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Employee Beneftis Plan Financial Statements June 30, 2000 & 1999 • • Grant Thornton T Accountants and Management Consultants Grant Thornton LLP The US Member Firm of Grant Thornton International • • • • • • • FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS VII~LAGE OF NORTH PALM BEACH - EMPLOYEE BENEFITS PLAN June 30, 2000 and 1999 CONTENTS Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1 FINANCIAL STATEMENTS BALANCE SHEETS 2 STATEMENTS OF REVENUES AND EXPENSES 3 STATEMENTS OF CASH FLOWS 4 NOTES TO FINANCIAL STATEMENTS 5 - 9 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT A UDITING STANDARDS 11 - 12 Accountants and Grant Thornton T Management Consultants Grant Thornton LLP The US Member Firm of Grant Thornton International REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Honorable Mayor Village of North Palm Beach We have audited the accompanying balance sheets of the Village of North Palm Beach - Employee Benefits Plan as of June 30, 2000 and 1999, and the related statements of revenues and expenses and cash flows for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly; in all material respects, the financial position of Village of North Palm Beach -Employee Benefits Plan as of June 30, 2000 and 1999 and the results of their operations and their cash flows for the years ended June 30, 2000 and 1999, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated September 28, 2000 on our consideration of the Village of North Palm Beach -Employee Benefits Plan's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, and contracts. This report is an integral part of, and should be read in conjunction with, our report .on the financial statements. ~L~ North Palm Beach, Florida " September 28, 2000 2700 South Commerce Parkway 777 Brickell Avenue Suite 300 Suite 1100 11300 U.S. Highway One Weston, FL 33331-3630 Miami, FL 33131-2867 Suite 400 Tel: 954 768-9900 Tel: 305 377-9900 North Palm Beach, FL 33408-3296 Fax: 954 768-9908 Fax: 305 377-9130 Tel: 561 684-9496 Village of North Palm Beach - Employee Benefits Plan BALANCE SHEETS June 30, ASSETS 2000 1999 Cash $ 16,774 $ 2,990 Investments 5,867 2,996 Accounts receivable 51,716 16,431 Due from participating municipality (Note E) 127,523 163,559 Total assets $ 201,880 $ 185,976 LIABILITIES Claims payable $ 188,880 $ 175,476 Accrued expenses 13,000 10,500 Total liabilities $ 201,880 $ 185,976 The accompanying notes are an integral part of these statements. 2 Village of North Palm Beach - Employee Benefits Plan STATEMENTS OF REVENUES AND EXPENSES For the Years Ended June 30, 2000 1999 Revenues Interest and other income $ 8,644 $ 7,373 Claims funding provided by municipality 1,089,194 952,982 Reinsurance recoveries 188,638 208,220 Total revenues 1,286,476 1,168,575 Expenses Claims expense 989,693 928,820 Re-insurance premiums 251,235 193,716 Claims administration and management fees 23,604 23,604 Professional fees 21,124 21,804 Administrative and general 820 631 Total expenses 1,286,476 1,168,575 NET INCOME $ - $ - The accompanying notes are an integral part of these statements. 3 Village of North Palm Beach - Employee Benefits Plan STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2000 1999 Cash flows from operating activities: Cash received from municipality $ 1,125,230 $ 844,134 Cash received from participants 7,462 6,310 Interest received 1,183 1,063 Cash received from reinsurance recoveries 145,472 191,788 Cash received from McCreary Trust - 12,200 Cash payments on claims (978,910) (842,487 Cash payments for claims administration, insurance, and other administrative expenses (283,782) (229,255) Net cash (provided by) used in operating activities 16,655 (16,247) Cash and cash equivalents at beginning of year 5,986 22,233 Cash and cash equivalents at end of year $ 22,641 $ 5,986 Reconciliation of operating income to net cash provided by (used in) operating activities: Operating income $ - $ - Adjustments to reconcile operating income to net cash provided by (used in) operating activities: Decrease in accounts receivable (35,285) (4,231) Increase in claims payable 13,404 86,330 Increase in accrued expenses 2,500 10,500 Decrease (increase) in due from municipality 36,036 (108,846) Net cash provided by (used in) operating activities $ 16,655 $ (16,247) The accompanying notes are an integral part of these statements. 