BASIC FINANCIAL STATEMENTS - Surry County, North Carolina · BASIC FINANCIAL STATEMENTS. Exhibit A SURRY COUNTY, NORTH CAROLINA STATEMENT OF NET ASSETS JUNE 30, 2008 Governmental

BASIC FINANCIAL STATEMENTS

Exhibit A

SURRY COUNTY, NORTH CAROLINA

STATEMENT OF NET ASSETSJUNE 30, 2008

Governmental Business-TypeActivities Activities Total

Assets:Cash and investments 25,118,437$ 2,548,177$ 27,666,614$ Taxes receivable, net 1,274,424 - 1,274,424 Accounts receivable, net 6,671,962 217,359 6,889,321 Due from other governments 1,083,159 8,107 1,091,266 Restricted assets:Cash and investments 2,259,215 - 2,259,215 Capital assets:Land and other nondepreciable assets 19,650,660 8,093,610 27,744,270 Other capital assets, net of depreciation 46,736,519 3,754,904 50,491,423 Capital assets, net 66,387,179 11,848,514 78,235,693 Total assets 102,794,376 14,622,157 117,416,533

Liabilities:Accounts payable and accrued liabilities 1,536,906 - 1,536,906 Unearned revenues 380,304 - 380,304 Noncurrent liabilities:Due within one year 6,951,297 438,110 7,389,407 Due in more than one year 36,066,978 5,743,824 41,810,802 Total liabilities 44,935,485 6,181,934 51,117,419

Net Assets:Invested in capital assets, net ofrelated debt 37,216,970 8,584,304 45,801,274 Restricted for:Education 2,177,931 - 2,177,931 Human services - - - General government 44,489 - 44,489 Unrestricted 18,419,501 (144,081) 18,275,420 Total net assets 57,858,891$ 8,440,223$ 66,299,114$

Primary Government

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

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STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2008

Operating CapitalCharges for Grants and Grants and

Expenses Services Contributions ContributionsFunctions/ProgramsPrimary GovernmentGovernmental Activities:General government 11,972,477$ 1,874,202$ 1,518,882$ -$ Public safety 15,598,207 4,220,789 759,845 - Economic and physical development 3,756,965 - 1,661,770 972,190 Human services 21,074,925 5,818,923 9,379,082 35,342 Cultural and recreation 1,280,912 - - - Education 19,619,304 258,514 26,851 1,288,644 Interest and fees 1,591,855 - - - Total governmental activities 74,894,645 12,172,428 13,346,430 2,296,176

Business-Type Activities:Water and sewer 214,449 119,291 798,444 - Landfill 3,524,275 3,072,364 130,719 - Total business-type activities 3,738,724 3,191,655 929,163 -

Total primary government 78,633,369$ 15,364,083$ 14,275,593$ 2,296,176$

General Revenues:Ad valorem taxesLocal option sales taxOther taxesInvestment earnings, unrestricted

Total general revenues

Change in net assets

Net assets, beginning of year - July 1Net assets, end of year - June 30

Program Revenues


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Exhibit B

Governmental Business-TypeActivities Activities Total

(8,579,393)$ -$ (8,579,393)$ (10,617,573) - (10,617,573)

(1,123,005) - (1,123,005) (5,841,578) - (5,841,578) (1,280,912) - (1,280,912)

(18,045,295) - (18,045,295) (1,591,855) - (1,591,855)

(47,079,611) - (47,079,611)

- 703,286 703,286 - (321,192) (321,192) - 382,094 382,094

(47,079,611) 382,094 (46,697,517)

34,567,691 - 34,567,691 18,262,273 - 18,262,273

583,284 - 583,284 1,740,002 74,072 1,814,074

55,153,250 74,072 55,227,322

8,073,639 456,166 8,529,805

49,785,252 7,984,057 57,769,309 57,858,891$ 8,440,223$ 66,299,114$

Net (Expense) Revenue and Changes in Net AssetsPrimary Government


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Exhibit C


BALANCE SHEET - GOVERNMENTAL FUNDSJUNE 30, 2008

Other TotalGovernmental Governmental

General Funds FundsAssets:Cash and investments 23,113,217$ 2,005,220$ 25,118,437$ Taxes receivable, net 1,143,205 131,219 1,274,424 Accounts receivable, net 6,574,187 97,775 6,671,962 Due from other governments 433,403 649,756 1,083,159 Restricted assets:Cash and investments 2,202,344 56,871 2,259,215

Total assets 33,466,356$ 2,940,841$ 36,407,197$

Liabilities:Accounts payable and accrued liabilities 1,325,595$ 125,039$ 1,450,634$ Due to schools - 86,274 86,274 Deferred revenues 1,506,969 147,759 1,654,728 Total liabilities 2,832,564 359,072 3,191,636

Fund Balances:Reserved by State statute 7,048,224 649,756 7,697,980 Reserved for Register of Deeds -automation enhancement 44,489 - 44,489 Reserved for debt service 2,177,931 - 2,177,931 Unreserved 21,363,148 - 21,363,148 Unreserved, reported in nonmajor:Special revenue funds - 1,415,988 1,415,988 Capital project funds - 516,025 516,025 Total fund balances 30,633,792 2,581,769 33,215,561

Total liabilities and fund balances 33,466,356$ 2,940,841$

Amounts reported for governmental activities in the Statement of Net Assets are different because:

Capital assets used in governmental activities are not financial resources and,therefore, are not reported in the funds. 66,387,179

Long-term liabilities and compensated absences are not due and payable in the current period and, therefore, are not reported in the funds. (43,018,273)

Deferred revenues in the governmental funds are used to offset accountsreceivable not expected to be available within 90 days of year-end. Thesereceivables are a component of net assets in the Statement of Net Assets. 1,274,424

Net assets of governmental activities 57,858,891$


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Exhibit D


STATEMENT OF REVENUES, EXPENDITURES, ANDCHANGES IN FUND BALANCES - GOVERNMENTAL FUNDSFOR THE YEAR ENDED JUNE 30, 2008

Other TotalGovernmental Governmental

General Funds FundsRevenues:Ad valorem taxes 30,779,795$ 3,787,896$ 34,567,691$ Local option sales taxes 14,721,031 3,541,242 18,262,273 Unrestricted intergovernmental revenues 583,284 - 583,284 Restricted intergovernmental revenues 13,044,393 1,454,811 14,499,204 Permits and fees 915,905 - 915,905 Sales and services 10,652,958 561,074 11,214,032 Interest earned on investments 1,608,864 131,138 1,740,002 Miscellaneous 1,161,932 - 1,161,932 Total revenues 73,468,162 9,476,161 82,944,323

Expenditures:General government 7,813,139 3,048,180 10,861,319 Public safety 12,773,059 2,855,875 15,628,934 Economic and physical development 3,607,945 166,167 3,774,112 Human services 23,742,948 - 23,742,948 Cultural and recreation 1,540,620 - 1,540,620 Education 14,739,130 9,104,062 23,843,192 Debt service:Principal repayments 4,225,411 1,221,399 5,446,810 Interest 1,252,587 339,268 1,591,855 Total expenditures 69,694,839 16,734,951 86,429,790

Revenues over (under) expenditures 3,773,323 (7,258,790) (3,485,467)

Other Financing Sources (Uses):Transfers in 2,108,639 5,114,181 7,222,820 Transfers out (5,114,181) (2,108,639) (7,222,820) Total other financing sources (uses) (3,005,542) 3,005,542 -

Net change in fund balances 767,781 (4,253,248) (3,485,467)

Fund Balances:Beginning of year - July 1 29,866,011 6,835,017 36,701,028 End of year - June 30 30,633,792$ 2,581,769$ 33,215,561$


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Exhibit E


STATEMENT OF REVENUES, EXPENDITURES, ANDCHANGES IN FUND BALANCES - GOVERNMENTAL FUNDSFOR THE YEAR ENDED JUNE 30, 2008

Amounts reported for governmental activities in the Statement of Activities (Exhibit B) aredifferent due to the following items:

Net change in fund balances - total governmental funds (Exhibit D) (3,485,467)$

Property tax revenues in the Statement of Activities earned in prior periods are reported asrevenues in the governmental funds statement. (134,849)

