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Chandler Worker’s Compensation and Employer Liability Trust
Financial Statements and
Report on Internal Control and on Compliance
Year Ended June 30, 2021
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
JUNE 30, 2021
CONTENTS
Page
Independent Auditor’s Report
1
Management’s Discussion and Analysis (MD&A)
5
Statement of Net Position
10
Statement of Revenues, Expenses and Changes in Net Position
11
Statement of Cash Flows
12
Notes to Financial Statements
13
Report on Internal Control and on Compliance
20
Independent Auditor’s Report
Board of Trustees
Chandler Worker’s Compensation and Employer Liability Trust
Report on Audit of Financial Statements
Opinion
We have audited the accompanying financial statements of the Chandler Worker’s Compensation and
Employer Liability Trust (Trust), an internal service fund of the City of Chandler, Arizona, as of and
for the year ended June 30, 2021, and the related notes to the financial statements, as listed in the table
of contents.
In our opinion, the accompanying financial statements referred to above present fairly, in all material
respects, the financial position of the Chandler Worker’s Compensation and Employer Liability Trust,
as of June 30, 2021, and the changes in financial position and its cash flows for the year then ended in
accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States
of America and the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States. Our responsibilities under those
standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements
section of our report. We are required to be independent of Chandler Worker’s Compensation and
Employer Liability Trust and to meet our other ethical responsibilities in accordance with the relevant
ethical requirements relating to our audit. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Matter – Fund Financial Statements
As discussed in Note 1A, the financial statements of the Chandler Worker’s Compensation and
Employer Liability Trust, an internal service fund of the City of Chandler, Arizona, are intended to
present the financial position, the changes in financial position, and the cash flows of only that portion
of the City of Chandler, Arizona, that is attributable to the transactions of the Chandler Worker’s
Compensation and Employer Liability Trust. They do not purport to, and do not present fairly the
financial position of the City of Chandler, Arizona, as of June 30, 2021, the changes in its financial
position, or, where applicable, its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America. Our opinion is not modified with
respect to this matter.
Emphasis of Matter – Accounting Restatement
The Trust has included actuarially-determined case reserves in the current year claims liability. As a
result, and as discussed in Note 4 to the financial statements, the beginning net position has been
restated to reflect this correction for prior periods. Our opinion is not modified with respect to this
matter.
Page 1
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with accounting principles generally accepted in the United States of America, and for the
design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, management is required to evaluate whether there are conditions
or events, considered in the aggregate, that raise substantial doubt about the Trust’s ability to continue
as a going concern for one year beyond the financial statement date, including any currently known
information that may raise substantial doubt shortly thereafter.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor's report that
includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance
and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing
standards and Government Auditing Standards will always detect a material misstatement when it
exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control. Misstatements are considered material if there is a substantial
likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable
user based on the financial statements. In performing an audit in accordance with generally accepted
auditing standards and Government Auditing Standards, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, and design and perform audit procedures responsive to those risks. Such
procedures include examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trust’s internal control. Accordingly, no such opinion is
expressed.
Evaluate the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the overall presentation of the
financial statements.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate,
that raise substantial doubt about the Trust’s ability to continue as a going concern for a
reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit, significant audit findings, and certain internal control related
matters that we identified during the audit.
