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PIEDMONT AREA MENTAL HEALTH, DEVELOPMENTAL DISABILITIES AND SUBSTANCE ABUSE AUTHORITY MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2006 Overview of the Financial Statements As Management of Piedmont Area Mental Health, Developmental Disabilities and Substance Abuse Authority (the "Authority"), we offer readers of the Authority's financial statements this narrative overview and analysis of the financial activities of the Authority for the fiscal year ended June 30, 2006. We encourage readers to read the information presented here in conjunction with additional information that we have furnished in the Authority's financial statements, which follow this narrative. Required Financial Statements The Authority's financial statements report information of the Authority using accounting methods similar to those used by private-sector health care organizations. These statements offer short-term and long-term financial information about its activities. The Authority's basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. The basic financial statements present two different views of the Authority through the use of government-wide statements and fund financial statements. In addition to the basic financial statements, this report contains other supplemental information that will enhance the reader's understanding of the financial condition of the Authority. The government-wide financial statements are designed to provide the reader with a broad overview of the Authority's finances similar in format to a financial statement of aprivate-sector business. The government-wide statements provide short-term and long-term information about the Authority's financial status as a whole. The two government-wide statements report the Authority's net assets and how they have changed. Net assets are the difference between the Authority's total assets and total liabilities. Measuring net assets is one way to gauge the Authority's financial condition. The fund financial statements provide a more detailed look at the Authority's most significant activities. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. Piedmont Area Mental Health, Developmental Disabilities and Substance Abuse Authority, like all other governmental entities in North Carolina, uses fund accounting to ensure and reflect compliance (or non-compliance) with finance-related legal requirements, such as the General Statutes or the Authority's budget ordinance. The Authority has one governmental fund, the general fund. The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. (4) ` "l