4 Village of North Palm Beach - Employee Benefits Plan NOTES TO FINANCIAL STATEMENTS June 30, 2000 and 1999 NOTE A -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies followed by the Village of North Palm Beach -Employee Benefits Plan are summarized below. General Information The Village of North Palm Beach Employee Benefit Plan (the "Plan") is a health and welfare plan that serves to provide health benefits to the employees and family of employees of the Village of North Palm Beach, a municipality located in Palm Beach County, Florida. The Plan is a component of the Village of North Palm Beach, and as such, the actual losses and any deficiencies of the Plan are funded by the Village. The administrative and claim services concerning the Plan are provided by McCreary Corporation under an administrative agreement. McCreary Corporation acts as an administrator to receive, disburse and manage all funds due to or payable from the Plan. Basis of Accounting The accompanying financial statements are prepared on the accrual basis of accounting in accordance with accounting practices applicable to governmental units. Accounting for this fund follows those principles specified by the Government Accounting Standards Board ("GASB") as it pertains to a proprietary fund. Under the accounting hierarchy specified by Statement of Auditing Standard No. 69, the Benefits Plan follows all GASB pronouncements and Financial Accounting Standards Board statements and interpretations issued before November 30, 1989, except those that conflict with a GASB pronouncement. The amounts collected from the Village of North Palm Beach, after adjusting for claims paid or to be paid, has been reported as a net receivable or liability. Funds received from the municipality to pay administrative costs of the Plan have been reflected as claims funding provided by municipality. Additional details of these funds are reflected in (Note E). Cash and Cash Equivalents Cash and cash equivalents consists of demand deposits at commercial banks and investments held by the State Board of Administration. All demand deposits were held in institutions designated by the Treasurer of the State of Florida as "qualified public depositories" under Chapter 280.04, Florida Statutes, and were accordingly collateralized as required by that Statute. (continued) 5 Village of North Palm Beach - Employee Benefits Plan NOTES TO FINANCIAL STATEMENTS -CONTINUED June 30, 2000 and 1999 NOTE A -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -Continued Cash and Cash Equivalents -Continued For purposes of the statement of cash flows, cash and cash equivalents are defined as short- term highly liquid investments and include both cash and investments. Investments The Benefits Plan's selection of investment instruments during the year ended June 30, 2000 has been governed by Chapter 166.261, Florida Statutes. Florida statutes authorize the Benefits Plan to invest in the local Government Surplus Funds Trust Fund administered by the State Treasurer; negotiable direct obligations of or obligations unconditionally guaranteed by the U.S. Government; interest-bearing time deposits or savings accounts in financial institutions located in Florida and organized under federal or Florida laws; obligations of the federal farm credit bank, the Federal Home Loan Mortgage Corporation, the Federal Home Loan Bank or its district banks; or obligations guaranteed by the Government National Mortgage Association and any additional investments specifically authorized by the Benefits Plan. The Benefits Plan's investments consist of amounts placed in the State Treasurer's investment pool, and are stated at cost which approximates market. The investment pool was established for local government entities in Florida to pool surplus funds for investment purposes. The State Treasurer invests in various instruments, the approximate mix of which follows: Percent held at June 30, 2000 Treasury bills, bonds and notes 13.8% Federal agency obligations 31.5 Repurchase agreements 4.7 Commercial paper 44.7 Medium term and floating rate notes 2.5 Certificates of deposit 2.8 100.0% (continued) 6 Village of North Palm Beach - Employee Benefits Plan NOTES TO FINANCIAL STATEMENTS -CONTINUED June 30, 2000 and 1999 NOTE A -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -Continued Unpaid Claims Liabilities The Plan establishes claims liabilities based on estimates of the ultimate cost of claims (including future claim adjustment expenses) that have been reported but not settled, and of claims that have been incurred but not reported. The length of time for which such costs must be estimated varies depending on the coverage involved. Estimated amounts of salvage and subrogation and reinsurance recoverable on unpaid claims are deducted from the liability for unpaid claims. Because actual claims costs depend on such complex factors as inflation, changes in doctrines of legal liability, and damage awards, the process used in computing claims liabilities does not necessarily result in an exact amount, particularly for coverages such as general liability. Claims liabilities