Page 2
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
Management’s Discussion and Analysis, as listed in the table of contents, be presented to supplement
the financial statements. Such information is the responsibility of management and, although not a part
of the financial statements, is required by the Governmental Accounting Standards Board, who
considers it to be an essential part of financial reporting for placing the financial statements in an
appropriate operational, economic, or historical context. We have applied certain limited procedures
to the required supplementary information in accordance with auditing standards generally accepted in
the United States of America, which consisted of inquiries of management about the methods of
preparing the information and comparing the information for consistency with management’s
responses to our inquiries, the financial statements, and other knowledge we obtained during our audit
of the financial statements. We do not express an opinion or provide any assurance on the information
because the limited procedures do not provide us with sufficient evidence to express an opinion or
provide any assurance.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated
November 11, 2021, on our consideration of Chandler Worker’s Compensation and Employer Liability
Trust’s internal control over financial reporting and on our tests of its compliance with certain
provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that
report is solely to describe the scope of our testing of internal control over financial reporting and
compliance and the results of that testing, and not to provide an opinion on the effectiveness of the
Chandler Worker’s Compensation and Employer Liability Trust’s internal control over financial
reporting or on compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering Chandler Worker’s Compensation and Employer
Liability Trust’s internal control over financial reporting and compliance.
Heinfeld, Meech & Co, P.C.
Tucson, Arizona
November 11, 2021
Page 3
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
(Required Supplementary Information)
Page 4
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
JUNE 30, 2021
As management of the Chandler Worker’s Compensation and Employer Liability Trust (Trust),
we offer readers of the Trust’s financial statements this narrative overview and analysis of the
financial activities of the Trust for the year ended June 30, 2021. The management’s discussion
and analysis is presented as required supplementary information to provide additional explanation
to the financial statements.
FINANCIAL HIGHLIGHTS
The Trust’s total net position increased $295,778 primarily due to an increase in
contribution revenue.
Operating revenues of $4.6 million consist primarily of employer premium contributions.
The Trust had approximately $4.4 million in operating expenses, consisting primarily of
$1.8 million of claims incurred, ($520,313) in claim adjustments attributable to the
decreased IBNR liability, and $2.2 in claim adjustments attributable to an in increase in
case reserves.
The overall impact of the COVID-19 Pandemic during the fiscal year was incurring
increased costs for COVID-19 related claims.
OVERVIEW OF FINANCIAL STATEMENTS
This discussion and analysis are intended to serve as an introduction to the Trust’s financial
statements.
The statement of net position presents information on all of the Trust’s assets, liabilities, and
deferred inflows/outflows of resources with the difference reported as net position. Over time,
increases or decreases in net position may serve as a useful indicator of whether the financial
position of the Trust is improving or deteriorating.
The statement of revenues, expenses, and changes in net position presents information showing
how the Trust’s net position changed during the most recent fiscal year. All changes in net position
are reported as soon as the underlying event giving rise to the change occurs, regardless of the
timing of related cash flows. Thus, revenues and expenses are reported in this statement for some
items that will only result in cash flows in future fiscal periods.
The statement of cash flows outlines the cash inflows and outflows related to the operation of the
Trust for the year ended. As discussed more thoroughly in Note 1 to the financial statements, the
operations of the Trust are accounted as an element of the City of Chandler’s internal service funds.
As a result, only the financial statements required for the financial activity of the Trust are
presented.
Page 5
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
JUNE 30, 2021
OVERVIEW OF FINANCIAL STATEMENTS
Notes to the financial statements. The notes provide additional information that is essential to a
full understanding of the data provided in the financial statements. The notes to the financial
statements can be found immediately following the financial statements.
FINANCIAL ANALYSIS
Net position may serve over time as a useful indicator of a government’s financial position. In the
case of the Trust, assets exceeded liabilities by $4.0 million at the current fiscal year end.
The following table presents a summary of the Trust’s net position for the fiscal year ended
June 30, 2021 and 2020.
As of
June 30, 2021
As of
June 30, 2020
(restated)
Current assets
$ 14,606,949
$ 12,582,207
Total assets
14,606,949
12,582,207
Current liabilities
4,330,221
7,997,594
Noncurrent liabilities
6,275,257
878,920
Total liabilities
10,605,478
8,876,514
Net position:
Unrestricted
4,001,471
3,705,693
Total net position
$ 4,001,471
$ 3,705,693
At the end of the current fiscal year, the Trust reported a positive balance in net position. The
same situation held true for the prior fiscal year. The Trust’s financial position is the product of
several financial transactions, including the net results of activities. The increase in total assets of
$2.0 million is primarily due to accumulated contribution revenues to fund future claims and
operational costs. Total liabilities increased $1.7 million primarily due to increases attributed to
case reserve adjustments.
