9 Exhibit C Debt Service Funds Variance Favorable Budget Actual (Unfavorable) 739 739 739 739 0 0 0 0 739 739 0 (4,747) (4,747) 0 (4,008) (4,008) 0 4,008 4,008 0 0 JEFFERSON DAVIS COUNTY Notes to Financial Statements For the Year Ended September 30, 1997 10 (1) Significant Accounting Policies. A. Financial Reporting Entity. Jefferson Davis County is a political subdivision of the State of Mississippi. The county is governed by an elected five-member Board of Supervisors. Generally accepted accounting principles require Jefferson Davis County to present these financial statements on the primary government and its component units which have significant operational or financial relationships with the county. Management has chosen to omit from these financial statements the following component units which have significant operational or financial relationships with the county. Accordingly, the financial statements do not include the data of all of the county's component units necessary for reporting in conformity with generally accepted accounting principles. $ Jefferson Davis County Hospital $ Jefferson Davis County Economic Development District State law pertaining to county government provides for the independent election of county officials. The following officials are all part of the county legal entity and therefore are reported as part of the primary government financial statements. $ Board of Supervisors $ Chancery Clerk $ Circuit Clerk $ Justice Court Clerk $ Purchase Clerk $ Tax Assessor-Collector $ Sheriff B. Basis of Presentation. The accompanying financial statements of the primary government have been prepared in conformity with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board. However, the primary government financial statements, because they do not include the financial data of the county's component units, do not present fairly, in all material respects, the financial position and results of operations for the entire reporting entity. C. Account Classifications. The account classifications used in the financial statements conform to the broad classifications recommended in Governmental Accounting, Auditing and Financial Reporting as issued in 1994 by the Government Finance Officers Association and the Mississippi County Financial Accounting Manual as revised in 1993 by the Office of the State Auditor. JEFFERSON DAVIS COUNTY Notes to Financial Statements For the Year Ended September 30, 1997 11 D. Fund Accounting. The financial activities of the county are recorded in individual funds and account groups used to report financial position and results of operations. Fund accounting is used to demonstrate legal compliance and to aid financial management by segregating transactions relating to certain government functions or activities. A fund is a separate accounting entity with a self-balancing set of accounts, segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with specific regulations, restrictions or limitations. An account group is a financial reporting device designated to provide accountability for certain assets and liabilities that are not recorded in funds because they do not directly affect net expendable available financial resources. The following fund categories, which are further subdivided into separate "fund types", are utilized by the county: GOVERNMENTAL FUND TYPES General Fund - This fund is used to account for all activities of the general government for which a separate fund has not been established. Special Revenue Funds - These funds are used to account for the proceeds of specific revenue sources (other than expendable trusts) that are legally restricted to expenditures for specified purposes. Special Revenue Funds account for, among others, certain federal grant programs, taxes levied with statutorily defined distributions and other resources restricted as to purpose. Debt Service Funds - These funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest and related costs. FIDUCIARY FUND TYPES Expendable Trust Funds - These funds are used to account for assets held by the county in a formal trustee capacity where the principal and income may be expended in the course of designated operations. Agency Funds - These funds account for various taxes, deposits and other monies collected or held by the county, acting in the capacity of an agent, for distribution to other governmental units or designated beneficiaries. ACCOUNT GROUPS - The General Fixed Assets Account Group is used to account for general fixed assets. The General Long-term Debt Account Group is used to account for general long-term debt and certain other liabilities. E. Basis of Accounting/Measurement Focus. Governmental Fund Types and Expendable Trust and Agency Funds - All Governmental Funds and Expendable Trust Funds are accounted for using a current financial resources