Attachment A.pdf

JUDICIAL BRANCH OF THE

COMMONWEALTH OF KENTUCKY

FINANCIAL STATEMENT AND

SUPPLEMENTARY INFORMATION

As of and for the Year Ended June 30, 2024

And Report of Independent Auditor

Attachment A

JUDICIAL BRANCH OF THE COMMONWEALTH OF KENTUCKY

TABLE OF CONTENTS

REPORT OF INDEPENDENT AUDITOR ...............................................................................................1-3

FINANCIAL STATEMENT - REGULATORY BASIS

Statement of Receipts, Disbursements, and Changes in Fund Balances – Regulatory Basis Notes to the Financial Statement ................................................................................................................... 5-18

SUPPLEMENTARY INFORMATION

Schedule of Receipts and Disbursements - Budget to Actual Schedule of General Fund Disbursements - Budget to Actual Schedule of Agency Revenue Fund Disbursements Report of Independent Auditor on Internal Control over Financial Reporting and on

Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ................................................................................. 22-23 cbh.com

Report of Independent Auditor

Laurance B. VanMeter Chief Justice of Kentucky Lexington, Kentucky

Report on the Audit of the Financial Statement

Opinion We have audited the accompanying financial statement of the Judicial Branch of the Commonwealth of Kentucky (the “Judicial Branch”), which comprise the statement of receipts, disbursements, and changes in fund balances

– regulatory basis, as of and for the year ended June 30, 2024, and the related notes to the financial statement.

Unmodified Opinion on Regulatory Basis of Accounting In our opinion, the financial statement referred to above presents fairly, in all material respects, the fund balance of the Judicial Branch, as of June 30, 2024, and the cash receipts, disbursements, and changes in fund balance for the year then ended, in accordance with the regulatory basis of accounting practices prescribed or permitted by the Commonwealth of Kentucky as described in Note 2.

Adverse Opinion on U.S. Generally Accepted Accounting Principles In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on U.S.

Generally Accepted Accounting Principles section of our report, the financial statement referred to above does not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Judicial Branch, as of June 30, 2024, or changes in net position, or cash flows thereof for the year then ended.

Basis for Opinion We conducted our audit 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. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statement section of our report. We are required to be independent of the Judicial Branch, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles As described in Note 2, the financial statement is prepared by the Judicial Branch on the regulatory basis of accounting practices prescribed or permitted by the Commonwealth of Kentucky, which is a basis of accounting other than accounting principles generally accepted in the United States of America, to meet the requirements of the Commonwealth of Kentucky. The effects on the financial statement of the variances between the regulatory basis of accounting described in Note 2 and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material and pervasive.

Responsibilities of Management for the Financial Statement Management is responsible for the preparation and fair presentation of this financial statement in accordance with the financial reporting provisions of the Commonwealth of Kentucky. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of a financial statement that is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibilities for the Audit of the Financial Statement Our objectives are to obtain reasonable assurance about whether the financial statement as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance but is not absolute assurance and, therefore, is not a guarantee that an audit conducted in accordance with generally accepted auditing standards and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statement.

In performing an audit in accordance with generally accepted auditing standards and Government Auditing Standards, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.

• Identify and assess the risks of material misstatement of the financial statement, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement.

• Obtain an understanding of internal control relevant to the audit 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 Judicial Branch's internal control. Accordingly, no such opinion is expressed.

• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statement.

• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Judicial Branch's ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statement. The Schedule of Receipts and Disbursements - Budget to Actual, the Schedule of General Fund Disbursements - Budget to Actual, and the Schedule of Agency Revenue Fund Disbursements are presented for purposes of additional analysis and are not a required part of the financial statement. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statement. The information has been subjected to the auditing procedures applied in the audit of the financial statement and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statement or to the financial statement itself, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Schedule of Receipts and Disbursements - Budget to Actual, the Schedule of General Fund Disbursements - Budget to Actual, and the Schedule of Agency Revenue Fund Disbursements are fairly stated, in all material respects, in relation to the financial statement as a whole.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated October 8, 2024, on our consideration of the Judicial Branch’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 solely 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 effectiveness of the Judicial Branch’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Judicial Branch’s internal control over financial reporting and compliance.

October 8, 2024

STATEMENT OF RECEIPTS, DISBURSEMENTS, AND CHANGES IN FUND BALANCES – REGULATORY BASIS

YEAR ENDED JUNE 30, 2024

The accompanying notes to the financial statement are an integral part of this statement.