Expenses related to compensated absences that do not require current financial resourcesare not reported as expenditures in the governmental funds statement. (155,217)

Capital outlays are reported as expenditures in the governmental funds statement. However, inthe Statement of Activities, capital outlay is not an expense, rather it is an increase in capital assets. 8,808,084

Depreciation expense allocates the costs of capital assets over their useful lives. It is notreported as an expenditure in the governmental funds statement. (1,836,617)

Capital assets disposed of not recognized on the modified accrual basis of accounting (569,105)

Principal repayments are reported as expenditures in the governmental funds statement.However, in the Statement of Activities, these transactions are not an expense, rather theyare a decrease in liabilities. 5,446,810

Change in net assets of governmental activities (Exhibit B) 8,073,639$


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Exhibit F


GENERAL FUNDSTATEMENT OF REVENUES, EXPENDITURES, ANDCHANGES IN FUND BALANCE - BUDGET AND ACTUALFOR THE YEAR ENDED JUNE 30, 2008

Variancewith Final Budget

Original Final Actual Over/Under Revenues: Ad valorem taxes 30,147,951$ 30,187,951$ 30,779,795$ 591,844$ Local option sales taxes 13,299,000 13,299,000 14,721,031 1,422,031 Unrestricted intergovernmental revenues 244,700 244,700 583,284 338,584 Restricted intergovernmental revenues 12,812,534 15,349,620 13,044,393 (2,305,227) Permits and fees 840,000 844,000 915,905 71,905 Sales and services 13,702,076 13,863,101 10,652,958 (3,210,143) Investment earnings 1,236,300 1,236,300 1,608,864 372,564 Miscellaneous 567,208 672,917 1,161,932 489,015 Total revenues 72,849,769 75,697,589 73,468,162 (2,229,427)

Expenditures: General government 11,233,861 11,636,829 7,813,139 3,823,690 Public safety 12,510,174 13,168,275 12,773,059 395,216 Human services 26,231,357 26,848,859 23,742,948 3,105,911 Economic and physical development 5,230,905 6,344,583 3,607,945 2,736,638 Cultural and recreation 1,124,503 1,693,387 1,540,620 152,767 Education 14,757,575 14,757,575 14,739,130 18,445 Debt service: Principal retirement 4,831,452 4,831,452 4,225,411 606,041 Interest and fees 1,252,589 1,252,589 1,252,587 2 Total expenditures 77,172,416 80,533,549 69,694,839 10,838,710

Revenues over (under) expenditures (4,322,647) (4,835,960) 3,773,323 8,609,283

Other Financing Sources (Uses): Transfers in 1,620,562 1,797,112 2,108,639 311,527 Transfers out (5,185,982) (5,205,684) (5,114,181) 91,503 Appropriated fund balance 7,888,067 8,244,532 - (8,244,532) Total other financing sources (uses) 4,322,647 4,835,960 (3,005,542) (7,841,502)

Net change in fund balance -$ -$ 767,781 767,781$

Fund Balance: Beginning of year - July 1 29,866,011 End of year - June 30 30,633,792$

Budgeted Amounts


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Exhibit G


STATEMENT OF NET ASSETSPROPRIETARY FUNDSJUNE 30, 2008

Flat Rock / Bannertown

Landfill Water and Fund Sewer District Total

Assets:Current assets:Cash and cash equivalents 2,353,661$ 194,516$ 2,548,177$ Accounts receivable, net 198,495 18,864 217,359 Due from other governments - 8,107 8,107 Total current assets 2,552,156 221,487 2,773,643

Capital assets:Land and other nondepreciable assets 1,500,951 6,592,659 8,093,610 Other capital assets, net of depreciation 3,754,904 - 3,754,904 Capital assets, net 5,255,855 6,592,659 11,848,514

Total assets 7,808,011 6,814,146 14,622,157

Liabilities and Net Assets:Liabilities:Current liabilities:Current portion of long-term obligations 438,110 - 438,110 Total current liabilities 438,110 - 438,110

Noncurrent liabilities:Accrued landfill closure and postclosure care cost 2,879,136 - 2,879,136 Long-term obligations 316,688 2,548,000 2,864,688 Total noncurrent liabilities 3,195,824 2,548,000 5,743,824

Total liabilities 3,633,934 2,548,000 6,181,934

Net Assets:Invested in capital assets, net of related debt 4,539,645 4,044,659 8,584,304 Unrestricted (365,568) 221,487 (144,081) Total net assets 4,174,077$ 4,266,146$ 8,440,223$


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Exhibit H


STATEMENT OF REVENUES, EXPENSES AND CHANGES INFUND NET ASSETS - PROPRIETARY FUNDSFOR THE YEAR ENDED JUNE 30, 2008



Operating Revenues:Charges for services 1,805,910$ 119,291$ 1,925,201$ Landfill fees 1,064,219 - 1,064,219 White goods and scrap tire 130,719 - 130,719 Other operating revenues 202,235 - 202,235 Total operating revenues 3,203,083 119,291 3,322,374

Operating Expenses:Landfill recycling 802,277 - 802,277 Sanitation 1,886,484 - 1,886,484 Water and sewer - 81,108 81,108 Depreciation and amortization 621,809 - 621,809 Landfill closure and postclosure costs 165,122 - 165,122 Total operating expenses 3,475,692 81,108 3,556,800

Operating income (loss) (272,609) 38,183 (234,426)

Nonoperating Revenues (Expenses):Investment earnings 72,083 1,989 74,072 Interest and fees paid (48,583) (133,341) (181,924) Total nonoperating revenues (expenses) 23,500 (131,352) (107,852)

Income (loss) before contributions and transfers (249,109) (93,169) (342,278)

Capital contributions - 798,444 798,444

Change in net assets (249,109) 705,275 456,166

Net Assets:Beginning of year - July 1 4,423,186 3,560,871 7,984,057

End of year - June 30 4,174,077$ 4,266,146$ 8,440,223$


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Exhibit I


STATEMENT OF CASH FLOWSPROPRIETARY FUNDSFOR THE YEAR ENDED JUNE 30, 2008



Cash Flows From Operating Activities:Cash received from customers 3,271,476$ 253,473$ 3,524,949$ Cash paid for goods and services (1,798,068) (81,108) (1,879,176) Cash paid to employees for services (1,104,928) - (1,104,928) Net cash provided (used) by operating activities 368,480 172,365 540,845

Cash Flows From Capital and RelatedFinancing Activities:Acquisition and construction of capital assets (389,346) (644,940) (1,034,286) Capital contributions - federal grant - 798,444 798,444 Principal paid on bonds and notes payable (393,245) - (393,245) Interest and fees paid on bonds (48,583) (133,342) (181,925) Net cash provided (used) by capital and related

financing activities (831,174) 20,162 (811,012)

Cash Flows From Investing Activities:Interest on investments 72,083 1,989 74,072

Net Increase (Decrease) in Cash and Cash Equivalents (390,611) 194,516 (196,095)

Cash and Cash Equivalents - Beginning of Year 2,744,272 - 2,744,272

Cash and Cash Equivalents - End of Year 2,353,661$ 194,516$ 2,548,177$

Reconciliation of Operating Income (Loss) toNet Cash Provided (Used) by Operating Activities:Operating income (loss) (272,609)$ 38,183$ (234,426)$ Adjustments to reconcile operating income (loss) toDepreciation and amortization 621,809 - 621,809 Change in assets and liabilities:(Increase) Decrease in accounts receivable 68,393 420,308 488,701 Increase (Decrease) in accounts payable (31,867) (286,126) (317,993) Increase (Decrease) in compensated absences payable (514) - (514) Increase (Decrease) in landfill postclosure liability (16,732) - (16,732) Net cash provided (used) by operating activities 368,480$ 172,365$ 540,845$


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Exhibit J


STATEMENT OF FIDUCIARY NET ASSETSFIDUCIARY FUNDSJUNE 30, 2008

AgencyFunds

Assets:Cash and investments 112,249$ Total assets 112,249$

Liabilities:Accounts payable 87,776$ Intergovernmental payable 24,473 Total liabilities 112,249$

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

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NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2008

1. Summary of Significant Accounting Policies

The accounting policies of Surry County conform to generally accepted accounting principles as applicable to governments. The following is a summary of the more significant accounting policies.