measurement focus. With this measurement focus, only current assets and current liabilities are generally included on the balance sheet. Operating statements of these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. JEFFERSON DAVIS COUNTY Notes to Financial Statements For the Year Ended September 30, 1997 12 The modified accrual basis of accounting is used by all Governmental Fund Types, Expendable Trust Funds and Agency Funds. Under this method, revenues are recognized in the accounting period in which they become both available and measurable to finance operations during the year or to liquidate liabilities existing at the end of the year. Available means collected in the current year or soon enough after year end to liquidate liabilities existing at the end of the year. Expenditures are recognized in the accounting period in which the fund liability is incurred. Modifications to the accrual basis of accounting include: $ Licenses, fees, fines and forfeits and other miscellaneous revenues are recognized when received since they normally are only measurable at that time. $ Property taxes are recognized as revenue when received because the remaining delinquent property taxes not collected before the close of the fiscal year are considered immaterial. See Note 1L for further explanation. $ Principal and interest on general long-term debt are recognized when due. F. Budgetary Process and Accounting. Process: Statutory requirements dictate how and when the county's budget is to be prepared. Generally, in the month of August, prior to the ensuing fiscal year beginning each October 1, the Board of Supervisors of the county, using historical and anticipated fiscal data and proposed budgets submitted by the Sheriff and the Tax Assessor-Collector for his or her respective department, prepares an original budget for each of the Governmental Funds for said fiscal year. The completed budget for the fiscal year includes for each fund every source of revenue, each general item of expenditure and the unencumbered cash and investment balances. When during the fiscal year it appears to the Board of Supervisors that budgetary estimates will not be met, it may make revisions to the budget. Accounting: The county's budget is prepared principally on the cash basis of accounting. All appropriations lapse at year end and there are no encumbrances to budget because state law does not require that funds be available when goods or services are ordered, only when payment is made. G. Cash and Investments. State law authorizes the county to invest in interest bearing time certificates of deposit for periods of fourteen days to one year with depositories and in obligations of the U.S. Treasury, State of Mississippi, or any county, municipality or school district of this state. Further, the county may invest in certain repurchase agreements that have a term of less than fourteen days. Cash includes cash on hand, demand deposits, all certificates of deposit and cash equivalents, which are short- term highly liquid investments that are readily convertible to cash (generally three months or less). Investments in governmental securities are stated at cost or amortized cost. However, the county did not invest in any governmental securities during the fiscal year. H. Receivables. Receivables are reported net of allowances for uncollectible accounts, where applicable. JEFFERSON DAVIS COUNTY Notes to Financial Statements For the Year Ended September 30, 1997 13 I. Interfund Receivables/Payables. Transactions between funds that are representative of short-term lending/borrowing arrangements, and transactions that have not resulted in the actual transfer of cash at the end of the fiscal year are referred to as "interfund receivables/payables." J. Fixed Assets. Fixed assets are not capitalized in the funds used to acquire or construct them. Instead, capital acquisition and construction are reflected as expenditures in Governmental Funds and the related assets are reported in the General Fixed Assets Account Group. All purchased fixed assets are stated at cost where historical records are available and at an estimated historical cost where no historical records exist. Donated assets are valued at market value at the time of donation. The costs of normal maintenance and repairs that do not add to the value of assets or materially extend their respective lives are not capitalized; however, improvements are capitalized. Interest expenditures are not capitalized on general fixed assets. Public domain (infrastructure) fixed assets consisting of certain improvements other than buildings, such as roads, bridges, sidewalks, drainage systems, lighting systems and similar assets that are immovable and of value only to the county, are not capitalized. Depreciation is not provided on general fixed assets. K. Fund Equity. Unreserved fund