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INDEPENDENT AUDITOR'S REPORT

 

November 1, 2000

 

Houston County Executive and

Board of County Commissioners

Houston County, Tennessee

To the County Executive and County Commissioners:

 

  1. We have audited the accompanying general purpose financial statements of Houston County, Tennessee, and combining, individual fund, and account group financial statements of Houston County, as of and for the year ended June 30, 2000, as listed in the table of contents.  These financial statements are the responsibility of Houston County's management.  Our responsibility is to express an opinion on these financial statements based on our audit.
  2. We conducted our audit in accordance with Government Auditing Standards, issued by the Comptroller General of the United States.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free 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 provides a reasonable basis for our opinion.
  3. County records do not provide for a self-balancing group of accounts for all general fixed assts, and accordingly, the financial statements referred to above do not include financial statements of the General Fixed Assets Account Group, which should be included to conform with generally accepted accounting principles.  The effects on the financial statements are not reasonably determinable.
  4. The financial statements of the Houston County Emergency Communications District, a component unit requiring discrete presentation, had not been made available by other auditors as of the date of this report.  Accordingly, the general purpose financial statements referred to above do not include the Houston County Emergency Communications District's financial statements, which should be included to conform with generally accepted accounting principles.  The effects on the financial statements are not reasonably determinable.
  5. In our opinion, except for the effects of the matters discussed in paragraphs 3 and 4 above, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of Houston County, Tennessee, at June 30, 2000, and the results of its operations for the year then ended, in conformity with the generally accepted accounting principles.  Also, in our opinion, except for the effects of the matter discussed in paragraph 3 above, the combining, individual fund, and account group financial statements referred to above present fairly, in all material respects, the financial position of each of the individual funds of Houston County, Tennessee, at June 30, 2000, and the results of operations of such funds for the year then ended, in conformity with generally accepted accounting principles.
  6. Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole on the combining, individual fund, and account group financial statements.  The accompanying financial information listed as miscellaneous schedules in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements of Houston County, Tennessee.  The information in these schedules has been subjected to the auditing procedures applied in the audit of the general purpose, combining, and individual fund financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements of each of the respective individual funds taken as a whole.
  7. We did not audit the statistical data listed in the statistical section in the accompanying table of contents, and therefore, express no opinion thereon.
  8. In accordance with Government Auditing Standards, we have also issued our report dated November 1, 2000 on our consideration of Houston County's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants.  That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.

 

Very truly yours,

 

 

 

John G. Morgan Comptroller of the Treasury

 

JGM/sm


EXHIBITS A, B, & C HERE


HOUSTON COUNTY, TENNESSEE

NOTES TO THE FINANCIAL STATEMENTS

For the Year Ended June 30, 2000

 

  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The financial statements of Houston County have been prepared in conformity with generally accepted accounting principals (GAAP) as applied to government units.  The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles.  The more significant accounting policies of Houston County are described as follows.

 

A.     The Financial Reporting Entity

 

Houston County is a public municipal corporation governed by an elected 14-member board.  As required by GAAP, these financial statements present Houston County (the primary government and its component units.  The component units discussed in note 1.B are included in the county's reporting entity because of the significance of their operational or financial relationships with the county.

 

B.     Individual Component Unit Disclosures

 

Blended Component Units - There are no legally separate component units of Houston County which meet the criteria for being reported as part of the primary government by the blending method.

 

Discretely Presented Component Units - The following entities meet the criteria for discretely presented component units of the county.  They are reported in a separate column to emphasize that they are legally separate from the county.

 

The Houston County School Department operated the public school system in the country, and its board is elected by the voters of Houston County.  The School Department is fiscally dependent on the county because it may not issue debt without county approval, and its budget and property tax levy are subject to the County Commission's approval.  The School Department's taxes are levied under the taxing authority of the county and are included as part of the county's total tax levy.

 

The Houston County Emergency Communications District provides a simplified means of securing emergency services through a uniform emergency number for the residents of Houston County.  The governing body of the Houston County Emergency Communications District is appointed by Houston County's Board of County Commissioners.  The district is funded primarily through a service charge levied on telephone services.  Before the issuance of most debt instruments, the district must obtain the approval of the County Commission.  The financial statements of the Houston County Emergency Communications District were not available in time for inclusion in this report.