A. Reporting Entity

The County, which is governed by a five-member board of commissioners, is one of the 100 counties established in North Carolina under North Carolina General Statute 153A-10. Generally accepted accounting principles require the entity to include component units in its financial statements if certain criteria are met. The County has two component units which have no financial transactions or account balances. Therefore, they do not appear in the combined financial statements. The County has one component unit which is reported as an enterprise fund in the County’s financial statements.

Surry County Industrial Facility and Pollution Control Financing Authority

Surry County Industrial Facility and Pollution Control Financing Authority (the “Authority”) exists to issue and service revenue bond debt of private businesses for economic development purposes. The Authority is governed by a seven-member board of commissioners, all of whom are appointed by the County commissioners. The County can remove any commissioner of the Authority with or without cause. The Authority has no financial transactions or account balances; therefore, it is not presented in the combined financial statements. The Authority does not issue separate financial statements.

The Interstates Water and Sewer District and the Flat Rock / Bannertown Water and Sewer District

The Interstates Water and Sewer District and the Flat Rock / Bannertown Water and Sewer District (the “Districts”) exist to provide and maintain water and sewer systems for the County residents within each district. Under State law [G.S. 162A-89], the County’s Board of Commissioners also serves as the governing board for the Districts. The Interstates Water and Sewer District has no financial transactions or account balances at June 30, 2008; therefore, the District is not presented in the combined financial statements. The District does not issue separate financial statements. The Flat Rock / Bannertown Water and Sewer District is reported as an enterprise fund in the County’s financial statements. Complete financial statements for the Flat Rock / Bannertown Water and Sewer District may be obtained at the finance office of the County: 118 Hamby Road, Suite 333, Dobson, NC 27017.

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B. Basis of Presentation

Government-Wide and Fund Financial Statements

The Statement of Net Assets and the Statement of Activities report information on all of the nonfiduciary activities of the primary government. The effect of interfund activity has been removed from these statements in all material areas. 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 fees and charges for support.

The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include (1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment; and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues.

Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds. The fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds.

Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or ancillary activities.

Major Funds - The General Fund, Flat Rock/Bannertown Water and Sewer District, and the Landfill Fund are major funds of the County for the year ended June 30, 2008. The County has the following fund categories:

Governmental Funds account for the County's general governmental activities. Governmental funds include the following fund types:

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. The County maintains separate Economic Development, Debt Service, Employee Benefits, a Home Program, Cooperative Extension, Sheriff’s Special Accounts, Workers’ Compensation, Sheriffs Narcotic, Public Assistance, and Register of Deeds Automation funds for accounting purposes. These funds have been consolidated into the General Fund for financial reporting purposes.

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Special Revenue Funds - Special revenue funds are used to account for specific revenue sources (other than special assessments, expendable trusts, or major capital projects) that are legally restricted to expenditures for specified purposes. The County maintains seven special revenue funds: the Schools Capital Outlay Fund, the Revaluation Fund, the Fire Districts Fund, the School Districts Fund, the Emergency Wireless 911 Fund, the Emergency Telephone 911 Fund, and the Grant Projects Fund. The County also maintains a separate Capital Reserve Fund to account for 30% and 60%, respectively, of the proceeds of the Chapter 40 and Chapter 42 half-cent local option sales taxes. This fund has been consolidated into the Schools Capital Outlay Fund for financial reporting purposes.

Capital Project Funds - Capital project 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 or trust funds). The County maintains two capital project funds within the governmental fund types: the Schools Capital Project Fund, and the County Buildings Capital Project Fund.

Proprietary Funds include the following fund types:

Enterprise Fund - Enterprise funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis are financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. Surry County has two enterprise funds: the Landfill Fund and the Flat Rock/Bannertown Water and Sewer District. The Landfill Reserve Fund is a fund established by the County to accumulate the funds necessary for any expenses related to land acquisition, construction, equipping and closing a landfill. The Landfill Reserve Fund is consolidated with the Landfill Fund for financial reporting purposes. The Flat Rock/Bannertown Capital Project Fund is consolidated with the Flat Rock/Bannertown Water and Sewer District (the operating fund) for financial reporting purposes. Fiduciary Funds account for the assets held by the County in a trustee capacity or as an agent for individuals, private organizations, other governmental units and/or other funds. Fiduciary funds include the following fund type:

Agency Funds - Agency funds are custodial in nature and do not involve measurement of results of operations. Agency funds are used to account for assets the County holds on behalf of others. The County maintains nine agency funds: the Fines and Forfeitures Fund that accounts for the collection and payment of fines and forfeitures to three Boards of Education in the County; the CBA Money; and Elderly or Handicap Transportation Assistance Funds that account for the collection and payment of State financial grant assistance to various sub-recipients; the Motor Vehicle Tax Fund that accounts for registered motor vehicle property taxes that are billed and collected by the County for various municipalities and special districts within the County; the NC DOR-HB-1779 Fund accounts for the additional interest on delinquent motor vehicle property tax

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payments to be transferred to NC State Treasurer; the P.A.R.T Transportation Taxes Fund accounts for vehicle rental taxes collected for Piedmont Authority of Regional Transportation; the Jail Trust Fund that accounts for monies held by the County for inmates; the Social Services Trust Fund that accounts for funds held by the County for the subsistence needs of specific Social Services clients; and the Regional Tourism Fund which accounts for a partnership with surrounding counties in North Carolina and Virginia to promote tourism.

C. Measurement Focus and Basis of Accounting

In accordance with North Carolina General Statutes, all funds of the County are maintained during the year using the modified accrual basis of accounting. Government-Wide, Proprietary, and Fiduciary Fund Financial Statements - The government-wide, proprietary, and fiduciary fund financial statements are reported using the economic resources measurement focus, except for the agency funds which have no measurement focus. The government-wide, proprietary, and fiduciary fund financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned, and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Nonexchange transactions, in which the County gives (or receives) value without directly giving (or receiving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided; 2) operating grants and contributions; and 3) capital grants and contributions, including special assessments. Internally-dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the County enterprise funds are charges to customers for sales and services. The County also recognizes as operating revenue the portion of tap fees intended to recover the cost of connecting new customers to the system. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

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Governmental Fund Financial Statements - Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. Long-term debt issued and acquisitions under capital leases are reported as other financing sources. General capital asset acquisitions are reported as expenditures in governmental funds. The County considers all revenues available if they are collected within 90 days after year-end, except for property taxes. Ad valorem property taxes are not accrued as revenue because the amount is not susceptible to accrual. At June 30, taxes receivable are materially past due and are not considered to be an available resource to finance the operations of the current year. Also, as of January 1, 1993, State law altered the procedures for the assessment and collection of property taxes on registered motor vehicles in North Carolina. Effective with this change in the law, Surry County is responsible for billing and collecting the property taxes on all registered motor vehicles on behalf of all municipalities and special tax districts in the County. For registered motor vehicles, property taxes are due the first day of the fourth month after the vehicles are registered. The billed taxes are applicable to the fiscal year in which they become due. Therefore, taxes for vehicles registered from March 2007 through February 2008 apply to the fiscal year ended June 30, 2008. Uncollected taxes which were billed during this period are shown as a receivable on these financial statements. Sales taxes collected and held by the State at year-end on behalf of the County are recognized as revenue. Intergovernmental revenues and sales and services are not susceptible to accrual because generally they are not measurable until received in cash. Expenditure-driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been satisfied.

Under the terms of grant agreements, the County funds certain programs by a combination of specific cost-reimbursement grants, categorical block grants, and general revenues. Thus, when program expenses are incurred, there are both restricted and unrestricted net assets available to finance the program. It is the County’s policy to first apply cost-reimbursement grant resources to such programs, followed by categorical block grants, then by general revenues. When both restricted and unrestricted resources are available for use, it is the County’s policy to use restricted resources first, then unrestricted resources as they are needed. All governmental and business-type activities and enterprise funds of the County follow FASB Statements and Interpretations issued on or before November 30, 1989, Accounting Principles Board Opinions, and Accounting Research Bulletins, unless those pronouncements conflict with GASB pronouncements.

