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Help Financial Statements For Year Ended April 30, 2005Ll 0 C] • • • i High -Level Excess Liability Pool, Illinois Basic Financial Statements and Independent Auditors' Report April 30, 2005 and 2004 MILLER COOPER & CO., LTD. 0 U 0 • • 0 • • • • • CONTENTS Page PRINCIPAL OFFICIALS 3 INDEPENDENT AUDITORS' REPORT 4 MANAGEMENT'S DISCUSSION AND ANALYSIS 5 -6 BASIC FINANCIAL STATEMENTS Balance Sheets 7 Statements of Revenues, Expenses, and Changes in Retained Earnings - Budget and Actual g Statements of Cash Flows 9 Notes to the Financial Statements 10- 15 REQUIRED SUPPLEMENTARY INFORMATION 16-19 MILLER COOPER & Co., LTD. 0 0 0 • U 0 If i 0 0 High -Level Excess Liability Pool, Illinois PRINCIPAL OFFICIALS April 30, 2005 Robert Nowak Chairman Mark Horton Vice - Chairman Gail Paul Secretary Edward McKee Treasurer MILLER COOPER & Co., LTD. U • E MILLER CQDPER &Co.,Ltd ACCOUNTANTS AND CONSULTANTS INDEPENDENT AUDITORS' REPORT Members of the Board of Directors High -Level Excess Liability Pool, Illinois We have audited the accompanying basic financial statements of the High -Level Excess Liability Pool, Illinois, as of and for the years ended April 30, 2005 and 2004, as listed in the table of contents. These financial statements are the responsibility of the High -Level Excess Liability Pool, Illinois' management. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also r includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the High -Level Excess Liability Pool, Illinois, as of April 30, 2005 and 2004, and the changes in its financial position and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The management's discussion and analysis and ten -year claims development information on pages 5 ! through 6 and 16 through 18 are not a required part of the basic financial statements but are supplementary information required by the accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. MILLER, COOPER & CO., LTD. Certified Public Accountants Northbrook, Illinois July 20, 2005 650 DUNDEE ROAD, SUITE 250 • NORTHBROOK, IL 6062 -2767 PHONE 847.205.5000 • FAX 847.205.1400 • e -mail mccltd @millercooper.com • 0 Management's Discussion and Analysis FOR THE YEARS ENDED APRIL 30, 2005 AND 2004 Management of the High -Level Excess Liability Pool (HELP) offers this narrative overview and analysis of the financial activities of HELP for the fiscal year ended April 30, 2005. We encourage readers to consider the information presented here in conjunction with HELP'S financial statements and notes to the basic financial statements to enhance their understanding, of HELP's financial performance. HIGH -LEVEL EXCESS LIABILITY POOL — OVERVIEW HELP is a public entity risk pool established by certain municipalities in Illinois to provide excess liability coverage ($12,000,000 of coverage after a $2,000,000 self - insured retention). • Help was organized on Aril 1, 1987 with the initial agreement extended to April 30, 2008. The purpose of the pool is to act as a joint self - insurance pool for the purpose of seeking the prevention or lessening of liability claims for injuries to persons or property or claims for errors and omissions made against the members and other parties included within the scope of coverage of HELP. • Help is governed by a Board of Directors which consists of one appointed representative from each member municipality. Each Director has an equal vote. The officers of HELP are appointed by the Board of Directors. The Board of Directors determines the general policy of HELP; makes all appropriations; approves contracts; adopts resolutions providing for the 10 issuance of debt by HELP; adopts bylaws, rules, and regulations; and exercises such powers and performs such duties as may be prescribed in the Agency Agreement or the bylaws. The Village of Elk Grove Village, Illinois (the initial host member) issued $5,000,000 of general obligation bonds in 1987 to provide initial funding for HELP. The bond proceeds were put into • escrow. An intergovernmental agreement among HELP, the Village of Elk Grove Village, and the Members provided that HELP and its Members were obligated to the Village of Elk Grove Village for payment of principal and interest on the bonds until such bonds were retired. Additionally, each Member