SERMA Financial Statements Sept. 30, 2003 & 2002 FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
SOUTH EAST RISK MANAGEMENT ASSOCIATION -
PROPERTY AND CASUALTY GROUP
September 30, 2003 and 2002
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
BALANCE SHEETS 2
STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN
RETAINED EARNINGS 3
STATEMENTS OF CASH FLOWS 4
NOTES TO FINANCIAL STATEMENTS 5 - 11
SUPPLEMENTARY INFORMATION
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY INFORMATION 13
STATEMENT OF REVENUES, EXPENSES AND CHANGES
IN RETAINED EA.RNII~TGS -BUDGET AND ACTUAL 14 - 15
SCHEDULE OF PREMIUMS FROM MUNICIl'ALITIES 16
SCHEDULE OF INSURANCE PREMIUMS 17
SCHEDULE OF CLAIMS DEVELOPMENT 18
RECONCII,IATION OF CLAIMS LIABILITIES BY TYPE OF
CONTRACT 19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON COMPLIANCE AND INTERNAL CONTROL OVER FINANCIAL
REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS
PERFORMED IN ACCORDANCE WITH GOVERNIvIENT AUDITING
STANDARDS 21 - 22
MANAGEMENT LETTER IN ACCORDANCE WITH THE RULES OF
THE AUDITOR GENERAL 23 - 24
Grant Thornton T
Accountants and Business Advisors
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
South East Risk Management Association -
Property and Casualty Group
We have audited the accompanying balance sheets of South East Risk Management Association -
Property and Casualty Group (the "Association") for the years ended September 30, 2003 and 2002, and
the related statements of revenues and expenses and changes in retained earnings, and cash flows for the
years then ended. These financial statements are the responsibility of the Association's management.
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits 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. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of South East Risk Management Association -Property and Casualty Group for the
years ended September 30, 2003 and 2002, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in the United States of
America.
In accordance with Government Auditing Standa~•ds, we have also issued a report dated December 16,
2003, on our consideration of South East Risk Management Association -Property and Casualty Group's
internal control over financial reporting and our tests of its compliance with certain provisions of laws,
regulations, and contracts. This report is an integral part of, and should be read in conjunction with, our
report on the financial statements.
LLP
North Palm Beach, Florida
December 16, 2003
2700 South Commerce Parkway 777 Brickell Avenue 11300 US Highway One
Suite 300 Suite 1100 Suite 400
Weston, FL 33331-3630 Miami, FL 33131-2867 North Palm Beach, FL 33408-3229
T 954.768.9900 T 305.341.8040 T 561.684.9496
F 954.768.9908 F 305.341.8099 F 561.684.9476
W www.grantthornton.com W www.grantthornton.com W www.grantthornton.com
Grant Thornton LLP Grant Thornton LLP Grant Thornton LLP
US Member of Grant Thornton International US Member of Grant Thornton International US Member of Grant Thornton International
South East Risk Management Association -
Property and Casualty Group
BALANCE SHEETS
September 30,
ASSETS
2003 2002
Cash $ 14,471 $ 4,677
Investments 5,656,240 5,063,393
Receivables
Other 96,985 24,483
Total receivables 96,985 24,483
Other assets 27,926 18,279
Total assets 5.795.622 5.110.832
LIABILITIES AND RETAINED EARNINGS
Liabilities
Accounts payable and accrued liabilities $ 118,882 $ 79,373
Due to Wilton Manors - 13,157
Due to Lake Park - 16,957
Unpaid claims and claim expenses 4,432,114 3,821,559
Total liabilities 4,550,996 3,931,046
Retained earnings 1,244,626 1,179,786
Total liabilities and retained earnings 5,795.622 5.110.832
The accompanying notes are an integral part of these statements.
2
South East Risk Management Association -
Property and Casualty Group
STATEMENTS OF REVENUES, EXPENSES AND CHANGES
IN RETAINED EARNINGS
Years Ended September 30,
2003 2002
Revenues
Premiums collected from municipalities $ 6,080,653 $ 3,469,746
Recoveries and subrogations 192,034 287,991
Deficiency assessment - 6,699
Interest income 76,421 107,116
Total revenues 6,349,108 3,871,552
Expenses
Insurance claims 2,935,507 1,794,628
Insurance premiums 2,283,298 1,304,287
Claims administration 574,058 368,532
Workers' compensation fees 361,669 203,192
Professional fees 33,273 30,358
Loss prevention 88,183 75,914
Administrative and general 8,280 735
Total expenses 6,284,268 3,777,646
Net (loss) income 64,840 93,906
Retained earnings -beginning of period 1,179,786 1,088,642
Distribution of prior year earnings - (2,762)
Retained earnings -end of period 1.244,626 1,179.786
The accompanying notes are an integral part of these statements.