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D. Budgetary Data

The County’s budgets are adopted as required by the North Carolina General Statutes. An annual budget ordinance is adopted for the General, Special Revenue and Enterprise Funds. All annual appropriations lapse at fiscal year-end. Project ordinances are adopted for the capital project funds. All budgets are prepared using the modified accrual basis of accounting, which is consistent with the accounting system used to record transactions.

Expenditures may not legally exceed appropriations at the departmental level for the General, Special Revenue and Enterprise Funds, and at the object level for the Capital Project Funds. The County Manager is authorized to adjust approved budget appropriations within a department in order to provide compliance with North Carolina General Statutes; however, any revisions that alter total expenditures of any department must be approved by the governing board. During the year, several amendments to the original budget became necessary. The budget ordinance must be adopted by July 1 of the fiscal year or the governing board must adopt an interim budget that covers that time until the annual ordinance can be adopted.

E. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant areas where estimates are made are allowance for doubtful accounts and depreciation lives.

F. Assets, Liabilities and Fund Equity

Deposits and Investments

All of the County’s deposits are made in board-designated official depositories and are secured as required by G.S. 159-31. The County may designate, as an official depository, any bank or savings association whose principal office is located in North Carolina. Also, the County may establish time deposit accounts such as NOW and SuperNOW accounts, money market accounts, and certificates of deposit.

State law [G.S. 159-30(c)] authorizes the County to invest in obligations of the United States or obligations fully guaranteed both as to principal and interest by the United States; obligations of the State of North Carolina; bonds and notes of any North Carolina local government or public authority; obligations of certain nonguaranteed federal agencies; certain high quality issues of commercial paper and bankers' acceptances; and the North Carolina Capital Management Trust (NCCMT), an SEC registered (2a-7) money market mutual fund.

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The County’s investments with a maturity of more than one year at acquisition and non money market investments are carried at fair value as determined by quoted market prices. The securities of the NCCMT Cash Portfolio are valued at fair value, which is the NCCMT’s share price. The NCCMT Term Portfolio’s securities are valued at fair value. Money market investments that have a remaining maturity at the time of purchase of one year or less and non-participating interest earnings and investment contracts are reported at amortized cost.

Cash and Cash Equivalents

The County pools money from several funds to facilitate disbursement and investment and to maximize investment income. Therefore, all cash and investments are essentially demand deposits and are considered cash and cash equivalents. Restricted Assets

The restricted assets of $56,871 in the capital project funds represent the balance of proceeds available under installment purchase contracts to finance construction and renovations to schools, community college, and County buildings. The restricted assets of $2,202,344 in the General Fund represent the balance in a sinking fund required by a financing contract to construct schools. Ad Valorem Taxes Receivable

In accordance with State law [G.S. 105-347 and G.S. 159-13(a)], the County levies ad valorem taxes on property other than motor vehicles on July 1, the beginning of the fiscal year. The taxes are due on September 1 (lien date); however, penalties and interest do not accrue until the following January 6. These taxes are based on the assessed values as of January 1, 2007. As allowed by State law, the County has established discounts that apply to taxes which are paid prior to the due date. In the County’s General Fund, ad valorem tax revenues are reported net of such discounts.

Allowances for Doubtful Accounts

All receivables that are historically uncollectible accounts are shown net of an allowance for doubtful accounts. This amount is estimated by analyzing the percentage of receivables that were written off in prior years.

Capital Assets

Capital assets are recorded at original cost or estimated historical cost. Donated assets are recorded at their estimated fair value at the date of donation. Minimum capitalization cost is $5,000. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets’ lives are not capitalized.

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The County holds title to certain properties of the Boards of Education of Surry County, Elkin and Mount Airy, which have been included in capital assets. The properties have been deeded to the County to permit installment purchase financing of acquisition and construction costs. Agreements between the County and the Boards of Education give the Boards of Education full use of the facilities, full responsibility for maintenance of the facilities, and provide that the County will convey title to the property back to the Boards of Education once all restrictions of the financing agreements and all sales tax reimbursement requirements have been met. The properties are not reflected as capital assets in the financial statements of the Boards of Education.

Capital assets in the enterprise funds of the County are recorded at original cost at the time of acquisition. Capital assets donated to the enterprise fund operations are recorded at the estimated fair market value at the date of donation. Depreciation is provided over the estimated useful lives of the assets using the straight-line method.

Capital assets are depreciated on a straight-line basis over the following useful lives to the cost of the assets:

Years

Plant and distribution 40Buildings 20-50Other improvements 10Equipment 5Vehicles 5

Long-Term Obligations

In the government-wide financial statements and in the proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund statement of net assets. In the fund financial statements for governmental fund types, the face amount of debt issued is reported as another financing source.

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Net Assets / Fund Balances

Net Assets Net assets in the government-wide and proprietary fund financial statements are classified as invested in capital assets, net of related debt; restricted; and unrestricted. Restricted net assets represent constraints on resources that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments or imposed by law through State statutes. Net assets are classified as follows:

Restricted

General Government - portion of net assets constituting the Automation Enhancement and Preservation Fund, funded by 10% of the fees collected and maintained by the Register of Deeds’ office. The funds are legally restricted for computer and imaging technology in the Register of Deeds’ office. Education - portion of net assets representing a sinking fund required by a financing contract that the County entered into construct schools.

Fund Balances In the governmental fund financial statements, reservations or restrictions of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change.

State law [G.S. 159-13(b) (16)] restricts the appropriation of fund balance or fund equity to an amount not to exceed the sum of cash and investments minus the sum of liabilities, encumbrances, and deferred revenues arising from cash receipts as those amounts stand at the close of the fiscal year preceding the budget year.

The governmental fund types classify fund balances as follows:

Reserved

Reserved by State Statute - portion of fund balance, which is not available for appropriation under State law [G.S. 159-8(a)]. This amount is usually comprised of accounts receivable and interfund receivables, which are not offset by deferred revenues.

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Reserved for Register of Deeds - portion of fund balance constituting the Automation Enhancement and Preservation Fund, funded by 10% of the fees collected and maintained by the Register of Deeds’ office. The funds are available for appropriation but are legally restricted for computer and imaging technology in the Register of Deeds’ office. Reserved for Debt Service - portion of fund balance representing a sinking fund required by a financing contract entered into by the County to construct schools and the portion of fund balance representing proceeds available under an installment purchase contract to fund capital development. Designations of equity represent tentative management plans that are subject to change. The unreserved fund balance had the following designations at June 30, 2008:

Designated for subsequent year’s expenditures:

General Fund $ 7,676,428 Special Revenue Funds $ 1,009,892 Capital Project Funds $ 120,000 General Fund: Designated for health emergencies $ 86,224 Designated for group health plan and employee benefits $ 2,803,014 Designated for workers’ compensation $ 626,184

G. Revenues, Expenditures and Expenses

Compensated Absences

The vacation policy of the County provides for the accumulation of up to thirty (30) days earned vacation leave with such leave being fully vested when earned. All vacation pay is accrued when earned in the government-wide and proprietary fund financial statements.

The County's sick leave policy provides for an unlimited accumulation of earned sick leave. Sick leave does not vest, but any unused sick leave accumulated at the time of retirement may be used in the determination of length of service for retirement benefit purposes. Since the County has no obligation for the accumulated sick leave until it is actually taken, no accrual for sick leave has been made.

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2. Deposits and Investments

A. Deposits

All of the County's deposits are either insured or collateralized using one of two methods. Under the Dedicated Method, all deposits exceeding the federal depository insurance coverage level are collateralized with securities held by the County's agent in the County’s name. Under the Pooling Method, which is a collateral pool, all uninsured deposits are collateralized with securities held by the State Treasurer's agent in the name of the State Treasurer. Since the State Treasurer is acting in a fiduciary capacity for the County, these deposits are considered to be held by the County’s agent in the entity’s name. The amount of the pledged collateral is based on an approved averaging method for noninterest bearing deposits and the actual current balance for interest-bearing deposits. Depositories using the Pooling Method report to the State Treasurer the adequacy of their pooled collateral covering uninsured deposits. The State Treasurer does not confirm this information with the County or with the escrow agent. Because of the inability to measure the exact amount of collateral pledged for the County under the Pooling Method, the potential exists for under-collaterization, and this risk may increase in periods of high cash flows. However, the State Treasurer of North Carolina enforces strict standards of financial stability for each depository that collateralizes public deposits under the Pooling Method. The County does not have policies regarding custodial credit risk for deposits, but relies on the State Treasurer to enforce standards of minimum capitalization for all Pooling Method financial institutions and to monitor them for compliance. The County complies with the provisions of G.S. 159-31 when designating official depositories and verifying that deposits are properly secured.