Page 6
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
JUNE 30, 2021
FINANCIAL ANALYSIS
Changes in net position. The Trust’s total revenues for the current fiscal year were $4.7 million.
The total expenses were $4.4 million. The following table presents a summary of the changes in
net position for the fiscal year ended June 30, 2021 and 2020.
Fiscal Year
Ended
June 30, 2021
Fiscal Year
Ended
June 30, 2020
(restated)
Revenues:
Operating revenues:
Contributions
$ 4,581,388
$ 4,369,420
Other
10,452
Nonoperating revenues:
Cost reimbursement from Municipal Utilities
57,286
55,288
Funding assistance from City
1,000,000
Investment income
25,080
369,551
Total revenues
4,674,206
5,794,259
Expenses:
Operating expenses:
Claims
1,836,434
1,922,409
Adjustments to IBNR and case reserves
1,663,047
254,585
Administrative fees
494,762
544,380
Insurance
379,837
415,747
Education and training
503
2,529
Nonoperating expenses:
Payments to City
3,845
3,815
Total expenses
4,378,428
3,143,465
Changes in net position
295,778
2,650,794
Net position, beginning, as restated
3,705,693
1,054,899
Net position, ending
$ 4,001,471
$ 3,705,693
Page 7
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
JUNE 30, 2021
FINANCIAL ANALYSIS
The following are significant current year transactions that had an impact on the change in net
position:
The adjustment to case reserves of $2.2 million due to increased case reserves.
The adjustment to claims IBNR expense was ($520,313) due to a decreased IBNR liability.
There was no funding contribution from the City in the current fiscal year.
CLAIMS PAYABLE
The actuarial analysis completed as of June 30, 2021 projected $2.4 million as claims incurred but
not reported (IBNR) and $8.0 million as case reserves. Therefore as of June 30, 2021, the Trust
had $10.5 million in total claims payable liability. Additional information on the Trust’s claims
payable can be found in Note 3.
Claims
42%
Adjustments to IBNR
and case reserves
38%
Administrative fees
11%
Insurance
9%
Education and
training
<1%
Payments to
City
<1%
Expenses - Fiscal Year 2021
Page 8
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
JUNE 30, 2021
ECONOMIC FACTORS, RESERVE LEVELS AND NEXT YEAR’S RATES
The Trust’s Board reviews rates and reserve levels annually and considered many factors to
develop the contribution rates for the fiscal year ended June 30, 2021. The primary factor was
keeping rates affordable while ensuring reserves are sufficient to maintain the health of the Trust,
which requires reviews of the claim history to determine ongoing obligations versus one-time
payouts. Also considered is the impact of the ongoing COVID-19 pandemic. While the Self
Insured Retention (SIR) increased from $500,000 to $750,000 and from $1.25 million to $2.25
million for public safety, the ongoing workers compensation contribution did not change for fiscal
year 2021-22.
The Trust’s governing document provides that the Trust Board shall set rates to maintain a
restricted reserve at no less than the minimum (or nominal) amount recommended and attested by
the actuarial analysis completed annually. This analysis helps measure that the Trust is funded to
the appropriate level by projecting the unpaid loss and allocated loss adjustment expense
(Loss+ALAE) for all prior self-funded fiscal years (beginning January 1, 2003) and the projected
ultimate Loss+ALAE for the policy period 7/1/21-6/30/22. The Trust document requires the
reserve to be no less than the minimum or nominal value. The actuarial analysis projected these
levels as follows:
Nominal
“Central”
Value
Estimated Unpaid Losses & ALAE
$ 10,458,761
Projected Ultimate Losses & ALAE
2,700,000
Reserve Goal Based on 6/30/21 Actuarial Report
$ 13,158,761
Note: The Reserve Goal includes the IBNR and case reserves that have been recognized
in the audited financial statements.