balance represents the amount available for budgeting future operations. Reservations of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. L. Property Tax Revenues. Numerous statutes exist under which the Board of Supervisors may levy property taxes. The selection of authorities is made based on the objectives and responsibilities of the county. Restrictions associated with property tax levies vary with the statutory authority. The amount of increase in certain property taxes is limited by state law. Generally, this restriction provides that these tax levies shall produce no more than 110% of the amount which resulted from the assessments of the previous year. The Board of Supervisors, each year at a meeting in September, levies property taxes for the ensuing fiscal year which begins on October 1. Real property taxes become a lien on January 1 of the current year and personal property taxes become a lien on March 1 of the current year. Taxes on both real and personal property, however, are due on or before February 1 of the next succeeding year. Taxes on motor vehicles and mobile homes become a lien and are due in the month that coincides with the month of original purchase. Generally accepted accounting principles require property taxes to be recognized at the levy date if measurable and available. All property taxes are recognized as revenue when received. Real property taxes are recognized as revenue when received because most delinquent real property taxes are collected by selling real property for taxes, together with all fees, penalties and damages accruing until date of sale, before the close of the fiscal year. The remaining amount of real property not sold for taxes at the tax sale is considered immaterial; therefore, no end of year delinquent taxes receivable is recorded. The amount of delinquent personal property taxes unpaid at year end is also considered immaterial. Motor vehicle and mobile home taxes do not meet the measurability and collectibility criteria for property tax recognition because the lien and due date cannot be established until the date of original purchase occurs. JEFFERSON DAVIS COUNTY Notes to Financial Statements For the Year Ended September 30, 1997 14 M. Intergovernmental Revenues in Governmental Funds. Intergovernmental revenues, consisting of grants, entitlements and shared revenues, are usually recorded in Governmental Funds when measurable and available. However, the "available" criterion applies for certain federal grants and shared revenues when the expenditure is made because expenditure is the prime factor for determining eligibility. Similarly, if cost sharing or matching requirements exist, revenue recognition depends on compliance with these requirements. N. Total Column on Primary Government Financial Statements. The total column on the primary government financial statements is captioned "Memorandum Only" to indicate that it is presented only to facilitate financial analysis. Data in this column does not present financial position and results of operations in conformity with generally accepted accounting principles. Neither is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. (2) Stewardship, Compliance and Accountability. A. Legal Compliance - Financial Matters. State law requires the county to have its uninsured deposits fully collateralized (105%) by securities based upon market value, and the securities are to be held in the name of the county. During the audited fiscal year, a significant amount of the county's uninsured deposits were uncollateralized. B. Individual Fund Deficits. The following Special Revenue Fund had a deficit fund balance at September 30, 1997: Deficit Styling Amount Countywide road maintenance $ 4,079 JEFFERSON DAVIS COUNTY Notes to Financial Statements For the Year Ended September 30, 1997 15 (3) Budgetary Basis vs. GAAP. The accompanying Combined Statement of Revenues, Expenditures and Changes in Fund Balances - Budget (Non-GAAP Budgetary Basis) and Actual - All Governmental Fund Types presents comparisons of the legally adopted budget with actual data on a budgetary basis. Since the budgetary and GAAP presentations of actual data differ, a reconciliation of the results of operations for the year follows: Excess of Revenues and Other Sources Over (Under) Expenditures and Other Uses Governmental Fund Types Special Debt General Revenue Service Budget (Cash Basis) $ 652,543 78,500 (4,008) Increase (Decrease) Net adjustment for revenue accruals 64,166 (63,303) (580) Net adjustment for expenditure accruals 18,301 14,725 Other reconciling item: Residual equity transfers (4,747) 4,747 GAAP Basis $ 730,263 29,922 159 (4) Deposits. The county's cash and other deposits with financial institutions as of September 30, 1997, were entirely covered by federal depository insurance or by collateral held by the county