Court

Operations Local Facilities

Judicial

Retirement

System Total

Agency

Revenue Fund Federal Fund

Capital

Projects

Federal Funds

Capital

Projects

General Fund Total Funds

Receipts:

State appropriations 310,444,500$ 127,509,200$ 5,305,600$ 443,259,300$ -$ -$ -$ -$ 443,259,300$

Program services - - - - 47,947,215 - - - 47,947,215

Grants and awards - - - - - 3,469,850 - - 3,469,850

Total receipts 310,444,500 127,509,200 5,305,600 443,259,300 47,947,215 3,469,850 - - 494,676,365

Disbursements:

Personnel costs:

Salary and wages 171,986,962 - - 171,986,962 28,278,373 1,047,357 - - 201,312,692

Payroll taxes 14,467,876 - - 14,467,876 943,891 85,489 - - 15,497,256

Fringe benefits 82,141,490 - - 82,141,490 4,427,310 341,966 - - 86,910,766

Contracted services 10,162,939 937,278 - 11,100,217 6,409,991 341,089 - - 17,851,297

Total Disbursements 278,759,267 937,278 - 279,696,545 40,059,565 1,815,901 - - 321,572,011

Operating costs:

Utilities and telecommunication 3,291,992 498,966 - 3,790,958 1,590 120 - - 3,792,668

Real Property Leases 296,376 4,952,440 - 5,248,816 49,344 - - - 5,298,160

Use allowance paid to Trustee - 72,094,257 - 72,094,257 - - - - 72,094,257

Use allowance and operating paid to County - 35,754,180 - 35,754,180 - - - - 35,754,180

Non-recurring paid to County - 3,542,043 - 3,542,043 - - - - 3,542,043

Rental of equipment 1,861,289 45,556 - 1,906,845 9,977 - - - 1,916,822

Repairs and maintenance 48,795 141,709 - 190,504 765 - - - 191,269

Postage 922,152 204 - 922,356 731 - - - 923,087

Miscellaneous services 2,206,961 2,066,418 - 4,273,379 586,567 595,349 - - 5,455,295

Supplies and equipment 7,996,997 465,964 - 8,462,961 202,912 8,573 - - 8,674,446

Computer and IT costs 8,379,683 - - 8,379,683 1,168,974 297,777 - - 9,846,434

Travel 2,973,062 - - 2,973,062 288,582 360,697 - - 3,622,341

Substance abuse testing supplies / collections 4,693,940 - - 4,693,940 7,208 - - - 4,701,148

Substance abuse treatment 464,585 - - 464,585 149,196 310,617 - - 924,398

Retirement disbursements - - 5,305,600 5,305,600 - - 5,305,600

Other 780,913 (647,803) - 133,110 30,397 27,199 - - 190,707

Total operating costs 33,916,745 118,913,934 5,305,600 158,136,279 2,496,243 1,600,332 - - 162,232,854

Capital outlays 7,650,408 132,818 - 7,783,226 6,731,253 - - - 14,514,479

Capital projects - - - - - - - 510,439 510,439

Transfer to OFM for bond service - - - - 659,750 - - - 659,750

Total disbursements 320,326,420 119,984,030 5,305,600 445,616,050 49,946,811 3,416,233 - 510,439 499,489,534

Transfer (to) from - - - - - - - - -

Total disbursements and transfers 320,326,420 119,984,030 5,305,600 445,616,050 49,946,811 3,416,233 - 510,439 499,489,534

Net change in fund balances (9,881,920) 7,525,170 - (2,356,750) (1,999,596) 53,617 - (510,439) (4,813,169)

Fund balances, beginning of year 9,979,066 17,395,965 - 27,375,031 53,423,855 (624,092) 38,000,000 4,126,020 122,300,814

Lapse of funds required by Budget Bill (15,616,500) - (15,616,500) - - - - (15,616,500)

Fund balances, end of year 97,146$ 9,304,635$ -$ 9,401,781$ 51,424,258$ (570,475)$ 38,000,000$ 3,615,581$ 101,871,145$

General Fund

NOTES TO THE FINANCIAL STATEMENT

Note 1—Description of the organization and reporting entity

Description of the organization

The Judicial Article of the Kentucky Constitution became effective in 1976 and created the Judicial Branch of the Commonwealth of Kentucky (Judicial Branch) as an independent branch of government, separate from the Executive and Legislative branches and separate from county and city governments. The Judicial Article created Kentucky’s unified court system and made the chief justice head of the state court system, also known as the Kentucky Court of Justice.

The Kentucky Court of Justice is a four-tiered system of adjudication including a Supreme Court, Court of Appeals, Circuit Court, and District Court. Additionally, in 2002, a constitutional amendment was approved formally sanctioning the creation of Family Courts.

The Supreme Court of Kentucky is the highest appellate court in the Commonwealth of Kentucky and the final interpreter of the law. It consists of seven justices who are elected from the seven appellate districts and serve eight-year terms. The Chief Justice of the Commonwealth of Kentucky is chosen by his or her colleagues and serves a term of four years. The Supreme Court is also responsible for establishing rules of practice and procedures for the Court of Justice, which includes the conduct of judges and attorneys.

The Court of Appeals is Kentucky’s intermediate appellate court and handles various appeals of court orders. If a case is tried in District or Circuit Court, and the losing parties involved are not satisfied with the outcome, in many cases they may ask for the Court of Appeals to review the correctness of the trial court's decision. The Court of Appeals has 14 elected judges, two from each of the seven appellate districts. The Court of Appeals is divided into panels of at least three judges, which conduct hearings regularly throughout the state.