was liable for its proportionate share of any default by other Members. The obligations of HELP and its Members are unconditional. The bonds were paid 1�. in full as of April 30, 1997. There currently are 15 member municipalities; Village of Arlington Heights, Village of Chicago Ridge, Village of Deerfield, City of Des Plaines, Elk Grove Village, Village of Glenview, Village of Hoffinan Estates, Village of Lincolnshire, Village of Mount Prospect, Village of Oak • Lawn, Village of Park Ridge, Village of Skokie, Village of Streamwood, City of Wheaton, and Village of Winnetka. C The following discussion provides an assessment by management of the current financial position, results of operations, cash flow and liquidity, and changes in financial position for HELP. Information presented in this discussion supplements the financial statements, schedules, and exhibits of the 2005 Annual Report. MILLER COOPER & Co., LTD. .I 0 Management's Discussion and Analysis FOR THE YEARS ENDED APRIL 30, 2005 AND 2004 FINANCIAL POSITION HELP's total assets in 2005 increased by $1.4 million from $7.0 million to $8.4 million. Assets are made up entirely of cash and investments. The HELP investment portfolio consists of $1.2 million of common stocks held in the form of an equity index fund and $7.2 million invested in money market funds held through the Illinois Funds and Illinois Metropolitan Investment Fund. The liability for claims reserve increased $188,000 or 14.1% to $1.5 million in 2005. This increase was based on changes in the claims incurred versus claims paid during the year. An additional $1,015,000 claims liability was incurred during the year while $827,000 in claims payments were made. Fund equity in the form of retained earnings increased $1.2 million from $5.7 million to $6.9 million. RESULTS OF OPERATIONS Total operating revenues for 2005 were $1,750,895. This is an increase of 20% from the prior year. Operating revenues consist exclusively of member assessments. The amount of the increase from year to year is determined annually at a regular Board of Directors meeting. Total operating expenses for 2005 were $812,994. Operating expenses primarily consist of claims expenses and excess insurance premiums. There are also small amounts expended for legal, consultant, and other various administrative costs. The decrease from the prior year of $686,747 is due to a decrease in actual claims paid. Nonoperating income for 2005 was $258,146. This income was derived solely from investment earnings on HELP's cash and investment portfolio. a HELP net income for 2005 was $1,196,047, up $702,664 from the prior year. CASH FLOW AND LIQUIDITY HELP generated a net positive cash flow from operating and investing activities. For year r ending April 30, 2005 cash and cash equivalents increased $2.7 million versus a decrease of $0.6 million in the prior year. REQUEST FOR INFORMATION r This financial report is designed to provide a general overview of HELP's finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to David O. Erb, Director of Finance, Village of Mount Prospect, 50 South Emerson Street, Mount Prospect, Illinois 60056. • MILLER COOPER & Co., LTD. 0 i 0 • • r 0 • • BASIC FINANCIAL STATEMENTS MILLER COOPER & CO., LTD. 0 High -Level Excess Liability Pool, Illinois BALANCE SHEETS • April 30, 2005 and 2004 • 0 • 0 • E7 • • • CURRENT ASSETS Cash and investments Total assets LIABILITIES AND FUND EQUITY CURRENT LIABILITIES Accounts payable Claims reserve Total liabilities FUND EQUITY Retained earnings Total liabilities and fund equity The accompanying notes are an integral part of these statements. -7- MILLER COOPER & Co., LTD. 2005 2004 $ 8,398,396 $ 7,014,34.9 $ 8,398,396 $ 7,014,349 $ 4,000 $ 4,000 1,520,000 1,332,000 1,524,000 1,336,000 6,874,396 5,678,349 $ 8,398,396 $ 7,014,349 i High -Level Excess Liability Pool, Illinois STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS - BUDGET AND ACTUAL Years ended April 30, 2005 and 2004 0 2005 2004 Budget Actual Budget _ Actual Operating revenues Member assessments $ 1,750,896 $ 1,750,895 $ 1,459,080 $ 1,459,080 • Operating expenses Risk management consultants 35,000 32,000 35,000 31,500 Excess insurance 600,000 337,255 600,000 353,100 Claims expense - 429,197 - 1,090,005 Attorneys' fees Case review 30,000 1,823 30,000 