 

The Houston County School Department does not issue separate financial statements from those of the county.  Therefore, combining, individual fund, and account group financial statements of the Houston County School Department are included in the financial section of this report as listed in the table of contents.  Although required by GAAP, the financial statements of the Houston County Emergency Communications District were not available in time for inclusion, as previously mentioned.  Complete financial statements of the Houston County Emergency Communications District can be obtained from its administrative office at the following address:

 

Houston County Emergency Communications District

P.O. Box 333

Erin, TN  37061

 

C.     Jointly Governed Organizations

 

Houston County and Stewart County jointly own an industrial park operated by the Houston-Stewart Industrial Board.  The board is comprised of seven members.  The Houston and Stewart County Commissions appoint the board members alternately (four in one year and three in the next year); however, the counties do not have any ongoing financial interest or responsibility for the entity.  Also, the board operated in conjunction with the Houston-Stewart County Development Commission, which consists of seven board members appointed by Stewart County and Houston County.  The commission was incorporated to receive and administer grant and loan funds for construction of buildings in the industrial park.  The commission was declared inactive by its board of directors on October 25, 1990, and will remain inactive until a need develops.

 

D.     Fund Structure and Basis of Accounting

 

The accounts of the county and its discretely presented component units are organized on the basis of funds and account groups, each of which is considered a separate accounting entity.  The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures.  Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spend and the means by which spending activities are controlled.

 

The various funds in the financial statements of this report are grouped into five generic fund types and two broad fund categories as follows:

 

GOVERNMENTAL FUNDS

 

General Fund - The General Fund is the general operating fund of the county.  It is used to account for all financial resources except those required to be accounted for in another fund.

 

Special Revenue Funds - Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than expendable trusts or major capital projects) that are legally restricted to expenditures for specific purposes.

 

Debt Service Fund - The General Debt Service Fund is used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs.

 

Capital Projects Funds - Capital Projects Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by Proprietary Funds).

 

FIDUCIARY FUNDS

 

Agency Funds - Agency Funds are used to account for assets held by the county in a trustee capacity or as an agent for individuals, private organization, other governments, and/or other funds.  Agency Funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations.

 

ACCOUNT GROUPS

 

The General Long-Term Debt account groups are used by the primary government and the discretely presented Houston County School Department to account for general long-term debt and certain other liabilities that are not specific liabilities of Proprietary or Trust Funds.  The Long Term Debt account groups are not funds.  They are concerned only with the measurement of financial position.  They are not involved with the measurement of results of operations.

 

COMPONENT UNIT

 

The Houston County School Department uses a General Fund, two Special Revenue Funds, a Capital Projects Fund, and one account group.

 

BASIS OF ACCOUNTING

 

The accounting and financial reporting treatment applied to a fund is determined by its measurement focus.  All Governmental Funds are accounted for using a current financial resources measurement focus.  With this measurement focus, only current assets and current liabilities generally are included on the balance sheet.  Operating statements of these funds present increases (i.e., revenues and other sources) and decreases (i.e., expenditures and other uses) in net current assets.

 

Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements.  Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied.

 

All Governmental Funds and Agency Funds are accounted for using the modified accrual basis of accounting.  Their revenues are recognized when they become measurable and available as net current assets.  Funds in which expenditures determine the eligibility for grants recognize revenue at the time of the expenditures.  Grant proceeds received prior to meeting the aforementioned revenue recognition policy are recorded as deferred revenue.  Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred.  Principal and interest on general long-term debt are recognized as fund liabilities when due or when amounts have been accumulated in the Debt Service Fund for payments to be made early in the following year.

 

The primary revenues susceptible to accrual are revenues received from the State of Tennessee.  Sales taxes collected and held by the state at year-end on behalf of the county and its component unit are also recognized as revenue.

 

E.      Budget

 

The count and the Houston County School Department component unit are required by state statute to adopt annual budgets.  The General Fund, Special Revenue Funds, and Debt Service Fund budgets are prepared on the basis in which current available funds must be sufficient to meet current expenditures.  Expenditures and encumbrances may not legally exceed appropriations authorized by the County Commission and any authorized revisions.  Unencumbered appropriations lapse at the end of each fiscal year.

