Washington State Auditor’s Office  
Financial Statements Audit Report  
Washington Counties Risk Pool  
Thurston County  
Audit Period  
October 1, 2011 through September 30, 2012  
Report No. 1009543  
Issue Date  
April 29, 2013  
Washington State Auditor  
Troy Kelley  
April 29, 2013  
Board of Directors  
Washington Counties Risk Pool  
Tumwater, Washington  
Report on Financial Statements  
Please find attached our report on the Washington Counties Risk Pool’s financial statements.  
We are issuing this report in order to provide information on the Pool’s financial condition.  
Sincerely,  
TROY KELLEY  
STATE AUDITOR  
Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 TDD Relay (800) 833-6388  
Table of Contents  
Washington Counties Risk Pool  
Thurston County  
October 1, 2011 through September 30, 2012  
Independent Auditor’s Report on Internal Control over Financial Reporting and on  
Compliance and Other Matters in Accordance with Government Auditing Standards................. 1  
Independent Auditor’s Report on Financial Statements.............................................................. 3  
Financial Section........................................................................................................................ 5  
Independent Auditor’s Report on Internal  
Control over Financial Reporting and on  
Compliance and Other Matters in Accordance  
with Government Auditing Standards  
Washington Counties Risk Pool  
Thurston County  
October 1, 2011 through September 30, 2012  
Board of Directors  
Washington Counties Risk Pool  
Tumwater, Washington  
We have audited the basic financial statements of the Washington Counties Risk Pool, Thurston  
County, Washington, as of and for the years ended September 30, 2012 and 2011, and have  
issued our report thereon dated April 11, 2013.  
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.  
INTERNAL CONTROL OVER FINANCIAL REPORTING  
In planning and performing our audits, we considered the Pool’s internal control over financial  
reporting as a basis for designing our auditing procedures for the purpose of expressing our  
opinion on the financial statements, but not for the purpose of expressing an opinion on the  
effectiveness of the Pool’s internal control over financial reporting. Accordingly, we do not  
express an opinion on the effectiveness of the Pool’s internal control over financial reporting.  
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 a combination of deficiencies, in internal control such that there is a reasonable  
possibility that a material misstatement of the Pool's financial statements will not be prevented,  
or detected and corrected on a timely basis.  
Our consideration of internal control over financial reporting was for the limited purpose  
described in the first paragraph of this section and would not necessarily identify all deficiencies  
in internal control that might be deficiencies, significant deficiencies or material weaknesses.  
We did not identify any deficiencies in internal control over financial reporting that we consider  
to be material weaknesses, as defined above.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
1
COMPLIANCE AND OTHER MATTERS  
As part of obtaining reasonable assurance about whether the Pool’s financial statements are  
free of material misstatement, we performed tests of the Pool’s compliance with certain  
provisions of laws, regulations, contracts and grant agreements, 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 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.  
This report is intended for the information and use of management and the Board of Directors.  
However, this report is a matter of public record and its distribution is not limited. It also serves  
to disseminate information to the public as a reporting tool to help citizens assess government  
operations.  
TROY KELLEY  
STATE AUDITOR  
April 11, 2013  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
2
Independent Auditor’s Report on Financial  
Statements  
Washington Counties Risk Pool  
Thurston County  
October 1, 2011 through September 30, 2012  
Board of Directors  
Washington Counties Risk Pool  
Tumwater, Washington  
REPORT ON THE FINANCIAL STATEMENTS  
We have audited the accompanying basic financial statements of the Washington Counties  
Risk Pool, Thurston County, Washington, as of and for the years ended September 30, 2012  
and 2011, as listed on page 5.  
Management’s Responsibility for the Financial Statements  
Management is responsible for the preparation and fair presentation of these financial  
statements in accordance with accounting principles generally accepted in the United States of  
America; this includes 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 Responsibility  
Our responsibility is to express an opinion on these financial statements based on our audits.  
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 from material misstatement.  
An audit involves performing procedures to obtain audit evidence about the amounts and  
disclosures in the financial statements. The procedures selected depend on the auditor’s  
judgment, including the assessment of the risks of material misstatement of the financial  
statements, whether due to fraud or error. In making those risk assessments, the auditor  
considers internal control relevant to the Pool’s preparation and fair presentation of the financial  
statements 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 Pool’s internal control.  
Accordingly, we express no such opinion.  
An audit also includes evaluating the  
appropriateness of accounting policies used and the reasonableness of significant accounting  
estimates made by management, as well as evaluating the overall presentation of the financial  
statements.  
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a  
basis for our audit opinion.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
3
Opinion  
In our opinion, the financial statements referred to above present fairly, in all material respects,  
the financial position of the Washington Counties Risk Pool, as of September 30, 2012 and  
2011, and the changes in financial position and cash flows thereof for the years then ended in  
accordance with accounting principles generally accepted in the United States of America.  
Other Matters  
Accounting principles generally accepted in the United States of America require that the  
management’s discussion and analysis on pages 6 through 10 and claims development  
information on page 28 be presented to supplement the basic financial statements. Such  
information, although not a part of the basic financial statements, is required by the  
Governmental Accounting Standards Board who considers it to be an essential part of financial  
reporting for placing the basic 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 basic financial statements, and other knowledge we obtained during our audit of  
the basic 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.  
Our audit was conducted for the purpose of forming an opinion on the financial statements that  
collectively comprise the Pool’s basic financial statements as a whole. The List of Participating  
Members and Office of Financial Management Schedule of Expenses are presented for  
purposes of additional analysis and are not a required part of the basic financial statements.  
Such information has not been subjected to the auditing procedures applied in the audit of the  
basic financial statements and, accordingly, we do not express an opinion or provide any  
assurance on it.  
OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS  
In accordance with Government Auditing Standards, we have also issued our report on our  
consideration of the Pool’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 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 internal control over financial reporting or on compliance. That report is an  
integral part of an audit performed in accordance with Government Auditing Standards and  
should be considered in assessing the results of our audits.  
TROY KELLEY  
STATE AUDITOR  
April 11, 2013  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
4
Financial Section  
Washington Counties Risk Pool  
Thurston County  
October 1, 2011 through September 30, 2012  
REQUIRED SUPPLEMENTARY INFORMATION  
Management’s Discussion and Analysis – 2012 and 2011  
BASIC FINANCIAL STATEMENTS  
Comparative Statement of Net Position – 2012 and 2011  
Comparative Statement of Revenues, Expenses and Fund Net Position – 2012 and  
2011  
Comparative Statement of Cash Flow – 2012 and 2011  
Notes to Financial Statements – 2012 and 2011  
REQUIRED SUPPLEMENTARY INFORMATION  
Claims Development Information – 2012  
SUPPLEMENTAL INFORMATION  
List of Participating Members (Schedule T-1) – 2012  
Office of Financial Management Schedule of Expenses (Schedule T-2) – 2012 and 2011  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
5
Management’s Discussion and Analysis  
The management of the Washington Counties Risk Pool (“WCRP” or “Risk Pool”) presents this narrative  
overview and analysis (“MD&A”) of the Risk Pool’s financial activities for the fiscal year ended September  
30, 2012. To more fully understand the entity’s financial position, this MD&A should be considered in  
conjunction with the information in the companion financial statements and accompanying notes.  
The WCRP was established in 1988 to administer and support a jointly funded, (third-party liability) self-  
insurance program for its member (Washington) counties. Most of the Risk Pool’s operating revenue  
consists of contributions from (assessments paid by) its member counties, present and past. Its operating  
expenses primarily consist of claims resolution payments, including allocated loss adjustment expenses,  
and premiums for coverages purchased from superior-rated commercial reinsurance and excess and  
property insurance carriers.  
The WCRP has no other component units for which it is financially accountable. It operates as an  
enterprise (proprietary) fund and uses accrual accounting basis in accordance with the U.S. generally  
accepted accounting principles applicable to governmental enterprise funds. This fund type is used for  
‘business type activities’ that are intended to recover all or a significant portion of their costs through user  
fees and charges. Revenues are recognized when earned, and expenses are recognized when incurred.  
Financial Highlights  
With total assets increasing $0.98 million (+2.4%) and current liabilities decreasing $0.85 million (-2.8%),  
the Risk Pool’s net (financial) position, previously referred to as net assets or sometimes as owners’  
equity, improved more than $1.83 million (+16.6%), from $11.03 million at the beginning of FY-2012 to  
$12.86 million year-end. $0.80 million of the net position is classified as ‘restricted’ to satisfy the (State  
Risk Manager’s) solvency provisions in WAC 200.100.03001(3) and another $4.03 million is ‘restricted’ to  
fully-address WCRP’s own (98% confidence factor) requirements in section D of its underwriting policy.  
