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1 A Financial Statement Analysis Using Indicators of the Financial Health and Success and a Status Report of Audit Findings, Timeliness and Exception Resolution (A.F.T.E.R.) of The Government of the U.S. Virgin Islands as of and for the Year Ended September 30, 2009 Crawford & Associates, P.C Oklahoma City, Oklahoma ® 2 What Is The Performeter®? An analysis that takes a government’s financial statements and converts them into useful and understandable measures of financial performance Financial ratios and a copyrighted analysis methodology are used to arrive at an overall rating of 1-10 The overall reading is a barometer of the VI’s financial health and performance 3 How to Use The Performeter® Use the individual ratios to identify financial warning signals Use the overall rating as a collective benchmark of financial health and success of the VI as a whole Use the comparisons to prior years to monitor trends in financial indicators 4 Limitations of the Performeter® The Performeter® should not be used as the only source of financial information to evaluate the VI’s performance and condition The analysis is an overall rating of the VI as a whole and not of specific activities, funds or units The Performeter® is based on Crawford & Associates’ professional judgment and is limited as to its intended use 5 Change in Net Assets Did our overall financial condition improve, decline or remain steady over the past year? Net Assets at Year End $3,075 $(739,785) $(253,715) $(32,421) $(66,232) $(206,100) $(328,280) $38,752 $68,749 $75,454 $65,425 $55,977 $(736,710) $(214,963) $36,328 $9,222 $(140,675) $(272,303) $(800,000) $(725,000) $(650,000) $(575,000) $(500,000) $(425,000) $(350,000) $(275,000) $(200,000) $(125,000) $(50,000) $25,000 $100,000 2004 2005 2006 2007 2008 2009 In 000s GA BTA Total Net assets include all assets of the VI, except for fiduciary funds held for the benefit of others. It is measured as the difference between total assets, including capital assets, and total liabilities, including long-term debt. For the year ended September 30, 2009, total net assets decreased by $521.7 million or 242.7% from the prior year, which leaves a total net assets (deficit) of approximately $(736.7) million at year end. This decrease in net assets is not as severe as the decrease in the prior period, but still results in a significant deficit position. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -9.4% 29.5% 10.2% 49.5% 89.7% 293.9% -943.6% -242.7% 6 Intergenerational Equity Who is paying for today’s costs of services? Revenues as a % of Annual Expenses 64.4% 85.7% 113.7% 103.3% 103.3% 113.7% 0% 30% 60% 90% 120% 150% 2004 2005 2006 2007 2008 2009 A measure of whether the government lived within its means in the measurement year, or was required to use prior year resources to fund a portion of current year costs, or shifted the funding of some of the current year costs to future periods. For the year ended September 30, 2009, the VI funded 64.4% of their expenses with current year revenues, which is an unfavorable ratio and a decline from the previous period. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 95.8% 96.2% 103.3% 113.7% 111.9% 102.4% 85.7% 64.4% 7 Level of Unrestricted Net Assets How do our total rainy day funds look? Unrestricted Net Assets (Deficit) as a % of Annual Revenues - 2009 -49.4% -117.9% -113.8% -130% -110% -90% -70% -50% -30% -10% 10% 30% GA BTA Totals The level of total unrestricted net assets is an indication of the amount of unexpended and available resources the VI has at a point in time to fund emergencies, shortfalls or other unexpected needs. For the year ended September 30, 2009, the VI’s total unrestricted net assets (deficit) approximated $(1.141) billion or 113.8% of annual total revenues, a significant decline from the previous 5 years. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -100.4% -81.2% -70.0% -51.4% -27.0% -27.4% -45.6% -113.8% 8 Level of Budgetary Fund Balance How does our budgetary carryover look? Budgetary Unreserved Fund Balance (Deficit) as a Percentage of Annual Revenues 22.3% 15.4% 14.8% -12.9% 23.5% -5.9% -15% -10% -5% 0% 5% 10% 15% 20% 25% 2004 2005 2006 2007 2008 2009 The level of budgetary unreserved fund balance is an indication of the amount of unexpended, unencumbered and available resources the VI has at a point in time to carryover into the next fiscal year to fund budgetary emergencies, shortfalls or other unexpected needs. In this analysis, only the General Fund is considered. For the year ended September 30, 2009, the VI’s unreserved fund balance (deficit) of the General Fund was 12.9% of annual General Fund revenues. This is considered an unsatisfactory ratio and financial position for the General Fund to be in, and a significant decrease in the General Fund unreserved fund balance reported in the prior period. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -5.9% 11.2% 15.2% 22.3% 15.4% 23.5% 14.8% -12.9% 9 Revenue Dispersion How heavily are we relying on revenue sources we can’t directly control? 