At June 30, 2008, the County's deposits had a carrying amount of $3,718,385 and a bank balance of $7,214,353. Of the bank balance, $225,277 was covered by federal depository insurance, and $6,989,076 was covered by collateral held under the Pooling Method. Cash on hand was $3,680.

B. Investments

At June 30, 2008, the County had the following investments and maturities:

Less than 6 6-12Investment Type Fair Value months months 1-5 years

US Government Agencies 18,771,101$ 1,003,440$ 501,095$ 17,266,566$ NC Capital Management Trust - Cash Portfolio 7,544,912 N/A N/A N/ATotal investments 26,316,013$ 1,003,440$ 501,095$ 17,266,566$

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Interest Rate Risk – As a means of limiting its exposure to fair value losses arising from rising interest rates, the County’s investment policy limits at least half of the County’s investment portfolio to maturities of less than 12 months. Also, the County’s investment policy requires purchases of securities to be laddered with staggered maturity dates and limits all securities to a final maturity of no more than five years. Credit Risk – State law limits investments in commercial paper to the top rating issued by nationally recognized statistical rating organizations (NRSRO's); however, the County has no formal policy on managing credit risk. The County’s investments in the NC Capital Management Trust Cash Portfolio carried a credit rating of AAAm by Standard & Poor’s as of June 30, 2008. The County’s investments in US Agencies are rated AAA by Standard & Poor’s and Aaa by Moody’s Investors Service. Concentration of Credit Risk – The County places no limit on the amount that the County may invest in any one issuer. More than 5 percent of the County’s investments are in US Government Agencies. Investments in Federal Home Loan Bank are 28%, Federal Home Loan Mortgage Corporation are 43%, Federal National Mortgage Agency are 24%, and Federal Farm Credit are 5%.

3. Property Tax Use-Value Assessment on Certain Lands

In accordance with the General Statutes, agriculture, horticulture, and forest land may be taxed by the County at the present-use value as opposed to market value. When the property loses its eligibility for use-value taxation, the property tax is recomputed at market value for the current year and the three preceding fiscal years, along with the accrued interest from the original due date. This tax is immediately due and payable. The following are property taxes that could become due if present use-value eligibility is lost. These amounts have not been recorded in the financial statements.

Year

Levied Tax Interest Total

2005 1,086,284$ 70,608$ 1,156,892$ 2006 1,450,046 72,502 1,522,548 2007 1,489,253 74,677 1,563,930 2008 1,517,015 87,228 1,604,243 Total 5,542,598$ 305,015$ 5,847,613$

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4. Receivables

Receivables at Exhibit A at June 30, 2008 were as follows:

Due fromother

Accounts Taxes Governments TotalGovernmental Activities:General 7,937,263$ 2,078,436$ 433,403$ 10,449,102$ Other governmental 97,775 236,425 649,756 983,956 Total receivables 8,035,038 2,314,861 1,083,159 11,433,058 Allowance for doubtful accounts (1,363,076) (1,040,437) - (2,403,513)

Total governmental activities 6,671,962$ 1,274,424$ 1,083,159$ 9,029,545$

Business-Type Activities:Solid Waste 329,914$ -$ -$ 329,914$ Water and Sewer District 18,864 - 8,107 26,971 Allowance for doubtful accounts (131,419) - - (131,419)

Total business-type activities 217,359$ -$ 8,107$ 225,466$

Due from other governments consisted of the following:

Local option sales tax 1,031,693$ Due from Mount Airy 5,032 E-911 54,541 Total 1,091,266$

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5. Capital Assets

A. Governmental Capital Assets

A summary of changes in the County’s governmental capital assets follows:

July 1, 2007 Additions Retirements Transfers June 30, 2008

By Asset Type:

Nondepreciable Assets:Construction in progress 16,968,695$ 6,774,329$ -$ (6,737,590)$ 17,005,434$ Land 2,384,989 260,237 - - 2,645,226 Depreciable Assets:Buildings and improvements 42,727,567 331,337 (7,425) 6,737,590 49,789,069 Equipment 5,947,090 1,048,701 (439,687) - 6,556,104 Vehicles 3,541,879 393,481 (457,291) - 3,478,069 Total 71,570,220 8,808,085 (904,403) - 79,473,902

Accumulated Depreciation:Buildings and improvements (4,318,378) (1,035,638) 7,425 - (5,346,591) Equipment (4,780,765) (338,989) - - (5,119,754) Vehicles (2,525,413) (461,990) 367,025 - (2,620,378) Total (11,624,556) (1,836,617) 374,450 - (13,086,723)

Capital assets, net 59,945,664$ 6,971,468$ (529,953)$ -$ 66,387,179$ Depreciation expense was charged to functions/programs of the primary government as follows:

Governmental Activities:General government 721,265$ Public safety 721,112 Human services 111,746 Economic and physical development 34,778 Education 237,247 Cultural and recreation 10,469

Total 1,836,617$

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B. Proprietary Capital Assets

The capital assets of the proprietary funds at June 30, 2008 are as follows:

July 1, 2007 Additions Retirements Transfers June 30, 2008Business-Type Activities:

Landfill Fund:Nondepreciable Assets:Land 1,378,951$ 122,000$ -$ -$ 1,500,951$ Depreciable Assets:Building and improvements 5,596,994 26,067 - 8,778 5,631,839 Fencing 93,127 - - - 93,127 Leasehold improvements 8,778 - - (8,778) - Heavy equipment 1,708,679 188,015 - - 1,896,694 Vehicles 691,003 38,100 (27,090) - 702,013 Scales 112,095 - - - 112,095 Light equipment 143,614 15,164 - - 158,778 Total 9,733,241 389,346 (27,090) - 10,095,497

Accumulated Depreciation:Building and improvements (1,901,907) (436,697) - (8,778) (2,347,382) Fencing (35,918) (4,086) - - (40,004) Leasehold improvements (8,778) - - 8,778 - Heavy equipment (1,615,600) (123,597) - - (1,739,197) Vehicles (451,262) (52,631) 27,090 - (476,803) Scales (112,095) - - - (112,095) Light equipment (119,364) (4,797) - - (124,161) Total (4,244,924) (621,808) 27,090 - (4,839,642)

Capital assets, net 5,488,317$ (232,462)$ -$ -$ 5,255,855$

Water and Sewer District:Nondepreciable Assets:Land 20,000$ -$ -$ -$ 20,000$ Construction in progress 5,927,719 644,940 - (6,572,659) - Capital assets 5,947,719$ 644,940$ -$ (6,572,659)$ 20,000$ Depreciable Assets:Plant & distribution - - - 6,572,659 6,572,659 Capital assets, net 5,947,719$ 644,940$ -$ -$ 6,592,659$

Business-typeCapital assets, net 11,436,036$ 412,478$ -$ -$ 11,848,514$

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6. Commitments

The government has active construction projects as of June 30, 2008. The projects include the Permitting & Health Center, Human Services Roof and School Construction. At June 20, 2008, the government’s commitments with contractors and projects were as follows:

Remaining

Project Spent-To-Date Commitment Permitting & Health Center 2,701,129$ 248,871$ Human Services Roof 48,720 1,280 School Construction 14,255,585 27,096,103

17,005,434$ 27,346,254$ 7. Payables

Payables at Exhibit A at June 30, 2008 were as follows: Insurance

Claims IncurredDue to But Not

Vendors Schools Reported TotalGovernmental Activities:General Fund 819,869$ -$ 505,724$ 1,325,593$ Special Revenue Fund 125,039 86,274 - 211,313 Total 944,908$ 86,274$ 505,724$ 1,536,906$

8. Pension Plan Obligations

A. Local Governmental Employees' Retirement System

Plan Description Surry County contributes to the statewide Local Governmental Employees' Retirement System (LGERS), a cost-sharing multiple-employer defined benefit pension plan administered by the State of North Carolina. LGERS provides retirement and disability benefits to plan members and beneficiaries. Article 3 of G.S. Chapter 128 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. The Local Governmental Employees' Retirement System is included in the Comprehensive Annual Financial Report (CAFR) for the State of North Carolina. The State's CAFR includes financial statements and required supplementary information for LGERS. That report may be obtained by writing to the Office of the State Controller, 1410 Mail Service Center, Raleigh, North Carolina 27699-1410, or by calling (919) 981-5454.