Capital assets (net of debt) of $0.95 million are also included. And the remainder, $7.08 million, is ‘non-  
restricted’ and available for use as the WCRP board of directors decides. NOTE: The non-restricted net  
position increased $2.65 million (+59.7%) during FY-2012.  
Operating income of more than $1.77 million was experienced during FY-2012, an increase of 131.8%  
from FY-2011 but 2.8% less than the operating income experienced in FY-2010. The FY-2012 operating  
income was derived both from increased operating revenues of nearly $0.5 million (+3.5%), primarily  
members’ contributions supporting the WCRP’s insuring programs, and from decreased operating  
expenses of more than $0.5 million (-3.9%) due to very favorable adjustments by WCRP’s independent  
actuary, PricewaterhouseCoopers LLP (“PwC”), to its claims-related reserves.  
Another 634 third-party liability claims (and lawsuits) were reported to the Risk Pool by member counties  
during FY-2012 and added to the WCRP claims database. That was a 14.8% reduction in year-over-year  
filings, and an enhancement of the declining rate of filings that has existed since FY-2009. The new  
filings raised the to-date total (Oct 1988 – Sep 2012) to 18,616, yet only 375 claims remained classified  
as ‘open’ at year-end. With another 332 claims projected by the actuary as being incurred but not yet  
reported (“IBNR”) from all years through FY-2012, the Risk Pool’s estimated ultimate claims totaled  
18,948 at year-end.  
The actuary’s total reserves projection for claims that the WCRP is directly responsible for decreased  
slightly (-2.0%) from FY-2011 to $14.70 million. That amount includes $4.30 million (down 22.8% from  
the prior year) for losses within the Risk Pool’s self-insured retention, $9.41 million (up 9.7% from one  
year ago) for losses within the WCRP (automobile / general liabilities) “corridor” program’s aggregated  
stop losses, and nearly $1.00 million (up 16.9% from FY-2011) for unallocated loss adjustment expenses.  
NOTE: The corridor programs involving the WCRP’s first-layer reinsurer began six years ago. They  
included an occurrence coverage maximum of $0.5 million during their first three years which increased  
to $1.0 million beginning with FY-2010. Their occurrence coverage minimums have always been the  
greater of the applicable member’s deductible or $100,000.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
6
Overview of the Financial Statements  
The basic financial statements are comprised of two components: the financial statements; and the notes  
to the financial statements. The Statement of Net Position presents information on all of an entity’s  
assets and liabilities at fiscal year-end with the difference between the two 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 entity is improving or deteriorating.  
The Statement of Revenues, Expenses and Changes in Net Position presents details of an entity’s  
revenues and expenses during the fiscal year that resulted in the reported Change in Net Position -  
revenues exceeding expenses result in Income; revenues less than expenses result in Loss. Revenues  
and expenses are reported in this statement for some items that will (or did) result in cash flows in future  
or past periods (e.g. incurred claims costs, earned but unused vacation leave).  
The Statement of Cash Flow presents the cash provided for and used by an entity’s operations and  
categorized by operating, capital and investing activities. The effects of accrual accounting and non-cash  
activities such as depreciation have been removed by adjustment. This statement reconciles the  
beginning and ending cash balances reflected in the Statement of Net Position.  
The Notes to the Financial Statements provide additional information essential to fully understanding the  
data provided in an entity’s financial statements.  
Financial Statements  
This MD&A is presented with three comparative financial statements: the Comparative Statement of Net  
Position; the Comparative Statement of Revenues, Expenses and Changes in Net Position, and the  
Comparative Statement of Cash Flow, along with a budgetary variation summary.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
7
COMPARATIVE FINANCIAL INFORMATION  
Washington Counties Risk Pool  
NET POSITION  
09/30/2012  
$41,159,087  
950,134  
09/30/2011  
$39,993,492  
983,848  
09/30/2010  
$37,703,144  
Current Assets  
Capital (Non-Current) Assets  
Other Non-Current Assets  
1,033,510  
150,000  
0
150,000  
Total Assets  
$42,109,221  
$41,127,340  
$38,886,654  
Current Liabilities  
Non-Current Liabilities  
$28,165,704  
1,080,500  
$29,167,816  
929,473  
$27,710,615  
966,669  
Total Liabilities  
$29,246,204  
$30,097,289  
$28,677,284  
Restricted Net Position  
Invested (Net) in Capital Assets  
Non-Restricted Net Position  
$4,834,776  
950,134  
7,078,107  
$5,614,009  
983,848  
4,432,194  
$11,030,051  
$5,997,409  
1,033,510  
3,178,450  
Total Net Position  
$12,863,017  
$10,209,370  
$45  
$40  
$35  
$30  
$25  
$20  
$15  
$10  
$5  
FY-2012  
FY-2011  
FY-2010  
$-  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
8
REVENUES, EXPENSES and CHANGES IN NET POSITION  
FY-2012  
FY-2011  
$11,354,006  
FY-2010  
$11,508,205  
Operating Revenues  
Member JSLIP Assessments  
Member WCPP Assessments  
Operating Revenues – Miscellaneous  
Total Operating Revenues  
Non-Operating Revenues (and Expenses)  
Interest Income  
Recovery of Real (Franjo Beach) Property  
Gain on Sale of Assets  
Rental Income (net)  
$11,648,053  
2,799,807  
107,627  
$14,555,487  
2,606,107  
106,930  
$14,067,043  
2,890,723  
110,964  
$14,509,892  
$47,004  
0
2,000  
$55,930  
$67,374  
150,000  
0
0
0
0
10,950  
4,794  
Total Non-Operating Revenues  
Total Revenues  
$59,954  
$14,615,441  
$55,930  
$14,122,973  
$222,331  
$14,732,223  
Operating Expenses  
Current Year’s Claims Reserve  
Current Year’s Aggregate Stop Loss  
Prior Years’ Claim Reserve Adjustment  
Reserve for ULAE  
$1,605,472  
2,375,000  
(1,913,306)  
142,510  
$1,570,125  
2,375,000  
(850,922)  
(45,092)  
$1,502,751  
2,475,000  
(1,652,831)  
(14,850)  
Reinsurance Premiums (JSILP)  
Excess (Liability) Insurance Premiums  
WCPP (Property) Premiums  
Depreciation Expenses  
5,602,250  
510,858  
2,726,208  
55,831  
5,480,000  
525,054  
2,535,007  
49,662  
5,480,000  
579,758  
2,787,059  
53,666  
Administrative Expenses  
Total Operating Expenses  
1,677,653  
$12,782,476  
1,663,458  
$13,302,291  
1,474,664  
$12,685,217  
CHANGES IN NET POSITION  
$1,832,965  
$11,030,052  
$12,863,017  
$820,682  
$10,209,369  
$11,030,052  
$2,047,006  
$8,162,363  
$10,209,369  
Beginning Net Position (October 1st)  
Ending Net Position (September 30th)  
CASH FLOWS  
FY-2012  
FY-2011  
FY-2010  
Net Cash Provided (Used) For Operating Activities  
Net Cash Provided (Used) For Capital Activities  
Net Cash Provided (Used) For Investing Activities  
Increase (Decrease) in Cash & Cash Equivalent  
$315,296  
140,835  
47,004  
$2,654,816  
$10,215,703  
(24,181)  
67,536  
$10,259,059  
55,930  
$2,710,747  
$503,135  
Cash & Cash Equivalents (Beginning of the Year)  
Cash & Cash Equivalents (End of the Year)  
$35,737,238  
$36,240,373  
$33,026,490  
$35,737,238  
$22,767,431  
$33,026,490  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
9
BUDGET VARIATIONS  
Fiscal 2012  
Actual  
Budget  
Variance  
($10,454)  
Operating Revenues:  
Member C/A – Liability Coverage  
Member C/A – Property Insurance  
Member Services Revenues  
Total Operating Revenues  
$11,648,053  
2,799,807  
107,627  
$11,658,507  
2,848,086  
128,750  
(48,279)  
(21,123)  
($79,856)  
$14,555,487  
$14,635,343  
Operating Expenses:  
Claims Paid on Current Year Reserves  
Adjustment for Prior Year’s Claims  
$1,605,472  
(1,913,306)  
2,375,000  
142,510  
5,602,250  
510,858  
2,726,208  
55,831  
1,677,653  
$12,782,476  
$1,605,307  
2,375,000  
($165)  
1,913,306  
0
(142,510)  
0
Current Year’s A/G Liabilities Corridor Reserve  
Reserve for Unallocated Loss Adjustment Expenses  
Premiums for Reinsurances Purchased  
Premiums for Excess Insurances Purchased  
Premiums for Property Insurance Purchased  
Depreciation (of Capital Assets) Expense  
Administrative (OH) Expenses  
5,602,250  
521,475  
2,781,200  
60,000  
1,839,597  
$14,784,829  
10,617  
54,992  
4,169  
161,944  
$2,002,353  
Total Operating Expenses  
Operating Income / (Loss)  
$1,773,011  
($149,486)  
$1,922,497  
Non-Operating Revenues / (Expenses):  
Interest Income  
$47,004  
10,950  
2,000  
$102,600  
13,600  
($55,596)  
(2,650)  
2,000  
Rental Income (Net)  
Gain / (Losses) on Capital Asset Disposition  
Property Fraud (Net Restitution)  
Total Non-Operating Revenues / (Expenses)  
0
$59,954  
$116,200  
($33,286)  
($56,246)  
Changes in Net Position  
$1,832,965  
$1,866,251  
Net Position, Beginning of Fiscal Period  
$11,030,052  
$10,146,518  
$883,534  
NET POSITION, End of Fiscal Period  
$12,863,017  
$10,113,232  
$2,749,785  
Capital Assets and Long-Term Debt  
The WCRP acquired Capital Assets during FY-2012 by replacement of a fleet automobile being used by  
the claims division staff ($20,115). (NOTE: Readers should view Note 7 in the ‘Notes to the Financial  
Statements’ for an expanded Capital Assets discussion.)  