or its agent in the county's name. (5) Interfund Receivables and Payables. The composition of interfund balances at September 30, 1997, consists of the following: Receivable Fund Payable Fund Amount County library General Fund $ 1,478 District 1 road maintenance General Fund 3,158 District 2 road maintenance General Fund 6,748 District 3 road maintenance General Fund 5,270 District 4 road maintenance General Fund 5,347 District 5 road maintenance General Fund 4,941 Reappraisal maintenance General Fund 1,488 Solid waste General Fund 5,231 Rural fire protection General Fund 873 Community college maintenance General Fund 1,758 Community college enlargement General Fund 524 Community college construction 1990 General Fund 1,301 Community college construction 1995 General Fund 227 Total $ 38,344 JEFFERSON DAVIS COUNTY Notes to Financial Statements For the Year Ended September 30, 1997 16 (6) Fixed Assets. Changes in the General Fixed Assets Account Group at September 30, 1997, are as follows: Balance Balance Oct. 1, 1996 Additions Deletions Adjustments Sept. 30, 1997 Governmental Funds: Land $ 218,427 218,427 Buildings 2,857,983 36,357 2,894,340 Improvements other than buildings 123,876 18,384 8,292 150,552 Construction in progress 29,460 29,460 Mobile equipment 2,450,134 114,322 80,944 (8,292) 2,475,220 Other furniture and equipment 375,726 15,004 5,946 384,784 Total $ 6,055,606 184,067 116,350 0 6,123,323 Completed construction in progress of $29,460 was added to the buildings account during the year. (7) Claims and Judgments. Risk Financing. The county finances its exposure to risk of loss related to workers' compensation for injuries to its employees through the Mississippi Public Entity Workers' Compensation Trust, a public entity risk pool. The county pays premiums to the pool for its workers' compensation insurance coverage, and the participation agreement provides that the pool will be self-sustaining through member premiums. The retention for the pool is $350,000 for each accident and completely covers all statutory limits set by the Workers' Compensation Commission. Risk of loss is remote for claims exceeding the pool's retention liability. However, the pool also has catastrophic reinsurance coverage of $1,000,000 per accident, provided by Employers= Reinsurance Corporation, effective from January 1, 1997 to January 1, 1998. The pool may make an overall supplemental assessment or declare a refund depending on the loss experience of all the entities it insures. Claims. In June, 1998, the Wage and Hour Division of the U. S. Department of Labor notified the county it was liable for unpaid overtime wages due to employees of the Sheriff=s Department. The amount due at September 30, 1997 was $55,132. This amount plus an amount applicable to fiscal year 1998 was paid in June, 1998. (8) Long-term Debt. The following changes occurred in liabilities reported at year end: Balance Balance Styling Oct. 1, 1996 Additions Reductions Adjustments Sept. 30, 1997 General Long-term Debt Account Group: Claims and judgments $ 0 55,132 0 0 55,132 JEFFERSON DAVIS COUNTY Notes to Financial Statements For the Year Ended September 30, 1997 17 (9) Contingencies. Federal Grants - The county has received federal grants for specific purposes that are subject to audit by the grantor agencies. Entitlements to these resources are generally conditional upon compliance with the terms and conditions of grant agreements and applicable federal regulations, including the expenditure of resources for allowable purposes. Any disallowance resulting from a grantor audit may become a liability of the county. Litigation - The county is party to legal proceedings, many of which occur in the normal course of governmental operations. It is not possible at the present time to estimate ultimate outcome or liability, if any, of the county with respect to the various proceedings. However, the county's legal counsel believes that ultimate liability resulting from these lawsuits will not have a material adverse effect on the financial condition of the county. (10) Related Organization. The Jefferson Davis County Board of Supervisors is responsible for appointing a voting majority of the members of the board of the Prentiss/Jefferson Davis County Airport, but the county=s accountability for this organization does not extend beyond making the appointments. During the year, the county appropriated $5,000 to this organization. (11) Joint Venture. Jefferson Davis County is a participant with Marion County in a joint venture, authorized by Section 39-3-9 Miss. Code Ann. (1972), to operate the South Mississippi Regional Library. The joint venture was created to provide library service for Marion and Jefferson Davis Counties and is governed by a five member board. The two counties rotate board appointments so that each county has a majority