10,876 40 Corporate matters 20,000 4,537 20,000 4,325 Auditing fees 5,000 5,520 5,000 4,600 Surety bonds 1,000 1,678 1,000 1,590 Meeting expenses 2,000 100 2,000 138 Office supplies and expense 100 - 100 - Memberships and dues 5,500 884 5,500 3,607 41 Total operating expenses 698,600 812,994 698,600 1,499,741 Operating income (loss) 1,052,296 937,901 760,480 (40,661) Nonoperating revenues (expenses) Investment income (expense) 300,000 258,146 200,000 534,044 NET INCOME $ 1,352,296 1,196,047 $ 960,480 493,383 Retained earnings Beginning of year 5,678,349 5,184,966 End of year $ 6,874,396 $ 5,678,349 • • 0 The accompanying notes are an integral part of these statements. -8- MILLER COOPER & Co., LTD. 0 High -Level Excess Liability Pool, Illinois • STATEMENTS OF CASH FLOWS Years ended April 30, 2005 and 2004 • • r7 C • Cash flows from operating activities Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities Increase (decrease) in liabilities Claims reserve Net cash provided by (used in) operating activities Cash flows from investing activities Sales of investments Purchases of investments Investment income Net cash provided by investing activities INCREASE (DECREASE) IN CASH EQUIVALENTS Cash equivalents Beginning of year End of year Reconciliation Cash equivalents Investments Total cash equivalents and investments The accompanying notes are an integral part of these statements. -9- MILLER COOPER & Co., LTD. I)nnc $ 937,901 $ rnm (40,661) 188,000 (616,888) 1,125,901 (657,5119) 1,470,584 485,766 (32,154) (588,957) 161,490 135,994 1,599,920 32,803 2,725,821 (624,746) 2,050,359 2,675,105 $ 4,776,180 $ 2,050,359 $ 4,776,180 $ 2,050,359 3,622,216 4,963,990 $ 8,398,396 $ 7,014,349 0 High -Level Excess Liability Pool, Illinois • NOTES TO THE FINANCIAL STATEMENTS April 30, 2005 and 2004 • NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of High -Level Excess Liability Pool, Illinois (Intergovernmental Risk Pool) have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard - setting body for establishing governmental accounting and financial reporting principles. The more significant of the Intergovernmental :Risk Pool's accounting policies are described below. 1. Reporting Entity and its Services . In evaluating how to define the Intergovernmental Risk Pool for financial reporting purposes, management has considered all potential component units. The decision to include a potential component unit in the reporting entity was made by applying the criteria set forth in GASB Statement No. 14, The Financial Reporting Entity, as amended by GASB statement No. 39, Determining Whether Certain Organizations Are Component Units. Based upon the application of these criteria, there are no potential component units to be included in the Intergovernmental Risk Pool's reporting entity. The Intergovernmental Risk Pool is defined as a joint venture under these standards. 0 C] F, • • • The Intergovernmental Risk Pool was organized on April 1, 1987. The current agreement expires April, 30, 2008. The purpose of the Intergovernmental Risk Pool is to act as a joint self - insurance pool for the purpose of seeking the prevention or lessening of liability claims for injuries to persons or property or claims for errors and omissions made against the members and other parties included within the scope of coverage of the Intergovernmental Risk Pool. The initial amount of coverage provided to the members by the Intergovernmental Risk Pool was $1,000,000 per occurrence and in the aggregate, with a self - insured retention of $1,000,000. The amount of coverage provided to the members by the Intergovernmental Risk Pool for subsequent years is as follows: Year ended Member Ended Risk April 30, Responsibility Pool Pool Occurrence Excess Limit Coverage Total Risk Financed 1988 -1994 $ 1,000,000 $ 5,000,000 $ - $ 6,000,000 1995 -1996 1,000,000 5,000,000 5,000,000 11,000,000 1997 -1999 1,000,000 2,000,000 8,000,000 11,000,000 2000 1,000,000 2,000,000 10,000,000 13,000,000 2001 1,000,000 2,000,000 12,000,000 15,000,000 2002 -2003 1,000,000 3,000,000 8,000,000 12,000,000 2004 2,000,000 3,000,000 7,000,000 12,000,000 2005 2,000,000 4,000,000 6,000,000 12,000,000 -10- ]MILLER COOPER & Co., LTD. 0 High -Level Excess Liability Pool, Illinois NOTES TO THE FINANCIAL STATEMENTS April 30, 2005 and 2004 