Circuit Court is Kentucky’s highest trial court and has general jurisdiction in civil matters involving more than $5,000, capital offenses and felonies, land dispute title cases, contested probate cases and appeals from district court and administrative agencies. The Circuit Court has 57 judicial circuits and 158 judges, of which 61 are in Family Court.

Family Court is a division of the Circuit Court devoted exclusively to cases involving families and children. Family Court provides one judge to hear all of a family’s issues relating to divorce, child custody, adoption, termination of parental rights, domestic violence, child abuse and neglect. Family Courts are currently impacting 75 of Kentucky’s 120 counties.

District Court handles juvenile matters, city and county ordinances, misdemeanors, violations, traffic offenses, probate of wills, arraignments, felony probable cause hearings, small claims involving $2,500 or less, civil cases involving $5,000 or less, voluntary and involuntary mental commitments and cases relating to domestic violence and abuse. The District Court consists of 113 judges from 59 judicial districts and their staff. District Court is held in every county in Kentucky.

Circuit Court Clerks are responsible for managing the records of Circuit and District Courts. One Circuit Court

Clerk is elected in each Kentucky county for a six-year term. Circuit Court Clerks are state officers whose duties are coextensive with the Commonwealth, and who are subject to the administrative control of the Chief Justice.

As state officers, Circuit Court Clerks receive and disburse money on behalf of the Commonwealth. The Clerks and their staff have as their primary goal the fulfillment of these objectives: maintain custody, control and safe storage of court records; increase the availability of statistical information and the ability to retrieve information;

increase the orderly disposition of court matters; maintain uniform revenue accounting procedures; increase the clerk’s responsiveness to the needs of the court and general public; provide assistance with jury management and general administration of the court; and ensure the prompt transmittal of records on appeal to the proper appellate court.

http://courts.ky.gov/COURTS/SUPREME/Pages/supremecourt.aspx http://courts.ky.gov/COURTS/SUPREME/Pages/supremecourt.aspx http://courts.ky.gov/courts/coa/Pages/coa.aspx http://courts.ky.gov/courts/coa/Pages/coa.aspx http://courts.ky.gov/courts/Pages/CircuitCourt.aspx http://courts.ky.gov/courts/Pages/CircuitCourt.aspx http://courts.ky.gov/courts/familycourt/Pages/default.aspx http://courts.ky.gov/courts/familycourt/Pages/default.aspx

NOTES TO THE FINANCIAL STATEMENT (CONTINUED)

Note 1—Description of the organization and reporting entity (continued)

Funds collected by Circuit Court Clerks are deposited into the state treasury for disbursement to applicable parties as required by statute. The only exceptions are the law library fee, the county jail fee and the sheriff security fee, which are distributed at the local level, and third-party money collected by Circuit Court Clerks.

Boards and Commissions of the Judicial Branch include the Circuit Court Clerk Conduct Commission, the Judicial Conduct Commission, the Judicial Ethics Committee, the Judicial Nominating Commission, the Office of Bar Admissions, the Kentucky Access to Justice Commission, and the Kentucky Judicial Commission on Mental Health. The Circuit Court Clerk Conduct Commission created by the Rules of Administrative Procedure of the Court of Justice (AP) Part XVI, Circuit Court Clerks Conduct Commission, investigates and reviews complaints against Circuit Court Clerks and, when warranted, conducts hearings regarding the alleged misconduct where evidence is presented and takes disciplinary action. The Judicial Conduct Commission investigates and reviews complaints against judges and, when warranted, conducts hearings regarding the alleged misconduct and takes disciplinary action. (Ky. Const. § 121; SCR 4.000, et. seq.) The Judicial Ethics Committee, established by Supreme Court Rule (SCR) 4.310, issues opinions and guidance to judges concerning the propriety of certain acts or conduct and the construction or application of judicial canons of ethics upon request. The Judicial Nominating Commission helps fill judicial vacancies by appointment when a vacancy occurs outside of the election cycle. It is established by the Kentucky Constitution (Ky. Const. § 118; SCR 6.000, et. seq.). The Kentucky Office of Bar Admissions (OBA) was created by SCR 2.00 to administer the bar examination and determine the eligibility of all candidates seeking admission to the practice of law in the Commonwealth. The Office includes the Board of Bar Examiners and the Character and Fitness Committee, whose members are practicing attorneys appointed by the Supreme Court, and the staff of the OBA who carry out the work of the Board and Committee. The Kentucky Access to Justice Commission was created by Supreme Court Order 2018-09 to increase access to the courts and high-quality legal representation for people of low and moderate income in Kentucky through innovative partnerships with the civil legal aid programs, the judiciary and court personnel, the Kentucky Bar Association, the private bar and non-lawyer professionals, law schools, and business and community-based organizations. The Kentucky Judicial Commission on Mental Health was created by Supreme Court Order 2022-42 to develop, implement, and coordinate initiatives designed to improve the courts’ interaction with and the administration of justice for individuals with mental illness, substance use disorders, and intellectual disabilities.