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Funding Policy Plan members are required to contribute six percent of their annual covered salary. The County is required to contribute at an actuarially determined rate. For the County, the current rate for employees not engaged in law enforcement and for law enforcement officers is 4.92% and 4.86%, respectively, of annual covered payroll. The contribution requirements of members and of Surry County are established and may be amended by the North Carolina General Assembly. The County's contributions to LGERS for the years ended June 30, 2008, 2007, and 2006 were $978,199, $918,297 and $868,889, respectively. The contributions made by the County equaled the required contributions for each year.

B. Law Enforcement Officers’ Special Separation Allowance

Plan Description Surry County administers a public employee retirement system (the "Separation Allowance"), a single-employer defined benefit pension plan that provides retirement benefits to the County's qualified sworn law enforcement officers. The Separation Allowance is equal to .85 percent of the annual equivalent of the base rate of compensation most recently applicable to the officer for each year of creditable service. The retirement benefits are not subject to any increases in salary or retirement allowances that may be authorized by the General Assembly. Article 12D of G. S. Chapter 143 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. The plan does not issue a separate stand-alone financial report. Each local government makes benefit payments required under this plan.

All full-time County law enforcement officers are covered by the Separation Allowance. At December 31, 2007, the Separation Allowance's membership consisted of 61 active plan members and 8 retired and terminated members.

Summary of Significant Accounting Policies

Basis of Accounting. The County has chosen to fund the Separation Allowance on a pay-as-you-go basis. There are no plan assets and the liability is not material; therefore, the plan is not presented as a pension trust fund in the County's Comprehensive Annual Financial Report. Pension expenditures are made from the General Fund, which is maintained on the modified accrual basis of accounting. Method Used to Value Investments. No funds are set aside to pay benefits and administration costs. These expenditures are paid as they come due.

Contributions

The County is required by Article 12D of G. S. Chapter 143 to provide these retirement benefits and has chosen to fund the benefit payments on a pay-as-you-go basis through appropriations made in the General Fund operating budget. The County's obligation to contribute to this plan is established and may be amended by the North Carolina General Assembly. There were no contributions made by employees.

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The annual required contribution for the current year was determined as part of the December 31, 2007 actuarial valuation using the projected unit, credit actuarial cost method. The actuarial assumptions included (a) 7.25% investment rate of return and (b) projected salary increases ranging from 4.5% to 12.3% per year. Item (b) included an inflation component of 3.75%. The assumptions did not include post-retirement benefit increases. The actuarial value of assets was market value. The unfunded actuarial accrued liability is being amortized as a level dollar amount on a closed basis. The remaining amortization period at December 31, 2007 was 23 years. Annual Pension Cost and Net Pension Obligation

The County's annual pension cost and net pension obligation to the Separation Allowance for the current year were as follows: Employer annual required contribution 81,619$ Interest on net pension obligation 26,028 Adjustment to annual required contribution (22,061) Annual pension cost 85,586 Employer contributions made (79,442) Increase (decrease) in net pension obligation 6,144 Net pension obligation, July 1 359,010 Net pension obligation, June 30 365,154$ Three-Year Trend Information:

Fiscal Annual Pension Percentage of Net Pension Year Ended Cost (APC) APC Contributed Obligation

6/30/2006 80,321$ 85.23% 353,805$ 6/30/2007 80,987 93.57% 359,010 6/30/2008 85,586 92.82% 365,154

C. Supplemental Retirement Income Plan for Law Enforcement Officers

Plan Description

The County contributes to the Supplemental Retirement Income Plan (the “Plan”), a defined contribution pension plan administered by the Department of State Treasurer and a Board of Trustees. The Plan provides retirement benefits to law enforcement officers employed by the County. Article 5 of G.S. Chapter 135 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly.

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Funding Policy Article 12E of G.S. Chapter 143 requires that the County contribute each month an amount equal to five percent of each officer’s salary, and all amounts contributed are vested immediately. Also, the law enforcement officers may make voluntary contributions to the plan. Contributions for the year ended June 30, 2008, were $121,749 which consisted of $96,691 from the County and $25,058 from the law enforcement officers.

D. Register of Deeds’ Supplemental Pension Fund

Plan Description Surry County also contributes to the Register of Deeds’ Supplemental Pension Fund (the “Fund”), a noncontributory, defined contribution plan administered by the North Carolina Department of State Treasurer. The Fund provides supplemental pension benefits to any county register of deeds who is retired under the Local Governmental Employees’ Retirement System (LGERS) or an equivalent locally sponsored plan. Article 3 of G.S. Chapter 161 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly.

Funding Policy On a monthly basis, the County remits to the Department of State Treasurer an amount equal to one and one-half percent (1.5%) of the monthly receipts collected pursuant to Article 3 of G.S. 161. Immediately following January 1 of each year, the Department of State Treasurer divides ninety-three percent (93%) of the amount in the Fund at the end of the preceding calendar year into equal shares to be disbursed as monthly benefits. The remaining seven percent (7%) of the Fund’s assets may be used by the State Treasurer in administering the Fund. For the fiscal year ended June 30, 2008, the County’s required and actual contributions were $6,139.

E. Other Post-Employment Health Care Benefits

In addition to providing pension benefits, Surry County has elected to provide post-retirement health care benefits to retirees employed on or before June 16, 2008 of the County who participate in the North Carolina Local Governmental Employees' Retirement System (the “System”) and have at least twenty years of creditable service with the County. The County pays half the cost of coverage for these benefits to qualifying retirees. Also, qualifying retirees can purchase coverage for their dependents at the County's group rates. Currently, sixty-two (62) are eligible for post-retirement health benefits. For the fiscal year ended June 30, 2008, the County made payments for post-retirement health benefit premiums of $149,129. The County provides health care coverage through a self-funded health plan. However, the County obtains specific and aggregate stop-loss coverage through a private insurer. Claims are managed by a third-party administrator. On June 16, 2008, Surry County abolished the retirees’ insurance plan. All individuals employed on or before June 16, 2008 are grandfathered and will remain eligible for the benefit unless terminated prior to meeting eligibility requirements.

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F. Other Employment Benefits

The County, pursuant to local ordinance, has elected to provide death benefits to employees through the Death Benefit Plan for members of the Local Governmental Employees' Retirement System (Death Benefit Plan), a multiple-employer, State-administered, cost-sharing plan funded on a one-year term cost basis. The beneficiaries of those employees who die in active service after one year of contributing membership in the System, or who die within 180 days after retirement or termination of service and have at least one year of contributing membership service in the System at the time of death, are eligible for death benefits. Lump sum death benefit payments to beneficiaries are equal to the employee's twelve highest month's salary in a row during the twenty-four months prior to the employee's death, but the benefit must be between $25,000 and $50,000. All death benefit payments are made from the Death Benefit Plan. The County has no liability beyond the payment of monthly contributions. Contributions are determined as a percentage of monthly payroll, based upon rates established annually by the State. Separate rates are set for employees not engaged in law enforcement and for law enforcement officers. Because the benefit payments are made by the Death Benefit Plan and not by the County, the County does not determine the number of eligible participants. For the fiscal year ended June 30, 2008, the County made contributions to the State for death benefits of $24,132. The County's required contributions for employees not engaged in law enforcement and for law enforcement officers represented .12% and .14% of covered payroll, respectively. The contributions to the Death Benefit Plan cannot be separated between the post-employment benefit amount and the other benefit amount.

9. Operating Leases

The County is committed under various operating leases for land, buildings, and equipment. For the year ended June 30, 2008, total lease expenditures under these operating leases totaled $93,760.