 

The budgetary level of control is at the major category level established by the State Uniform Chart of Accounts as prescribed by the Comptroller of the Treasury of the State of Tennessee.  Major categories are at the department level (examples of General Fund major categories:  County Commission, Board of Equalization, Budget and Finance Committee, County Executive, etc.).  Management may make revisions within major categories, but only the governing body may transfer appropriations between major categories.  During the year, several supplementary appropriations were necessary.

 

The Constitutional Officers - Fees Fund is used to account for transactions of the fee and commission accounts of the county trustee, clerks, register, and sheriff.  These separately elected or appointed officials pay salary and related expenditures from fees and commissions earned by their offices.  Excess fees and commissions are transferred to the General Fund.  In some instances, all fees and commissions earned are transferred to the General Fund.  Transactions related to the fee and commission accounts of these officials are not subject to the budgetary control of the County Commission.  Therefore, this fund is presented as a non-budgeted Special Revenue Fund.

 

The county's budgetary basis of accounting is consistent with generally accepted accounting principles (GAAP), except instances in which encumbrances are treated as budgeted expenditures.  Therefore, actual amounts in the accompanying budgetary comparison statement are presented on this budgetary basis.  A reconciliation of the differences between the budgetary basis and the GAAP basis is as follows for Houston County, the primary government only:

                           Special

                          Revenue

                             Funds____

Expenditures and Other Uses:         

   GAAP Basis - Exhibit B         $     2,083,331

Add:  Current-year Reserve

   For Encumbrances          174,926

Less:  Non-Budgeted  Constitutional

   Officers - Fees Fund          (229,342)

            _____________

Budgetary Basis - Exhibit C         $     2,028,915

            ===========   

F.      Encumbrances

 

Encumbrance account, under which purchase orders, contracts, and other commitments for expenditures are recorded to reserve that portion of applicable appropriation, is employed as a formal budgetary tool by Houston County and the discretely presented Houston County School Department in the Highway/Public Works Fund.  Encumbrances do not constitute expenditure being recorded in the subsequent year.

 

G.     Taxes Receivable

 

Property taxes receivable on file in the Trustee's Office are presented on the balance sheet with offsetting deferred revenue to reflect amounts not available as of June 30, 2000.  Property taxes collected within 30 days of year-end are immaterial for financial reporting purposes and thus are not accrued.  The allowance for uncollected taxes represents the estimated amount of the receivable which will be filed in court for collection.  Delinquent taxes filed in court for collection are not included in taxes receivable since they are neither measurable are available.

 

H.     Investments

 

The county trustee maintains a cash and internal investment pool that is used by all funds and the discretely presented Houston County School Department.  Each fund type's portion of this pool is displayed on the combined balance sheet as Equity in Pooled Cash and Investments.  Most income from these pooled investments is assigned to the General Purpose School Fund.  Houston County and the Houston County School Department have adopted a policy of reporting U.S.  Treasury obligations, U.S. agency obligations, and repurchase agreements with maturities of one year or less when purchased on a balanced sheet at amortized cost.  Certificates of deposit and investments in the State Treasurer's investment pool are reported at cost.  The State Treasurer's Investment Pool is not registered with the Securities and Exchange Commission (SEC) as an investment company, but nevertheless has a policy that it will, and does, operate in manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940.  Rule 2a7 allows SEC-registered mutual funds to use amortized cost rather then fair value to report net assets to compute share prices if certain conditions are met.  State statues require the state treasurer to administer the pool under the same terms and conditions, including collateral requirements, as prescribed for other funds invested by the state treasurer.  All other investments are reported at fair value.  No investments required to be reported at fair value were held at the balance sheet date.

 

I.        Prepaid Items

 

 

Prepaid items in the General Purpose School Fund represent amounts paid for desks and chairs to equip the new high school in the 2001-01 year.

 

J.       Fixed Assets and Long-term Liabilities

 

Fixed assets of the government fund types are recorded as expenditures when purchased.  Houston County does not maintain a General Fixed Assets Account Group; therefore, these assets are not capitalized, as required by generally accepted accounting principles.

