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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, 2024 Chandler Worker’s Compensation and Employer Liability Trust June 30, 2024 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 Independent Auditor’s 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, 2024, 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, 2024, 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, 2024, 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. 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. Page 1 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 12, 2024, 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. Scottsdale, Arizona December 12, 2024 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, 2024 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, 2024. 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 $2.3 million primarily due to an increase of $707,432 in investment income and, and $582,940 in employer premium contributions. Operating revenues of $5.4 million consist of employer premium contributions. The Trust had approximately $4.0 million in operating expenses, consisting primarily of $1.4 million of claims incurred, $509,295 in claim adjustments attributable to the increased IBNR liability, and $93,967 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, 2024 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 $8.9 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, 2024 and 2023. As of June 30, 2024 As of June 30, 2023 Current assets $ 20,797,154 $ 17,848,127 Total assets 20,797,154 17,848,127 Current liabilities 4,783,249 4,523,711 Noncurrent liabilities 7,025,044 6,663,086 Total liabilities 11,808,293 11,186,797 Net position: Unrestricted 8,988,861 6,661,330 Total net position $ 8,988,861 $ 6,661,330 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 $2.9 million is primarily due to larger cash balances because of increased contributions and increased investment income. Total liabilities increased $621,496 primarily due to an increase in the IBNR. Page 6 Chandler Worker’s Compensation and Employer Liability Trust Management’s Discussion and Analysis (MD&A) June 30, 2024 Financial Analysis Changes in net position. The Trust’s total revenues for the current fiscal year were $6.3 million. The total expenses were $4.0 million. The following table presents a summary of the changes in net position for the fiscal year ended June 30, 2024 and 2023. Fiscal Year Ended June 30, 2024 Fiscal Year Ended June 30, 2023 Revenues: Operating revenues: Contributions $ 5,375,645 $ 4,792,705 Other 692 409 Nonoperating revenues: Cost reimbursement from Municipal Utilities 68,017 61,446 Funding assistance from city 676,429 Investment income/loss 868,360 160,928 Miscellaneous revenues 15,910 4,596 Total revenues 6,328,624 5,696,513 Expenses: Operating expenses: Claims 1,406,687 1,436,205 Adjustments to IBNR and case reserves 603,262 600,782 Administrative fees 656,172 605,227 Insurance 1,328,950 1,244,229 Education and training 2,177 400 Nonoperating expenses: Payments to city 3,845 3,845 Total expenses 4,001,093 3,890,688 Changes in net position 2,327,531 1,805,825 Net position, beginning 6,661,330 4,855,505 Net position, ending $ 8,988,861 $ 6,661,330 Page 7 Chandler Worker’s Compensation and Employer Liability Trust Management’s Discussion and Analysis (MD&A) June 30, 2024 Financial Analysis The following are significant current year transactions that had an impact on the change in net position: The increase in employee premium contributions of $582,940. Investment income of $868,360 due to improved market conditions. The increase in the IBNR liability of $509,295, and the increase in case reserves of $93,967. Claims Payable The actuarial analysis completed as of June 30, 2024 projected $3.2 million as claims incurred but not reported (IBNR) and $8.5 million as case reserves. Therefore, as of June 30, 2024, the Trust had $11.7 million in total claims payable liability. Additional information on the Trust’s claims payable can be found in Note 3. Claims 35% Adjustments to IBNR and case reserves 15% Administrative fees 17% Insurance 33% Education and training <1% Payments to City <1% Expenses ‐ Fiscal Year 2024 Page 8 Chandler Worker’s Compensation and Employer Liability Trust Management’s Discussion and Analysis (MD&A) June 30, 2024 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, 2024. 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. The Self‐ Insured Retention (SIR) did not change from $1.5 million for general employees and $3 million for public safety employees, and the public safety and ongoing workers compensation contributions did not change for fiscal year 2024‐25. 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 7/1/23‐6/30/24. 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 $ 11,708,406 Projected Ultimate Losses & ALAE 3,042,000 Reserve Goal Based on 6/30/24 Actuarial Report $ 14,750,406 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, 2024 without the IBNR and case reserves (Estimated Unpaid Losses & ALAE) ($8,988,861 + $11,708,406 = $20,697,267) to the Nominal Value Reserve Goal based on the June 30, 2024 actuarial report, the Trust reserve level is $5,946,861 above the goal as of year‐end. The Trust Board and City Council approved no change to the ongoing contribution for fiscal year 2024‐25. 