An analysis of obligations under operating leases follows:

Year Ended June 30 Amount

2009 94,662$ 2010 85,164 2011 72,984 2012 72,909 2013 71,008

396,727$

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10. Long-Term Obligations

A. Installment Purchases and Notes Payable

Serviced by Governmental Funds

OutstandingAmount Date Rate Period Amount Balance Purpose

Construct:

3,500,000$ April 1999 4.26% Semi-annual 216,743$ 420,020$ School4,800,000 December 1997 4.86% Semi-annual 265,532 759,393 Water and Sewer lines2,746,000 December 2000 5.19% Semi-annual 183,067 1,464,537 County Jail1,990,000 December 2000 5.16% Semi-annual 165,833 829,169 Human Services building9,750,000 June 2001 4.475% Semi-annual 406,250 4,062,500 Judicial Center2,254,550 June 2001 0.00% Annual 161,040 2,254,550 School QZAB7,000,000 December 2005 3.71% Semi-annual 350,000 5,250,000 School4,309,000 September 2003 4.03% Semi-annual 227,565 3,016,300 College classroom building1,700,000 June 2004 0.00% Annual 93,044 1,700,000 School QZAB2,000,000 June 2004 0.00% Annual 116,100 2,000,000 School QZAB4,300,000 January 2006 4.33% Semi-annual 179,167 3,583,333 School1,500,000 December 2006 3.74% Semi-annual 75,000 1,275,000 School1,800,000 December 2006 0.00% Annual 92,997 1,800,000 School QZAB2,000,000 June 2007 0.00% Annual 99,855 2,000,000 School QZAB

1,265,000 September 2003 3.97% Semi-annual 52,708 790,625 Workforce Development Center

300,000 September 2003 3.17% Semi-annual 34,280 30,000 Courthouse renovations

Total installment purchase contracts and notes payable 31,235,427$

Original Issue Payment Information

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Annual debt service requirements to maturity for installment purchase contracts and notes payable serviced by governmental funds are as follows:

Year EndedJune 30 Principal Interest

2009 3,712,597$ 862,166$ 2010 3,021,650 706,345 2011 2,762,418 582,771 2012 2,762,418 465,495 2013 2,762,418 348,220

2014-2018 10,570,293 596,573 2019-2023 5,643,633 2,894

31,235,427$ 3,564,464$

Serviced by Proprietary Funds


Construct:

1,810,000$ April 1999 4.26% Semi-annual 112,087$ 217,210$ Landfill Road

70,000-1,544,000 December 2000 5.11% Semi-annual 105,000 499,000 Landfill

Total installment purchases 716,210$


Annual debt service requirements to maturity for installment purchase contracts serviced by the proprietary funds are as follows:


2009 407,210$ 30,036$ 2010 205,000 13,235 2011 104,000 2,657

716,210$ 45,928$

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B. Bonds Payable

All general obligation bonds serviced by the County’s General Fund are collateralized by the full faith, credit, and taxing power of the County. Principal and interest payments are appropriated when due.

Bonds payable at June 30, 2008, are comprised of the following individual issues:


Construct:

8,440,000$ October 1995 5.10-5.25% Annual$375,000-1,500,000 3,940,000$

Public Improvement Series 1995

14,025,000 April 1998 4.25-5.0% Annual395,000-

1,335,000 4,600,000 School Refunding

Series 1998

2,060,000 June 1999 4.40 - 4.60% Annual 100,000 - 400,000 1,160,000

Community College Series 1999

9,700,000$


Annual debt service requirements to maturity for general obligation bonds are as follows:


2009 1,710,000$ 489,248$ 2010 1,695,000 403,498 2011 1,680,000 318,498 2012 1,665,000 234,248 2013 1,600,000 149,935

2014-2015 1,350,000 78,545 9,700,000$ 1,673,972$

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C. Bonds Payable – Proprietary Fund

All general obligation bonds serviced by Flat Rock/Bannertown Water & Sewer District of Surry County are collateralized by the full faith, credit and taxing power of Surry County. Principal and interest payments are appropriated when due.

Bonds payable is comprised of the following issue:


Construct:

2,548,000$ Sept 2007 4.25% Annual $29,000 - $116,000 2,548,000$

Water and Sewer Series 2007


Annual debt service requirements to maturity for general obligation bonds serviced by the Proprietary Fund are as follows:


2009 -$ 108,290$ 2010 29,000 108,290 2011 29,000 107,058 2012 31,000 105,825 2013 32,000 104,508

2014-2018 184,000 500,735 2019-2023 225,000 458,363 2024-2028 277,000 406,258 2029-2033 341,000 342,168 2034-2038 419,000 263,373 2039-2043 517,000 166,345 2044-2047 464,000 49,298

2,548,000$ 2,720,511$

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D. Changes in Long-Term Debt

The following is a summary of changes in general long-term debt for the year ended June 30, 2008:

Current

Balance Balance Portion of July 1, 2007 Increases Decreases June 30, 2008 Balance

Governmental Activities:General obligation bonds 11,430,000$ -$ 1,730,000$ 9,700,000$ 1,710,000$ Installment purchases / 34,952,235 - 3,716,808 31,235,427 3,712,597 notes payable Compensated absences 1,568,621 1,756,589 1,607,516 1,717,694 1,528,700 Separation allowance for law enforcementofficers' liability 359,010 85,586 79,442 365,154 -

Total governmental activities 48,309,866$ 1,842,175$ 7,133,766$ 43,018,275$ 6,951,297$

Business-Type Activities:Installment purchases 1,109,455$ -$ 393,245$ 716,210$ 407,210$ Bond anticipation notes 2,548,000 - 2,548,000 - - General obligation bonds - 2,548,000 - 2,548,000 Accrued landfill closure and postclosure care cost 2,895,868 - 16,732 2,879,136 - Compensated absences 39,102 30,731 31,245 38,588 30,900

Total business-type activities 6,592,425$ 2,578,731$ 2,989,222$ 6,181,934$ 438,110$

Compensated absences typically have been liquidated in the General Fund and are accounted for on a LIFO basis, assuming that employees are taking leave time as it as earned.

At June 30, 2008, the County had a legal debt margin of $344,482,712.

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11. Deferred / Unearned Revenues

The balance in deferred revenues on the fund statements and unearned revenues on the government-wide statements at year-end is composed of the following elements:

Deferred UnearnedRevenues Revenues

Ad valorem taxes:Receivable, net (General) 1,143,205$ -$ Receivable, net (Special Revenue) 131,219 - Prepaid taxes 205,683 205,683 Unearned grant receipts 174,621 174,621 Total 1,654,728$ 380,304$

12. Interfund Balances and Activity

The following is a summary of interfund receivables and payables.

TransfersFrom To Purpose

Transfers From/To Other Funds:General Fund 5,114,181$ -$ Reimbursement among funds County Buildings Capital Projects Fund - 2,910,667 Reimburse debt service paid

and capital transfer Revaluation Fund - 383,114 Reimbursement among funds School Capital Outlay Fund - 1,820,400 Reimbursement among funds Emergency Telephone 911 Fund 531,082 - Move remaining balance due

to State statute change General Fund - 531,082 Balance from E-911 Fund School Capital Reserve Fund 1,577,557 - Reimbursement among funds General Fund - 1,577,557 Reimbursement among funds Total 7,222,820$ 7,222,820$

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13. Benefit Payments Issued by the State

The amounts listed below were paid directly to individual recipients by the State from federal and State monies on behalf of the County. County personnel are involved with certain functions, primarily eligibility determinations, which cause benefit payments to be issued by the State. These amounts disclose this additional aid to County recipients, which do not appear in the basic financial statements because they are not revenues and expenditures of the County.

Federal State

Special Assistance for Adults -$ 826,578$ Foster Care and Adoption 231,748 225,788 Temporary Assistance for Needy Families 546,394 - Medicaid 56,051,095 29,242,617 Food Stamps 9,703,379 - Special Supplemental Food Program for Woman, Infants, and Children 1,701,771 -

Low Income Home Energy Assistance 208,742 - 68,443,129$ 30,294,983$

14. Related Organization

Northern Hospital Board of Trustees. The chairman of the County's governing board is responsible for appointing the members of the board of the Northern Hospital Board of Trustees. The County's accountability for this organization does not extend beyond making these appointments. The entity exists to provide health care services for persons inside and outside the County.