In comparing the audited Net Position as of June 30, 2021 without the IBNR and case reserves
(Estimated Unpaid Losses & ALAE) ($4,001,471 + $10,458,761 = $14,460,232) to the Nominal
Value Reserve Goal based on the June 30, 2021 actuarial report, the Trust reserve level is
$1,301,471 above the goal as of year-end. The Trust Board and City Council approved no change
to the ongoing contribution for fiscal year 2021-22.
CONTACTING THE TRUST’S FINANCIAL MANAGEMENT
This financial report is designed to provide our citizens, taxpayers, and investors and creditors
with a general overview of the Trust’s finances and to demonstrate the Trust’s accountability for
the resources it receives. If you have questions about this report or need additional information,
contact the Management Services Department, Chandler Worker’s Compensation and Employer
Liability Trust, 175 South Arizona Avenue, 3rd Floor, Chandler, Arizona 85225.
Page 9
Assets
Current assets:
Cash and investments
13,895,222
$
Due from City - premiums
694,244
Accrued investment income
17,483
Total assets
14,606,949
Liabilities
Current liabilities:
Claims payable, current
4,218,046
Accounts payable
71,323
Accrued payroll
12,585
Compensated absences payable
28,267
Total current liabilities
4,330,221
Noncurrrent liabilities:
Claims payable, long term
6,275,257
Total noncurrent liabilities
6,275,257
Total liabilities
10,605,478
Net position
Unrestricted
4,001,471
$
CHANDLER WORKER'S COMPENSATION
STATEMENT OF NET POSITION
JUNE 30, 2021
AND EMPLOYER LIABILITY TRUST
The notes to the financial statements are an integral part of this statement.
Page 10
Operating revenues:
Contributions:
Employer self insurance premiums
4,581,388
$
Other:
Recovery of claims
10,452
Total operating revenues
4,591,840
Operating expenses:
Claims
1,836,434
Adjustment to claims incurred but not reported
(520,313)
Adjustment to case reserves
2,183,360
Personnel services
436,266
Professional services
53,533
Operating supplies
4,713
Communication and transportation
250
Excess insurance
346,514
Premium insurance
33,323
Education and training
503
Total operating expenses
4,374,583
Operating income (loss)
217,257
Nonoperating revenues (expenses):
Investment income (loss)
25,080
Payments to City
(3,845)
Cost reimbursements from Municipal Utilities
57,286
Total nonoperating revenues (expenses)
78,521
Change in net position
295,778
Net position, beginning of year, as restated
3,705,693
Net position, end of year
4,001,471
$
CHANDLER WORKER'S COMPENSATION
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
FOR THE YEAR ENDED JUNE 30, 2021
AND EMPLOYER LIABILITY TRUST
The notes to the financial statements are an integral part of this statement.
Page 11
Increase/Decrease in Cash and Cash Equivalents
Cash flows from operating activities:
Cash received for premiums
4,543,680
$
Cash payments for claims
(1,805,167)
Cash payments to suppliers for other services
(409,294)
Cash payments to employees for services
(431,158)
Net cash provided by/used for operating activities
1,898,061
Cash flows from non-capital financing activities:
Cash paid to City for technology replacement
(3,845)
Cash received from the City for other purposes
57,286
Net cash provided by/used for non-capital financing activities
53,441
Cash flows from investing activities:
Investment income
50,359
Proceeds from sales of investments
7,700,531
Purchases of investments
(9,702,392)
Net cash provided by/used for investing activities
(1,951,502)
Net increase/decrease in cash and cash equivalents
-
Cash and cash equivalents, beginning of year
-
Cash and cash equivalents, end of year
-
$
Reconciliation of operating income/loss to cash provided by/used for operating activities:
Operating income/loss
217,257
$
Adjustments to reconcile operating income/loss to net cash provided by/used for
operating activities:
Changes in assets and liabilities:
Increase/decrease in due from City
(48,160)
Increase/decrease in claims payable
1,694,314
Increase/decrease in accounts payable
29,542
Increase/decrease in accrued payroll
1,038
Increase/decrease in compensated absences
4,070
Net cash provided by/used for operating activities
1,898,061
$
Reconciliation of Cash and Cash Equivalents to the Statement of Net Position:
Cash and cash equivalents
-
$
Investments
13,895,222
Cash and investments
13,895,222
$
CHANDLER WORKER'S COMPENSATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2021
AND EMPLOYER LIABILITY TRUST
The notes to the financial statements are an integral part of this statement.