The Washington Counties Risk Pool had no long-term debt as of September 30, 2012.  
Request for Information  
Again, this MD&A is provided as a general overview of the Washington Counties Risk Pool’s financial  
operations for those interested in the Pool’s finances. Questions concerning the information provided and  
the Risk Pool’s financial report, or requests for additional information, should be addressed to:  
WASHINGTON COUNTIES RISK POOL, Attn: Executive Director Vyrle Hill, 2558 R.W. Johnson Road  
SW, Suite 106, Tumwater, WA 98512-6103, or telephone 360/292-4495.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
10  
MCAG NO 0774  
WASHINGTON COUNTIES RISK POOL  
COMPARATIVE STATEMENT OF NET POSITION  
AS OF SEPTEMBER 30, 2012 AND 2011  
ASSETS:  
As of  
As of  
9/30/2012  
09/30/2011  
CURRENT ASSETS:  
Cash and Cash Equivalents  
$
21,544,798  
14,695,575  
904,039  
115,339  
897,477  
2,857,829  
3,500  
$35,737,237  
Cash and Cash Equivalents - Restricted  
Members' Deductibles Receivable  
Excess/Reinsurance Recoverable  
Members' Liability Assessments Receivable  
Members' Property Insurance Assessments Receivable  
Prepaid Expenses  
$782,602  
$1,055,240  
$2,139,792  
$243,299  
$2,000  
Other Accounts Receivables  
140,530  
$33,322  
TOTAL CURRENT ASSETS  
$
41,159,087  
950,134  
$39,993,491  
NONCURRENT ASSETS:  
Capital Assets (Net of Accumulated Depreciation)  
Investment Held for Resale (Franjo Beach)  
$
$983,848  
$150,000  
TOTAL NON CURRENT ASSETS  
$
950,134  
$1,133,848  
TOTAL ASSETS  
$
42,109,221  
$41,127,340  
LIABILITIES  
CURRENT LIABILITES:  
Claims Reserves  
Reserves for Pool-retained Open Claims  
IBNR Pool-retained Claims Reserve  
Corridor Reserves (AL/GL xs $100k)  
Reserves for Open Claims  
IBNR Claims Reserve  
Accounts Payable  
$
2,486,685  
1,814,161  
$3,219,531  
$2,353,447  
4,853,147  
4,554,868  
117,772  
$5,358,868  
$3,216,068  
$496,219  
Unearned Revenue - Members Assessments  
14,339,071  
14,523,683  
TOTAL CURRENT LIABILITIES  
$
28,165,704  
$29,167,816  
NON CURRENT LIABILITIES  
Reserve for ULAE  
Compensated Absences  
$
986,717  
93,783  
$
$
844,207  
$85,266  
TOTAL NON CURRENT LIABILITIES  
$
1,080,500  
929,473  
TOTAL LIABILITIES  
$
29,246,204  
$
30,097,289  
NET POSITION:  
Restricted Net Position - SRM Secondary Assets Test  
Restricted Net Position - Satisfy UW Policy Sec D  
Restricted Net Position - Investment of Franjo Beach  
Non-Restricted Net Position  
$
797,841  
4,036,935  
0
7,078,107  
950,134  
$905,393  
$4,558,616  
$150,000  
$4,432,194  
$983,848  
Net Investment in Capital Assets  
TOTAL NET POSITION  
$
12,863,017  
$11,030,051  
TOTAL NET POSTION AND LIABILITIES  
$
42,109,221  
$41,127,340  
The accompanying notes are an integral part of this financial statements  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
11  
MCAG NO 0774  
WASHINGTON COUNTIES RISK POOL  
COMPARATIVE STATEMENT OF REVENUES, EXPENSES AND FUND NET POSITION  
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2012 AND 2011  
Year Ended  
9/30/2012  
Year Ended  
9/30/2011  
OPERATING REVENUES:  
Members' Assessments -- Liability Coverage  
Members' Assessments -- Property Insurance  
Member Services - Revenues  
$
$
$
11,648,053  
2,799,807  
107,627  
$
$
$
11,354,006  
2,606,107  
106,930  
Total Operating Revenues  
14,555,487  
14,067,043  
OPERATING EXPENSES:  
Current Year's "Claims" Reserve  
Current Year's "AL/GL 1st Layer Corridor Reserves"  
Adjustment in Prior Years' Claims Reserves  
Adjustment in Reserve for ULAE  
Liability Reinsurance Premiums  
Excess Liability Insurance Premiums  
Property Insurance Premiums  
1,605,472  
2,375,000  
(1,913,306)  
142,510  
5,602,250  
510,858  
1,570,125  
2,375,000  
(850,922)  
(45,092)  
5,480,000  
525,054  
2,726,208  
55,831  
2,535,007  
49,662  
Depreciation Expense  
Operating Expenditures  
1,677,653  
1,663,458  
Total Operating Expenses  
$
$
12,782,476  
1,773,011  
$
$
13,302,291  
764,752  
OPERATING INCOME (LOSS)  
NON OPERATING REVENUES (EXPENSES)  
Interest Income  
Rental Income  
Rental Expense  
Gain on Sale of Asset  
$
47,004  
17,269  
(6,319)  
2,000  
$
55,930  
0
0
0
Total Nonoperating Revenues (Expenses)  
CHANGES IN NET POSITION  
$
$
59,954  
$
$
55,930  
1,832,965  
820,682  
TOTAL NET POSITION, Beginning of Year  
TOTAL NET POSTION, End of Year  
$
11,030,052  
$
10,209,370  
$
12,863,017  
$
11,030,052  
The accompanying notes are an integral part of this financial statements  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
12  
MCAG NO 0774  
WASHINGTON COUNTIES RISK POOL  
COMPARATIVE STATEMENT OF CASH FLOW  
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2012 AND 2011  
Year Ended  
9/30/2012  
Year Ended  
9/30/2011  
CASH FLOWS FROM OPERATING ACTIVITIES:  
Cash received from Members & Insurers  
$ 13,709,915 $ 15,091,864  
Cash payments for goods and services  
Cash payments to employees for services  
(12,527,516)  
(867,101)  
(11,566,518)  
(870,530)  
Net Cash Provided (Used) by Operating Activities  
$
$
315,298 $ 2,654,816  
CASH FLOW FROM CAPITAL ACTIVITIES:  
Purchase of Equipment & Building  
Cash from Rental of Office (net)  
Gain on Sale of Assets  
(22,117) $  
10,950  
-
-
2,000  
Sale of Property Held for Resale  
150,000  
Net Cash Provided (Used) by Investing Activities  
CASH FLOW FROM INVESTING ACTIVITIES:  
Interest Income  
$
140,833  
$
$
47,004  
47,004  
$
$
55,930  
55,930  
Net Cash Provided (Used) by Investing Activities  
Increase (Decrease) in Cash and Cash Equivalents  
$
503,135 $ 2,710,747  
Cash and Cash Equivalents - Beginning of the Year  
Cash and Cash Equivalents (including restricted) - End of the Year  
$ 35,737,238 $ 33,026,490  
$36,240,373 $35,737,238  
The accompanying notes are an integral part of this financial statements  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
13  
MCAG NO 0774  
WASHINGTON COUNTIES RISK POOL  
COMPARATIVE STATEMENT OF CASH FLOW  
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2012 AND 2011  
Year Ended  
9/30/2012  
Year Ended  
9/30/2011  
RECONCILIATION OF OPERATING INCOME TO NET CASH  
PROVIDED (USED) BY OPERATING ACTIVITIES  
OPERATING INCOME  
$ 1,773,011  
$
764,752  
Adjustments to Reconcile Net Operating Income to Net  
Cash provided (used) by Operating Activities:  
Depreciation Expense  
55,831  
(660,959)  
(1,272,132)  
833,079  
142,510  
(184,613)  
(378,447)  
8,517  
49,662  
419,547  
(572,158)  
1,564,096  
(45,092)  
605,272  
(140,010)  
7,896  
Decrease (Increase) in Accounts Receivable  
Increase (Decrease) in Claims Reserves  
Increase (Decrease) in AL/GL Corridor Reserves  
Increase (Decrease) in Reserve for ULAE  
Increase (Decrease) in Unearned Revenue  
Increase (Decrease) in Accounts Payable  
Increase (Decrease) in Accrued Liabilities  
Increase (Decrease) in Prepaid Expenses  
(1,500)  
850  
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES  
$
315,298 $ 2,654,816  
NONCASH INVESTING, CAPITAL, AND FINANCING ACTIVITIES  
Investment Held for Resale - Franjo Beach Property  
$
150,000  
$
-
The accompanying notes are an integral part of this financial statements  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
14  
WASHINGTON COUNTIES RISK POOL  
NOTES TO FINANCIAL STATEMENTS  
October 1, 2011 through September 30, 2012  
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  
The accounting policies of the Washington Counties Risk Pool conform to generally accepted accounting principles  
(“GAAP”). The following is a summary of the more significant policies:  
a.  
