through Payroll Deduction

0% 25% 50% 75% 100%


Note 11. Employee Retirement System (Continued)

Hazardous employees whose partkipation began on or after July 1,2003, earn fifteen dollars per month for insurance benefits at retirement for every year of earned semce without regard to a maximum dollar amount. Upon the death of a hazardous employee, such employee's spouse receives ten dollars per month for insurance benefits for each year of the deceased employee's hazardous service. This dollar amount is subject to adjustment annually based on the rewee cost of livmg adjustment, which is updated annually due to changes ~n the Consumer Price Index.

Historical trend information showing the CERS' progress in accumulating sufficient assets to pay benefits when due is presented in the Kentucky Retirement Systems' annual financial report. This report may be obtained by writing the Kentucky Retirement System, 1260 Louisville Road, Frankfort, Kentucky 40601-6124, or by telephone at (502) 564-4646.

Note 12. Deferred Compensation

On Febmiuy 24, 2000, the Warren County Fiscal Court voted to allow all eligible employees to participate in deferred compensation plans administered by the Kentucky Public Employees' Deferred Compensation Authority. The Kentucky Public Employees' Deferred Compensation Authority is authorized under KRS 18A.230 to 18.4.275 to provide administration of tax sheltered Supplemental retirement plans for all state, public school and university employees and employees of local political subdivisions that have elected to participate: These deferred compensation plans permit all full time employees to defer a portion of their salary M i l future years. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. Participation by eligible employees in the deferred compensation.plans is voluntary.

Historical trend information showing the Kentucky Public Employees' Deferred Compensation Authority's progress in accumulating sufficient assets to pay benefits when due is presented in the Kentucky Public Employees' Deferred Compensation Authority's annual financial report. This report may be obtained by writing the Kentucky Public Employees' Deferred Compensation Authority, 101 Sea Hero Road, Suite 110, Frankfort, Kentucky 40601-8862, or by telephone at (502) 573-7925.

Note 13. Insurance

For the fiscal year ended June 30,201 1, Warren County was a member of the Kentucky Association of Counties' All Lines Fund (KALF). KALF is a self-insurance fund and was organized to obtain lower cost coverage for general liability, property damage, public officials' errors and omissions, public liability, and other damages. The basic nature of a self-insurance program is that of a collectively shared risk by its members. If losses incurred for covered claims exceed the resources contributed by the members, the members are responsible for payment of the excess losses.


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Note 14. Estimated Infrastructure Historical Cost

Historical cost of infrastructure placed in service prior to the fiscal year ended June 30,2003 (year of GASB 34 implementation) is an estimate. For those assets, the primilly government estimated the year infrastructure was built by determining when a major reconstruction had been done on infrastructure. This estimate was used to calculate the mfrastructure historical cost by determming current year construction cost and deflating it back to the estimated year of construction or reconstruction. Estimated Infrastructure Historical Cost Includes infrastructure placed In service fiom fiscal year 1984 through current fiscal year. All infrastructure assets placed in service during the fiscal year ended June 30,2003 and thereafter are recorded at actual historical cost.

Note 15. Southern Kentucky Performing Arts Center, Inc. Facility Plans

Southern Kentucky Performing Arts Center, Inc. (SKyPAC) had purchased real property near the campus of Westem Kentucky University (WKU) with the intent to construct a performing arts center on this property. However, subsequent to these real estate purchases, SKyPAC was approached by the City of Bowling Green, Kentucky (City) to locate the proposed performing arts center in the area of the City's Redevelopment Plan. On June 23,2005, SKyPAC entered into a property acquisition agreement (the Agreement) with the City. As stated in the Agreement, SKyPAC conveyed certain real property to WKU in exchange for $1,000,000, which was paid to the City in exchange for the acquisition of certain real property within the Redevelopment Plan area. Such purchases of real estate by the City will be conveyed to SKyPAC for the construction of a performing arts center and related parking area. The City will be responsible for all costs of demolition of existing structures along with any costs incurred in acquiring the specific properties in excess of the $1,000,000 provided by SKyPAC.