Page 12
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Chandler Worker’s Compensation and Employer Liability
Trust (Trust) have been prepared in conformity with accounting principles generally accepted
in the United States of America as applied to government units. The Governmental Accounting
Standards Board (GASB) is the accepted standard-setting body for establishing governmental
accounting and financial reporting principles.
The more significant of the Trust’s accounting policies are described below.
A. Reporting Entity
The Trust is accounted for as an internal service fund of the City of Chandler, Arizona (City),
and the ultimate financial accountability for the Trust remains with the City. General risk
management is a responsibility of the City. Additional information about the City is reported
in the City’s Annual Comprehensive Financial Report.
The Trust was organized in February 2013 for the purpose of funding work-related injuries to
eligible City employees and elected officials. The financial statements present only the
Chandler Worker’s Compensation and Employer Liability Trust as one of the internal service
funds of the City of Chandler and are not intended to present the balances and activity of all
City internal service funds or the City in its entirety.
The Chandler Worker’s Compensation and Employer Liability Trust Board (Board) consists
of five trustees. No Trustee may be a member of the City’s Council and no more than one
Trustee may be an employee of the City. No former member of the City’s Council or former
employee of the City shall be a Trustee.
B. Measurement Focus and Basis of Accounting
The financial statements are reported using the economic resources measurement focus and
accrual basis of accounting. Revenues are recorded when earned and expenses are recorded
when incurred, regardless of the timing of related cash flows. Operating revenues and expenses
are distinguished from nonoperating items. Operating revenues generally consist of employer
premiums and other related revenues, while operating expenses are primarily the payment of
claims and administration costs of operating the Trust. All revenues and expenses not meeting
this definition are reported as nonoperating revenues and expenses.
Page 13
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
C. Cash and Investments
For purposes of the Statement of Cash Flows, the Trust considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
The Board adopted a resolution to cause the assets of the Trust to be invested, consistent with
the City of Chandler Investment Policy. The Trust’s investments are stated at fair value. Fair
value is based on quoted market prices as of the valuation date.
Arizona statute requires a pooled collateral program for public deposits and a Statewide
Collateral Pool Administrator (Administrator) in the State Treasurer’s Office. The purpose of
the pooled collateral program is to ensure that governmental entities’ public deposits placed in
participating depositories are secured with collateral of 102 percent of the public deposits, less
any applicable deposit insurance. An eligible depository may not retain or accept any public
deposit unless it has deposited the required collateral with a qualified escrow agent or the
Administrator. The Administrator manages the pooled collateral program, including reporting
on each depository’s compliance with the program.
D. Compensated Absences
Vacation leave vests with the employee as it is earned dependent on accumulated time and the
individual’s vacation benefits. All employees may carry-forward only the amount of vacation
benefits equal to the maximum allowable earned credits for the preceding calendar year. Upon
termination or retirement, an employee will be compensated for accumulated vacation leave
dependent on accumulated time and the individual’s vacation benefits. Payment will be based
on the individual’s rate of pay at termination or retirement. Upon death, the same benefits shall
be paid to the employee’s beneficiary.