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 19,891,173 $ Due from City ‐ premiums 762,277 Accrued investment income 143,704 Total assets 20,797,154 Liabilities Current liabilities: Claims payable, current 4,693,362 Accounts payable 19,746 Accrued payroll 21,957 Compensated absences payable 48,184 Total current liabilities 4,783,249 Noncurrrent liabilities: Claims payable, long term 7,025,044 Total noncurrent liabilities 7,025,044 Total liabilities 11,808,293 Net position Unrestricted 8,988,861 $ Chandler Worker's Compensation Statement of Net Position June 30, 2024 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 5,375,645 $ Other: Recovery of prior year expense 612 Recovery of claims 80 Total operating revenues 5,376,337 Operating expenses: Claims 1,406,687 Adjustment to claims incurred but not reported 509,295 Adjustment to case reserves 93,967 Personnel services 548,594 Professional services 98,069 Operating supplies 9,111 Communication and transportation 398 Excess insurance 564,371 Premium insurance 50,754 Other insurance 713,825 Education and training 2,177 Total operating expenses 3,997,248 Operating income (loss) 1,379,089 Nonoperating revenues (expenses): Miscellaneous revenues 15,910 Investment income (loss) 868,360 Payments to City (3,845) Cost reimbursements from Municipal Utilities 68,017 Total nonoperating revenues (expenses) 948,442 Change in net position 2,327,531 Net position, beginning of year 6,661,330 Net position, end of year 8,988,861 $ Chandler Worker's Compensation Statement of Revenues, Expenses and Changes in Net Position For the Year Ended June 30, 2024 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 5,295,488 $ Cash payments for claims (1,356,687) Cash payments to suppliers for other services (1,476,295) Cash payments to employees for services (542,770) Net cash provided by/used for operating activities 1,919,736 Cash flows from non‐capital financing activities: Miscellaneous Revenues 15,910 Cash paid to City for technology replacement (3,845) Cash received from the City for other purposes 68,017 Net cash provided by/used for non‐capital financing activities 80,082 Cash flows from investing activities: Investment income 813,547 Proceeds from sales of investments 1,608,777 Purchases of investments (4,422,142) Net cash provided by/used for investing activities (1,999,818) 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 1,379,089 $ 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 (80,849) Increase/decrease in claims payable 603,262 Increase/decrease in accounts payable 12,410 Increase/decrease in accrued payroll 2,364 Increase/decrease in compensated absences 3,460 Net cash provided by/used for operating activities 1,919,736 $ Reconciliation of Cash and Cash Equivalents to the Statement of Net Position: Cash and cash equivalents ‐ $ Investments 19,891,173 Cash and investments 19,891,173 $ Chandler Worker's Compensation Statement of Cash Flows For the Year Ended June 30, 2024 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, 2024 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, 2024 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, 2024 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 $1.5 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, 2024 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 (S&P/ Moody’s) Money Market Fund N/A $ 233,819 $ 233,819 $ 1.2 AAAm/NR U.S. Treasuries Level 1 15,493,635 5,596,577 9,897,058 77.8 Municipal Bond/Note Scottsdale, AZ TXBL GO Bonds Level 2 52,502 52,502 0.3 AAA/Aaa U.S. Agencies: Fannie Mae Level 2 128,272 128,272 0.6 AA+/Aaa Federal Home Loan Banks Level 2 849,773 849,773 4.3 AA+/Aaa Federal Farm Credit Banks Level 2 1,515,434 1,515,434 7.6 AA+/Aaa Corporate Bonds: Bank Of America Corp Level 2 199,978 199,978 1.0 A+/Aa1 JPMorgan Chase & CO Corporate Level 2 170,729 170,729 0.9 A‐/A1 State Street Corp Corporate Level 2 19,513 19,513 0.1 A/A1 Wal Mart Stores Inc Global Level 2 78,846 78,846 0.4 AA/Aa2 Subtotal 18,742,501 5,830,396 12,912,105 Custodial Money Market Level 1 1,148,672 1,148,672 5.8 AAAm/NR Total $19,891,173 $ 6,979,068 $ 12,912,105 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 Page 16 Chandler Worker’s Compensation and Employer Liability Trust Notes to Financial Statements June 30, 2024 Note 2 – Cash and Investments 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, 2024. 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, 2024 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, 2024 and June 30, 2023. 2024 2023 Unpaid claims and claim adjustments, beginning $ 11,115,144 $ 10,544,362 Incurred claims and claim adjustments 1,959,949 1,996,987 Claims payments (1,356,687) (1,426,205) Unpaid claims and claim adjustments, ending $ 11,718,406 $ 11,115,144 Page 18 Report on Internal Control and on Compliance Page 19 Independent Auditor’s 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 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, 2024, 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 12, 2024. 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. Scottsdale, Arizona December 12, 2024 Page 21