15. Joint Ventures

The County, in conjunction with the County of Yadkin and the County of Iredell, participates in Crossroads Behavioral Healthcare. The County appoints seven members out of the twenty-one member board. The entity exists to provide mental health services for the citizens of all three counties. The County contributed $236,506 to the entity during the fiscal year ended June 30, 2008. The participating governments do not have any equity interest in the joint venture, so no equity interest has been reflected in the financial statements at June 30, 2008. Complete financial statements for the Mental Health Authority may be obtained from the Mental Health Authority's administrative offices at 200 Business Park Drive, Elkin, North Carolina 28621.

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The County also participates in a joint venture to operate the Northwest Regional Library (the “library”) with four other local governments. The County appoints four members, and the other three participating governments each appoint three board members to the thirteen-member board of the library. The County has an ongoing financial responsibility for the joint venture because the library's continued existence depends on the participating governments' continued funding. None of the participating governments have any equity interest in the library, so no equity interest has been reflected in the financial statements at June 30, 2008. In accordance with the intergovernmental agreement between the participating governments, the County appropriated $409,136 to the library for the year ended June 30, 2008 to supplement its activities. Complete financial statements for the library may be obtained from the library's offices at 111 North Front Street, Elkin, North Carolina 28621.

The County, in conjunction with the State of North Carolina and the County Boards of Education, participates in a joint venture to operate Surry Community College (the “community college”). Each of the three participants appoints four members of the fourteen-member board of trustees of the community college. The president of the student government association of the community college serves as a non-voting, ex-officio member of the board of trustees. The community college is included as a component unit of the State. The County has the basic responsibility for providing funding for the facilities of the community college and also provides some financial support for operations of the community college. In addition to providing annual appropriations for facilities, the County periodically issues general obligation bonds to provide financing for new and restructured facilities. The County has an ongoing financial responsibility for the community college because of the statutory responsibilities to provide funding for the facilities of the community college. The County contributed $1,960,000 to the community college for operating purposes during the fiscal year ended June 30, 2008. In addition, the County has previously issued general obligation bonds of $3,500,000 and installment financing of $5,574,000 for community college capital facilities. The participating governments do not have any equity interest in the joint venture; therefore, no equity interest has been reflected in the County's financial statements at June 30, 2008. Complete financial statements for the community college may be obtained from the community college's administrative offices at South Main Street, Dobson, North Carolina 27017.

16. Jointly Governed Organization

The County, in conjunction with five other counties and twenty-one other municipalities, established the Northwest Piedmont Council of Governments (the “Council”). The participating governments established the Council to coordinate various funding received from federal and State agencies. Each participating government appoints one member of the council's governing board. The County disbursed $381,660 to the Council during the fiscal year ended June 30, 2008.

The County, in conjunction with four other counties and the Northwest Piedmont Council of Governments, established the Boone Trail Housing Consortium (the “Consortium”). The participating counties established the Consortium to administer the Home Program, a federal grant from the U.S. Department of Housing and Urban Development. Each county appoints three members and three alternative members to the Consortium's governing board. The County is the lead agency for the Consortium, and the revenues and expenditures of the Consortium are reported in Schedule 2.

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The County, in conjunction with the City of Mount Airy, established the Mount Airy-Surry County Airport Authority (the “Airport Authority”). The participating governments established the Airport Authority to operate and manage a local, non-commercial airport facility. The County appoints three members of a six-member governing board. The County disbursed $58,333 to the Airport Authority during the fiscal year ended June 30, 2008.

The County, in conjunction with four other counties and fourteen other municipalities, established the Yadkin Valley Economic Development District, Inc. (the “District”). The participating governments established the District to oversee the economic development of the District. The County appoints three members and three alternative members of a twenty-seven member governing board. The County disbursed $701,577 to the District during the fiscal year ended June 30, 2008.

17. Closure and Postclosure Care Costs – Landfill Facilities

State and federal laws and regulations have required the County to place a final cover on two landfill facilities located in Mount Airy and Elkin, North Carolina, and to perform certain maintenance and monitoring functions at the sites for thirty years after closure. The closure and postclosure care costs are paid only near or after the date that the landfills stop accepting waste. The County reports a portion of these closure and postclosure care costs as an operating expense in each period based on landfill capacity use as of each balance sheet date.

The County closed two landfills in 1998 and opened a third subtitle D landfill. The $2,879,136 reported as landfill closure and postclosure care liability at June 30, 2008, represents the cumulative amount reported to date for the closure and postclosure care cost of all the landfills. Of the cumulative amount reported to date, $1,863,539 represents the subtitle D landfill. The new landfill costs are based on 50% of the total estimated capacity. The County will recognize the remaining $1.8 million as the remaining capacity is filled. These amounts are based on what it would cost to perform all closure and postclosure care in 2008. The County expects to close the current cells in 2018. Actual costs may be higher due to inflation, changes in technology, or changes in regulations.

The County has met the requirements of a local government financial test that is one option under State and federal laws and regulations that helps determine if a unit is financially able to meet closure and postclosure care requirements. The County has also elected to establish a fund to accumulate resources for the payment of expansion, closure and postclosure care costs. The County expects that future inflation costs will be paid from the interest earnings on these annual contributions. However, if interest earnings are inadequate or additional postclosure care requirements are determined (due to changes in technology or applicable laws or regulations, for example), these costs may need to be covered by charges to future landfill users or by future tax revenues.

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18. Risk Management

The County is exposed to various risks of losses related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The County carries commercial coverage for general liability, property and casualty, errors and omissions, and umbrella insurance. Through this coverage, the County obtains property coverage equal to replacement cost values of owned property with the exception of contractor’s equipment, which is insured for actual cash value, and vehicles that are insured for actual cash value or the cost of repair. Commercial automobile liability has a limit of $2,000,000 per accident. The County’s general liability coverage has a limit of $2,000,000 for each occurrence and a $4,000,000 aggregate limit. The County’s errors and omissions coverage has per occurrence and aggregate limits of $2,000,000. In addition to the coverage above, the County has umbrella coverage with per occurrence and aggregate limits of $5,000,000.

The County carries commercial coverage for all other risks of loss. There have been no significant reductions in insurance coverage from the previous year and settled claims have not exceeded coverage in any of the past three years. The County carries $5,000,000 in flood insurance except for in flood zones A and V.

In accordance with G.S. 159-29, the County’s Finance Officer and Tax Collector are each individually bonded for $250,000 and $100,000 respectively. The remaining employees that have access to funds are insured with a commercial carrier.

The Health and Nutrition Center carries malpractice insurance through a commercial carrier. The County also provides employee life insurance coverage through a commercial carrier. The County provides worker’s compensation coverage and healthcare coverage through self-funded health plans. Claims are managed by third-party administrators and the County obtains specific and aggregate stop-loss coverage through private insurers.

Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNR’s).

Changes in the balances of claims liabilities for health insurance during the past fiscal year are as follows:

2008 2007Unpaid claims, beginning 444,534$ 341,714$ Incurred claims 2,614,165 2,801,850 Claim payments (2,663,348) (2,699,030) Unpaid claims, ending 395,351$ 444,534$

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Changes in the balances of claims liabilities for workers' compensation insurance during the past fiscal year are as follows:

2008 2007Unpaid claims, beginning 98,326$ 168,975$ Incurred claims 163,816 13,614 Claim payments (151,769) (84,263) Unpaid claims, ending 110,373$ 98,326$

Claims typically have been liquidated in the General Fund.

19. Claims and Judgments

At June 30, 2008, the County was defendant to various lawsuits. In the opinion of the County's management and the County attorney, the ultimate effect of these legal matters will not have a material adverse effect on the County's financial position.

20. Summary Disclosure of Significant Contingencies

Federal and State Assisted Programs

The County has received proceeds from several federal and State grants. Periodic audits of these grants are required and certain costs may be questioned as not being appropriate expenditures under the grant agreements. Such audits could result in the refund of grant monies to the grantor agencies. Management believes that any required refunds will be immaterial. No provision has been made in the accompanying financial statements for the refund of grant monies.

21. Subsequent Event

Subsequent to year-end, two parcels of land were purchased for an industrial site, and a school site for $376,268 and $440,340, respectively.

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Documents

BASIC FINANCIAL STATEMENTS - Surry County, North Carolina · BASIC FINANCIAL STATEMENTS. Exhibit A SURRY COUNTY, NORTH CAROLINA STATEMENT OF NET ASSETS JUNE 30, 2008 Governmental