E. Claims Payable
The Trust establishes claims liabilities based on estimates of the ultimate cost of claims
(including future claim adjustment expenses) that have been reported but not settled, and of
claims that have been incurred but not reported. Adjustments to claim liabilities are charged
or credited to expense in the periods in which they are made. A provision for inflation in the
calculation of estimated future claims costs is implicit in the calculation because reliance is
placed both on actual historical data that reflect past inflation and on other factors that are
considered to be appropriate modifiers of past experience. Given the inherent uncertainty in
the nature of such estimates, future losses will likely deviate, perhaps materially, from those
estimates.
Page 14
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
F. Deferred Outflows/Inflows of Resources
In addition to assets, the statement of financial position may report a separate section for
deferred outflows of resources. This separate financial statement element, deferred outflows
of resources, represents a consumption of net position that applies to a future period and so
will not be recognized as an outflow of resources (expense) until then.
In addition to liabilities, the statement of financial position may report a separate section for
deferred inflows of resources. This separate financial statement element, deferred inflows of
resources, represents an acquisition of net position that applies to a future period and so will
not be recognized as an inflow of resources (revenue) until that time.
G. Contributions
The Trust agreement provides that the City contribute a specified amount to the Trust to fulfill
the needs and purposes of the Trust. The City Council shall make an appropriation of funds to
the Trust as part of the annual City budget.
H. Investment Income
Investment income is composed of interest, dividends, and net changes in the fair value of
applicable investments.
I. Net Position Flow Assumption
In the financial statements, the Trust applies restricted resources first when outlays are incurred
for purposes for which either restricted or unrestricted amounts are available.
J. Estimates
The preparation of the financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying
notes. Actual results may differ from those estimates.
K. Reinsurance
The Trust has entered into reinsurance contracts for excess coverage. Reinsurance coverage is
for specific losses in excess of $750,000 for non-public safety employees and $2.25 million
for public safety employees, with a $2.0 million indemnity limit per occurrence.
Page 15
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
NOTE 2 – CASH AND INVESTMENTS
The following summarizes amounts reported as cash equivalents and investments in the
accompanying financial statements:
Investment Maturities
(in Years)
Investment Type
Category Fair Value Less than 1
1-5
Concentration
of Credit
Risk %
Rating
Money Market Fund
N/A
$ 1,185,005 $ 1,185,005 $
8.5
AAAm/NR
U.S. Treasuries
Level 1
4,115,561
4,115,561
29.6
AA+/Aaa
Municipal Bond/Note
Scottsdale, AZ TXBL GO Bonds
Level 2
54,559
54,559
0.4
AAA/Aaa
U.S. Agencies:
Fannie Mae
Level 2
1,084,567
1,084,567
7.8
AA+/Aaa
Freddie Mac
Level 2
5,112,392
5,112,392
36.8
AA+/Aaa
Corporate Bonds:
Adobe Inc. Corp Note
Level 2
102,178
102,178
0.7
A/A2
Amazon.com Inc. Corp Notes
Level 2
172,443
172,443
1.2
AA/A1
American Honda Finance
Level 2
101,874
101,874
0.7
A-/A3
Apple Inc. Corp
Level 2
177,091
177,091
1.3
AA+/Aa1
Bank of America Corporation
Level 2
100,301
100,301
0.7
A-/A2
Caterpillar Financial Service
Level 2
94,917
94,917
0.7
A/A2
Hershey Company
Level 2
89,508
89,508
0.7
A/A1
JPMorgan Chase & Co. Corporate
Level 2
114,816
114,816
0.8
A-/A2
Toyota Motor Credit Corp Corporate
Level 2
76,486
76,486
0.6
A+/A1
Certificate of Deposit:
Barclays Bank PLC NY CD
Level 2
235,114
235,114
1.7
A-1/P-1
Credit Suisse New York CD
Level 2
100,159
100,159
0.7
A+/Aa3
Dnb Bank Asa/Ny LT CD
Level 2
66,696
66,696
0.5
AA-/Aa2
HSBC Bank USA NA
Level 2
120,032
120,032
0.9
A-1/P-1
Nordea Bank ABP New York CD
Level 2
117,202
117,202