On July 23,2010 a deed was signed between SK~PAC and the City of Bowlmg Green, Kentucky. Thls deed conveyed the property wlth a cost of $3,204,977 for the performing arts facility into SKyPAC's ownership. Subsequently, on March 25,201 1, a deed was signed between SKyPAC and the County of Warren, Kentucky. T h ~ s deed was to convey the property, mcludlng construction costs pa~d by the County of Warren, Kentucky to date for the performing arts faclhty, in the amount of $7,168,413 Into the County of Warren, Kentucky's ownersh~p.


Note 16. Prior Period Adjustments

The prior year net assets endimg balance has been restated for the following:

Governmental Activities

Net Assets Ending Balance Prior Year $ 51,451,661 Adjustments: Rounding 1 Interest Earned on Certificates of Deposit Omitted 1,172 Construction in Progress Omitted 3,499,302 Accumulated Depreciation Overstated 1,543

Restated b e g m g net assets at June 30, 2010 $ 54,953,679

The prior year general hnd balance ending balance has been restated for the following:

General

Ending Fund Balance Prior Year Fund

$ 18,956,561 Adjustments: Interest h n e d on Certificates of Deposit Omitted 1,172 Park Enterprise Fund - GASB 54 Implementation 17,773

Beginning Fund Balance - Restated $ 18,975,506

The beginning fund balance of non-major funds has also been restated as a result of the Park Enterprise funds 's inclusion in the General Fund. The net effect is a decrease of $17,773.

Note 17. Change in Accounting Method

A. Southern Kentucky Performing Arts Center, Inc.

On July 1, 2010, Southem Kentucky Performing Arts Center, Inc. (SKyPAC) changed its method of accountmg to the modified cash basis of accounting. SKyPAC beheves the new method more accurately reflects periodic results of operations and more closely follows its primary government, County of Warren, Kentucky's bass of accounting. The effect of the change was to decrease government-w~de net assets by $7,503,526.

B. South Central Kentucky Regional Development Authority

The South Central Kentucky Regional Development Authority (RDA) was not included in aggregate discretely presented component units in the prior year but hasnow been included. The change on net assets at July I, 2010 of the aggregate discretely presented component units is a decrease of ($49,475) in net assets fiom the prior year.


Note 18. Subsequent Events

On July 8, 201 1, Warren County authorized the issuance of General Obligation Bonds, Series 201 1 in an aggregate principal amount not to exceed $16,000,000 (which amount may be decreased as necessary) to refund and retire the County's outstanding lease agreement with the Kentucky Area Development Districts Financing Trnst dated as of March 17,201 1; to provide permanent financing for the Southern Kentucky Performing Arts Center; approving the form of bonds; authorizing designated officers to execute and deliver the bonds; creating a bond payment fund; establishing a special pledged revenues fund; authorizing acceptance of the bid of the bond purchaser for the purchase of bonds; authorizing a lease agreement as an alternative form of financing for the project; and repealing inconsistent ordinances.

On August 12, 2011, a resolution of the County of Warren, Kentucky was approved directing the Warren County Downtown Economic Development Authority, Inc. to take certain formal actions as the agency and instrumentality and as the constituted authority of the County of Warren, Kentucky; specifically directing the issuance of and authorizing and approving $14,800,000 (which amount may be decreased as necessary) First Mortgage Revenue Bonds (Downtown Parking Project) of the Warren County Downtown Economic Development Authority, Inc.; specifically directing the issuance of and authorizing and approving First Mortgage Revenue Bond Anticipation Notes (Downtown Parking Project) relating to said bonds; authorizing the advertisement for bids and distribution of a preliminary official statement for the purchase of said bonds; and authorizing other actions in connection therewith.

On July 21, 2011, Southem Kentucky Performing Arts Center, Inc. (SKyPAC) entered into an agreement with the Southern Kentucky Performing Arts Foundation, Inc. to provide management and operations services for SKyPAC and the performing arts center.

On December 22,201 1, the County of Warren, Kentucky signed a deed of conveyance for the land and improvements which comprise the performing arts facility to SKyPAC. The performing arts facility's fair market value was stated at $22,046,403 in the deed.

On December 22, 201 1, SKyPAC entered into a ground lease with SKyPAC Tenant, Inc. to lease the land and all buildings and improvements which comprise the performing arts facility. The ground lease term ends on the earlier of December 22,2086 or at the option of SKyPAC Tenant, Inc. to terminate the ground lease agreement. The rent is $22,406,403, payable in one installment on December 22, 201 1. The ground lease also provides various conditions and responsibilities for SKyPAC's oversight of the performing arts facility with SKyPAC Tenant, Inc. to pay the cost related to the development, construction, completion, marketing and improvements of the performing arts facility. On December 22,201 1, SKyPAC disbursed the $22,406,403 to the County of Warren, Kentucky.