Reporting Entity  
The Washington Counties Risk Pool (“WCRP”) was organized August 18, 1988 to provide its members  
with joint programs pursuant to Chapter 48.62, RCW, including self-insurance, purchase of insurance, and  
contracting for or hiring personnel to provide administrative, claims handling and risk management  
services. It was established via agreement amongst several Washington’s counties under the Interlocal  
Cooperation Act (Chapter 39.34, RCW).  
A new member county makes a 60-month commitment when joining the WCRP. After that, a member may  
withdraw at the end of any WCRP fiscal year provided the county has given the WCRP written notice of its  
intent to withdraw at least twelve months in advance. New members must be approved by a majority vote  
of the (WCRP) Board, provided that a majority of the (WCRP) Executive Committee may approve the  
admission, fees and initial deposit assessment/contribution of any new member counties with populations  
of less than 125,000. The membership of the WCRP during this reporting period included 27 counties with  
populations ranging from 2,300 to 470,300.  
Underwriting and rate-setting policies are modified after consultation with the insurance producer and/or  
independent actuary. Annual deposit assessments are adjusted to incorporate actuarial projections and  
operational needs, and then approved by the (WCRP) Board. If its assets were depleted, members would be  
responsible for outstanding liabilities of the WCRP as pooling members are subject under present  
regulations to supplemental assessment(s) in the event of deficiencies.  
Twenty or twenty five million dollars (member option) in third-party “per occurrence” liability coverage  
was provided via the WCRP to its member counties during Policy Year 2012 for bodily injury, personal  
injury, property damage, errors and omissions, and advertising injury. That included jointly self-insured  
coverage from the WCRP of ten million dollars, subject to the member’s selected deductible, along with  
“following form” excess insurance coverage of ten or fifteen million dollars. The WCRP is reinsured for  
losses within its layer(s) of coverage that exceed the greater of one hundred thousand dollars or the  
member’s deductible. Members annually select their “per occurrence” deductible amount of ten, twenty  
five, fifty, one hundred, two hundred fifty, or five hundred thousand dollars. There are no annual aggregate  
limits to the payments the WCRP might make for any one member county or all member counties  
combined.  
The WCRP also offers a jointly-purchased program for insuring participating counties’ real and personal  
properties with extraordinary limits. This includes five hundred million dollars “all other perils” coverage  
with two hundred million dollars per occurrence/annual aggregate catastrophe limits each for earthquake  
and for flood coverage. During the 2012 policy year, there were twenty six counties participating.  
b.  
Basis of Accounting and Presentation  
The accounting records of the WCRP are maintained in accordance with methods prescribed by the State  
Auditor’s Office under the authority of Chapter 43.09, RCW. The WCRP also follows the accounting  
standards established by the Governmental Accounting Standards Board (GASB) Statement 10, Accounting  
And Financial Reporting For Risk Financing And Related Insurance Issues, as amended by GASB  
Statement 30, Risk Financing Omnibus, GASB Statement 31, Accounting and Financial Reporting for  
Certain Investments and for External Investment Funds.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
15  
The WCRP uses the full-accrual basis of accounting where revenues are recognized when earned and  
expenses are recognized when incurred. Capital asset purchases are capitalized, and long-term liabilities  
are accounted for within the financial statements.  
The principal operating revenues of the WCRP are member assessments (sometimes referred to as  
premiums or contributions), while operating expenses include claims paid from current year allowances and  
adjustments to prior year’s reserves, insurance (reinsurance, excess and property) premiums, and  
administrative expenses.  
c.  
Cash and Cash Equivalents  
For the purposes of the Statement of Cash Flows, the WCRP considers all highly liquid investments with  
maturities of three months or less when purchased to be cash equivalent.  
d.  
e.  
Capital Assets and Depreciation  
See Note 7  
Restricted Assets  
WCRP transferred assets totaling $14,695,575 from Cash and Cash Equivalents to Restricted Cash and  
Cash Equivalents in response to the State Auditor’s new reporting requirements. The amount restricted  
equates to the total Expected claims loss liabilities determined by PricewaterhouseCoopers, the Pool’s  
independent actuary, in accordance with WAC 200-100-03001and disclosed in its Washington Counties  
Risk Pool Actuarial Reserving Review as of September 30, 2012.  
f.  
Receivables  
The WCRP Board of Directors, acting through its Executive Committee, decides if any accounts are  
deemed uncollectible. Uncollectible accounts are charged to expense in the period they are deemed  
uncollectible.  
g.  
h.  
Investments  
See Note 3.  
Compensated Absences  
Compensated absences are absences for which the employees will be paid such as vacation and sick leave.  
The WCRP records unpaid leave for compensated absences as an expense and liability when incurred.  
Annual Leave may be accumulated up to 30 days and is payable upon resignation, retirement, or death. An  
employee with more than sixty days sick leave accrued may convert the days earned in the previous year  
(less any sick leave days used in that year) to annual leave days at the rate of four days of sick leave for one  
day of annual leave. Sick leave may accumulate up to 130 days. Sick leave does not vest until death or  
retirement, and the accrued liability is booked at ½ the amounts earned.  
i.  
Unpaid Claim Liabilities  
The WCRP establishes claim liabilities based upon independent actuarial estimates of the ultimate cost of  
claims including future claims adjustment expenses for claims/lawsuits that have been reported but are not  
settled and for claims that have been incurred but are not yet reported. The length of time for which such  
costs must be estimated varies depending on the coverage type 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 claim liabilities does not necessarily  
result in an exact amount, particularly for coverage such as general liability.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
16  
Claim liabilities are actuarially recomputed periodically using the Jury Verdict Value process and a variety  
of techniques and formulas that reflect recent settlements, claims frequencies, and other economic and  
social factors to produce current estimates. 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  
reflects past inflation and on other factors that are considered to be appropriate modifiers of past  
experience. Adjustments to claim liabilities are charged or credited to expense in the periods in which they  
are made.  
j.  
Reinsurance  
The WCRP uses reinsurance agreements to reduce by risk transfer its exposure to large third-party liability  
losses. Reinsurance permits recovery of substantial portions of the losses from commercial reinsurers,  
although it does not discharge the primary liability of the WCRP (and its member counties) as the direct  
insurer of the risks reinsured. The WCRP does not report reinsured risks as liabilities unless it is probable  
that those risks will not be covered by reinsurers.  
The cumulative to-date incurred loss amount deducted from claim liabilities as of September 30, 2012 and  
2011 as being reinsured were $76,460,877 and $76,706,656 respectively. Premiums ceded to reinsurers  
during 2012 and 2011 were $5,602,250 and $5,480,000 respectively. The cumulative to-date reinsured  
amount in total loss reserves deducted from claim liabilities as of September 30, 2012 was $27,680,144.  
k.  
Member Assessments and Unearned Member Assessments  
Member assessments are collected in advance and recognized as revenue in the period for which coverage  
is provided. On the balance sheet, member assessments receivables were billed on or about September 1st  
with up to the amount equivalent to 105% of the prior year’s assessment being due by September 30th, and  
any remaining assessments balance(s) due by the following January 31st. The assessments calculated were  
based in part upon the members’ prior year’s worker hours and licensed units. Investment income is not  
being considered for the determination of member assessments.  
l.  