0 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 1. Reporting Entity and its Services (Continued) Entities joining the Intergovernmental Risk Pool at its inception must remain members for a minimum of ten years. Entities applying for membership in the Intergovernmental Risk Pool may do so on approval of a two- thirds vote of the Board of the Intergovernmental Risk Pool. Underwriting and rate - setting policies have been established after consultation with actuaries. Members are subject to a supplemental assessment in the event of deficiencies. At April 30, 2005, the following municipalities were members of the Intergovernmental Risk Pool: • -]I- MILLER COOPER & Co., LTD. % Share Current Assets, Cumulative Annual Liabilities, Premium Premiums and Equity Contributions Village of Arlington Heights 11.43 % 11.76% $ 2,227,933 Village of Chicago Ridge 2.53 2.49 470,892 Village of Deerfield 3.40 3.52 666,740 City of Des Plaines 9.43 10.02 1,898,776 Elk Grove Village 7.34 7.69 1,457,045 . Village of Glenview 8.16 7.16 1,356,234 Village of Hoffman Estates 8.68 7.89 1,494,010 Village of Lincolnshire 1.94 1.59 301,912 Village of Mount Prospect 7.24 7.38 1,397,668 Village of Oak Lawn 9.01 9.28 1,757,515 City of Park Ridge 5.89 5.76 1,090,712 Village of Skokie 8.87 9.62 1,821,940 Village of Streamwood 4.55 4.38 829,873 City of Wheaton 7.69 7.41 1,402,861 Village of Winnetka 3.84 4.05 767,584 100.00% 100.00% $ 18,941,695 • -]I- MILLER COOPER & Co., LTD. n High -Level Excess Liability Pool, Illinois NOTES TO THE FINANCIAL STATEMENTS AApri130, 2005 and 2004 0 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2. Fund Accounting The Intergovernmental Risk Pool operates as a single proprietary fund, more specifically as an enterprise fund. Proprietary funds are used to account for activities similar to those found in the private sector, where the determination of net income is necessary or useful to sound financial administration. Goods or services from such activities are provided to outside parties. Its operations are such that: a) The Intergovernmental Risk Pool provides risk management services to its member municipalities, 0 r and 0 0 • 0 b) Members fund the Intergovernmental Risk Pool to cover the costs of providing such services. 3. Basis of Accounting The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. All proprietary funds are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operation of these funds are included on the balance sheet. Proprietary fund- type operating statements present increases (e.g., revenues) and decreases (e.g., expenses) in net total assets. The accrual basis of accounting is utilized by proprietary fund types. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. The Intergovernmental Risk Pool has elected to apply all applicable GASB pronouncements and all Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions and Accounting Research Bulletins (ARB) issued on or before November 30, 1989, unless they conflict with or contradict GASB pronouncements. 4. Budgets Budgets are adopted on a basis consistent with GAAP. Annual budgets are adopted for the Intergovernmental Risk Pool. All annual budgets lapse at fiscal year -end. 5. Cash Equivalents For purposes of the statement of cash flows, the Intergovernmental Risk Pool considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. -12- MILLER COOPER & Co., LTD. 0 High -Level Excess Liability Pool, Illinois NOTES TO THE FINANCIAL STATEMENTS Apri130, 2005 and 2004 0 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 6. Claims Reserve Liabilities The Intergovernmental Risk Pool establishes claims reserve liabilities based upon an estimate of the ultimate cost of claims that have been reported but not settled and of claims that have been incurred but not reported. The length of time for which such costs must be estimated vanes depending on the individual facts and circumstances. Adjustments to claims reserve liabilities are charged or credited to expense in the period in which they are made. (Note E) 7. Use of Estimates In preparing financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Because the final resolution of potentially large claims against the Intergovernmental Risk Pool is uncertain, management believes that actual results could differ materially from those estimates. NOTE B - LEGAL COMPLIANCE AND ACCOUNTABILITY Budgets The budget is prepared by function and activity, and includes information on the past year, current year estimates, and requested amounts for the next fiscal year. The proposed budget is presented to the governing body for review. The governing body may add to, subtract from, or change amounts, but may not change the form of the budget. 