 

Long-term liabilities expected to be financed from Government Funds are accounted for in the General Long-Term Debt Account Group, not in the Governmental Funds.  These long-term liabilities are recorded as expenditures in the Governmental Funds when paid or matured.  The discretely presented Houston County School Department also maintains a General Long-Term Debt Account Group.

 

K.    Retainage Payable

 

Retainage payable in the discretely presented Houston County School Department's General Purpose School Fund and the Education Capital Projects Fund represents amounts withheld from payments made to contractors on construction projects to ensure contract performance.  These amounts are held by the county trustee as Equity in Pooled Cash and Investments in the General Purpose School Fund and  the Education Capital Projects Fund.

 

L.      Reserves and Designations

 

All reserves of the Governmental Funds, including those of component units (with the exception of the Reserves for Encumbrances already discussed), represent unexpended revenues which are legally required to be reappropriated and expended for specific purposes in subsequent years.  Designations reflect tentative plans for future use of financial resources.

 

Other General Purpose Reserves of $14,458 in the General Fund represents funds reserved for the National Guard Armory building improvements.

 

Other Federal Reserves of $2,593 in the discretely presented Houston County School Department represents unexpended revenues for the following grants in the School Federal Projects Fund:  Eisenhower Professional Development State Grants ($1,276), Safe and Drug-Free Schools ($1,175), and Vocational Education - Basic Grants to States($142).

 

M.   Compensated Absences

 

Houston County does not provide for the accrual of vacation and sick leave days for the General Fund employees.  Therefore, no accrual or recording in the General Long-Term Debt Account Group is required.

 

It is the policy of the Houston County Highway Department to permit employees to accumulate a limited amount of earned but unused vacation benefits which will be paid to employees upon separation from service.  In the governmental funds types, the cost of vacation benefits is recognized when payments are made to employees.  A long-term liability of $4,085 of accrued benefits at June 30, 2000, has been recorded in the General Long-Term Debt Account Group of Houston County, representing the Highway Department's commitment to fund such costs with future financial resources.  The granting of sick leave has no guaranteed payment attached and therefore is not required to be accrued or recorded.

 

The general policy of the discretely presented Houston County School Department permits the unlimited accumulation of unused sick leave for professional personnel (teachers).  Non-professional personnel are allowed to accumulate a limited amount of sick leave.  No provisions exist for accruing annual leave.  The granting of sick leave has no guaranteed payment attached and therefore is not required to be accrued or recorded. 

 

N.    Interfund Transactions

 

Quasi-external transactions are accounted for as fund revenues and expenditures.  Transactions which constitute reimbursements of a fund for expenditures initially made from the fund which are properly applicable to another fund are recorded as expenditures in the reimbursing fund and as reductions of expenditures in the fund that is reimbursed.

 

All interfund transactions, except advances, quasi-external transactions, and reimbursements, are accounted for as transfers.  Nonrecurring or nonroutine transfers of equity transfers, and all other transfers are treated as operating transfers.

 

  1. PURCHASING LAWS

 

Office of County Executive

 

Purchasing procedures for the County Executive's Office are governed by the County Purchasing Law of 1983, Sections 5-14-201 through 5-14-206, Tennessee Code Annotated, which provide for purchases exceeding $5,000 to be made fter public advertisement and solicitation of competitive bids.

 

Office of Road Superintendent

 

Purchasing procedures in the Highway Department are governed  by provisions of Chapter 366, Private Acts of 1945, as amended, and the Uniform Road Law.  These statutes provide for a Highway Commission comprised of the county executive (who shall serve as chairman), the road superintendent, and three members of the Board of County Commissioners.  The Highway Commission is required to authorize all purchases exceeding $500 and to solicit competitive bids on all purchases estimated to exceed $5,000.

 

Office of School Superintendent

 

Purchasing procedures for the discretely presented Houston County School Department are governed by purchasing laws applicable to schools as set forth in Section 49-2-203, Tennessee Code Annotated, which provides for the county Board of Education, through its executive committee (school superintendent and chairman of the Board of Education), to make all purchases.  This statute also requires that competitive bids be solicited through newspaper advertisement on all purchases estimated to exceed $5,000.