3
South East Risk Management Association -
Property and Casualty Group
STATEMENTS OF CASH FLOWS
Years Ended September 30,
2003 2002
Cash flows from operating activities
Net (loss) income $ 64,840 $ 93,906
Refund of prior year's earnings - (2,762)
Adjustments to reconcile net income to net
cash provided by operating activities
(Increase) decrease in assets:
Accounts receivable (72,502) (10,773)
Other assets (9,647) (18,279)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 39,509 20,476
Surplus Assessments payable (30,114) 2,762
Unpaid claims and claims expenses 610,555 (222,512)
Deferred revenue - (725,502)
Net cash provided by operating activities 602,641 (862,684)
Cash at beginning of year 5,068,070 5,930,754
Cash at end of year .5,670,711 5.068,070
Reconciliation to balance sheet:
Cash $ 14,471 $ 4,677
Investments 5,656,240 5,063,393
$ 5,670,711 5.068.070
The accompanying notes are an integral part of these statements.
4
South East Risk Management Association -
Property and Casualty Group
NOTES TO FINANCIAL STATEMENTS
September 30, 2003 and 2002
NOTE A - SUIVIMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by South East Risk Management Association -
Property and Casualty Group ("SERMA" or the "Association") are summarized below.
The Reporting EntitX
SERMA is a public entity risk pool, created by an interlocal agreement as authorized by
Florida Statute 163. The purpose of SERMA is to pool the resources of its members so as to
provide a comprehensive risk management program including insurance coverage whose cost
is less than the cost of each municipality obtaining insurance separately. The members of
SERMA include the following municipalities:
City of Coconut Creek
City of Lake Worth
City of Parkland
Town of Lake Clarke Shores
Village of North Palm Beach
Town of Davie
Effective September 30, 2001, the Town of Lantana elected to withdraw from the SERMA
pool. In accordance with the interlocal agreement, after withdrawal, the town continues to be
fully responsible and obligated for their portion of covered claims and expenses for covered
claims that were incurred during the term of their membership with SERMA. Each member
remains liable for its share of the premium deficiency as it relates to claims incurred prior to
the dates noted herein. The town is also entitled to return of surplus (deficit) as if it were still
a member of SERMA, in accordance with the Association's by-laws.
Effective October 1, 2002, the Town of Davie joined the Association as a new member.
Employer's Mutual, Inc. (EMI) has contracted with SERMA to act as administrator to
receive, disburse and manage all funds due to or payable from the Association. Fund
underwriting, rate-setting policies, and reinsurance purchases are established after
consultation with the administrator. Members are subject to supplemental assessments in the
event of deficiencies except that to the extent that deficiencies result from a specific claim
against a member in excess of the reinsurance available, such deficiency is solely the
responsibility of that member.
(continued)
5
South East Risk Management Association -
Property and Casualty Group
NOTES TO FINANCIAL STATEMENTS -CONTINUED
September 30, 2003 and 2002
NOTE A -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -Continued
The Reportin Entity -Continued
The municipalities included in SERMA are also covered by Florida Statutes under the
Doctrine of Sovereign Immunity which effectively limits the amount of liability of
municipalities to individual claims of $100,000 or $200,000 for all claims relating to the
same incident.
The financial statements presented contain only the accounts and transactions of the
Association. In evaluating the Association as a reporting entity, the Program applied the
provisions of Statement No. 14, The Financial Reporting Entity of the Governmental
Accounting Standards Board (GASB). The concept underlying the definition of the financial
reporting entity is that governmental organizations are responsible to elected governing
officials at the federal, state and/or levels; therefore, financial reporting by state and/or local
governments should report the elected officials' accountability for those organizations. The
financial reporting entity consists of the primary government and all organizations for which
the primary government is financially accountable. The primary government consists of the
organizations which make up its legal entity. A component unit is a legally separate
organization for which the elected officials of the primary government are financially
accountable. In determining whether organizations are considered component units of a
governmental entity, which warrants the inclusion of a legally separate organization in the
reporting entity of another government, several guidelines are followed. If a primary
government appoints a voting majority of the organization's officials, has the ability to
impose its will on the organization, and has a potential for the organization to impose a
financial benefit to or burden on a primary government, the primary government is financially
accountable for that organization.