The Administrative Office of the Courts (AOC) was established in 1976 as a result of the Judicial Article. The AOC is the operational arm of the Judicial Branch and acts as the fiscal agent for the Judicial Branch. The AOC supports court facilities and programs in all 120 counties in Kentucky, with its main campus in Frankfort, Kentucky. The AOC carries out duties that are mandated by the Kentucky Constitution, including administering the Judicial Branch budget, building and maintaining court facilities, maintaining court statistics through a statewide case management database, administering personnel policies and payroll for court personnel, providing centralized procurement services for the Judicial Branch, and providing educational programs for judges, Circuit Court Clerks and support staff. The AOC is overseen by the Chief Justice of Kentucky, Laurance B. VanMeter, and its daily operations were managed in Fiscal Year 2024 by then-AOC Director, Katie Comstock.

Reporting Entity – The Judicial Branch is a part of the Commonwealth of Kentucky’s primary government and thus, the financial information of the Judicial Branch is included within the financial statements of the Commonwealth of Kentucky. The financial statement of the Judicial Branch include all funds, organizations, agencies, boards, commissions and authorities for funds under the control of the Judicial Branch. Funds included within the reporting entity are those funds presented in the Judicial Branch’s approved annual budget.

The AOC, although legally a separate entity, is in substance part of the Judicial Branch’s operations and exists solely to provide services for the Judicial Branch. The Judicial Branch is funded by appropriations from the General Assembly. The budget represents approximately 2.5% of the total state general funds for each year. The budget pays for all expenses of the state court system including salaries of elected officials and non-elected personnel, court facilities, court technology and office supplies and equipment.

Note 2—Summary of significant accounting policies

The following is a summary of the significant accounting policies consistently followed by the Judicial Branch in the preparation of its financial statement.

Basis of Accounting - Financial Statement – The financial statement is presented in accordance with the regulatory basis of accounting, which is a basis of accounting other than accounting principles generally accepted in the United States of America (GAAP) as established by the Governmental Accounting Standards Board (GASB). This regulatory basis of accounting involves the reporting of fund balances and the changes therein resulting from cash inflows (cash receipts) and cash outflows (cash disbursements) to meet the financial reporting requirements of the Commonwealth of Kentucky and the Chief Justice.

The regulatory basis of accounting differs from GAAP primarily because the financial statement format does not include the GAAP presentation of government-wide and fund financial statements, cash receipts are recognized when received rather than when earned and susceptible to accrual, and cash disbursements are recognized when paid rather than when incurred or subject to accrual.

Budget Information – The budget information reflected in the supplemental schedule is the annual budget adopted by the General Assembly in accordance with the provisions of Commonwealth of Kentucky law. The budget is prepared on a basis consistent with the basis of accounting used in preparing the financial statement.

Basis of Presentation – Fund accounting is designed to demonstrate legal compliance and to aid financial management by segregating transactions relating to certain government functions or activities. The Judicial Branch Budget consists of the following appropriation units:

Court Operations & Administration – covers the disbursements relating to the Supreme Court, Court of

Appeals, Circuit Court, Family Court, District Court, Circuit Court Clerk, and the Administrative Office of the

Courts. 2022 HB 244 allocated $38,000,000 for a capital project for an electronic court filing system.

Local Facilities – covers disbursements relating to: (1) use allowance and operating costs payments for judicial centers and courthouses statewide, (2) real property leases, (3) maintenance and operating costs for the AOC headquarters located in Frankfort; and (4) miscellaneous costs related to court facilities. 2022 HB 244 appropriated $1,189,000 for a capital project for carpet and paint in the Jefferson County Judicial Center and

$3,000,000 for a capital project for HVAC replacement in the Hardin County Justice Center.

“Operating costs" means compensation equivalent to the annual expenses borne by the unit of government for utilities, janitorial service, rent, insurance, and necessary maintenance, repair, and upkeep of the court facility which do not increase the permanent value or expected life of the court facility, but keeps it in efficient operating condition, and, at the election of the AOC, capital costs of interior or mechanical renovations for the benefit of the court.

Note 2—Summary of significant accounting policies (continued)

Per KRS 26A.090, as modified by 2022 HB 244, “Use allowance” means:

• For court facility projects authorized by the 2000 General Assembly or after, use allowance is the judicial branch’s proportional share of the annual principal and interest in connection with the construction or renovation of the facility, not to exceed the maximum annual use allowance authorized by the General Assembly.

• When there is no debt on a court facility authorized prior to the 2000 General Assembly, use allowance is the court’s proportional share of 2% of capital construction costs, paid annually. An additional 2% of capital construction costs is retained by the AOC for maintenance of court facilities state-wide.

• When there is debt on a court facility authorized prior to the 2000 General Assembly, use allowance is the court’s proportional share of the annual principal and interest cost in connection with the renovation or construction, but not to exceed 8% annually of capital costs.