0.8
AA-/Aa3
Skandinav Enskilda Bank LT CD
Level 2
132,504
132,504
1.0
A+/Aa2
Societe Generale NY Cert Depos
Level 2
100,902
100,902
0.7
A-1/P-1
Sumitomo Mitsui Bank NY
Level 2
85,399
85,399
0.6
A/A1
UBS Ag Stamford CT CD
Level 2
149,589
149,589
1.1
A+/Aa2
Subtotal
13,689,295
1,920,018 11,769,277
Custodial Money Market
Level 1
205,927
205,927
1.5
AAAm/NR
Total
$ 13,895,222 $ 2,125,945 $ 11,769,277
Page 16
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
NOTE 2 – CASH AND INVESTMENTS
Fair Value Measurements. The Trust categorizes its fair value measurements within the fair
value hierarchy established by generally accepted accounting principles. The hierarchy is
based on the valuation inputs used to measure the fair value of the asset.
Level 1 inputs are quoted prices in active markets for identical assets
Level 2 inputs are significant other observable inputs
Level 3 inputs are significant unobservable inputs
Valuation Techniques. U.S. Treasuries and money market investments classified in Level 1 of
the fair value hierarchy are valued using prices quoted in active markets for those investments.
Governmental bonds, corporate bonds, other fixed income instruments, and international
bonds classified in Level 2 of the fair value hierarchy are valued based on significant other
observable inputs, which may include, but are not limited to, quoted prices for similar assets
or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities
in markets that are not active, inputs other than quoted prices that are observable for the assets
or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities,
credit risks and default dates) or other market corroborated inputs. All investments in which
the fair value hierarchy is applicable are measured at fair value on a recurring basis.
Interest Rate Risk. In accordance with the City’s investment policy, the Trust manages its
exposure to declines in fair value limiting the maturities of its investment portfolio to five
years.
Credit Risk. In accordance with the City’s investment policy, the Trust allows for investments
in obligations guaranteed by the full faith and credit of the United States of America,
government sponsored enterprises, government bonds with minimum credit ratings of AA+ or
Aaa, commercial paper with a minimum short term rating of P1 or A1, negotiable certificates
of deposit, corporate bonds carrying a minimum credit rating of A-, repurchase agreements,
and the Local Government Investment Pool. The Trust’s investments in U.S. Agencies,
Corporate Bonds and Money Market Funds were rated no lower than AA+, A- and AAAm by
Standard & Poor’s, respectively, as of June 30, 2021.
Custodial Credit Risk - Investments. The custodial credit risk for investments is the risk that,
in the event of the failure of the counterparty to a transaction, the Trust will not be able to
recover the value of its investments or collateral securities that are in the possession of an
outside party. To limit its exposure and in accordance with the City’s investment policy, the
Trust requires all security transactions that are exposed to custodial credit risk to be processed
on a delivery versus payment (DVP) basis with the underlying investments held by a third
party acting as the Trust’s agent separate from where the investment was purchased or by the
trust department of the bank where purchased, in the Trust’s name.
Page 17
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
NOTE 2 – CASH AND INVESTMENTS
Concentration of Credit Risk. In accordance with the City’s investment policy, the Trust does
not allow for an investment in any one issuer that is in excess of five percent of the total
investments. Securities issued by the United States of America or its agencies are exempt from
this provision.
NOTE 3 – CLAIMS PAYABLE
As discussed in Note 1, the Trust establishes a liability for both reported and unreported claims
costs, which includes estimates of future claim payments and related claim adjustment
expenses. The following represents changes in those aggregate liabilities for the Trust during
the period ended June 30, 2021 and June 30, 2020.