are recomputed periodically using a variety of actuarial and statistical techniques to produce current estimates that reflect recent settlements, claim frequency, and other economic and social factors. A provision for inflation in the calculation of estimated future claims costs is implicit in the calculation because reliance is placed both on actual historical data that reflect past inflation and on other factors that are considered to be appropriate modifiers of past experience. Adjustments to claims liabilities are charged or credited to expense in the periods in which they are made. Reinsurance The Plan uses reinsurance agreements to reduce its exposure to large losses on all types of insured events. Reinsurance permits recovery of a portion of losses from reinsurers, although it does not discharge the primary liability of the Plan as direct insurer of the risks reinsured. The Plan does not report reinsured risks as liabilities unless it is probable that those risks will not be covered by reinsurers. Estimated amounts of reinsurance recoverable on unpaid employee benefits are deducted from the liability for unpaid claims. It is the Benefits Plan's policy to reinsure for employee benefit claims in excess of $35,000. As of June 30, 2000 and 1999, $44,836 and $16,431, respectively, were deducted from claims liabilities for reinsurance. Use of Estimates in Financial Statements In preparing financial statements in conformity with generally accepted accounting principles, the Benefits Plan is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. 7 Village of North Palm Beach - Employee Benefits Plan NOTES TO FINANCIAL STATEMENTS -CONTINUED June 30, 2000 and 1999 NOTE B -CLAIMS ADMINISTRATION Since January 1, 1988, claims administration has been handled by the McCreary Corporation. The amount of fees paid to McCreary Corporation for claims administration was $23,604 and $23,604 in 2000 and 1999, respectively. NOTE C -UNPAID CLAIMS LIABILITIES The Benefits Plan establishes a liability for both reported and unreported insured events, which includes estimates of both future payments of losses and related claim adjustment expenses. The following table represents changes in those aggregate liabilities for the Benefits Plan during the past two periods. 2000 1999 Unpaid claims and claim adjustment expenses at beginning of year $ 175,476 $ 89,146 Incurred claims and claim adjustment expenses - provision for insured events of the current and prior years 992,314 928,817 Less: Payments against claims and claim adjustment expenses attributable to insured events of the current and prior year (978,910) (842,487) Total unpaid claims and claim adjustment expenses $ 188,880 $ 175,476 NOTE D -FUNDS RECEIVED FROM MUNICIPALITY The funds advanced by the Village of North Palm Beach totaled $1,125,230 and $844,134 in 2000 and 1999, respectively. 8 Village of North Palm Beach - Employee Benefits Plan NOTES TO FINANCIAL STATEMENTS -CONTINUED June 30, 2000 and 1999 NOTE E -DUE FROM MUNICIPALITY The amounts collected from the Village of North Palm Beach, after adjusting for claims paid or to be paid is reported as a net receivable or liability. The following table represents. changes in these balances for the year ended June 30, 2000. Balance at July 1, 1999 $ (163,559) Funds advanced by the Village of North Palm Beach 1,125,230 Insurance claims of participants paid or accrued (1) (801,055) Re-insurance policies purchased (251,235) Claims administration expenses (2) (23,604) Interest income 1,182 Other income 7,462 Other expenses (21,944) Balance at June 30, 2000 $ (127,523) (1) Allocated based on the municipality's actual claims paid. (2) Allocated based on actual enrollment. 9 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCL~L STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT A UDITING STANDARDS REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT A UDITING STANDARDS Honorable Mayor Village of North Palm Beach We have audited the financial statements of Village of North Palm Beach -Employee Benefits Plan ("Plan") as of and for the year ended June 30, 2000, and have issued our report thereon dated September 28, 2000. 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. Compliance As part of obtaining reasonable assurance about whether the Plan's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, 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 on our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Plan's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. 11 This report is intended for the information of management and appropriate governmental agencies. However, this report is a matter of public record and its distribution is not limited. ~~P North Palm Beach, Florida September 28, 2000 12