The governing board of the Association is composed of high ranking, full-time employees
from each of the member Municipalities. The Board has complete "authority to hire
management and all other employees. The Association has no authority to levy ad valorem
taxes and receives its funding through member contributions. These contributions are based
upon the value of covered property and prior claims experience. Individual member
Municipalities have no claim to Association surpluses or budgetary authority. Based upon
application of these criteria, South East Risk Management Association -Property and
Casualty Group has determined that the Association is an independent entity and,
accordingly, is not a component unit of any of the member Municipalities.
(continued)
6
South East Risk Management Association -
Property and Casualty Group
NOTES TO FINANCIAL STATEMENTS -CONTINUED
September 30, 2003 and 2002
NOTE A -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -Continued
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of accounting in
accordance with accounting practices applicable to governmental risk-sharing pools operating
under the enterprise concept. Accounting for this fund follows those principles specified by
the Government Accounting Standards Board ("GASB") as it pertains to a proprietary fund.
Under the accounting hierarchy specified by Statement of Auditing Standards No. 69,
SERMA follows all GASB pronouncements and Financial Accounting Standards Board
statements and interpretations issued before November 30, 1989, except those that conflict
with a GASB pronouncement.
Reclassifications
Certain prior year amounts have been reclassified to conform with current year's
presentation.
Cash
Cash consists of demand deposits at commercial banks. All demand deposits were held in
institutions designated by the Treasurer of the State of Florida as "qualified public
depositories" under Chapter 280.04, Florida Statutes, and were accordingly collateralized as
required by that Statute.
Investments
The Association's selection of investment instruments is governed by Chapter 166.261,
Florida Statutes. Florida statutes authorize the Association to invest in the local Government
Surplus Funds Trust Fund administered by the State Treasurer; negotiable direct obligations
of or obligations unconditionally guaranteed by the U.S. Government; interest-bearing time
deposits or savings accounts in financial institutions located in Florida and organized under
federal or Florida laws; obligations of the Federal Farm Credit Bank, the Federal Home Loan
Mortgage Corporation, the Federal Home Loan Bank or its district banks; or obligations
guaranteed by the Government National Mortgage Association and any additional
investments specifically authorized by the Association.
(continued)
7
South East Risk Management Association -
Property and Casualty Group
NOTES TO FINANCIAL STATEMENTS -CONTINUED
September 30, 2003 and 2002
NOTE A -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -Continued
Investments -Continued
The Association's investments consist of the State Treasurer's, State Board of Administration
(SBA) investment pool. The investment pool was established for local government entities
in Florida to pool surplus funds for investment purposes. In connection with the statement of
cash flows, the Association has defined cash and cash equivalents to include its investment in
the pool since the funds can be deposited and effectively withdrawn at any time without prior
written notice or penalty. The State Treasurer invests in various instruments, the
approximate mix of which follows:
Percent Held at
September 30, 2003
Treasury bills, bonds and notes 9.10%
Federal agency obligations 32.07
Repurchase agreements -
Commercial paper 44.89
Certificates of deposit -
Variable rate notes 13.94
100.00%
Unpaid Claims Liabilities
The Association 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. The length of time for which such
costs must be estimated varies depending on the coverage involved.
Estimated amounts of salvage and subrogation and reinsurance recoverable on unpaid claims
are deducted from the liability for unpaid claims. Because actual claims costs depend on
such complex factors as inflation, changes in doctrines of legal liability, and damage awards,
the process used in computing claims liabilities does not necessarily result in an exact
amount, particularly for coverages such as general liability. Claims liabilities are recomputed
periodically using a variety of actuarial and statistical techniques to produce current estimates
that reflect recent settlements, claim frequency, and other economic and social factors. A
provision for inflation in the calculation of estimated future claims costs is implicit in the
(continued)
8
South East Risk Management Association -
Property and Casualty Group
NOTES TO FINANCIAL STATEMENTS -CONTINUED
September 30, 2003 and 2002
NOTE A -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -Continued
Unpaid Claims Liabilities -Continued
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.