2021
2020
(restated)
Unpaid claims and claim adjustments, beginning,
as restated
$ 8,798,989
$ 8,561,129
Incurred claims and claim adjustments
3,499,481
2,176,994
Claims payments
(1,805,167)
(1,939,134)
Unpaid claims and claim adjustments, ending
$10,493,303
$ 8,798,989
NOTE 4 – PRIOR PERIOD ADJUSTMENT
Prior year financial statements did not report the liability for case reserves. As a result of the
restatement of beginning balances, the following reconciles the previously reported
July 1, 2020 balances.
Statement of Revenues,
Expenses, and Changes
in Net Position
Ending net position, June 30, 2020, as previously
reported
$ 9,565,010
Inclusion of case reserves in claims liability
(5,859,317)
Beginning net position, July 1, 2020, as restated
$ 3,705,693
Page 18
REPORT ON INTERNAL CONTROL
AND ON COMPLIANCE
Page 19
Report on Internal Control Over Financial Reporting and on
Compliance and Other Matters Based on an Audit of
Financial Statements Performed in Accordance with
Government Auditing Standards
Independent Auditor’s Report
Board of Trustees
Chandler Worker’s Compensation and Employer Liability Trust
We have audited, in accordance with the auditing standards generally accepted in the United States
of America and the standards applicable to financial audits contained in Government Auditing
Standards issued by the Comptroller General of the United States, the financial statements of the
Chandler Worker’s Compensation and Employer Liability Trust, an internal service fund of the
City of Chandler, Arizona, as of and for the year ended June 30, 2021, and the related notes to the
financial statements, which collectively comprise Chandler Worker’s Compensation and
Employer Liability Trust’s financial statements, and have issued our report thereon dated
November 11, 2021. Our report included emphasis of matter paragraphs regarding the financial
statements not representing the entire City of Chandler, Arizona, and related to the Trust’s
inclusion of case reserves in the claims payable liability.
Report on Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered Chandler
Worker’s Compensation and Employer Liability Trust’s internal control over financial reporting
(internal control) as a basis for designing audit procedures that are appropriate in the circumstances
for the purpose of expressing our opinion on the financial statements, but not for the purpose of
expressing an opinion on the effectiveness of Chandler Worker’s Compensation and Employer
Liability Trust’s internal control. Accordingly, we do not express an opinion on the effectiveness
of Chandler Worker’s Compensation and Employer Liability Trust’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent,
or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or
combination of deficiencies, in internal control such that there is a reasonable possibility that a
material misstatement of the entity’s financial statements will not be prevented, or detected and
corrected on a timely basis. A significant deficiency is a deficiency, or a combination of
deficiencies, in internal control that is less severe than a material weakness, yet important enough
to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph
of this section and was not designed to identify all deficiencies in internal control that might be
material weaknesses or significant deficiencies. Given these limitations, during our audit we did
not identify any deficiencies in internal control that we consider to be material weaknesses.
However, material weaknesses or significant deficiencies may exist that have not been identified.
Page 20
Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether Chandler Worker’s Compensation and
Employer Liability Trust’s financial statements are free from material misstatement, we performed
tests of its compliance with certain provisions of laws, regulations, contracts, and grant
agreements, noncompliance with which could have a direct and material effect on the financial
statements. However, providing an opinion on compliance with those provisions was not an
objective of our audit, and accordingly, we do not express such an opinion. The results of our tests
disclosed no instances of noncompliance or other matters that are required to be reported under
Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the results of that testing, and not to provide an opinion on the effectiveness of the
entity’s internal control or on compliance. This report is an integral part of an audit performed in
accordance with Government Auditing Standards in considering the entity’s internal control and
compliance. Accordingly, this communication is not suitable for any other purpose.
Heinfeld, Meech & Co., P.C.
Tucson, Arizona
November 11, 2021
Page 21