On December 22, 2011, SKyPAC Tenant, Inc. entered into a lease agreement with SKyPAC to lease back the performing arts facility in order to provide permanent financing of the performing arts facility. The lease term ends on December 1, 2043, with options of renewal through December 1, 2051. SKyPAC's rent will be based on the debt service cost incurred by SKyPAC Tenant, Inc. The lease agreement reflects SKyPAC's intent to sublease this lease agreement to the County of Warren, Kentucky. The sublease is intended to provide the funding for the rent cost of this lease agreement.

On December 22,2011, SKyPAC entered into a sublease with the County of Warren, Kentucky to lease the performing arts facility. The lease term will end on June 30, 2012 and will automatically be renewed each year through June 1, 2041, unless notice is given by the County not to renew. The County's rent will be equivalent to the original lease cost incurred by SKyPAC. After December 22, 2018, the County has an option to acquire the performing arts facility at the greater of fair market value of the performing arts facility or the outstanding original lease obligations and related costs.

WARREN COUNTY BUDGETARY COMPARISON SCHEDULES -MAJOR FUNDS

REQUIRED SUPPLEMENTARY INFORMATION Modified Cash Basis


WARREN COUNTY

BUDGETARY COMPARISON SCHEDULES -MAJOR FUNDS Required Supplementary Information

Modified Cash Basis


Actual Variance with Amounts, FinalBudget

REwiwm Taxes In Lieu Tax Payments Ekess Fees Licenses and Permits Intergovernmental Revenue Charges for Services Miscellaneous Interest

Total Revenues

m m m General Government Protection to Persons and Property General Health and Sanitation Social Services Recreation and Culture Transportation Facilities and Services Airpolts Debt Service Capital Projects Administration

Total Expenditures

Excess (Deficiency) of Revenues Over Expenditures Before Other Financing Sources (Uses)

OTHER EliYANCING SOURCES (USIB) Transfers To Other Funds Transfers FromOtherFunds

Total OtherFinancing Sources (Uses)

Budgeted Amounts (Budgetary Positive Original Final Basis) (Negative)

Net Changes in Fund Balance (1,167,932) 2,545,407 3,713,339 Fund Balance -Beginning Wstated) 1,167,932 18,975,506 17,807,574

Fund Balance -Ending $ 0 $ 0 $ 21,520,913 S 21,520,913

WARREN COUNTY BUDGETARY COMPARISON SCHEDULES -MAJOR FUNDS Required Supplementary Information Modified Cash Basis For The Year Ended June 30,2011 (Continued)

Page 94

luwEwlm Intergovernmental Revenue Charges for Services Miscellaneous Interest

Total Revenues

F X P E N D m Protection to Persons and Property Debt Service Administration

Total Fqenditures

Excess peficiency) of Revenues Over %enditures Before Other Financing Sources (Uses)

OTHFR FINANCING SOURCES (USES) Transfers To Other Funds Transfers From Other Funds

Total Other Financing Sources (Uses)

Net Changes in Fund Balance Fund Balance -Beginning

Fund Balance - Ending

JAIL FUND

Actual Variance with Amounts, Final Budget

Budgeted Amounts p u d g e t a ~ y Positive Original Final Basis) (Negative)

WARREN COUNTY BUDGETARY COMPARISON SCHEDULES -MAJOR FUNDS Required Supplementary Information Modified Cash Basis For The Year Ended June 30,2011 (Continued)

REVEWES Taxes Intergovernmental Revenue Interest

Total ~ e v e n u e s

E X P m m Recreation and Culture

Total Eqenditures

TRANSJETTI ROOM TAX FUND

Actual Variance with Amounts, Final Budget

Budgeted Amounts (Budgeta~y Positive Original Final Basis) (Negative)

Excess (Deficiency) of Revenues Over l3penditures Before Other Financ~ng Sources (Uses) 591,000 591,000 812,946 221,946

OTHFR FTNANCING SOURCES (USES) Transfers To Bond Account (591,000) (591,000) (779,33 1) (188,331)

Total Other Financing Sources (Uses) (591,000) (591,000) (779,331) (188,331)

Net Changes in Fund Balance 33,615 33,615 Fund Balance - Beginning 26,03 1 26,031

Fund Balance - Ending $ 0 $ 0 $ 59,646 $ 59,646

WARREN comn NOTES TO REOUIRED SUPPLEMENTARY INFORMATION

June 30,2011

1. Budgetary Information

Annual budgets are adopted on a cash basis of accounting and according to the laws of Kentucky as required by the State Local Finance Ofkicer.