Adjustments to claims liabilities are charged or credited to expense in the periods in which
they are made.
Recoveries
Recovery income is comprised of funds recovered from re-insurance companies and the
"Special Disabilities Fund" ("SDF"). SDF funds are recorded on the cash basis due to the
uncertain nature of collectability.
Reinsurance
It is the Association's policy to use reinsurance agreements to reduce its exposure on all types
of insured events. The stop loss for workers compensation claims occurring during policy
years ended September 30, 2003 and 2002 was $400,000. The stop loss varies for other
reinsurance agreements depending on the type of insured event. Reinsurance permits
recovery of a portion of losses from reinsurers, although it does not discharge the primary
liability of the Association as direct insurer of the risks reinsured. The Association does not
report reinsured risks as liabilities unless it is probable that those risks will not be covered by
reinsurers.
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted accounting
principles, the Association is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE B -CLAIMS ADMIlVISTRATION
The payment of claims of SERMA are processed by the administrator, EMI. Claims
administration fees paid to EMI for the years ended September 30, 2003 and 2002, totaled
$574,058 and $368,532, respectively.
9
South East Risk Management Association -
Property and Casualty Group
NOTES TO FINANCIAL STATEMENTS -CONTINUED
September 30, 2003 and 2002
NOTE C -UNPAID CLAIMS LIABII.,ITIES
As summarized in Note A, the Association establishes a liability for both reported and
unreported insured events, which includes estimates of both future payments of losses and
related claim adjustment expenses. The following represents the composition of the
aggregate liabilities for the Association during the past two periods:
2003 2002
Unpaid claims and claim adjustment
expenses at the beginning of the year $ 3,821,559 $ 4,044,071
Incurred claims and claim adjustment
expenses:
Provision for insured events of the
current year 3,478,003 1,661,999
(Decrease) increase in provision for
insured events of prior years (542,469) 132,626
Total incurred claims and
claim adjustment expenses 2,935,507 1,794,628
Payments:
Claims and claim adjustment
expenses attributable to insured
events of the current year (1,139,149) (364,005)
Claims and claim adjustment
expenses attributable to insured
events of prior years (1,185,803) X1,653,135)
Total payments (2,324,952) (2,017,140)
Total unpaid claims and claim
adjustment expenses 4.432.114 3.821.559
The unpaid claims liability at September 30, 2003 and 2002 is composed of the following:
2003 2002
Specific reserves $ 2,549,114 $ 2,109,559
Incurred but not reported claims 1,883,000 1,712,000
4.432.114 3.821.559
10
South East Risk Management Association -
Property and Casualty Group
NOTES TO FINANCIAL STATEMENTS -CONTINUED
September 30, 2003 and 2002
NOTE D -CONTINGENCIES
According to the Bylaws of the Association, distributions and assessments can be made as of
September 30, 2000 as certain levels of profitability have been achieved. Distributions and
assessments are available to be made to certain cities which participated in the pool during
fiscal years ended 1995 through 1999.
The Board decided to make distributions and levy assessments beginning in January of the
year 2001, where by the distribution or assessment will be levied once per year for the
following three years. The Board decided to levy only the assessments on the member city's
that have withdrawn from the Association. All of the existing member city's surplus or
deficiency will be deferred and re-evaluated at a later date. Each city's surplus or deficit will
be determined in accordance with a formula that is included in the by-laws.
