TOWN OF SULLIVAN'S ISLAND, SOUTH CAROLINA OVERVIEW OF AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2008

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) Understanding of Audits: –The financial statements are the responsibility of the Town –Our responsibility is to express an opinion Reasonable assurance, not absolute assurance Materiality Independence

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) Audit opinion is “Unqualified” –Financial statements are fairly stated in all material respects. –Best opinion the Town can receive.

TOWN OF SULLIVAN'S ISLAND, SC (FYE ) GENERAL FUND The fund balance for the General Fund increased slightly by $32k from $2.81 million to $2.84 million. The fund balance for the beginning of the year was increased by $93k due to insurance that was prepaid during FYE 2007 for FYE The unreserved and undesignated fund balance for the General Fund is approximately $2.6 million which is 87% of 2008 General Fund expenditures.

TOWN OF SULLIVAN'S ISLAND, SC FOUR MAJOR REASONS TO MAINTAIN AN ADEQUATE FUND BALANCE: –CASH FLOW THROUGH SECOND HALF OF CALENDAR YEAR; PROPERTY TAXES AND BUSINESS LICENSES ARE CYCLICAL. –SIGNIFICANT EMERGENCIES AND UNANTICIPATED EXPENDITURES (SUCH AS DIFFICULT ECONOMIC TIMES) –SAVE FOR PLANNED EXPENDITURES. –POTENTIAL FOR BETTER INTEREST RATES ON DEBT ISSUES (SAVE THE TOWN MONEY).

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) GENERAL FUND Total General Fund revenues were $2.8 million, $.1 million higher than the prior year. Major changes:  Licenses & Franchise Fees – increase ($98k).  Property Taxes – increase ($57k).  Other Revenues – decrease ($50k).

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) GENERAL FUND General Fund Expenditures decreased $.1 million (4%) to $3 million Major changes by function: –Public safety increased by $61k. –All other functions decreased by $171k. The majority of the decrease was due to a concentrated effort to reduce expenditures due to the slowdown in the economy.

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008)

General Fund Budget to Actual Revenues were higher than budget by approximately $147k primarily due to the following: –Increase in Licenses & Franchise fees of $291k. –Decrease in Property Taxes of $117k & other revenues of $27k. Expenditures were less than budget by $280k primarily due to the following: –Administrative function was $117k less than budget. –Police function was $53k less than budget. –Fire function was $52k less than budget. –All other functions were less than budget by $58k.

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) Water & Sewer Net assets remained at $6.9 million, with a slight decrease of $19k over the prior year revenues increased by $59k and expenses decreased by $104k over the prior year. Reminder: There was an increase in net assets in 2006 primarily due to a $1.5 million transfer of funds to the enterprise funds from the General Fund and Special Revenue Fund to finance water line and waste water treatment plant upgrades

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) OTHER FUNDS Fund balances at June 30, 2008: –State Accommodations Tax Fund – $16k. –Local Accommodations Tax Fund – $207k. –Hospitality Tax Fund – $374k. –Tree Bank Fund - $29k.

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) Government-Wide Financial Statements Total assets-$12.6million –$3.9 million in cash and investments –$8.2 million is net capital assets –$0.5 million in other assets Total liabilities-$3 million –$0.2 million in accounts payable/accrued liabilities. –$2.8 million in long-term obligations

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) Government-Wide Financial Statements Total net assets - $9.5 million –$5.5 million in “Invested in Capital Assets Net of Related Debt” –$0.7 million in “Restricted” –$3.3 million in “Unrestricted Net Assets” Total revenues - $4.3 million Total expenses - $4.2 million

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) OTHER MATTERS Major capital asset additions: Water line project Sewer line improvements and manhole replacements Three public safety vehicles Public service vehicle Debt New lease purchase of approximately $95 thousand Debt service requirements: Governmental – Decreasing from approximately $300 thousand for 2009 to $200 thousand for 2012 Business-type – Decreasing from approximately $115 thousand for 2009 to $72 thousand for 2011

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) OTHER MATTERS Commitments and contingencies in notes to the financial statements Contract dispute over 2003 wastewater treatment plan upgrade In June, 2008 entered into a contract for services to prepare accreted land management plan Subsequent event Contract for services to prepare a community commercial district master plan Currently, you do not provide postretirement health benefits. If you plan to provide in the future, please consider the impact of GASB #45.

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) OTHER MATTERS New Auditing Standards (SAS #104 – 111, 114) became effective for FY These standards, along with the implementation of SAS #112 in FY 2007 will require more effort by the Town and its auditors during the future audits and places a greater emphasis on the Town’s overall internal control environment.

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) Recommendations for improvement See Management Letter – Three Recommendations: –Accounting Policies and Procedures Manual –Fraud Risk Management Program –Improvement in internal control environment, including: Train staff in procedures/controls and why important Improvements with Business Licenses and Building Permits Better Safeguards over Cash Deposits, Receipts Recording of Expenses in the Appropriate Period Improvements in controls over payroll time sheets Note: we audited under old software and processes-it appears management has made improvements with new software and procedures that we will evaluate in FY 2009 audit

TOWN OF SULLIVAN'S ISLAND, SC (FYE 2008) SUMMARY Overall financial condition looks healthy at June 30, 2008 Challenges exist due to the slow economy and the impact it will have on future revenues and expenditures/expenses Good financial management