The County JudgeExecutive is required to submit estimated receipts and proposed expenditures to the fiscal court by May 1 of each year. The budget is prepared by fund, function, and activiw and is required to be adopted by the fiscal court by July 1.

The fiscal court may change the original budget by transfening appropriations at the activity level; however, the fiscal court may not increase the total budget without approval by the State Local Finance Officer. Expenditures may not exceed budgeted appropriations at the activity level.

2. Budgetary Schedule Reconciliation

Reconciliation - Transient Room Tax Fund

Total Revenues - Budgetaly Basis Plus Tax Anticipation NoteIBond Revenues:

Intergovernmental Revenues Interest

Total Revenues -Modified Cash Basis

Total Expenditures -Budgetary Basis Plus Tax Anticipation NotelBond Expenditures:

Debt Service Capital Projects Administration

Total Expenditures -Modified Cash Basis

Total Other Financing Sources (Uses) - Budgetaly Basis

Plus: Transfers To Bond Account Debt Issuance Discount On Bond Issuance Tmnsfers From Other Funds

Total Other Financing Sources (Uses) -Modified Cash Basis

WARREN COUNTY COMBINING BALANCE SHEET -

NON-MAJOR GOVERNMENTAL FUNDS -MODIFIED CASH BASIS Other Supplementary Information

June 30,2011

WARREN COUNTY

COMBINING BALANCE SHEET - NON-MAJOR GOVERNMENTAL FUNDS - MODIFIED CASH BASIS

Other Supplementary Information

June 30,2011

h a 1 Gowrnment

Road Economic State Fmergency and Assistance Grant 911

Bridge Fund Fund Fund Fund ASSFIS

Cash and Cash Equ~valents $ 104,726 $ 401,705 $ 189,002 $ 25,305 Investlnents 1,635

Total Assets 106,361 401,705 189,M)Z 25,305

FUND BALANCES Restricted For:

General Government Protection to Persons and Property Social Services Debt Service

Committed To: Protection to Persons and Property General Health and Sanitation

Assigned To: General Government Protection to Persons and Property Social Services Roads 106,361 Adhistration

Total Fund Balances $ 106,361 $ 401,705 $ 189,002 $ 25,305

Tl~e accompanying notes are an integral part of the financial statements.

WARREN COUNTY COMBINING BALANCE SHEET - NON-MAJOR GOVERNMENTAI, FUNDS - MODIFIED CASH BASIS Other Supplementary Information June 30,2011 (Continued)

Justice Center Total Federal Drug Storm Enpausion Non-Major

Forfeiture Water County Bond Corporation Gnw?rnmental Fund Fund Sinking Fbnd Fund Fun&


WARREN COUNTY COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES

IN FUND BALANCES - NON-MAJOR GOVERNMENTAL FUNDS -MODIFIED CASH BASIS Other Supplementary Information


Pagz 102

WARREN COUNTY COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES

IN FUND BALANCES - NON-MAJOR GOVERNMENTAL FUNDS - MODIFIED CASH BASIS Other Supplementary Information


Road and

Bridge Fund

REVENUES Taxes $ Intergovernmental 2,126,133 Charges for Servlces Miscellaneous 9,656 Interest

Total Revenues

EXPEND^ General Government Protection to Persons and PropeIty General Health and Sanitation Social Services Roads Debt Service Capital Projects Administration

Total %enditures

Locsl Gnxrnment

Economic State Emergency Assistance Grant 911

Fund Fund Fund

$ $ $ 322,269 249,916 224,767

k e s s (deficiency) ofRevenues Over Expenditures Before Other Financing Sources (Uses) (622,772) 180,655 149,297 (5,636)

Other Financing Sources (Uses) Tmnsfers From OtherFunds Transfers To OtherFunds

Total Other Financing Sources (Uses) 700,000

Net Change in Fund Balances 77,228 180,655 149,297 (5,636) Fund Balances -Beginning 29,133 221,050 39,705 30,941 Fund Balances -Ending $ 106,361 $ 401,705 $ 189,002 $ 25,305

The accompany~ng notes are an integral pat of the financial statements.