0 The budget may be amended by a majority vote of the governing body. No amendments were passed for 2005 and 2004. NOTE C - DEPOSITS AND INVESTMENTS 1. Permitted Deposits and Investments 0 The Intergovernmental Risk Pool's investment policy is more restrictive than state statutes. The Intergovernmental Risk Pool deposits /investments are limited to approved banks and specifically authorized investments including bonds, notes, bills and other full faith and credit U.S. Government securities, interest - bearing investments (C.D.$), the Illinois Funds (Stage Treasurer Managed investment pool), IMET investment fund (short-term local government investment pool), money market mutual funds, and fixed income and equity securities (with credit risk limited to 45% of portfolio). 0 91911 MILLER COOPER & Co., LTD. u High -Level Excess Liability Pool, Illinois NOTES TO THE FINANCIAL STATEMENTS ALL 30, 2005 and 2004 0 NOTE C - DEPOSITS AND INVESTMENTS (Continued) 2. Investments The Intergovernmental Risk Pool's investments are categorized to give an indication of the level of risk assumed by the entity at year -end. Category 1 includes investments that are insured or registered for which the securities are held by the Intergovernmental Risk Pool or its agent in the Intergovernmental Risk Pool's name. Category 2 includes uninsured and unregistered investments for which the securities are held by the counterparty's trust department or agent in the Intergovernmental Risk Pool's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty, or by its trust department or agent, but not in the Intergovernmental Risk Pool's name and uninsured, . unregistered and uncollateralized investments. Category Fair Value 1 2 3 2005 2004 Common stocks $ 1,221,101 $ - $ - $ 1,221,101 $ 2,490,016 Not subject to risk Money market mutual funds - 97,118 Illinois Metropolitan Investment Fund 2,401,115 2,376,856 Illinois Funds 4,776,180 2,050,359 $ 8,398,396 $= 7,014,349 The money market funds are secured by the Securities Investor Protection Corporation and additional private insurance. The Illinois Funds are managed by the Illinois State Treasurer as provided by the state statutes. The Illinois Metropolitar. Investment Fund is managed by the financial institutions in which it is held. The market value of each fund equals the carrying value. 0 NOTE D - CONTINGENT LIABILITIES - LITIGATION • U There are several claims and legal actions pending against members of the Intergovernmental Risk Pool. Management and their legal counsel believe that certain actions against the members could result in losses to the Intergovernmental Risk Pool. Except as discussed in Note E, no additional amounts have been recorded as losses and additional claims reserve because unfavorable outcomes are not probable and cannot be reasonably estimated. -14- MILLER COOPER & Co., LTD. • High -Level Excess Liability Pool, Illinois NOTES TO THE FINANCIAL STATEMENTS • April 30, 2005 and 2004 • • 9611 • MILLER COOPER & Co., LTD. NOTE E - CLAIMS RESERVE LIABILITIES As discussed in Note A, the Intergovernmental Risk Pool establishes a liability for both reported and unreported insured events, which includes estimates of future payments for both claims and losses and related claims adjustment expenses. The schedule below presents the changes in claims reserve for the years ended April 30, 2005 and 2004, respectively. 