The Local Facilities Use Allowance Contingency Fund was created by KRS 26A.164. The fund consists of money appropriated by the General Assembly. The Kentucky Court of Justice can increase the budgeted scope of a court project or project pool and may use this fund to cover any resulting increase in the budgeted annual use allowance only in certain circumstances as stated in KRS 26A.164. The fund has no appropriated funds for the year ended June 30, 2024.

The Judicial Retirement System is a separate appropriation unit in which appropriated funds are used to pay for annual contributions to the Judicial Retirement Plan (Plan) for justices of the Kentucky Supreme Court, judges of the Court of Appeals, and Circuit, District and Family Court judges who choose to participate in the Plan. Monies appropriated to this appropriation unit are then passed through to the Judicial Fund Retirement System (System), the state agency charged with administering the Judicial Retirement Plan and the Legislators Retirement Plan to be used toward judicial retirement benefits. The System is not a component unit of the Judicial Branch, but, rather, is a component unit of the Commonwealth of Kentucky. The System’s fiduciary net position and the changes in the System’s fiduciary net position are included in the Commonwealth’s Annual Comprehensive Financial Report (ACFR) as a pension trust fund in the fiduciary funds financial statement. Financial statements of the Commonwealth and its component units that form the Commonwealth reporting entity are issued separately and are audited by the Auditor of Public Accounts.

The financial statement contains information regarding each of the following Judicial Branch funds which support the above appropriation units:

General Fund – state funds appropriated by the Kentucky General Assembly.

Special Revenue Funds – a category of governmental funds that accounts for the proceeds of specific revenue sources which are restricted or committed to expenditures for a specific purpose. Included in this category are the federal fund and agency revenue fund.

Federal Fund – a fund that accounts for and reports monies received from the federal government that are restricted or committed to specific programs and operations.

Agency Revenue Fund – a fund that accounts for and reports other fees and charges received by the Judicial Branch that are restricted or committed for a particular function. Agency revenue funds also include service charges, fees, donations, and grants or receipts from private sources or other governmental jurisdictions which may be applied toward the public purposes of the Judicial Branch.

Note 2—Summary of significant accounting policies (continued)

Appropriated funds in all appropriation units do not lapse but instead are included in the applicable fund balance and carried forward to the next year or biennium unless otherwise required by the applicable budget bill.

Subsequent Events – Management has evaluated subsequent events for accounting and disclosure requirements through October 8, 2024, the date that the financial statement was available to be issued.

Note 3—Receipts

General Fund Appropriations – General Fund appropriations comprise the majority of the Judicial Branch’s receipts. Kentucky Revised Statute (KRS) Chapter 48 requires that each branch of government prepare and submit a recommended budget to the General Assembly for each of the two fiscal years to be included in a biennial budget. These budgets are prepared in accordance with the regulatory basis of accounting described herein -principally on the cash basis. The Legislature reviews these budget requests, makes any necessary revisions, and legally adopts a biennial budget for each of the three branches of government. The Governor has the power to approve or veto each bill, subject to legislative override. The financial plan for each fiscal year, as presented in a branch budget recommendation, is adopted with such modifications as made by the General Assembly (and explained in a budget memorandum) by the passage of the budget bill and such revenue and other acts necessary for the purpose. Budgetary control is maintained at the budget unit level as designated by the budget bills enacted by the General Assembly.

In accordance with KRS 48.605, allotments within appropriations for the activities and purposes contained in an enacted branch budget bill may be revised for the Judicial Branch upon authorization of the Director of the AOC or designee. In accordance with the Judicial Branch’s budget bill, the Chief Justice can approve transfers from allotment schedule to allotment schedule. Encumbrance accounting is utilized for budgetary control purposes. In accordance with the Judicial Branch’s budget bill, Judicial Branch appropriations do not lapse and are carried forward unless otherwise required by the applicable budget bill. The Judicial Branch’s general fund balance is comprised of unlapsed general fund appropriations.

Federal Fund Receipts – Federal Fund receipts are derived from various federal grants received directly from the federal government or passed through executive branch agencies. The AOC is currently the recipient of 24 federal grants or pass-through funds including State Court Improvement Program funds, Title IV-E funds, Title IV- D funds, VAWA grants, BJA grants and SAMHSA grants.

Agency Revenue Fund Receipts – Agency Revenue Fund receipts are derived from providing the following services:

Court Costs – The Finance and Administration Cabinet remits to AOC fees collected by Circuit Court Clerks for administrative services performed in collecting restitution payments, court costs, and county attorney diversion fees (Deputy Clerk Enhancement (DCE) Funds). The amount of each fee can be found in KRS 533.030(3)(b) (restitution), KRS 42.320 (court costs), and KRS 186.574(6)(d) (county attorney diversion fees). Funds do not lapse and are used to hire additional deputy clerks and office personnel or increase deputy clerk salaries.

Expungements – The Finance and Administration Cabinet remits to AOC a portion of the fees collected by Circuit Court Clerks for filing petitions for misdemeanor and felony expungements. The amount of each fee can be found in KRS 431.078(7) and KRS 431.073(10). Funds are used for deputy clerk salaries.