Unpaid Claims  
Claims/Lawsuits are charged to expenses as incurred. Claim reserves represent the accumulation of  
estimates for reported, unpaid claims plus a provision for claims incurred but not reported (IBNR). These  
estimates are continually reviewed and updated by applying the Jury Verdict Value process, and any  
resulting adjustments are reflected in current earnings.  
m.  
n.  
Reserve for Unallocated Loss Adjustment Expense  
The reserve for unallocated loss adjustment expenses (ULAE) represents the estimated cost to be incurred  
with respect to the settlement of both claims in process and those claims recognized as incurred but not  
reported (IBNR). WCRP’s independent actuary estimates this liability at the end of each year. The change  
in this liability each year is reflected in current earnings.  
Exemption From Federal And State Taxes  
Pursuant to revenue ruling number 90-74, income of Municipal Risk Pools is excluded from gross income  
under IRC Section 115(1). Chapter 48.62 RCW exempts the WCRP from state insurance premium taxes  
and from business and occupation taxes imposed pursuant to Chapter 82.04 RCW.  
NOTE 2 – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY  
This shall serve as another follow up to an aging fraud involving the Washington Counties Risk Pool which was  
committed by a former WCRP employee. This matter was investigated by the SAO and initially reported upon as  
Report No. 1001789 (issued July 20, 2009). It was initially disclosed that the Mason County Prosecuting Attorney  
had pursued the former employee with criminal charges of First Degree Theft, and the former employee pled guilty  
and was awaiting sentencing.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
17  
Following the issuance of the SAO report, Superior Court Judge Toni A. Sheldon sentenced the former employee  
August 3, 2009 to 60 months’ confinement in the custody of the state Department of Corrections and taken into  
custody immediately. The former employee has been released from custody after serving the DOC-managed  
sentence.  
Judge Sheldon also included restitution in favor of the Pool in the sentencing order in the amount of $237,053.26  
with payments of not less than $50.00 per month commencing within 60 days following release from confinement.  
The order also reserved to the Court jurisdiction to consider additional restitution amounts for potential civil  
litigation to set aside a fraudulent conveyance and/or for civil litigation for failure of the property owner to disclose  
engineering issues to a buyer, and/or for significant depreciation or diminution in value of the property based upon  
prevailing market conditions and/or a reasonable rental value, if sought. Any funds from the sale of the property by  
WCRP shall offset the restitution amount.  
The Pool immediately commenced civil legal actions to obtain reconveyance of the real property. A Quit Claim  
Deed and related papers, signed by the family members to whom the property was or may have been fraudulently  
conveyed, were obtained by the Pool’s legal counsel and filed in Mason County, Washington. The court later issued  
a Quiet Title order in favor of the Risk Pool.  
Disposal of the reacquired real property occurred via a public auction process in 2011. The deadline for submission  
of bids was September 30th, and the formal bid opening was conducted by the Pool’s Secretary/Treasurer October  
4th. The Executive Committee reviewed the auction results October 13th and agreed to reconsider the minimum  
value ($150,000) established in early 2010 then accept the highest bid of $85,000 received during the recent auction.  
Closing documents were signed October 27th with monies/keys exchanged shortly thereafter.  
To obtain the cooperation needed on the Quit Claim deed and on the lawsuit, the Pool’s counsel agreed that no  
damages in the quiet title action would be sought as to anyone other than the former employee. And while the  
restitution order against the former employee presently stands as it was issued by the Court at the sentencing  
hearing, the Pool’s counsel has reported to the court the net proceeds obtained from the property’s disposal and, as  
directed by the Pool’s Executive Committee, has asked the Prosecuting Attorney for support in requesting that the  
court reduce the restitution order to only reflect the added costs the Pool incurred a) addressing the fraud  
investigation and criminal proceedings, b) to recover ownership and O&M costs incurred since recovery, c)  
arranging for and conducting the public auction and for the final disposal/transfer of the property’s ownership, and  
d) to secure the amended restitution order. At this time the Pool is waiting to hear the court’s response to this  
request.  
NOTE 3 - DEPOSITS AND INVESTMENTS  
a.  
Deposits  
In accordance with RCW 39.58, WCRP deposits its funds into a public depository with collateral held in a  
multiple financial institution collateral pool administered by the Washington Public Deposit Protection  
Commission (PDPC). Funds are transferred between the Pool’s public depository (depositories) and the  
Local Government Investment Pool (LGIP) administered by the Washington State Treasurer. There are no  
credit ratings for positions in external investment pools, e.g. LGIP.  
WCRP funds on deposit in the LGIP as of September 30, 2012 and September 30, 2011 totaled  
$31,802,050 and $35,330,046 respectively.  
b.  
Investments  
Since no WCRP funds were invested outside an approved (RCW 39.58) public depository and/or the Local  
Government Investment Pool (LGIP) administered by the State Treasurer, there was no need for a custodial  
credit risk policy.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
18  
NOTE 4 - JOINT SELF-INSURED RETENTION  
The WCRP retains complete responsibility for the payment of covered claims, both within its specified self-insured  
retention limits and that provided under its reinsurance contracts before the coverage provided under applicable  
excess insurance contracts. Never has the Pool approved a settlement that exceeded the insurance coverage noted  
herein and more specifically in Note 5. This statement is absolutely true for the past three fiscal years.  
For fiscal years 2012 and 2011, the Pool’s per-occurrence retention limit for liability claims was $100,000 or the  
applicable member’s deductible, whichever was greater. For Public Officials Liability, Employment Practices  
Liability and Employee Benefits Liability claims exceeding the retention limit but less than $1,000,000, the Pool’s  
annual aggregate reinsurance was limited to $20,000,000, and for those same claims between $1,000,000 and  
$2,000,000, the Pool’s annual aggregate reinsurance was limited to $10,000,000.  
Through pre-funded member assessments (deposit assessments) collected at the beginning of each policy year, the  
WCRP committed assets for the years ended September 30, 2012 and 2011 of $1,605,472 and $1,570,125  
respectively, and is committing $1,531,606 for PY-2013, specifically for the purpose of funding its self-insured  
retentions for those years.  
NOTE 5 – REINSURANCE/EXCESS INSURANCE CONTRACTS  
The WCRP, on behalf of and in conjunction with its members, maintains both reinsurance and “following form”  
excess insurance contracts with several superior-rated commercial insurance carriers which provide various limits of  
coverage over the WCRP third-party liability self-insured retention limits.  
The limits provided by these  
reinsurance/excess insurance contracts for both PY-2012 and PY-2011 were as follows:  
I.  
An “occurrence-based” Comprehensive Joint Self-Insurance Liability Policy with no aggregates that included  
auto, employment, general, professional, and public officials’ coverage.  
WCRP/Member  
SIR (*)  
Excess  
Insurance (***)  
$10,000,000  
Reinsurance (**)  
$9,900,000  
Total (***)  
$20,000,000  
$100,000  
*
Counties annually selected individual deductible amounts of $10,000, $25,000, $50,000, $100,000,  
$250,000 or $500,000.  
**  
The WCRP provided joint, self-insurance for the balance between the member deductibles and  
$10,000,000, with reinsurance purchased to protect the WCRP from losses exceeding its Self-  
Insured Retention.  
***  
An additional $5,000,000 “following form” excess insurance policy was available as a county-by-  
county option and purchased by the majority of the member counties raising their “occurrence”  
limits to $25,000,000.  
II. The Washington Counties Property Program (WCPP) was established October 1, 2005. The coverage was  
initially purchased by seventeen counties. Five counties were added during the first policy year that ended  
September 30, 2006; three more counties joined in the 2006-07 policy year; another county joined at the  
beginning of Py2008; a 27th participated March through September 2008; and one more county joined but one  
also withdrew in Py2010 leaving the count of participating counties at 26. WCPP general coverage  
specifications and limits are as follows:  
LIMITS OF INSURANCE:  
PERILS:  
$500,000,000; All Indicated Limits are per Occurrence; Subject to Sub-  
Limits [below].  
All Risks of Direct Physical Loss or Damage Including Equipment  
Breakdown, Earthquake and Flood.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
19  
PROPERTY COVERED:  
Real & Personal Property, Business Interruption, Extra Expense, Rental  
Value, Demolition and Increased Cost of Construction, Valuable  
Papers, Accounts Receivable, Transit, EDP (Equipment,/Media /Extra  
Expense), Newly Acquired Property, Course of Construction,  
Contractors Equipment, Errors and Omissions, Offsite Storage and  
Personal Property of the Insured’s officers and employees while on the  
premises of the Insured.  
