VILLAGE OF GRAFTON NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 2016 NOTE I - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.) D. ASSETS, DEFERRED OUTFLOWS OF RESOURCES, LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND NET POSITION OR EQUITY (cont.) 7. Compensated Absences The accounting treatment for compensated absences depends on whether the absence is used in governmental fund operations or proprietary fund operations and whether they are reported in the government-wide or fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements, and are payable with expendable resources. The recorded compensated absences consist of the following: Paid Time Off Employees accumulate paid time off based on length of service and are capped based on length of service. Earned balances may be used in future years. The liability for paid time off is recorded in the government-wide statement and proprietary statements. Due to the long-term nature of this liability, the governmental funds do not report this liability in the fund financial statements. The proprietary funds record this liability as it is incurred in the same manner as it is recorded on the government-wide financial statements. The balance as of December 31, 2016 was $316,945, $14,656 and $34,047 in the governmental activities, water utility and wastewater utility, respectively. Medical Leave Bank and Medical Leave Separation Bank The village polices regarding sick leave were changed as of January 1, 2012. For employees who had accumulated sick leave banks that needed to be rolled into the new policy the village offered two different options. Employees were given the choice to transfer the balance into the new medical leave bank which can only be used for FMLA related issues or they could place those banked hours into a one-time medical leave separation bank that would be utilized for medical related expenses after separation of employment. For those who choose to transfer their accumulated sick bank into the new medical leave bank they were allowed to exceed the hours bank limit of 480 hours as stated in the new policy as long as it did not exceed the old bank limit of 960 hours. Annually employees are given the option to transfer unutilized paid time off into the medical leave bank. The medical leave bank has no liability upon the termination of employment and therefore is not recorded as a liability. For those who choose to transfer their accumulated sick bank into the medical leave separation bank, the Village has recorded necessary liabilities for this accumulated benefit. However, due to the long-term nature of this liability, the governmental funds do not report this liability in the fund financial statements. The proprietary funds record this liability as it is incurred in the same manner as it is recorded on the government-wide financial statements. The balance as of December 31, 2016 was $113,134, $11,517 and $7,678 in the governmental activities, water utility and wastewater utility, respectively. 53