Extracted text (via pymupdf)
40587 characters
Chandler Worker’s Compensation and Employer Liability Trust
Financial Statements and
Report on Internal Control and on Compliance
Year Ended June 30, 2022
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
JUNE 30, 2022
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, 2022, 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, 2022, 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, 2022, 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.
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.
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.
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.
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.
Page 2
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated
December 8, 2022, 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
December 8, 2022
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, 2022
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, 2022. 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 $854,034 primarily due to a decrease of $1.2
million in claims and related adjustments incurred.
Operating revenues of $4.4 million consist of employer premium contributions.
The Trust had approximately $3.9 million in operating expenses, consisting primarily of
$2.2 million of claims incurred, ($504,080) in claim adjustments attributable to the
decreased IBNR liability, and $549,681 in claim adjustments attributable to an increase in
case reserves.
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, 2022
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 $4.9 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, 2022 and 2021.
As of
June 30, 2022
As of
June 30, 2021
Current assets
$ 15,452,567
$ 14,606,949
Total assets
15,452,567
14,606,949
Current liabilities
4,294,445
4,330,221
Noncurrent liabilities
6,302,617
6,275,257
Total liabilities
10,597,062
10,605,478
Net position:
Unrestricted
4,855,505
4,001,471
Total net position
$ 4,855,505
$ 4,001,471
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 $845,618
is primarily due to larger cash balances as a result of decreased claims expenses and related
adjustments. Total liabilities decreased $8,416.
Page 6
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
JUNE 30, 2022
FINANCIAL ANALYSIS
Changes in net position. The Trust’s total revenues for the current fiscal year were $4.8 million.
The total expenses were $3.9 million. The following table presents a summary of the changes in
net position for the fiscal year ended June 30, 2022 and 2021.
Fiscal Year
Ended
June 30, 2022
Fiscal Year
Ended
June 30, 2021
Revenues:
Operating revenues:
Contributions
$ 4,448,476
$ 4,581,388
Other
10,452
Nonoperating revenues:
Cost reimbursement from Municipal Utilities
58,922
57,286
Funding assistance from City
676,429
Investment income/loss
(422,867)
25,080
Total revenues
4,760,960
4,674,206
Expenses:
Operating expenses:
Claims
2,204,720
1,836,434
Adjustments to IBNR and case reserves
45,601
1,663,047
Administrative fees
538,103
494,762
Insurance
1,114,018
379,837
Education and training
639
503
Nonoperating expenses:
Payments to City
3,845
3,845
Total expenses
3,906,926
4,378,428
Changes in net position
854,034
295,778
Net position, beginning
4,001,471
3,705,693
Net position, ending
$ 4,855,505
$ 4,001,471
Page 7
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
JUNE 30, 2022
FINANCIAL ANALYSIS
The following are significant current year transactions that had an impact on the change in net
position:
x
The funding contribution from the City of $676,429 used for the Municipal Firefighter
Cancer Reimbursement Fund administered by the Industrial Commission of Arizona.
x
Investment losses of $422,867 due to market conditions.
x
The decrease in the IBNR liability of $504,080, and the increase in case reserves of
$549,681.
CLAIMS PAYABLE
The actuarial analysis completed as of June 30, 2022 projected $1.9 million as claims incurred but
not reported (IBNR) and $8.6 million as case reserves. Therefore as of June 30, 2022, 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
56%
Adjustments to IBNR
and case reserves
1%
Administrative fees
14%
Insurance
29%
Education and
training
<1%
Payments to
City
<1%
Expenses - Fiscal Year 2022
Page 8
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
JUNE 30, 2022
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, 2022. 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. While the Self Insured Retention (SIR) increased from $750,000 to $1.0 million and from
$2.25 million to $3.0 million for public safety, the ongoing workers compensation contribution
did not change for fiscal year 2022-23.
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 7/1/22-6/30/23. 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
$10,504,362
Projected Ultimate Losses & ALAE
2,907,000
Reserve Goal Based on 6/30/22 Actuarial Report
$13,411,362
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, 2022 without the IBNR and case reserves
(Estimated Unpaid Losses & ALAE) ($4,855,505 + $10,504,362 = $15,359,867) to the Nominal
Value Reserve Goal based on the June 30, 2022 actuarial report, the Trust reserve level is
$1,948,505 above the goal as of year-end. The Trust Board and City Council approved no change
to the ongoing contribution for fiscal year 2022-23.