2005 2004 Unpaid claims and claims adjustment expenses at the beginning of the year. $ 1,332,000 $ 1,948,888 Incurred claims and claims adjustment expenses Provision for insured events of the current fiscal year 1,015,000 - Increases in provision for insured events of prior fiscal years - 1,090,005 Total incurred claims and claims adjustment expenses 1,015,000 1,090,005 Payments Claims and claims adjustment expenses attributable to insured events of the current fiscal year - - . Claims and claims adjustment expenses attributable to insured events of the prior fiscal year 827,000 _ 1,706,893 Total payments 827,000 1,706,893 Total unpaid claims and claims adjustment expenses at the end of the fiscal year $ 1,520,000 $ 1,332,000 • • 9611 • MILLER COOPER & Co., LTD. • REQUIRED SUPPLEMENTARY INFORMATION MILLER COOPER & CO., LTD. • High -Level Excess Liability Pool, Illinois • REQUIRED SUPPLEMENTARY INFORMATION April 30, 2005 and 2004 • Ten -Year Claims Development Information The table below illustrates how the Intergovernmental Risk Pool's earned revenues and investment income compare to related costs of losses and other expenses assumed by the Intergovernmental Risk Pool as of the end of each of the last ten years. The rows of the table are defined as follows: (1) This line shows the total of each fiscal year's earned contribution revenues and investment revenues. (2) This line shows each fiscal year's other operating costs of the Intergovernmental Risk Pool, including overhead and claims expense not allocable to individual claims. (3) This line shows the Intergovernmental Risk Pool's incurred claims and allocated claims adjustment expenses (both paid and accrued) as originally reported at the end of the first year in which the event that triggered coverage under the contract occurred (called policy year). (4) This section of ten rows shows the cumulative amounts paid as of the end of successive years for each policy year. (5) This section of ten rows shows how each policy year's incurred claims increased or decreased as of the end of successive years. This annual re- estimation results from new information received on known claims, reevaluation of existing information on known claims, as well as emergence of new claims not previously known. (6) This line compares the latest re- estimated incurred claims amount to the amount originally established (line 3), and shows whether this latest estimate of claims cost is greater or less than originally thought. As data for individual policy years mature, the correlation between original estimates and reestimated amounts is commonly used to evaluate the accuracy of incurred claims currently recognized in less mature policy years. The columns of the table show data for successive policy years. • • • • • -17- ]MILLER COOPER & Co., LTD. 0 High -Level Excess Liability Pool, Illinois REQUIRED SUPPLEMENTARY INFORMATION (Continued) Ten -Year Claims Development Information April 30, 2005 and 2004 Ten -Year Claims Development Information (Continued) � 1996 1997 1998 1. Net earned required contribution and investment income $ 1,555,612 $ 1,411,415 $ 1,393,815 2. Unallocated expenses 357,205 289,740 243,466 3. Estimated incurred claims and expense, end of policy year 0 0 0 4. Paid (cumulative) as of: End of policy year 0 0 0 One year later 0 0 0 • Two years later 0 0 0 Three years later 0 0 0 Four years later 150,000 0 0 Five years later 3,150,000 352,335 0 Six years later 6,904,128 352,335 0 Seven years later 6,946,379 352,335 0 Eight years later 8,384,512 352,335 Nine years later 8,384,512 5. Reestimated incurred claims and expense: End of policy year 0 0 0 One year later 0 0 0 Two years later 0 0 0 Three years later 0 0 0 Four years later 3,089,000 1,010,000 0 Five years later 5,261,000 352,335 0 Six years later 8,212,128 352,335 0 Seven years later 8,030,267 352,335 505,000 Eight years later 8,384,512 352,335 Nine years later 8,384,512 6. Increase (decrease) in estimated incurred claims and expense from the end of the policy year 8,384,512 352,335 505,000 0 41 0 -18- MILLER COOPER & Co., LTD. LIE L= i 's 1999 2000 2001 2002 2003 2004 2005 $ 1,741,861 $ 1,462,539 $ 1,546,330 $ 1,316,531 $ 1,054,854 $ 1,993,124 $ 2,009,041 155,438 195,627 178,869 295,634 433,015 398,860 381,974 0 0 0 0 505,000 0 5,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8,935 0 268,760 0 0 501,022 0 0 0 0 0 • 0 0 0 360,000 0 593,760 0 501,022 0 0 501,022 �w 0 s 0 0 505,000 0 5,000 0 0 505,000 505,000 0 502,000 505,000 0 8,935 0 0 8,935 0 505,000 0 -19- MILLER COOPER & CO., LTD. MILLER CQDPER &Co.,Ltd ACCOUNTANTS AND CONSULTANTS Members of the Board of Directors High -Level Excess Liability Pool, Illinois In planning and performing our audit of the financial statements of the High -Level Excess Liability Pool, Illinois for the year ended April 30, 2005, we considered its internal control in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on internal control. However, we noted certain matters involving internal control and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of internal control that, in our judgment, could adversely affect the Pool's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. 