Additionally, the AOC Division of Records Services charged a $20 fee in Fiscal Year 2024 to run a criminal record report for the purpose of certifying the eligibility of an expungement request per KRS 431.079. These fees are paid directly to AOC by requesting parties.

Note 3—Receipts (continued)

Clerk Change Fund – Per the Circuit Court Clerk’s Accounting Manual, a Circuit Court Clerk is responsible for making an allocation of change fund monies to each individual cash drawer in the clerk’s office. If additional change is needed to fund a change fund, the clerk notifies the department of Court Services, which initiates a request for disbursement from the Clerks Change Fund. Excess change fund monies from cash drawers may also be remitted by the clerk to the AOC and deposited in the Clerks Change Fund.

Master Commissioner – The AOC Department of Financial Services establishes accounting standards for Master Commissioners across the state. Circuit judges may appoint a Master Commissioner for each county to assist them in the discharge of their duties and the enforcement of their judgments, for example by conducting sales of property to satisfy liens, mortgages or claims of ownership. Master Commissioners are compensated by fees charged to parties. Fees and limits on compensation are established in the Kentucky Court of Justice Rules of Administrative Procedure (AP) Part IV, Sections 8-10. Fees collected in excess of the authorized compensation and expenses of the Master Commissioner, as well as excess interest, are remitted to the AOC Department of Financial Services. Those fees are deposited in a trust and agency account that shall not lapse and is used to hire additional deputy clerks or office personnel, to increase deputy clerk or office personnel salaries, or a combination thereof.

Pretrial Diversion – The AOC Department of Pretrial Services operates pretrial diversion programs in each judicial circuit. Pretrial Officers oversee the programs for defendants charged with misdemeanors and collect diversion supervision fees per KRS 533.250(7) when not waived due to indigency. Those fees are remitted to the AOC Division of Accounting Services for deposit, to be used to defray all or part of the cost of the defendant’s participation in the diversion program.

Court Technology – Circuit Court Clerks collect Court Technology fees and remit them monthly to the AOC Office of Audits. The Supreme Court’s authority to establish miscellaneous costs for civil cases filed in Circuit Court and District Court is established in KRS 23A.200, and KRS 24A.170. A court technology fee of $20 is established by the Supreme Court in CR 3.02 and 3.03 and, unless waived by the Court because the litigant is a poor person, is collected by Circuit Court Clerks when civil cases are filed and is deposited in the bank account of the Circuit Court Clerk. Each Circuit Court Clerk sends a check for monthly court technology fees collected to the AOC Office of Audits along with monthly reports.

Specialty Courts – The AOC Department of Specialty Courts staffs programs operated by judges throughout the state with the goal of restoring lives and reducing recidivism through judicial oversight and behavior modification for defendants with substance abuse disorder. Judges may impose reimbursement fees for services performed by the AOC Department of Specialty Courts, including treatment services, the cost of a laboratory confirmation of a positive drug test, or other required services. See AP Part XIII, Section 22. These fees are collected by Specialty Courts staff and are used to defray the cost of substance abuse treatment and drug testing.

Other – The AOC sometimes receives other service charges, fees, donations, grants or receipts from private sources or other governmental jurisdictions which may be applied toward the public purposes of the Judicial Branch.

Civil Filing Fees – The Supreme Court establishes filing fees and miscellaneous costs for civil cases filed in Circuit Court and District Court (KRS 23A.200, KRS 24A.170). Fees are established by the Supreme Court in the Rules of Civil Procedure (CR) 3.02 and 3.03 and, unless waived by the Court because the litigant is a poor person, are collected by Circuit Court Clerks who send them along with other costs and fees collected to the Finance and Administration Cabinet. The Finance and Administration Cabinet remits to AOC certain portions of civil filing fees for cases filed in Circuit and District Court.

Per the budget bill, the Finance and Administration Cabinet Division of Local Government Services submits the first $15,468,100 of civil filing fees to AOC. Any excess civil filing fees are deposited into the executive branch general fund.

Criminal History Record Checks – The AOC Division of Records Services offers criminal record reports to individuals, businesses, licensing agencies, government entities and others for a $25 fee. The AOC is authorized to collect fees pursuant to KRS 27A.090.

ITS Equipment – The AOC used this fund to track one-time technology equipment expenditures authorized by the AOC Director’s office.

Carry Concealed Deadly Weapons – The AOC Division of Records Services performs criminal records checks for the Kentucky State Police (KSP) as part of KSP’s protocol for issuing licenses to carry concealed deadly weapons.

Per KRS 237.110(7)(b)(3), KSP remits $20 to the AOC Division of Accounting Services for each license application received to be used to fund background checks.

Court Interpreting – The AOC Department of Language Access charges interpreter candidates a fee for trainings, workshops and certifications.