of board members in alternate years. Complete financial statements for the South Mississippi Regional Library can be obtained from the Marion County branch in Columbia, Mississippi. (12) Jointly Governed Organizations. The county participates in the following jointly governed organizations: Pearl River Valley Opportunity, Inc. operates in a district composed of Covington, Forrest, Jefferson Davis, Jones, Lamar, Marion, Pearl River and Perry Counties. Each county Board of Supervisors appoints one of the 24 board members, and two additional board members are appointed from the private sector in each county. Each county provides a modest amount of financial support when matching funds are required for federal grants. The Southeast Mississippi Air Ambulance District operates in a district composed of Covington, Forrest, Jefferson Davis, Lamar, Marion, Pearl River, Perry and Greene Counties. Each of the counties appoints one member of the board of directors, and the Governor of the State of Mississippi appoints one member. The county provides no financial support for the district. Pearl River Community College operates in a district composed of Hancock, Pearl River, Lamar, Marion, Jefferson Davis and Forrest Counties. The Jefferson Davis County Board of Supervisors appoints two of the 16 board members. The county appropriated approximately $182,397 for maintenance and support of the college in fiscal year 1997. JEFFERSON DAVIS COUNTY Notes to Financial Statements For the Year Ended September 30, 1997 18 Southern Mississippi Planning and Development District operates in a district composed of Covington, Forrest, Jefferson Davis, Jones, Lamar, Marion, Pearl River, Greene, Perry, Stone, George, Hancock, Harrison, Jackson and Wayne Counties. The governing body is a 27 member board of directors; one appointed by the Board of Supervisors of each member county, one from each of the six participating cities, and six are appointed at large by minority members. The counties contribute only a small part of the entity=s total revenues. Pine Belt Mental Health Care Resources operates in a district composed of Forrest, Lamar, Jones, Perry, Wayne, Greene, Covington, Jefferson Davis and Marion Counties. The board is comprised of one appointee from each county Board of Supervisors, and there is minimal financial responsibility. Pearl and Leaf River Rails-to-Trails operates in a district composed of the Counties of Forrest, Jefferson Davis and Lamar, and the Cities of Bassfield, Hattiesburg, Prentiss and Sumrall. The governing body is a seven member board of directors, one appointed by the Board of Supervisors of each county, and one from each of the four participating cities. The county contributes a small part of the entity=s total revenues. (13) Defined Benefit Pension Plan. Plan Description. Jefferson Davis County, Mississippi, contributes to the Public Employees' Retirement System of Mississippi (PERS), a cost-sharing, multiple-employer, defined benefit pension plan. PERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. Benefit provisions are established by state law and may be amended only by the State of Mississippi Legislature. PERS issues a publicly available financial report that includes financial statements and required supplementary information. That information may be obtained by writing to Public Employees= Retirement System, PERS Building, 429 Mississippi Street, Jackson, MS 39201-1005 or by calling 1-800-444-PERS. Funding Policy. PERS members are required to contribute 7.25% of their annual covered salary and the county is required to contribute at an actuarially determined rate. The current rate is 9.75% of annual covered payroll. The contribution requirements of PERS members are established and may be amended only by the State of Mississippi Legislature. The county's contributions (employer share only) to PERS for the years ending September 30, 1997, 1996 and 1995 were $120,939, $116,038 and $106,832, respectively, equal to the required contributions for each year. (14) Subsequent Events. Justice Court Clerk Cassandra Price resigned on August 18, 1998. There is an ongoing investigation by the Office of the State Auditor and the District Attorney=s Office concerning possible missing funds. . revised in 1993 by the Office of the State Auditor. JEFFERSON DAVIS COUNTY Notes to Financial Statements For the Year Ended September 30, 1997 11 D. Fund Accounting. The financial activities of the. Counties. Each of the counties appoints one member of the board of directors, and the Governor of the State of Mississippi appoints one member. The county provides no financial support for the district. Pearl. Events. Justice Court Clerk Cassandra Price resigned on August 18, 1998. There is an ongoing investigation by the Office of the State Auditor and the District Attorney=s Office concerning possible