1. Claims Expense Budget The Pool does not budget for claims expense in the annual budget approved by the Board. We believe that the Pool would benefit from the inclusion of an estimated claims expense budget to provide a more accurate position of the Pool's financial position. Management Response Management does not believe it is possible to accurately project settlement payments. 2. Seprepation of Duties Bank Reconciliations The individual in charge of bank reconciliations and general ledger maintenance is also an authorized check signer. We are aware that the Pool's staff size does not allow for segregating this duty, and we recommend that management continue to apply established procedures, while being conscious of these incompatible duties. Cash Receipts The individual responsible for handling cash receipts is also responsible for recording the transactions. We are aware that the Pool's staff size does not allow for segregating this duty, and we recommend that management continue to apply established procedures while being conscious of these incompatible duties. Cash Disbursements The individual responsible for recording the disbursements and printing the checks also has responsibility for mailing the checks. We are aware that the Pool's staff size does not allow for segregating this duty, and we recommend that management continue to apply established procedures while being conscious of these incompatible duties. 650 DUNDEE ROAD, SUITE 250 • NORTHBROOK, IL 60062 -2767 PHONE 847.205.5000 • FAX 847.205.1400 • e -mail mccltd@millercooper.com Members of the Board of Directors High -Level Excess Liability Pool, Illinois Page Two 2. Segregation of Duties (Continued) Management Response Management feels existing internal controls are sufficient to address for limitations in the segregation of duties. This letter is intended solely for the information and use of the Board of Directors, management, and others within the Pool and is not intended to be and should not be used by anyone other than these specified parties. We appreciate serving the High -Level Excess Liability Pool, Illinois and would be happy to assist you in addressing and implementing any of the suggestions in this letter. MILLER, COOPER & CO., LTD. i Certified Public Accountants Northbrook, Illinois July 20, 2005 b4/FGgh-Led Excess Liability Pool ML 05 n MILLER COOPER & Co., LTD. MILLER CaDPER &Co.,Ltd ACCOUNTANTS AND CONSULTANTS July 20, 2005 Members of the Board of Directors High -Level Excess Liability Pool, Illinois This letter is intended to inform the Board of Directors of the High -Level Excess Liability Pool, Illinois (the Pool) about significant matters related to the conduct of the annual audit so that it can appropriately discharge its oversight responsibility and that we comply with our professional responsibilities to the Board of Directors. In addition to our report on your financial statements, we have provided, under separate cover, a letter, dated July 20, 2005, concerning significant deficiencies in internal control that we noted during our audit of the Pool's financial statements for the year ended April 30, 2005. The following summarizes various matters which must be communicated to you under auditing standards generally accepted in the United States of America. The Auditor's Responsibility Under Auditing Standards Generally Accepted in the United States of America Our audit of the financial statements of the Pool for the year ended April 30, 2005 was conducted in accordance with auditing standards generally accepted in the United States of America. Those standards require we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error, fraudulent financial reporting or misappropriation of assets. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Accordingly, the audit was designed to obtain reasonable, rather than absolute, assurance about the financial statements. We believe that our audit accomplished that objective. Management Judgments and Accounting Estimates Accounting estimates are an integral part of the preparation of financial statements and are based upon management's current judgment. The process used by management encompasses their knowledge and experience about past and current events and certain assumptions about future events. Management has informed us that they used all the relevant facts available to them at the time to make the best judgments about accounting estimates and we considered this information in the scope of our audit. Estimates significant to the financial statements include such items as the claims reserve. The Board may wish to monitor throughout the year the process used to compute and record these accounting estimates. 650 DUNDEE ROAD, SUM 250 • NORTHBROOK, EL 60062 -2767 PHONE 847.205.5000 • FAX 847.205.1400 • e -mail mccltd @millercooper.com Members of the Board of Directors High -Level Excess Liability Pool, Illinois Page Two Audit Adiustments There was one audit adjustment made to the original trial balance presented to us to begin our audit. The following is a description of the adjustment that could, in our judgment, either individually or in the aggregate, have a significant effect on the Pool's financial reporting process. Decrease in Retained Earnings To record claims expense for the increase in the 2005 fiscal year claims reserve $ (188,000) Uncorrected Misstatements There were no uncorrected misstatements. Accounting Policies and Alternative Treatments Management and the Board have the ultimate responsibility for the appropriateness of the accounting policies used by the Pool. The Pool did not adopt any significant new accounting policies nor have there been any changes in existing significant accounting policies during the current period which should be brought to your attention for approval. We did not identify any significant or unusual transactions or significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. GASB Statement No. 40, Deposit and Investment Risk Disclosures, issued March 2003, will be effective for the Pool beginning with its year ending April 30, 2006. This Statement establishes and modifies disclosure requirements related to investment risks related to credit risk, concentration of credit risk, interest rate risk, and foreign currency risk. As an element of interest rate risk, this Statement requires certain disclosures of investments that have fair values that are highly sensitive to changes in interest rates. This Statement also establishes and modifies disclosure requirements for deposit risks. Other Information in Documents Containing Audited Financial Statements We are not aware of any other documents that contain the audited basic financial statements. If such documents were to be published, we would have a responsibility to determine that such financial information was not materially inconsistent with the audited statements of the Pool. Disagreements with Management We encountered no disagreements with management over the application of significant accounting principles, the basis for management's judgments on any significant matters, the scope of the audit, or significant disclosures to be included in the financial statements. Consultations with Other Accountants We are not aware of any consultations management had with other accountants about accounting or auditing matters. MILLER COOPER & Co., LTD. Members of the Board of Diretors High -Level Excess Liability Pool, Illinois Page Three Maior Issues Discussed with Management Prior to Retention No major issues were discussed with management prior to our retention to perform the aforementioned audit. Difficulties Encountered in Performing the Audit We did not encounter any difficulties in dealing with management relating to the performance of the audit. Closin We will be pleased to respond to any questions you have about the foregoing. We appreciate the opportunity to continue to be of service to the Pool. This report is intended solely for the information and use of the Board of Directors and management and is not intended to be and should not be used by anyone other than the specified parties. MILLER, COOPER & CO., LTD. E MIA U-1 I Certified Public Accountants Northbrook, Illinois July 20, 2005 MU igk.l d Ua I biAry Po RC 05 u MILLER COOPER & Co., LTD.