WARREN COUNTY COMBINING STATEMENT OF REVENUES, EXPEM)ITURES, AND CHANGES IN FUND BALANCES - NON-MAJOR GOVERNMENTAL FUNDS - MODIFIED CASH BASIS Other Supplementary Information For The Year Ended June 30,2011 (Continued)

Justice Center Total Federal Drug Storm Fkpansion Non-Major

Forfeiture Water County Bond Corporation Gmrnmental Fund Fund Sinking Fund Fund Funds

The accompanying notes are an integral palt of the financial statements.

WARREN COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

WARREN COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

Fiscal Year Ended June 30.2011

Federal Grantor Pass-Thmugh

CFDA # F'mgmmTitle Grantol's Number Fxpenditures

National Oflice of Drug Conh.01 Policy

Passed-Through State Departmentfor Local Government:

95.001 AppalachiaHigh Intensity Dmg Trafficldng Area Grant

NIA Agency for Substance Abuse Policy

Total National Oflice ofDrug Control Policy

U.S. DeoartmentofHomelandSecurity

Passed-Through State Department ofMililary Affairs:

97.042 Emergency Managemnt Performance Grants Passed-Through Department of Homeland Security:

97.067 Homeland Secunty Grant ProgramEwanants 97.067 Homland Secunty Grant ProgramRad~os

Total U.S. Department of Homeland Security

Demrtment of Housing andurban Dewloment

Passed-Through Stale Department for Local Government: 14.228 C o m n i t y Developmnt BlockGmntsIState's Program

Total U.S. Department ofHousing and Wban Dewlopment

U.S. Demrhnent of Jus lice

Passed-Through State Department of Justice:

16.527 Supervised Visitation, Safe Havens for Children 16.607 BulletproofVest Partnership Progmm

JAGProgramCluster 16.738 Edward Byme Memrial Justice Assistance Grant (JAG) Program 161,838 * 16.808. Edward Byme MemorialCompetitive Grant JAG2008 6,028 * 16.808 Edward Byme Memorial Competitive Grant JAG2009 6,367 * 16.804 ARRA - Edward Byme Memorial Justice Assistance Grant (JAG) Program

Grants To Units OfLocal Govemmnt JAGARRA 31,134 * 16.808 ARRA -Edward Byme Memorial Competitive Grant JAG2009 ARRA 51,883 *

Direct Programs: 16.710 Public.Safety Partnership and Community Polic~ng Grant 44,992

Total US. Department of Justice $ 362,585


WARREN COUNTY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Fiscal Year Ended June 30,2011 (Continued)

Page 108

Federal Grantor Pass-Thmugh

CFDA # Program Ttle Crantol's Number Ewpenditures

U.S. Demrtment of Fhergy

Passed-Through State DepnrIment of Energy:

81.128 ARRA -Energy Efficiency and Consewation BlockCaant

Program - Recovery EE10048 $ 8,944

Total U.S. Department of lbergy 8,944

U. S. Deaartment of Transwrtation

Passed-Through State Department of Transportation:

20.205 ARRA - H~ghway Planning and Constmction 8,940

Total U.S. Department of Transportation

Total Expenditures ofFederal Awards

"Tested as Major Programor Cluster

The accompanymg notes are an integral part of the financial statements.

WARREN COUNTY

NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Fiscal Year Ended June 30,2011

Note 1 - The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of Warren County, Kentucky and is presented on a modified cash basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations.

Note 2 - The Edward Byrne Memorial Competitive Grant (CFDA #16.808) was included with the JAG Program Cluster for audit pwposes even though the grant is not included in the Cluster by OMB. Ths grant shares many similarities with the grants that comprise the Cluster and Warren County's internal controls over this grant are similar to the internal controls over the cluster.