11
SUPPLEMENTARY INFORMATION
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY INFORMATION
Board of Directors
South East Risk Management Association -
Property and Casualty Group
Our audit was conducted for the purpose of forming an opinion on the basic financial statements
taken as a whole of South East Risk Management Association -Property and Casualty Group as
of and for the years ended September 30, 2003 and 2002, which are presented in the preceding
section of this report. The supplementary information presented hereinafter is presented for
purposes of additional analysis and is not a required part of the basic financial statements. Such
information has been subjected to the audit procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
~ ~.P
North Palm Beach, Florida
December 16, 2003
13
South East Risk Management Association -
Property and Casualty Group
STATEMENT OF REVENUES, EXPENSES AND CHANGES
IN RETAINED EARNr_NGS -BUDGET AND ACTUAL,
Year Ended September 30, 2003
Variance -
Favorable
Bud etg Actual (Unfavorable)
Revenues
Premiums collected from municipalities $ 6,080,650 $ 6,080,653 $ 3
Recoveries and subrogations - 192,034 192,034
Interest income 200,000 76,421 (123,579)
Total revenues 6,280,650 6,349,108 68,458
Expenses
Insurance claims 2,970,000 2,935,507 34,493
Insurance premiums 2,216,000 2,283,298 (67,298)
Claims administration 575,000 574,058 942
Workers' compensation fees 351,000 361,669 (10,669)
Professional fees 32,000 33,273 (1,273)
Loss prevention 131,000 88,183 42,817
Administrative and general 5,000 8,280 (3,280)
Total expenses 6,280,000 6,284,268 (4,268)
Net income 650 64,840 64,190
Retained earnings -beginning of year 1,179,786 1,179,786 -
Distribution of prior year earnings - - -
Retained earnings -end of year 1.180.436 1.244.626 64.190
14
South East Risk Management Association -
Property and Casualty Group
STATEMENT OF REVENUES, EXPENSES AND CHANGES
IN RETAINED EARNINGS -BUDGET AND ACTUAL
Year Ended September 30, 2002
Variance -
Favorable
Budget Actual Unfavorable)
Revenues
Premiums collected from municipalities $ 3,469,746 $ 3,469,746 $ -
Recoveries and subrogations - 287,991 287,991
Deficiency assessment - 6,699 6,699
Interest income 225,000 107,116 (117,884)
Total revenues 3,694,746 3,871,552 176,806
Expenses
Insurance claims 1,785,000 1,794,628 (9,628)
Insurance premiums 1,215,268 1,304,287 (89,019)
Claims administration 375,000 368,532 6,468
Workers' compensation fees .193,000 203,192 (10,192)
Professional fees 25,000 30,358 (5,358)
Loss prevention 73,500 75,914 (2,414)
Managed care network services - - -
Administrative and general 5,000 735 4,265
Total expenses 3,671,768 3,777,646 (105,878)
Net income 22,978 93,906 70,928
Retained earnings -beginning of year 1,088,642 1,088,642 -
Distribution of prior year earnings - X2,762) (2,762)
Retained earnings -end of year 1,111,620 L179,786 $ 68,166
15
South East Risk Management Association -
Property and Casualty Group
SCHEDULE OF PREMIUMS FROM MUlvICIPALITIES
September 30,
2003 2002
City of Coconut Creek $ 800,785 $ 778,559
City of Lake Worth 2,085,819 1,813,756
City of Parkland 261,058 227,007
Town of Lake Clarke Shores 55,657 48,397
Village of North Palm Beach 692,331 602,027
Town of Davie 2,185,003 -
Premiums collected from municipalities 6.080,653 3,469,746
16
South East Risk Management Association -
Property and Casualty Group
SCHEDULE OF INSURANCE PREMIUMS
September 30,
2003 2002
Excess property $ 1,319,277 $ 756,717
Employment practices 28,339 18,570
Crime bond 9,140 9,140
Special risks 11,172 5,586
Flood 25,768 14,678
General liability, accident liability and worker's
compensation 889,602 499,596
Total insurance premiums 2.283.298 1,304.287
17
South East Risk Management Association -
Property and Casualty Group
SCHEDULE OF CLAIMS DEVELOPMENT
As of September 30, 2003
Fiscal and Policy Year Ended
September 30,
1995 1996 1997 1998 1999 2000 2001 2002 2003
(In Thousands)
Net earned required
contribution and
investment revenues $ 4,019 $ 4,203 $ 3,878 $ 3,122 $ 3,544 $ 3,628 $ 3,582 $ 3,577 $ 6,157
Unallocated expenses 1,472 2,065 1,804 1,370 1,335 1,425 1,561 1,983 3,349
Estimated incurred claims
and expense, end of
policy year 2,209 2,072 2,306 1,325 1,774 2,251 2,231 1,662 3,478
Paid (cumulative) as of•
End of policy year 491 505 600 324 455 701 621 364 1,139
One year later 882 1,004 1,243 501 1,021 1,201 1,097 658 -
Two years later 1,260 1,285 1,967 651 1,268 1,816 1,686 - -
Three years later 1,568 1,446 2,317 1,047 1,346 2,014 - - -
Four years later 1,720 1,454 2,401 1,177 1,369 - - - -