SUBLIMITS:  
$200,000,000  
$200,000,000  
$ 25,000,000  
Are within, and do not increase, the limits stated in the Limits of Insurance.  
Earthquake and Volcanic Eruption – Per Occurrence and Annual Aggregate  
Flood – Per Occurrence and Annual Aggregate, except:  
Flood for locations wholly or partially within a SFHA – Per Occurrence and Annual  
Aggregate  
$ 20,000,000  
$100,000,000  
Terrorism, certified and non-certified  
Equipment Breakdown  
VALUATION:  
A. Real and Personal Property and Mobile Equipment – Replacement Cost  
B. Vehicles on Premises – Actual Cash Value  
C. Business Interruption and Extra Expense – Actual Loss Sustained  
DEDUCTIBLES  
A.  
All loss, damage, and/or expense arising out of any one occurrence shall be adjusted as one loss,  
and from the amount of each such adjusted loss shall be deducted the sum of $5,000 (to $50,000  
as individual county selection) except;  
B.  
C.  
Earthquake: $100,000, except Puget Sound Earthquake (ISO Zone 2) shall be 2% of the total  
values at the time of loss at each location involved in the loss subject to a minimum of $ 100,000,  
for any one occurrence shall be deducted from any adjusted Earthquake loss; or  
Flood: The following sum(s) shall be deducted from any adjusted loss due to Flood;  
(1) With respect to locations wholly or partially within Special Flood Hazard Areas (SFHA),  
areas of 100-year flooding, as defined by the Federal Emergency Management Agency (if  
these locations are not excluded elsewhere in this policy with respect to the peril of flood), the  
deductible shall be 5% of the total values at the time of loss at each location involved in the  
loss, subject to a minimum of $1,000,000 for any one occurrence;  
(2) With respect to Named Storms (a storm that has been declared by the National Weather  
Service to be a Hurricane, Typhoon, Tropical Cyclone or Tropical Storm), the deductible shall  
be 5% of the total values at the time of loss at each location involved in the loss, subject to a  
minimum of $100,000 for any one occurrence;  
(3) With respect to any other flood loss, the deductible shall be $100,000 any one occurrence.  
D.  
Windstorm and Hail: All loss, damage, and/or expense arising out of any one occurrence shall be  
adjusted as one loss, and from the amount of each such adjusted loss shall be deducted the sum of  
$5,000 (to $50,000 as individual county selection);  
NOTE: If two or more deductible amounts in this policy apply to a single occurrence, the total to be  
deducted shall not exceed the largest deductible applicable.  
NOTE 6 - MEMBER'S SUPPLEMENTAL ASSESSMENTS AND CREDITS  
RCW 48.62.141 and the WCRP Interlocal Agreement provide for the contingent liability of participants in the  
program if assets of the program are insufficient to cover the program's liabilities. Deficits of the WCRP are  
financed through supplemental (retroactive) assessments against those counties that were WCRP members for the  
period(s) with the deficiencies. During policy year 2012, there was no deficiency and no additional retroactive  
assessments were levied or collected.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
20  
NOTE 7 – CAPITAL ASSETS  
Capital assets are defined by WCRP policy as having an initial, individual cost of at least $2,500 and an  
estimated useful life in excess of one year. Capital assets are recorded at historical cost.  
Capital assets activities for the fiscal year ended September 30, 2012 were as follows:  
Beginning  
Balance  
9/30/11  
Ending  
Balance  
9/30/12  
Increase (Decrease)  
Capital Assets Being Depreciated:  
Building  
Office Furnishings and Equipment  
Total Capital Assets being Depreciated  
$ 1,125,659  
176,689  
$ 1,302,348  
1,125,659  
170,513  
1,296,172  
(6,176)  
(6,176)  
Less Accumulated Depreciation for:  
Building  
Office Furnishings and Equipment  
Total Accumulated Depreciation  
TOTAL CAPITAL ASSETS NET  
$
177,014  
141,487  
318,501  
983,848  
37,522  
214,536  
131,503  
346,039  
950,134  
18,309  
55,831  
55,831  
(28,293)  
(28,293)  
(34,469)  
$
$
When equipment is retired or otherwise disposed of, the original cost is removed from the Pool’s capital  
assets accounts, and the net gain or loss on disposition is credited to or charged against income.  
Capital assets are depreciated using the straight-line method over the following estimated useful lives:  
Asset  
Building  
Years  
30  
Building Improvements  
Vehicles  
30  
5
Equipment  
5
NOTE 8 – RESTRICTED COMPONENT OF NET POSITION:  
WCRP’s statement of net position reports $4,834,776 of restricted net position, of which $797,841 is  
restricted to reflect the margin between the actuary’s loss estimates at the Expected level and the 70 percent  
confidence level required by WAC 200-100-03001. The remaining $4,036,935 is restricted to satisfy the  
Pool Board’s limitation upon surplus recognition per Section D.2 of its Underwriting Policy, i.e. an  
actuarially estimated cumulative contingency margin for Pool reserves at the 98% confidence level.  
NOTE 9 - PENSION PLANS  
a.  
Public Employees’ Retirement System (PERS) Plans 1, 2, and 3  
The Washington Counties Risk Pool’s full-time and qualifying part-time employees participate in one of  
the following statewide retirement systems administered by the Washington State Department of  
Retirement Systems, under cost-sharing multiple-employer public employee defined benefit retirement  
plans. The Department of Retirement Systems (DRS), a department within the primary government of the  
State of Washington, issues a publicly available comprehensive annual financial report (CAFR) that  
includes financial statements and required supplementary information for each plan. The DRS CAFR may  
be obtained by writing to: Department of Retirement Systems, Communications Unit, P.O. Box 48380,  
Olympia, WA 98504-8380; or it may be downloaded from the DRS website at www.drs.wa.gov. The  
following disclosures are made pursuant to GASB Statements No. 27, Accounting for Pensions by State  
and Local Government Employers and No. 50, Pension Disclosures, an Amendment of GASB Statements  
No. 25 and No. 27.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
21  
Plan Description  
The Legislature established PERS in 1947. Membership in the system includes: elected officials; state  
employees; employees of the Supreme, Appeals, and Superior Courts (other than judges currently in the  
Judicial Retirement System); employees of legislative committees; community and technical colleges,  
college and university employees not participating in higher education retirement programs; judges of  
district and municipal courts; and employees of local governments. PERS retirement benefit provisions are  
established in Chapters 41.34 and 41.40 RCW and may be amended only by the State Legislature.  
PERS is a cost-sharing multiple-employer retirement system comprised of three separate plans for  
membership purposes: Plans 1 and 2 are defined benefit plans and Plan 3 is a defined benefit plan with a  
defined contribution component.  
PERS members who joined the system by September 30, 1977, are Plan 1 members. Those who joined on  
or after October 1, 1977 and by either February 28, 2002 for state and higher education employees, or  
August 31, 2002 for local government employees, are Plan 2 members unless they exercised an option to  
transfer their membership to Plan 3. PERS members joining the system on or after March 1, 2002 for state  
and higher education employees, or September 1, 2002 for local government employees have the  
irrevocable option of choosing membership in either PERS Plan 2 or PERS Plan 3. The option must be  
exercised within 90 days of employment. An employee is reported in Plan 2 until a choice is made.  
Employees who fail to choose within 90 days default to PERS Plan 3. Notwithstanding, PERS Plan 2 and  
Plan 3 members may opt out of plan membership if terminally ill, with less than five years to live.  
PERS Plan 1 and Plan 2 defined benefit retirement benefits are financed from a combination of investment  
earnings and employer and employee contributions.  
PERS Plan 1 members are vested after the completion of five years of eligible service. Plan 1 members are  
eligible for retirement after 30 years of service, or at the age of 60 with five years of service, or at the age  
of 55 with 25 years of service. The monthly benefit is 2 percent of the average final compensation (AFC)  
per year of service. (AFC is the monthly average of the 24 consecutive highest-paid service credit  
months.) The retirement benefit may not exceed 60 percent of AFC. The monthly benefit is subject to a  
minimum for PERS Plan 1 retirees who have 25 years of service and have been retired 20 years, or who  
have 20 years of service and have been retired 25 years. Plan 1 members retiring from inactive status prior  
to the age of 65 may receive actuarially reduced benefits. If a survivor option is chosen, the benefit is  
further reduced. A cost-of living allowance (COLA) was granted at age 66 based upon years of service  
times the COLA amount. This benefit was eliminated by the Legislature, effective July 1, 2011. Plan 1  
members may also elect to receive an optional COLA that provides an automatic annual adjustment based  
on the Consumer Price Index. The adjustment is capped at 3 percent annually. To offset the cost of this  
annual adjustment, the benefit is reduced.  