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS

PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Honorable Michael 0. Buchanon, Warren County JudgeiExecutive Members of the Warren County Fiscal Court

Report On Intemal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of Financial Statements

Performed In Accordance With Govemment Auditing Standards

We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of Warren County,' Kentucky, as of and for the year ended June 30, 2011, which collectively comprise the County's basic financial statements, as listed in the table of contents and have issued our report thereon dated March 8, 2012 wherein, we issued an adverse opinion on the discretely presented component units because the financial statements do not include the financial data of the Warren County Downtown Economic Development Authority, Inc. Our report was also modified to include a reference to other auditors. Warien County presents its financial statements on the modified cash basis of accounting, which is a comprehensive basis of accounting other than generally accepted accounting principles. 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. Other auditors audited the f~anc ia l statements of Southern Kentucky Performing Arts Center, Inc. (SKyPAC) and South Central Kentucky Regional Development Authority (RDA), as described in our report on Waken County, Kentucky's financial statements. This report does not include the results of the other auditors' testing of internal control over fmancial reporting or compliance and other matters that are reported on separately by those auditors.

Internal Control Over Financ~al Reporting

The management of the Warren County Fiscal Court is responsible to establishing and maintaining effective internal controls over financial reporting. In planning and performing our audit, we considered Warren County Fiscal Court's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Warren County Fiscal Court's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of Warren County Fiscal Court's internal control over financial reporting.

A deficiency in internal confrol 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 inaterial weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's fmancial statements will not be prevented, or detected and corrected on a timely basis.

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209 S T . C L A I R S T R E E T T E L E P H O N E 502 564. 5841 I

F R A ~ * K F O R T , K Y 40601-1817 F A C S I M I L E 502.564.2912 1 W W W . A V D I T O R . K I G O V

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A N E Q U A L 0 P P O . T Y N I T " E U P L O I E r l M I F I D i

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 (Continued)

Page 114

Internal Control Over Financial Re~orting (Continued)

Ow consideration of the internal control over financial reportmg was for the limited purpose described in the first paragraph of this section and was not designed to Identify all deficiencies in the internal control over fmancial reporting that might be deficlencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material wea!aesses, as defined above. However, we identified a certain deficiency m internal control over fmancial reporting, described in the accompanying schedule of findings and questioned costs as Item 2011-01 that we consider to be a significant deficiency in Internal control over financial reporting.

A szgnificanl deficiency is a deficiency, or a combination of deficlencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged w~th governance.

Compliance And Other Matters

As part of obtaining reasonable assurance about whether Warren County's fmancial statements as of and for the year ended June 30, 201 1, are ftee 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 ow audit, and accordingly, we do not express such an opinion. The results of ow tests disclosed no instances of noncompliance or other matters that are required to be reported under Govemnient Auditing Standards.

The Warren County JudgeExecutive's response to the finding identified in our audit is included in the schedule of findings and questioned costs. We did not audit the County JudgeExecutive's response and, accordingly, we express no opinion on it.

This report is intended solely for the information and use of management, others within the entity, federal awarding agencies and pass-through entiiies and is not intended to be and should not be used by anyone other than the specified parties.


March 8,2012

REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON

INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

The Honorable Michael 0. Buchanon, Warren County JudgeExecutive Members of the Warren County Fiscal Court

Report on Compliance With Requirements That Could Have A Direct And Material Effect On Each Major Program

And On Internal Control Over Compliance In Accordance With OMB Circular A-133

Independent Auditor's Report Compliance

We have audited the compliance of Warren County, Kentucky, with the types of compliance requirements described in the U.S. Ofice of Management and Budget IOMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended June 30, 201 1. Warren County's major federal programs are identified in the summary of auditor's results sectibn of the accompanying schedule of fmdings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of Warren County's management. Ow responsibility is to express an opinion on Warren County's compliance based on o w audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Gove'rnment Auditing standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States. Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Warren County's compliance with those requirements and performing such other procedures, as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for o w opinion. O w audit does not provide a legal determination of Warren County's compliance with those requirements.

In our opinion, Warren County complied, in all material respects, with the requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30,201 1.

Internal Control Over Compliance

The management of Warren County is responsible for establishing and maintaining effective intemal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered Warren County's internal control over compliance with the requirements that could have a direct and material effect on a major federal program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of Warren County's intemal control over compliance.