Senate Bill 90 – Kentucky Acts Chapter 230 (Senate Bill 90, 2022 Regular Session) establishes the Behavioral Health Conditional Dismissal Program as an alternative to incarceration for eligible persons with a behavioral health disorder who have been charged with a qualifying offense and requires the Department for Behavioral Health, Developmental and Intellectual Disabilities (BHDID) to contribute $500,000 annually to the AOC to cover the cost of data. BHDID also contracts with the AOC to provide services related to the Behavioral Health Conditional Dismissal Program including case navigators who establish eligibility of participants, enter into program agreements and provide other technical assistance as needed.

CourtNet – The AOC Department of Information and Technology Services offers attorneys and other justice partners subscriptions to CourtNet 2.0, an application allowing easy and expeditious electronic access to criminal and civil cases filed within the Kentucky Court of Justice. Subscription fees range from $5 per month through $250 per month depending on volume of use.

Office of Bar Admissions – The Office of Bar Admissions charges fees to applicants for admission to the Kentucky Bar Association. Fees are set forth in Supreme Court Rule II, Admission of Persons to Practice Law. Per SCR 2.002, fees collected by the Kentucky Office of Bar Admissions are deposited in a restricted fund account held by the AOC to provide for the ordinary and necessary expenses of the administration of the bar examination and the operation of the Board of Bar Examiners and the Character and Fitness Committee.

Office of Bar Admissions Bond Account – The Office of Bar Admissions conducts character and fitness investigations for applicants for admission or reinstatement to the Kentucky Bar. Applicants prepay expenses for character and fitness investigations. The amount of the initial deposit, $2,500, is held in the bond account until completion of the character and fitness investigation. Once a motion is filed certifying the costs, the amount of costs is ordered to be transferred to the Office of Bar Admissions. The remaining unspent balance of the applicant's deposit is released back to the applicant.

Eviction Diversion – The Jefferson County District Court is the recipient of a two-year grant in the amount of $126,515 from the National Center for State Courts to improve best practices and create permanent changes to high-volume, high-impact eviction dockets.

The receipts and disbursements for the agency revenue funds for services provided during the year ended June 30, 2024 were as follows:

Beginning Ending

Balance Receipts Disbursements Balance

FUND 135A

Driver's License (18,762)$ -$ (18,644)$ (118)$

Court Costs 2,058,542 2,756,037 2,353,036 2,461,543

Expungements 230,549 314,754 - 545,303

Clerks Change Fund 10,085 1,145 300 10,930

TOTAL FUND 135A 2,280,414 3,071,936 2,334,691 3,017,658

FUND 135B - Master

Commissioner 148,586 3,627,020 3,445,727 329,879

FUND 135C - Pretrial Diversion 279,009 155,635 155,476 279,169

FUND 135D - Court Technology 2,260,811 4,117,042 4,951,594 1,426,259

FUND 135E - Drug Court 66,682 400,864 331,970 135,576

FUND 135G - Other 948,354 286,194 198,697 1,035,851

FUND 13HE - Civil Filing Fees 13,135,401 15,468,100 15,491,241 13,112,260

FUND 13HG

Criminal History Records Checks 26,672,172 16,153,333 14,056,180 28,769,325

ITS Equipment (1,706,033) - 1,345,255 (3,051,287)

Concealed Weapons 3,030,102 1,078,938 5,449 4,103,590

Court Interpreting 73,321 2,700 24,807 51,214

Senate Bill 90 (30,736) 434,686 428,240 (24,290)

TOTAL FUND 13HG 28,038,826 17,669,657 15,859,931 29,848,552

FUND 13M0 - CourtNet 5,680,667 2,228,627 6,496,192 1,413,102

FUND 13RR

Office of Bar Admissions 585,105 820,446 633,829 771,722

Office of Bar Admissions Bond Account - 14,544 - 14,544

585,105 834,991 633,829 786,266

FUND 13UJ - Eviction Diversion - 87,149 47,464 39,686

GRAND TOTAL 53,423,855$ 47,947,215$ 49,946,811$ 51,424,258

Transfers of Expenditures – Expenditures may be transferred between appropriation units pursuant to the authority granted to the Kentucky Chief Justice in the budget bill for the fiscal year ended June 30, 2024, which was 2022 House Bill 244.

Note 4—Capital assets

Included in capital assets are real property and equipment. These are included as capital outlays in the financial statement and are recorded at historical cost when purchased or constructed. The policy of the Judicial Branch is to record these items as capital outlays when the useful life is greater than one year and the acquisition cost is $5,000 or greater. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the life of the asset are shown in the financial statement as repairs and maintenance.

Note 5—Lease obligations

The AOC occupies court facilities owned by local units of government in every county and pays operating costs and use allowance for each such facility in accordance with KRS 26A.090, 26A.100, 26A.110, and 26A.115.

Capital projects for court facilities are authorized by the General Assembly in the judicial branch budget bill and financed by bonds sold by the public properties corporation established by the local unit of government in accordance with KRS Chapter 58. The AOC oversees the design, financing and construction of court facilities in accordance with KRS 26A.160 and enters into a lease agreement with the local unit of government agreeing to apply use allowance payments to the debt service subject to biennial appropriations from the General Assembly.

