Worcester County, Maryland Comprehensive Annual Financial Report For Fiscal Year Ended June 30, 2017 Worcester County Government Center Prepared by: Harold L. Higgins, CPA Chief Administrative Officer Phillip G. Thompson, CPA Jennifer C. Swanton, CPA Finance Officer Assistant Finance Officer Jessica R. Wilson, CPA Kathleen J. Whited Enterprise Fund Controller Budget Officer WORCESTER COUNTY, MARYLAND COMPREHENSIVE ANNUAL FINANCIAL REPORT for the FISCAL YEAR ENDED JUNE 30, 2017 TABLE OF CONTENTS Page(s) INTRODUCTORY SECTION Letter of Transmittal 1 - 5 GFOA Certificate of Achievement 6 Organization Chart 7 List of Principal Officials and Directors 8 FINANCIAL SECTION Independent Auditors' Report 10 - 11 Management's Discussion and Analysis 12 - 26 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Position 28 Statement of Activities 30 - 31 Fund Financial Statements: Balance Sheet - Governmental Funds 32 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position 33 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 34 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 35 Statement of Net Position - Business-type Activities 36 - 37 Statement of Revenues, Expenses and Changes in Fund Net Position - Business-type Activities 38 Statement of Cash Flows - Business-type Activities 39 - 40 Statement of Net Position - Fiduciary Funds 41 Statement of Changes in Net Position - Fiduciary Funds 42 Notes to Financial Statements 44 - 85 Required Supplementary Information: Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 87 - 104 Schedule of the Proportionate Share of the Net Pension Liability - Maryland State Retirement and Pension Systems 105 Schedule of Contributions - Maryland State Retirement and Pension Systems 106 Actuarial Assumptions - Pension Plan - Maryland State Retirement and Pension Systems 107 Other Post-Employment Benefits Trust - Schedule of Funding Progress and Employer Contributions 108 Notes to Required Supplementary Information 109 - 110 Other Supplementary Information: Combining Balance Sheet - Nonmajor Governmental Funds 112 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds 113 Balance Sheet - Local Management Board - Nonmajor Governmental Fund 114 Schedule of Revenues, Expenditures and Changes in Fund Balance - Local Management Board - Nonmajor Governmental Fund 115 WORCESTER COUNTY, MARYLAND COMPREHENSIVE ANNUAL FINANCIAL REPORT for the FISCAL YEAR ENDED JUNE 30, 2017 TABLE OF CONTENTS (CONTINUED) Page(s) FINANCIAL SECTION (CONTINUED) Other Supplementary Information (continued): Combining Schedule of Fund Net Position - Operating Funds - Department of Water and Wastewater Services 116 - 117 Combining Schedule of Fund Net Position - Capital Projects Funds - Department of Water and Wastewater Services 118 - 119 Schedule of Revenues and Expenses - Budget and Actual - Operating Funds - Department of Water and Wastewater Services 120 - 125 Combining Schedule of Revenues, Expenses and Changes in Fund Net Position - Capital Projects Funds - Department of Water and Wastewater Services 126 - 127 Schedule of Revenues, Expenses and Changes in Fund Net Position by Operating Fund - Budget and Actual - Department of Solid Waste 128 - 130 Schedule of Revenues, Expenses and Changes in Fund Net Position by Operating Store - Budget and Actual - Department of Liquor Control 131 - 133 Schedule of General Expenses - Budget and Actual - Department of Liquor Control 134 Schedule of Revenues and Expenses by Store - Department of Liquor Control 136 - 137 Combining Statement of Fiduciary Net Position - Agency Funds 138 - 139 Combining Statement of Changes in Assets and Liabilities - Agency Funds 140 - 145 Schedule of Assessable Base - General Fund 146 Schedule of Assessable Bases and Tax Levies - General Fund 147 Taxes Receivable - General Fund 148 Notes to Other Supplementary Information 149 STATISTICAL SECTION (UNAUDITED) Net Position by Component, Last Ten Fiscal Years 151 Changes in Net Position, Last Ten Fiscal Years 152 - 153 Fund Balances, Governmental Funds, Last Ten Fiscal Years 154 Changes in Fund Balances, Governmental Funds, Last Ten Fiscal Years 155 Assessed Value of Taxable Property, Last Ten Fiscal Years 156 Direct and Overlapping Property Tax Rates, Last Ten Years 157 Principal Property Tax Accounts, Current Year and Nine Years Ago 158 Property Tax Levies and Collections, Last Ten Fiscal Years 159 Income Tax Rates, Last Ten Tax Years 160 Income Tax Filers Summary Information, Last Ten Tax Years 161 Income Tax Filers, Net Taxable Income, and Liability by Adjusted Gross Income Level, Last Year and Ten Years Ago 162 Ratios of Outstanding Debt by Type, Last Ten Fiscal Years 163 Ratios of General Bonded Debt Outstanding, Last Ten Fiscal Years 164 Direct and Overlapping Governmental Activities Debt 165 Debt Margin Information, Last Ten Fiscal Years 166 Demographic and Economic Statistics, Last Ten Fiscal Years 167 Principal Employers, Current Year and Nine Years Ago 168 Full-time Equivalent County Government Employees by Function, Last Ten Fiscal Years 169 Operating Indicators by Function, Last Ten Fiscal Years 170 Capital Asset Statistics by Function, Last Ten Fiscal Years 171 INTRODUCTORY SECTION LETTER OF TRANSMITTAL GFOA CERTIFICATE OF ACHIEVEMENT ORGANIZATION CHART LIST OF PRINCIPAL OFFICIALS AND DIRECTORS December 6, 2017 To the County Commissioners and Citizens of Worcester County, Maryland: I am pleased to submit the Comprehensive Annual Financial Report (CAFR) for Worcester County, Maryland for the fiscal year ended June 30, 2017 as required by both local and state statutes. These statutes require that Worcester County, Maryland annually issue financial statements presented in conformity with accounting principles generally accepted in the United States of America (GAAP) and audited in accordance with auditing standards generally accepted in the United States of America by a firm of licensed certified public accountants. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of the Management Discussion and Analysis (MD&A). This letter of transmittal is designed to be read in conjunction with the MD&A, which can be found immediately following the report of the independent auditors. This report consists of management’s representations concerning the finances of the County. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for these representations, the management of the County has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the County’s financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the County’s comprehensive framework of internal controls has been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The public accounting firm TGM Group LLC has audited Worcester County, Maryland’s financial statements. The goal of the independent audit is to provide reasonable assurance that the financial statements of Worcester County, Maryland, for the fiscal year ended June 30, 2017, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement -1- presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that Worcester County, Maryland’s financial statements for the fiscal year ended June 30, 2017 are fairly presented in conformity with GAAP. The independent auditors’ report is presented as the first component of the financial section of this report. This independent audit of the County’s financial statements was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements are encompassed in the United States Office of Management and Budget’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in Worcester County’s separately issued single audit report. Profile of the Government Worcester County, established in 1742, lies in the middle of a three-state region known as the Delmarva Peninsula, which comprises portions of Delaware, Maryland and Virginia. The County