Report On Compliance With Requirements That Could Have A Direct And Material Effect On Each Major Program And On Internal Control Over Compliance In Accordance With OMB Circular A-133 (Continued)

Page 118

Internal Control Over Compliance (Continued)

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal conhol over compliance is a deficiency, or combination of deficiencies in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected on a timely basis.

Our consideration of internal control over compliance was for the limited purpose described in the fwst paragraph of this section and would not necessarily identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above.

This report is intended solely for the information and use of management, others within the entity, federal awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than the specified parties.

RespectfUlly submitted,


March 8,2012

WARREN COUNTY SCHEDULE OF FINDINGS AND QUESTIONED COSTS


WARREN COUNTY

SCHEDULE OF FINDINGS AND QUESTIONED COSTS

Fiscal Year Ended June 30,2011

SUMMARY OF AUDIT RESULTS

1. The auditor's report expresses unqualified opinions on the governmental activities, business-type activities, each major fund, and aggregate remaining fund information of Warren County. The auditor's report expresses an adverse opinion on the discretely presented component units.

2. One significant deficiency relating to the audit of the financial statements is reported in the Independent Auditor's Report.

3. No instances of noncompliance material to the financial statements of Warren County were disclosed during the audit.

4. No significant deficiencies or material weaknesses relating to the audit of the major federal awards programs are reported in the Independent Auditor's Report.

5. The auditor's report on compliance for the audit of the major federal awards programs for Warren County expresses an unqualified opinion.

6. There are no audit fmdings relative to the major federal awards programs for Warren County reported in Part C of this schedule.

7. The program tested as major programs were: Department of Justice JAG Program Cluster (CFDA #'s 16.804, 16.803, 16.738), Homeland Security Grant Program (CFDA #97.067), and Edward Byme Memorial Competitive Grant (CFDA #16.808)

8. The threshold for distinguishing Type A and B programs was $300,000. 9. Warren County was determined to be a high-risk anditee.

B. FTNDINGS - FINANCIAL STATEMENT AUDIT

INTERNAL CONTROL - SIGNIFICANT DEFICIENCY

2011-01 The Fiscal Court Has A Lack Of Segregation Of Duties Over Receipts, Cash And Cash Transfers, And Pavroll

The Payroll OfficeriFinancial Assistant deposited receipts and posted transactions into the accounting system. The County Treasurer prepared reports for submission to the Department for Local Government, made cash transfers between funds, and performed the bank reconciliations for all bank accounts. There were no documented compensating controls to offset the lack of segregation of duties to reduce the deficiency to a less than significant level.

The Payroll OfficeriFmancial Assistant prepared payroll checks and all payroll reports. There were no documented compensating controls to offset the lack of segregation of duties to reduce the deficiency to a less than significant level.

Lack of segregation of duties could result in misappropriation of assets andlor inaccurate financial reporting to external agencies such as the Department for Local Government, which could occur but go undetected. In addition, too much control by one individual without oversight can lead to irregularities that go undetected.

We recommend the County divide the responsibilities for receipts, cash and cash transfers, and payroll among the County Treasurer, Assistant County Treasurer, Payr.011 OfficeriFinancial Assistant, and other employees of the County in order to achieve an appropriate level of segregation of duties or implement compensating controls over these areas.

Counry Jzidge/Executive's Response: Procedures will be enhanced to maximize the segregation of duties and minimize risk.

WARREN COUNTY SCHEDULE OF FJNDINGS AND QUESTIONED COSTS Fiscal Year Ended June 30,2011 (Continued)

Page 122

B. FINDINGS - FINANCIAL STATEMENT AUDIT (Continued)

STATE LAWS AND REGULATIONS

None.

C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARDS PROGRAM AUDIT

None.

D. SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS

None.

CERTIFICATION OF COMPLIANCE - LOCAL GOVERNMENT ECONOMIC ASSISTANCE PROGRAM

WARREN COUNTY FISCAL COURT

For The Fiscal Year Ended June30,2011

Appendix A

CERTIFlCAnON OF COMPLIANCE

LOCAL GOERNMENT ECONOMIC ASSISTANCE PROGRAM

WARREN COUNTY FISCAL COURT

For The Fiscal Year Ended June 30,201 1

Local Government

adam h. edelen auditor of public accounts

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