The lease agreement functions as collateral for the bonds sold by the public properties corporation. The AOC currently pays its pro rata share of the debt service on 82 court facilities statewide. The AOC also pays for 95 public and private sector leases. Private sector leases are used to house Kentucky Court of Justice programs such as drug courts, pretrial services, and Supreme Court offices when government-owned facilities are not available or suitable.

Note 6—Retirement plans and other post-employment benefits

Under the provisions of KRS Section 61.645, the Board of Trustees of Kentucky Retirement Systems administers the Kentucky Employees Retirement System (KERS) and State Police Retirement System (SPRS). The County Employees Retirement System Board of Trustees administers the County Employees Retirement System (CERS).

These are cost-sharing, multiple employer defined benefit pension plans. Although the assets of the systems are invested as a whole, each system’s assets are used only for the payment of benefits to the members of that plan and the administrative costs incurred by those receiving a benefit, in accordance with the provisions of KRS Sections 16.510, 61.515, 61.702, 78.520, and 78.630. Under the provisions of KRS Section 61.701, the Board of Trustees of the Kentucky Retirement Systems administers the Kentucky Retirement Systems’ Insurance Fund (Insurance Fund). The statutes provide for a single insurance fund to provide group hospital and medical benefits to retirees drawing a benefit from the three pension funds administered by the Kentucky Retirement Systems:

(1) KERS; (2) CERS; and (3) SPRS. The assets of the Insurance Fund are also segregated by plan.

The Judicial Branch participates in the KERS and CERS pension plans and the Insurance Fund. These are a cost-sharing, multiple employer defined benefit pension and OPEB plans, which cover all eligible full-time employees and provides for retirement, disability, health insurance and death benefits to plan members.

Cost-sharing governmental employers, such as the Judicial Branch, are required to report a net pension and net OPEB liability, pension and OPEB expense, and pension and OPEB related assets and liabilities based on their proportionate share of the collective amounts for all governments in the plan when reporting on the accrual basis of accounting in accordance with GAAP. Since the financial statement is prepared on a regulatory basis of accounting no such pension and OPEB liability, deferred outflows of resources and deferred inflows of resources related to pensions and OPEB are included in the financial statement. The Judicial Branch only records disbursements for their annual contributions to the plans. The Judicial Branch’s contributions to the plans totaled $33,791,563 for KERS and $17,389,660 for CERS for the year ended June 30, 2024.

Note 6—Retirement plans and other post-employment benefits (continued)

At June 30, 2024, if the Judicial Branch were preparing its financial statements on an accrual basis of accounting in accordance with GAAP, the following liabilities would have been reported for its proportionate share of the net pension liability and net OPEB liability:

Pension Fund Amount

KERS net pension liability $339,599,215

CERS net pension liability $149,086,290

KERS net OPEB liability $35,102,736

CERS net OPEB asset $(3,209,330)

TOTAL $520,578,911

The following is a summary of the plans in which the Judicial Branch participates:

CERS Plan – The CERS Pension Fund and CERS Insurance Fund cover all eligible full-time employees and provide retirement, disability and death benefits, and health insurance benefits. Benefit contributions and provisions are established by statute. CERS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to the Kentucky Public Pension Authority, Perimeter Park West, 1260 Louisville Road, Frankfort, Kentucky 40601-6124 or by calling

(502) 696-8800.

Non-hazardous employees can retire with full retirement benefits after 27 years of service or age 65. Non-hazardous employees who begin participation on or after September 1, 2008 must meet the rule of 87 (member's age plus years of service credit must equal 87, and the member must be a minimum of 57 years of age) or the member is age 65, with a minimum of 60 months service credit. Retirement benefits are determined based upon a maximum of 2.2% of the employee's years of service multiplied by their Final Compensation. Final Compensation is calculated based upon the average of the five highest fiscal years (or last five fiscal years for employees who begin participation on or after September 1, 2008) of salary prior to attainment of the CERS specified age (or age and service combinations). CERS allows employees to retire prior to meeting the requirements above and receive partial benefits, providing they meet certain age and service-related criteria.

Employees are eligible for service-related disability benefits regardless of length of service. Five years of service is required for nonservice-related disability eligibility. Disability benefits are determined in the same manner as retirement benefits but are payable immediately without an actuarial reduction. Death benefits equal the employee's final full-year salary.

CERS also provides post-retirement health care coverage. For members participating prior to July 1, 2003, years of service and respective percentages of the maximum contribution are as follows:

Year of Service % Paid by Insurance Fund % Paid by Member through

Payroll Deductions

20 or more 100% 0%

15-19 75% 25%

14-10 50% 50%

4-9 25% 75%

Less than 4 0% 100%

As a result of House Bill 290 (2004 General Assembly), medical insurance benefits are calculated differently for members who began participation on or after July 1, 2003. Once members reach a minimum vesting period of ten years, non-hazardous employees whose participation began on or after July 1, 2003, earn ten dollars per month for insurance benefits at retirement for every year of earned service…