2009 Revenue Percentages by Source 24.0% 8.0% 58.0% 10.0% Taxes Service Charges Grants & Contributions Other The percentage dispersion of revenue by source indicates how dependent the VI is on certain types of revenue. The more dependent the VI is on revenue sources beyond its direct control, such as grants and certain taxes, the less favorable the dispersion. For the year ended September 30, 2009, the VI had direct control over 35.3% of its revenues (some taxes and charges for services). This ratio indicates that the VI has some exposure, as do most insular governments, to financial difficulties due to reliance on non-controlled revenue (64.7%). This ratio is relatively consistent with that of the prior periods. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 41.2% 44.6% 43.1% 41.8% 37.4% 41.6% 32.9% 35.3% 10 BTA Self-Sufficiency Did current year business-type activities (BTA) pay for themselves? Percentage of BTA Expenses Covered By BTA Revenues 83.2% 63.3% 50.9% 99.9% 76.3% 106.0% 50% 60% 70% 80% 90% 100% 110% 120% 2004 2005 2006 2007 2008 2009 The self-sufficiency ratio indicates the level at which business-type activities covered their current costs with current year revenues, without having to rely on subsidies, grants or use of prior year reserves. For the year ended September 30, 2009, the VI’s total business-type activities were 50.9% self-sufficient. This indicates that, for the current year, the costs of business-type activities in total were not funded by recurring current year revenues, and a continued decrease from the ratios of the prior three years. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 71.3% 62.5% 76.3% 99.9% 106.0% 83.2% 63.3% 50.9% 11 Capital Asset Condition How much useful life do we have left in our capital assets? Percentage of Capital Assets' Useful Life Remaining - 2009 61% 64% 61% 0% 25% 50% 75% 100% GA BTA Total The capital asset condition ratio compares capital assets cost to accumulated depreciation to determine the overall percentage of useful life remaining. A low percentage could indicate an upcoming need to replace a significant amount of capital assets. At September 30, 2009, the VI’s depreciable capital assets amounted to $822.7 million while accumulated depreciation totaled $318.9 million. This indicates that, on the average, the VI’s capital assets have 61% of their useful lives remaining. This is a favorable financial indicator although a slight decrease from the prior periods. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 72% 71% 68% 68% 68% 68% 65% 61% 12 Financing Margin - Taxes Will our citizens be willing to pay increased taxes for operations or capital improvements, if needed? Total Taxes Per Capita 7,266 7,556 7,296 5,472 6,118 8,030 $1,500 $2,500 $3,500 $4,500 $5,500 $6,500 $7,500 $8,500 2004 2005 2006 2007 2008 2009 The financial ratio of taxes per capita is an indication of the VI’s tax burden on its citizens and other taxpayers. The ratio includes all taxes, including income taxes, and other taxes. For the year ended September 30, 2009, total taxes amounted to $582.2 million or $5,472 per capita. This is considered a relatively high tax burden (when compared to other insular governments), but it is a significant decrease from the ratio in the prior year. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $5,518 $5,475 $6,118 $7,266 $8,030 $7,556 $7,296 $5,472 13 Financing Margin - Debt Will we be able to issue more debt, if needed? Debt Per Capita $5,418 $8,805 $10,185 $9,568 $10,525 $11,102 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000 $11,000 $12,000 2004 2005 2006 2007 2008 2009 The financial ratio of debt per capita is an indication of the VI’s debt burden on its citizens and other taxpayers. For the year ended September 30, 2009, the VI had $936.9 million of long-term debt or $8,805 per capita which is a relatively high debt burden on its citizens when compared to other insular governments. However, the large decrease in the prior year ratio was related to a reconsideration and removal of long-term debts with guaranteed payback from outside governments. However, during the current period, the VI issued several new long term debts. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $7,490 $7,494 $9,568 $10,525 $11,102 $10,185 $5,418 $8,805 14 Pension Plan Funding Ratio Will we be able to pay our employees when they retire? Plan Assets as a Percentage of Accrued Liability 52% 54% 59% 59% 59% 59% 10% 20% 30% 40% 50% 60% 70% 2004 2005 2006 2007 2008 2009 The pension funding ratio compares the actuarial fair value of the pension plan’s assets to the actuarial accrued liability for pension benefits. A percentage less than 100% indicates the plan is under-funded at the valuation date. At September 30, 2009, based upon the most recent actuarial valuation, the VI’s pension plan assets were 52% of the accrued pension benefit liability, indicating the plan was slightly more than half funded, and an indicator of potential long-term cash demands to fund the future needs of the plan. The funded portion of the plan has remained relatively constant in the past few periods, although a decline when compared to the most recent year. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 62% 60% 59% 59% 59% 59% 54% 52% 15 Debt to Assets Who really owns the VI? Percentage of Debt to Assets -2009 4.4% 140.0% 141.7% 95.6% 0.0% 0.0% 0% 25% 50% 75% 100% 125% 150% GA BTA Total Debt Assets Debt Free The debt to assets ratio measures the extent to which the VI had funded its assets with debt. The lower the debt percentage, the more equity the VI has in its assets. At September 30, 2009, the VI had total debts or other obligations that exceeded its assets or other obligations by 40%. This is an unfavorable financial indicator and indicates that none of the VI’s assets are debt-free, and for each dollar of assets the VI owns, it owes $1.40 in liabilities to others. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 134.6% 122.4% 117.4% 107.4% 100.8% 98.1% 111.8% 140.0% 16 Current Ratio Will our vendors and employees be pleased with our ability to pay them on time? Current Assets Compared to Current Liabilities - 2009 $404,840 $391,832 $13,008 $483,692 $36,502 $447,190 $10,000 $110,000 $210,000 $310,000 $410,000 $510,000 $610,000 GF BTA Total In 000s Current Assets Current Liabilities The current ratio is one measure of the VI’s ability to pay its short-term obligations. The current ratio compares total current assets and liabilities. A current ratio of 2.00 to 1 indicates good current liquidity and an ability to meet the short-term obligations. This ratio measures only the General Fund and business-type activities of the Enterprise Funds , the VI’s primary operating funds. At September 30, 2009, the VI had ratios of current assets to current liabilities of $.84 to $1. This indicates that for every dollar of current liabilities, the VI had $.84 to fund them. This is considered a less than satisfactory ratio, and is a significant decrease in the ratio from the previous period. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1.10 1.39 1.44 1.44 1.60 1.61 1.36 .84 17 Quick Ratio How is our short-term cash position? Cash and Cash Equivalents Compared to Current Liabilities - 2009 $165,319 $146,449 $18,870 $243,737 $207,235 $36,502 $12,000 $62,000 $112,000 $162,000 $212,000 $262,000 $312,000 $362,000 $412,000 GF BTA Total In 000s Cash & Cash Equivalents Current Liabilities The quick ratio is another, more conservative, measure of the VI’s ability to pay its short-term obligations. The quick ratio compares total cash and short-term investments to current liabilities. A quick ratio of 1.00 to 1 indicates adequate current liquidity and an ability to meet the short-term obligations with cash. This ratio measures only the General Fund and business-type activities of the Enterprise Funds, the VI’s primary operating funds. At September 30, 2009, the VI had a ratio of cash and cash equivalents to current liabilities of $.68 to $1. This indicates that for every dollar of current liabilities, the VI had $.68 in cash and cash equivalents to fund them. This is considered an unsatisfactory ratio, and a significant decline from the ratio in the prior periods. 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1.09 1.30 1.57 1.74 2.41 1.74 1.53 .68 18 Performeter® Reading 2.58 3.63 4.36 4.78 4.17 4.48 2.89 2.29 0 1 2 3 4 5 6 7 8 9 10 2002 2003 2004 2005 2006 2007 2008 2009 Overall Reading The 2009 reading of 2.29 indicates the evaluator’s opinion that the VI’s overall financial health and performance declined compared to the prior period. The decline in the current year score was due in a large part to several ratios turning downward during the year, such as the General Fund’s unreserved fund balance (deficit), business-type self sufficiency, debt-to-assets, and current and quick ratios. Excellent Satisfactory Poor 19 What is the A.F.T.E.R. Analysis? The A.F.T.E.R. Analysis is very simply an analysis of the status of audit findings, the timeliness of the submission of the audit and the resolution of certain audit exceptions; this analysis can be used to track a government's progress towards eliminating its most significant findings and exceptions, along with tracking the timeliness of submission to the Federal Clearinghouse. 20 A.F.T.E.R. VI 2004 2005 2006 2007 2008 2009 Number of F.S. Opinion Qualifications/Exceptions 10 9 7 9 7 8 Number of Major Federal Program Qualifications/Exceptions 3 3 6 11 7 8 Number of F.S. Findings A. Internal Control and Compliance B. Internal Control Only C. Compliance Only TOTAL 1 2 0 3 1 2 0 3 3 0 1 4 0 11 1 12 1 10 0 11 1 10 0 11 Percentage of Findings Repeated 100% 100% Unable to determine Unable to determine 100% (estimate) 100% (estimate) Number of A-133 Findings A. Internal Control and Compliance B. Internal Control Only C. Compliance Only TOTAL 16 15 1 32 36 0 2 38 22 0 0 22 50 0 0 50 50 0 0 50 12 34 0 46 Percentage of A-133 Findings Repeated 71.9% 47.4% Unable to determine Unable to determine 58% 56.5% Number of months after Y/E the F.S. were Released 24 30 30 25 24 22 Number of Qualifications/Exceptions Related to C.U. 6 4 5 6 3 3 $ of Questioned Costs-Current Year $478,569 $9,056,788 $3,829,679 $8,484,494 $3,487,561 $57,293,304 $ of Questioned Costs- Cumulative Unable to determine Unable to determine Unable to determine Unable to determine Unable to determine $60,104,177 $ of Questioned Costs Resolved – Current Year Unable to determine Unable to determine Unable to determine Unable to determine $6,276,416 $8,944,995 21 Thank You We would like to commend and thank the management of the Government of the U.S. Virgin Islands, the U.S. Department of Interior, and the Graduate School for allowing us to present this financial analysis. We hope it serves as a useful and understandable compliment to VI’s annual financial report. Visit our website at www.crawfordcpas.com for other useful tools for governments.