Five years later 1,718 1,540 2,688 1,222 - - - _ _
Six years later 1,744 1,589 2,731 - - - - _ _
Seven years later 1,744 1,589 - - - - _ _ _
Eight years later 1,774 - - _ _ _ _ _ _
Restated incurred claims
and expense
End of policy year 2,209 2,072 2,306 1,325 1,774 2,251 2,231 1,662 3,478
One year later 2,149 2,026 3,014 1,439 1,994 2,329 2,254 977 -
Two years later 1,934 1,932 2,777 1,388 1,692 2,232 2,554 - -
Three years later 2,013 1,762 2,809 1,276 1,666 2,131 - - -
Four years later 1,923 1,660 2,855 1,401 1,532 - - - -
Five years later 1,875 1,624 2,819 1,402 - - - _ _
Six years later 1,869 1,618 2,844 - - - _ _ _
Seven years later 1,832 1,609 - - - - _ _ _
Eight years later 1,819 - - - _ _ _ _
Increase (decrease) in estimated
incurred claims and expense
from end of policy year (390) (463) 538 (77) (242) 120 (323) 685 -
18
South East Risk Management Association -
PropertY and Casualty Group
CLAIMS LIABU,ITYES BY TYPE OF CONTgA,CT
gECONCUTATION OF
September 30,
Total
Workers' Compensation ~ Thousands
Property and Casualty ~ 'Th°usands 20-_ 20`Q2 _
(In Thousands) 20-
0- 20`_____02,_
20i_ 20~--. 4 044 071
5 185 $ 1
6_
6~
z $ 1
7~g ~ 3
8--'-'~ ~---
ustment $
2$
1y837 $
2$
3~1_,__,
Unpaid claims and claim adj
expenses at beginning °f Pascal yeax
Incurred claims and claim adjustment 1,074,708 3,478,003 1,661,999
expenses: 808,842 587,291 2,669,161
Provision for insured events of 132 629
current fiscal year rovision g 1 516) 542 469 _.._--~--
(Decreases) increases a
r or fiscal 585 350) ~---1---
for insured events of p X854 2___-x-145 ~-~
993 192 2
9y35 5Q7 17--z-4~-.
years
8-----y96 8`436 2 0811 ~-~-
Total incurred claims aen es
claim adjustment exp
payments: (216,978) (1,139,149) (364,005)
Claims and claim adjustment (147,027) (892,421)
expenses attributable to insured (246,728)
events of current fiscal yeax 1 185 803 (1
6~
53 135)
ustment 505 282) 8~)
Claims and claims adj 815 737 -~---~-
expenses attributable to insured 680 521 2 324 952 2 017 140
events of prior fiscal years 1 397 703 (1 0376)
927 249 9734)
Total payments
d claim 7 7 2 4 432 14 3 82 55
Total unpaid claims an 2 53 0
adjustment expenses at end ~ 2
Oy
304 2 5 857 ~~-
of fiscal year
19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON COMPLIANCE AND ON INTERNAL CONTROL OVER
FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL
STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT A UDITING STANDARDS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON COMPLIANCE AND INTERNAL CONTROL OVER FINANCIAL REPORTING
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENTAUDITINGSTANDARDS
Board of Directors
South East Risk Management Association -
Property and Casualty Group
We have audited the fmancial statements of South East Risk Management Association -Property
and Casualty Group, as of and for the year ended September 30, 2003, and have issued our report
thereon dated December 16, 2003. We conducted our audit in accordance with auditing
standards generally accepted in the United States and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General of the United
States.
Compliance
As part of obtaining reasonable assurance about whether South East Risk Management
Association - Property and Casualty Group's financial statements are free of material
misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
and contracts, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance
with those provisions was not an object of our audit and, accordingly, we do not express such an
opinion. The results of our tests disclosed no instances of noncompliance that are required to be
reported under Government Auditing Standards.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the South East Risk Management
Association -Property and Casualty Group's internal control over financial reporting in order to
determine our auditing procedures for the purposes of expressing our opinion on the financial
statements and not to provide assurance on the internal control over financial reporting. Our
consideration of the internal control over financial reporting would not necessarily disclose all
matters in the internal control that might be material weaknesses. A material weakness is a
condition in which the design or operation of one or more of the internal control components
does not reduce to a relatively low level the risk that misstatements in amounts that would be
material in relation to the financial statements being audited may occur and not be detected
within a timely period by employees in the normal course of performing their assigned functions.