PERS Plan 1 provides duty and non-duty disability benefits. Duty disability retirement benefits for  
disablement prior to the age of 60 consist of a temporary life annuity payable to the age of 60. The  
allowance amount is $350 a month, or two-thirds of the monthly AFC, whichever is less. The benefit is  
reduced by any workers’ compensation benefit and is payable as long as the member remains disabled or  
until the member attains the age of 60. A member with five years of covered employment is eligible for  
non-duty disability retirement. Prior to the age of 55, the allowance amount is 2 percent of the AFC for  
each year of service reduced by 2 percent for each year that the member’s age is less than 55. The total  
benefit is limited to 60 percent of the AFC and is actuarially reduced to reflect the choice of a survivor  
option. A cost-of living allowance was granted at age 66 based upon years of service times the COLA  
amount. This benefit was eliminated by the Legislature, effective July 1, 2011. Plan 1 members may elect  
to receive an optional COLA that provides an automatic annual adjustment based on the Consumer Price  
Index. The adjustment is capped at 3 percent annually. To offset the cost of this annual adjustment, the  
benefit is reduced.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
22  
PERS Plan 1 members can receive credit for military service. Members can also purchase up to 24 months  
of service credit lost because of an on-the-job injury.  
PERS Plan 2 members are vested after the completion of five years of eligible service. Plan 2 members are  
eligible for normal retirement at the age of 65 with five years of service. The monthly benefit is 2 percent  
of the AFC per year of service. (AFC is the monthly average of the 60 consecutive highest-paid service  
months.)  
PERS Plan 2 members who have at least 20 years of service credit and are 55 years of age or older are  
eligible for early retirement with a reduced benefit. The benefit is reduced by an early retirement factor  
(ERF) that varies according to age, for each year before age 65.  
PERS Plan 2 members who have 30 or more years of service credit and are at least 55 years old can retire  
under one of two provisions:  
With a benefit that is reduced by 3 percent for each year before age 65.  
With a benefit that has a smaller (or no) reduction (depending on age) that imposes stricter  
return-to-work rules.  
PERS Plan 2 retirement benefits are also actuarially reduced to reflect the choice, if made, of a survivor  
option. There is no cap on years of service credit; and a cost-of-living allowance is granted (based on the  
Consumer Price Index), capped at 3 percent annually.  
The surviving spouse or eligible child or children of a PERS Plan 2 member who dies after leaving eligible  
employment having earned ten years of service credit may request a refund of the member’s accumulated  
contributions.  
PERS Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component,  
and member contributions finance a defined contribution component. The defined benefit portion provides  
a benefit that is one percent of the AFC per year of service. (AFC is the monthly average of the 60  
consecutive highest paid service months.)  
Effective June 7, 2006, Plan 3 members are vested in the defined benefit portion of their plan after ten  
years of service; or after five years of service, if twelve months of that service are earned after age 44; or  
after five service credit years earned in PERS Plan 2 prior to June 1, 2003. Plan 3 members are  
immediately vested in the defined contribution portion of their plan.  
Vested Plan 3 members are eligible for a normal retirement at age 65, or they may retire early with the  
following conditions and benefits:  
If they have at least ten service credit years and are 55 years old, the benefit is reduced by an  
ERF that varies with age, for each year before age 65.  
If they have 30 service credit years and are at least 55, they have the choice of a benefit that is  
reduced by 3 percent for each year before age 65; or a benefit with a smaller (or no) reduction  
factor (depending on age) that imposes stricter return to work rules.  
PERS Plan 3 defined retirement benefits are also actuarially reduced to reflect the choice, if made, of a  
survivor option. There is no cap on years of service credit and Plan 3 provides the same cost-of-living  
allowance as Plan 2.  
PERS Plan 3 defined contribution retirement benefits are solely dependent upon contributions and the  
results of investment activities.  
The defined contribution portion can be distributed in accordance with an option selected by the member,  
either as a lump sum or pursuant to other options authorized by the Director of the Department of  
Retirement Systems.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
23  
PERS Plan 2 and Plan 3 provide disability benefits. There is no minimum amount of service credit  
required for eligibility. The Plan 2 monthly benefit amount is 2 percent of the AFC per year of service.  
For Plan 3, the monthly benefit amount is 1 percent of the AFC per year of service.  
These disability benefit amounts are actuarially reduced for each year that the member’s age is less than  
65, and to reflect the choice of a survivor option. There is no cap on years of service credit, and a cost-of-  
living allowance is granted (based on the Consumer Price Index) capped at 3 percent annually.  
PERS Plan 2 and Plan 3 members may have up to ten years of interruptive military service credit; five  
years at no cost and five years that may be purchased by paying the required contributions. Effective July  
24, 2005, a member who becomes totally incapacitated for continued employment while serving the  
uniformed services, or a surviving spouse or eligible children, may apply for interruptive military service  
credit. Additionally, PERS Plan 2 and Plan 3 members can also purchase up to 24 months of service credit  
lost because of an on-the-job injury.  
PERS members may also purchase up to five years of additional service credit once eligible for retirement.  
This credit can only be purchased at the time of retirement and can be used only to provide the member  
with a monthly annuity that is paid in addition to the member’s retirement benefit.  
Beneficiaries of a PERS Plan 2 or Plan 3 member with ten years of service who is killed in the course of  
employment receive retirement benefits without actuarial reduction, if the member was not at normal  
retirement age at death. This provision applies to any member killed in the course of employment, on or  
after June 10, 2004, if found eligible by the Department of Labor and Industries.  
A one-time duty- related death benefit is provided to the estate (or duly designated nominee) of a PERS  
member who dies in the line of service as a result of injuries sustained in the course of employment, or if  
the death resulted from an occupational disease or infection that arose naturally and proximately out of said  
member’s covered employment, if found eligible by the Department of Labor and Industries.  
Judicial Benefit Multiplier  
During January 1, 2007 through December 31, 2007, judicial members of PERS were given the choice to  
participate in the Judicial Benefit Multiplier Program (JBM) enacted in 2006. Justices and judges in PERS  
Plan 1 and Plan 2 were able to make a one-time irrevocable election to pay increased contributions that  
would fund a retirement benefit with a 3.5 multiplier. The benefit would be capped at 75 percent of AFC.  
Judges in PERS Plan 3 could elect a 1.6 percent of pay per year of service benefit, capped at 37.5 percent  
of AFC.  
Members who chose to participate in JBM would: accrue service credit at the higher multiplier beginning  
with the date of their election; be subject to the benefit cap of 75 percent of AFC, pay higher contributions;  
stop contributing to the Judicial Retirement Account (JRA); and be given the option to increase the  
multiplier on past judicial service. Members who did not choose to participate would: continue to accrue  
service credit at the regular multiplier; continue to participate in JRA, if applicable; never be a participant  
in the JBM Program; and continue to pay contributions at the regular PERS rate.  
Newly elected or appointed justices and judges who chose to become PERS members on or after January 1,  
2007, or who had not previously opted into PERS membership, were required to participate in the JBM  
Program. Members required into the JBM Program would: return to prior PERS Plan if membership had  
previously been established; be mandated into Plan 2 and not have a Plan 3 transfer choice, if a new PERS  
member; accrue the higher multiplier for all judicial service; not contribute to JRA; and not have the option  
to increase the multiplier for the past judicial service.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
24  
There are 1,197 participating employers in PERS. Membership in PERS consisted of the following as of  
the latest actuarial valuation date for the plans of June 30, 2010:  
Retirees and Beneficiaries Receiving Benefits  
Terminated Plan Members Entitled to But Not Yet Receiving Benefits  
Active Plan Members Vested  
Active Plan Members Noninvested  
Total  
76,899  
28,860  
105,521  
51,005  
262,285  
Funding Policy  
Each biennium, the state Pension Funding Council adopts PERS Plan 1 employer contribution rates, PERS  
Plan 2 employer and employee contribution rates, and PERS Plan 3 employer contribution rates.  
Employee contribution rates for Plan 1 are established by statute at 6 percent for state agencies and local  
government unit employees, and 7.5 percent for state government elected officials. The employer and  
employee contribution rates for Plan 2 and the employer contribution rate for Plan 3 are developed by the  
Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. All employers  
are required to contribute at the level established by the Legislature. Under PERS Plan 3, employer  
contributions finance the defined benefit portion of the plan, and member contributions finance the defined  
contribution portion. The Plan 3 employee contribution rates range from 5 percent to 15 percent, based on  
member choice. Two of the options are graduated rates dependent on the employee’s age. As a result of the  
implementation of the Judicial Benefit Multiplier Program in January 2007, a second tier of employer and  
employee rates was developed to fund, along with investment earnings, the increased retirement benefits of  
those justices and judges that participate in the program.  