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
14,444,573
$
Due from City - premiums
983,185
Accrued investment income
24,809
Total assets
15,452,567
Liabilities
Current liabilities:
Claims payable, current
4,241,745
Accounts payable
6,225
Accrued payroll
16,334
Compensated absences payable
30,141
Total current liabilities
4,294,445
Noncurrrent liabilities:
Claims payable, long term
6,302,617
Total noncurrent liabilities
6,302,617
Total liabilities
10,597,062
Net position
Unrestricted
4,855,505
$
CHANDLER WORKER'S COMPENSATION
STATEMENT OF NET POSITION
JUNE 30, 2022
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
4,448,476
$
Total operating revenues
4,448,476
Operating expenses:
Claims
2,204,720
Adjustment to claims incurred but not reported
(504,080)
Adjustment to case reserves
549,681
Personnel services
476,173
Professional services
49,399
Operating supplies
12,214
Communication and transportation
317
Excess insurance
392,736
Premium insurance
44,853
Other insurance
676,429
Education and training
639
Total operating expenses
3,903,081
Operating income (loss)
545,395
Nonoperating revenues (expenses):
Investment income (loss)
(422,867)
Payments to City
(3,845)
Funding assistance from City
676,429
Cost reimbursements from Municipal Utilities
58,922
Total nonoperating revenues (expenses)
308,639
Change in net position
854,034
Net position, beginning of year
4,001,471
Net position, end of year
4,855,505
$
CHANDLER WORKER'S COMPENSATION
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
FOR THE YEAR ENDED JUNE 30, 2022
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
4,159,535
$
Cash payments for claims
(2,199,262)
Cash payments to suppliers for other services
(1,241,685)
Cash payments to employees for services
(470,550)
Net cash provided by/used for operating activities
248,038
Cash flows from non-capital financing activities:
Cash paid to City for technology replacement
(3,845)
Cash received from the City for other purposes
735,351
Net cash provided by/used for non-capital financing activities
731,506
Cash flows from investing activities:
Investment income
(430,193)
Proceeds from sales of investments
2,258,121
Purchases of investments
(2,807,472)
Net cash provided by/used for investing activities
(979,544)
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
545,395
$
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
(288,941)
Increase/decrease in claims payable
51,059
Increase/decrease in accounts payable
(12,350)
Increase/decrease in miscellaneous payables
(52,748)
Increase/decrease in accrued payroll
3,749
Increase/decrease in compensated absences
1,874
Net cash provided by/used for operating activities
248,038
$
Reconciliation of Cash and Cash Equivalents to the Statement of Net Position:
Cash and cash equivalents
-
$
Investments
14,444,573
Cash and investments
14,444,573
$
CHANDLER WORKER'S COMPENSATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2022
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, 2022
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, 2022
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, 2022
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 assets 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 assets 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 $1.0 million for non-public safety employees and $3.0 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, 2022
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
$ 1,186,885 $ 1,186,885 $
8.2
AAAm/NR
U.S. Treasuries
Level 1
8,415,820
1,087,155
7,328,665
58.2
AA+/Aaa
Municipal Bond/Note
Scottsdale, AZ TXBL GO Bonds
Level 2
50,975
50,975
0.4
AAA/Aaa
U.S. Agencies:
Fannie Mae
Level 2
1,052,022
131,979
920,043
7.3
AA+/Aaa
Freddie Mac
Level 2
1,989,609
303,135
1,686,474
13.8
AA+/Aaa
Corporate Bonds:
Adobe Inc Corp Note
Level 2
99,118
99,118
0.7
A+/A2
Amazon.com Inc Corp Notes
Level 2
166,452
99,906
66,546
1.2
AA/A1
Texas Instruments Inc Corp
Level 2
140,690
140,690
1.0
A+/Aa3
John Deere Captial Corp
Level 2
38,638
38,638
0.3
A/A2
Bank of America Corporation
Level 2
191,901
191,901
1.3
A-/A2
Caterpillar Financial Service
Level 2
93,449
93,449
0.6
A/A2
Hershey Company
Level 2
85,607
85,607
0.6
A/A1
JPMorgan Chase & Co. Corporate
Level 2
163,295
163,295
1.1
A-/A2
State Street Corp Corporate
Level 3
19,211
19,211
0.1
A/A1
Toyota Motor Credit Corp Corporate
Level 2
73,384
73,384
0.5
A+/A1
Certificate of Deposit:
Credit Suisse New York CD
Level 2
344,355
344,355
2.4
A-1/P-1
Skandinav Enskilda Bank LT CD
Level 2
129,980
129,980
0.9
A-1/P-1
UBS Ag Stamford CT CD
Level 2
149,535
149,535
1.0
A-1/P-1
Subtotal
14,390,926
3,711,104 10,679,822
Custodial Money Market
Level 1
53,647
53,647
0.4
AAAm/NR
Total
$ 14,444,573 $ 3,764,751 $ 10,679,822
Page 16
CHANDLER WORKER’S COMPENSATION
AND EMPLOYER LIABILITY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2022
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, 2022.
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, 2022
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, 2022 and June 30, 2021.
2022
2021
Unpaid claims and claim adjustments, beginning,
as restated
$ 10,493,303
$ 8,798,989
Incurred claims and claim adjustments
2,250,321
3,499,481
Claims payments
(2,199,262)
(1,805,167)
Unpaid claims and claim adjustments, ending
$ 10,544,362
$ 10,493,303
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, 2022, 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
December 8, 2022. Our report included an emphasis of matter paragraph regarding the financial
statements not representing the entire City of Chandler, Arizona.
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
December 8, 2022
Page 21