We noted no matters involving the internal control over financial reporting and its operation that
we considered to be material weaknesses.
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This report is intended solely for the information and use of the Board of Directors of South East
Risk Management Association -Property and Casualty Group, management and appropriate
governmental agencies and is not intended to be and should not be used by anyone other than
those specified parties. However, this report is a matter of public record and its distribution is
not limited.
GL~
North Palm Beach, Florida
December 16, 2003
22
MANAGEMENT LETTER REQUIRED BY
SECTION 10.554(g) OF THE RULES OF THE
AUDITOR GENERAL OF THE STATE OF FLORIDA
Board of Directors
South East Risk Management Association
Property and Casualty Group
We have audited the financial statements of the South East Risk Management Association -
Property and Casualty Group, (the "Association") as of and for the fiscal year ended
September 30, 2003, and have issued our report thereon dated December 16, 2003.
We have issued our Independent Auditor's Report on Compliance and Internal Control Over
Financial Reporting dated December 16, 2003. Disclosures in this report, if any, should be
considered in conjunction with this management letter.
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America, and Government Auditing Standards issued by the Comptroller General of the
United States. Additionally our audit was conducted in accordance with the provisions of
Chapter 10.550, Rules of the Auditor General, which govern the conduct of local governmental
entity audits performed in the State of Florida and require that certain items be addressed in this
letter.
The Rules of the Auditor General (Section 10.554 (1) (g) la.) require that we comment as to
whether or not inaccuracies, shortages, defalcations, fraud, and violations of laws, rules,
regulations and contractual provisions reported in the preceding annual financial audit report
have been corrected. There were no inaccuracies, shortages, defalcations, fraud, and violations
of laws, rules, regulations and contractual provisions disclosed in the preceding annual financial
audit report.
The Rules of the Auditor General (Section 10.554 (1) (g) lb.) require that we comment as to
whether or not recommendations made in the preceding annual financial audit report have been
followed. There were no recommendation made in the preceding annual financial audit report.
The Rules of the Auditor General (Section 10.554 (1) (g) 2.) require that we comment as to
whether or not the Group has complied with Section 218.415, Florida Statutes, regarding the
investment of public funds. The Group has complied with Section 218.415, Florida Statutes.
The Rules of the Auditor General (Section 10.554 (1) (g) 3.) require disclosure in the
management letter of any recommendations to improve financial management, accounting
procedures and internal controls. There were no recommendation to report.
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The Rules of the Auditor General (Section 10.554 (1) (g)4.) require disclosure in the
management letter of the following matters if not already addressed in the auditor's reports on
the internal control structure or compliance: there were no violations of laws, rules, regulations
and contractual provisions which may or may not materially affect the financial statements that
were discovered during the audit; there were no illegal or improper expenditures which may
materially affect the financial statements; there were no improper or inadequate accounting
procedures (e.g., the omission of required disclosures from the financial statements); there were
no failures to properly record financial transactions; or other inaccuracies, irregularities,
shortages, or defalcations discovered by the auditor.
The Rules of the Auditor General (Section 10.554 (1) (g) 5.) also require that the name or official
title and legal authority for the primary government and each component unit of the reporting
entity be disclosed in the management letter, unless disclosed in the notes to the financial
statements. The South East Risk Management Association -Property and Casualty Group, was
established pursuant to Chapter 171, Laws of Florida. There are no component units related to
the South East Risk Management Association -Property and Casualty Group.
As required by the Rules of the Auditor General (Section 10.554 (1) (g) 6a & c.), the scope of our
audit included a review of the provisions of Section 218.503(1), Florida Statutes, "Determination
of Financial Emergency." In connection with our audit, we determined that the South East Risk
Management Association -Property and Casualty Group, is not in a state of financial emergency
as a consequence of the conditions described by Section 218.503(1), Florida Statutes. The
financial condition assessment procedures pursuant to Rule 10.556 (8) were applied in this
determination.
This management letter is intended solely for the information of the South East Risk
Management Association -Property and Casualty Group and management and the State of
Florida Office of the Auditor General and is not intended to be and should not be used by anyone
other than these specified parties.
~L~
I
North Pahn Beach, Florida
December 16, 2003
24