The methods used to determine the contribution requirements are established under state statute in  
accordance with Chapters 41.40 and 41.45 RCW.  
The required contribution rates expressed as a percentage of the current-year covered payroll as of  
December 31, 2011, were as follows:  
Members not participating in JBM:  
PERS Plan 1  
7.25%**  
PERS Plan 2  
7.25%**  
PERS Plan 3  
7.25%***  
*****  
Employer*  
Employee  
6.00%****  
4.64%****  
* The employer rates include the employer administrative expense fee currently set at 0.16%.  
**The employer rate for state elected officials is 10.80% for Plan 1 and 7.25% for Plan 2 and Plan 3.  
*** Plan 3 defined benefit portion only.  
**** The employee rate for state elected officials is 7.5% for Plan 1 and 4.64% for Plan 2  
***** Variable from 5.0% minimum to 15.0% maximum based on rate selected by the PERS 3 member.  
Members participating in JBM:  
PERS Plan 1  
9.75%  
PERS Plan 2  
9.75%  
PERS Plan 3  
9.75%**  
Employer State Agency*  
Employer Local Government*  
Employee State Agency  
7.25%  
9.76%  
12.26%  
7.25%  
9.10%  
11.60%  
7.25%**  
7.50%***  
7.50%***  
Employee Local Government  
*The employer rates include the employer administrative expense fee currently set at 0.16%  
**Plan 3 defined benefit portion only.  
***Minimum rate.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
25  
Both the WCRP and its employees made the required contributions. The WCRP required contributions for  
the years ending September 30th were as follows:  
PERS Plan 1  
$ 2,101  
$10,211  
PERS Plan 2  
$31,585  
$20,671  
PERS Plan 3  
$5,460  
$3,099  
2012  
2011  
2010  
$ 9,176  
$18,343  
$2,740  
b.  
Qualified Pension Plan  
The WCRP also participates in a defined contribution pension plan created in accordance with Internal  
Revenue Code Section 401(a). This plan is with the International City/County Management Association  
(ICMA). Employer contributions to the Qualified Pension Plan for the years ended September 30, 2012  
and 2011 were $39,122 and $36,537, respectively. There are no employee contributions to this plan.  
NOTE 10 - DEFERRED COMPENSATION PLANS  
The WCRP offers its employees a choice of two deferred compensation plans created in accordance with  
Section 457 of the Internal Revenue Code. The plans are with the International City/County Management  
Association (ICMA) and Nationwide Retirement Solutions (NRS). The plans, available to all eligible  
employees, permit them to defer a portion of their salaries until future years. The deferred compensation is  
not available to employees until termination, retirement, death, or unforeseeable emergency.  
In 1998 NRS and ICMA Deferred Compensation Program plan assets were placed into trust for the  
exclusive benefit of participants and their beneficiaries. Pursuant to Governmental Accounting Standards  
Board (GASB) Statement 32 and since the WCRP is no longer the owner of these assets, the plan assets  
and liabilities are no longer reported in the WCRP financial statements.  
NOTE 11 - UNPAID CLAIMS LIABILITIES  
As discussed somewhat in Notes 1.h and 1.k, the WCRP establishes a liability for both reported and  
unreported insured events, which includes estimates of both future payments of losses and related claims  
adjustment expenses. The following represents comparative changes in those aggregate liabilities for the  
WCRP during the past two years:  
2012  
2011  
Unpaid Claims and Claims Adjustment Expenses  
Beginning of Year  
$ 5,572,978  
$ 6,145,137  
Incurred Claims and Claims Adjustment Expenses:  
Provisions for Insured Events of the Current Year  
Increase (Decrease) in Provision for Insured Events  
Prior Years  
1,605,472  
1,570,125  
(1,913,306)  
$ 5,265,144  
(850,922)  
$ 6,864,340  
Total Incurred Claims and Claims Adjustment Expenses  
Payments:  
Claims and Claims Adjustment Expenses Attributable to  
Insured Events of the Current Year  
Claims and Claims Adjustment Expenses Attributable to  
Insured Events of Prior Years  
$
$
106,569  
$
42,951  
857,729  
964,298  
1,248,410  
Total Payments  
$ 1,291,391  
Total Unpaid Claims and Claims Adjustment Expenses  
End of Year  
$
4,300,846  
$ 5,572,978  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
26  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
27  
SCHEDULE T-1  
PUBLIC ENTITY RISK POOL LIST OF PARTICIPATING MEMBERS  
WASHINGTON COUNTIES RISK POOL  
AS OF SEPTEMBER 30, 2012  
The following is a list of WCRP membership for the fiscal year 2011-2012  
Adams County  
Benton County  
Chelan County  
Clallam County  
Clark County  
Lewis County  
Mason County  
Okanogan County  
Pacific County  
Pend Oreille County  
San Juan County  
Skagit County  
Columbia County  
Cowlitz County  
Douglas County  
Franklin County  
Garfield County  
Grays Harbor County  
Island County  
Skamania County  
Spokane County  
Thurston County  
WallaWalla County  
Whatcom County  
Yakima County (*)  
Jefferson County  
Kittitas County  
(*) Not participating in the joint-purchase property program option.  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
28  
MCAG NO. 0774  
SCHEDULE T-2  
WASHINGTON COUNTIES RISK POOL  
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2012 AND 2011  
2012  
2011  
Insurance Premiums/Reserve Expense  
ULAE Expense  
$12,819,788  
142,510  
$12,485,185  
(45,092)  
Adjustment to Prior Years' Reserves  
(1,913,306)  
(850,922)  
Contracted Services:  
Actuarial  
State Audit Expense  
State Risk Manager Expenses  
Legal Fees  
IT Consultants  
Other Consulting Fees  
Broker Fees  
57,500  
9,436  
11,734  
180,539  
9,376  
25,307  
21,500  
29,650  
45,900  
8,674  
11,734  
140,514  
14,160  
27,842  
33,875  
29,400  
Member Services Consultant  
General Administrative Expenses  
Employee Salaries and Benefits  
Communication  
Supplies  
Dues and Memberships  
Travel - Employee  
Committee and Board Meetings  
Depreciation  
Building and Auto Insurance  
Operating Leases  
867,101  
13,762  
31,713  
6,654  
72,607  
79,002  
55,831  
13,624  
69,927  
16,656  
85,862  
52,850  
22,853  
870,530  
14,500  
15,578  
11,321  
81,508  
97,109  
49,662  
16,967  
44,649  
18,433  
84,637  
78,290  
17,837  
Utilities  
Member Services - Training  
Grants/Scholarships  
Miscellaneous Expenses  
Total Operating Expenses  
$12,782,476  
$13,302,291  
_________________________________________________________________________________________________________  
Washington State Auditor's Office  
29  
ABOUT THE STATE AUDITOR'S OFFICE  
The State Auditor's Office is established in the state's Constitution and is part of the executive  
branch of state government. The State Auditor is elected by the citizens of Washington and serves  
four-year terms.  
Our mission is to work with our audit clients and citizens as an advocate for government  
accountability. As an elected agency, the State Auditor's Office has the independence necessary to  
objectively perform audits and investigations. Our audits are designed to comply with professional  
standards as well as to satisfy the requirements of federal, state, and local laws.  
The State Auditor's Office employees are located around the state to deliver services effectively and  
efficiently.  
Our audits look at financial information and compliance with state, federal and local laws on the part  
of all local governments, including schools, and all state agencies, including institutions of higher  
education. In addition, we conduct performance audits of state agencies and local governments and  
fraud, whistleblower and citizen hotline investigations.  
The results of our work are widely distributed through a variety of reports, which are available on  
our Web site and through our free, electronic subscription service.  
We take our role as partners in accountability seriously. We provide training and technical  
assistance to governments and have an extensive quality assurance program.  
State Auditor  
Troy Kelley  
Chief of Staff  
Doug Cochran  
Chuck Pfeil, CPA  
Larisa Benson  
Kelly Collins, CPA  
Jan M. Jutte, CPA, CGFM  
Sadie Armijo  
Barb Hinton  
Mike Murphy  
Mary Leider  
Director of State and Local Audit  
Director of Performance Audit  
Deputy Director of State and Local Audit  
Deputy Director of State and Local Audit  
Deputy Director of State and Local Audit  
Deputy Director of Quality Assurance  
Local Government Liaison  
Public Records Officer  
Main number  
Toll-free Citizen Hotline  
(360) 902-0370  
(866) 902-3900  
Website  
www.sao.wa.gov  
Subscription Service  
https://www.sao.wa.gov/EN/News/Subscriptions