Village of Ashley. Financial Statements February 29, 2016

Transcription

1 Financial Statements February 29, 2016

2 Table of Contents February 29, 2016 Independent Auditor s Report Management s Discussion and Analysis I - IV Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position 1 Statement of Activities 2 Fund Financial Statements: Balance Sheet Governmental Funds 3 Reconciliation of Fund Balances on the Balance Sheet for Governmental Funds to Net Position of Governmental Activities on the Statement of Net Position 4 Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds 5 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 6 Statement of Net Position Proprietary Funds 7 Statement of Revenues, Expenses and Changes in Net Position Proprietary Funds 8 Statement of Cash Flows Proprietary Funds 9 Notes to Financial Statements Required Supplemental Information: Budgetary Comparison Schedules Other Supplementary Information: Combining Balance Sheet Non-Major Governmental Funds 22 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Non-Major Governmental Funds 23 Schedule of Long Term Debt 24 25

3 INDEPENDENT AUDITOR'S REPORT To the Village Council Village of Ashley, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Village of Ashley (the Village), as of and for the year ended February 29, 2016, and the related notes to the financial statements, which collectively comprise the Village s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements 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 entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the Village, as of February 29, 2016, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and budgetary comparison information be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures ROSLUND, PRESTAGE & COMPANY, P.C. 525 WEST WARWICK DRIVE, SUITE A, ALMA, MICHIGAN

4 to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Village s basic financial statements. The other supplemental information, as listed in the table of contents, is presented for purposes of additional analysis and are not a required part of the basic financial statements. The other supplemental information is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the other supplemental information is fairly stated in all material respects in relation to the basic financial statements as a whole. Roslund, Prestage & Company, P.C. Certified Public Accountants August 23, 2016

5 MANAGEMENT S DISCUSSION and ANALYSIS

6 Management s Discussion and Analysis We, the Council of the Village of Ashley, offer citizens of the Village our financial statements with the narrative overview and analysis of the financial activities of the Village of Ashley for the fiscal year ended February 29, This annual report consists of a series of financial statements. The Statement of Net Position and the Statement of Activities provide information about the activities of the Village of Ashley as a whole, and present a longer-term view of the Village finances. Fund financial statements tell how these services were financed in the short term, as well as what remains for future spending. Fund financial statements also report the Village s operations in more detail than the government-wide financial statements. Financial Highlights The unrestricted net position of the Village of Ashley governmental activities exceeded its liabilities at the close of the current fiscal year by $335,073 which may be used to meet the Village s ongoing obligations to citizens and creditors. Additionally, the Village governmental funds reported an ending fund balance of $461,697, an increase of $6,977 over the 2014 fund balance. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the Village s basic financial statements. The Village s basic financial statements are comprised of three sections: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements. Government-wide financial statements The government-wide financial statements are designed to provide readers with a broad overview of the Village s finances, in a manner similar to a private-sector business. The statement of net position presents information on all the Village s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position serve as a useful indicator of whether the financial position of the Village is improving or deteriorating. The statement of activities presents information showing how the Village s net position changed during the fiscal year. All changes in net position are reported when the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods. The government-wide financial statements distinguish functions of the Village that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the Village include general government, public safety, public works, community and economic development, and recreation and culture. I

7 Management s Discussion and Analysis The table below shows a condensed, comparative statement of net position: Assets: Governmental Activities Business Type Activities Total Primary Government Current assets $ 495,265 $ 470,919 $ 580,951 $ 540,416 $ 1,076,216 $ 1,011,335 Noncurrent assets 268, ,538 3,306,652 3,287,048 3,575,236 3,629,586 Liabilities: Total assets 763, ,457 3,887,603 3,827,464 4,651,452 4,640,921 Current liabilities 58,405 43, , , , ,914 Noncurrent liabilities 30,313 84,491 2,810,000 2,911,000 2,840,313 2,995,491 Total liabilities 88, ,524 2,913,148 3,061,881 3,001,866 3,189,405 Net Position: Net investment in capital assets 213, , , , , ,660 Restricted 126,624 65,342 31,732 15, ,356 81,208 Unrestricted 335, , , , , ,648 Total net position $ 675,131 $ 685,933 $ 974,455 $ 765,583 $ 1,649,586 $ 1,451,516 The table below shows a condensed, comparative statement of activities: Program Revenues: Governmental Activities Business Type Activities Total Primary Government Charges for services $104,145 $ 69,938 $ 339,309 $ 279,243 $ 443,454 $ 349,181 Operating grants and contributions 2,457 2,457 22, ,754 24, ,211 General revenues: Property taxes 100,859 94, ,859 94,031 State shared revenue 107, , , ,622 Interest 43,777 29, ,215 44,360 31,077 Other revenues 93,038 73,780 23,107 38, , ,809 Transfers in (out) - 31,960 - (31,960) - - Total revenues 452, , , , , ,931 Program Expenses: General government 172, , , ,705 Public safety 162, , , ,475 Public works 106, , , , , ,867 Recreation and culture ,722 83, ,722 83,268 Total expenses 441, , , , , ,315 Increase (decrease) in net position 10,202 (89,519) (16,378) 96,135 (6,176) 6,616 Net position, beginning 664, , , ,448 1,655,762 1,444,900 Net position, end of year $ 675,131 $ 685,933 $ 974,455 $ 765,583 $ 1,649,586 $ 1,451,516 Fund Financial statements 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. The Village, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of Village can be divided into two categories; governmental funds and proprietary funds. II

8 Management s Discussion and Analysis Governmental funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information is useful in evaluating a government s near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers will better understand the long-term impact of the government s near term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The Village adopts an annual appropriated budget for its general fund, major street fund and local street fund. A budgetary comparison statement has been provided for these funds to demonstrate compliance with this budget. Notes to the financial statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. Other information In addition to the basic financial statements and the accompanying notes, this report also presents certain required supplementary information as required by GASB statement 34 regarding the Village s budgetary comparison of the general and major streets funds. This supplementary information is contained behind its own tab following the notes to financial statements. Budgetary Highlights There were no significant changes in the general, major street, and local street fund budgets. Capital Asset and Debt Administration At the end of 2016, the Village still had $3,575,236 invested in a range of capital assets, including land, buildings, building improvements and equipment. For the budget year 2016/2017 the Village of Ashley plans to invest in equipment and building improvements. We will also continue to move forward with our plan for parks and recreation improvements. Economic Factors and Next Year s Budgets and Rates The Village will be cautious with their spending. The budget will continue to add water infrastructure to capital assets which is financed through USDA loans and grants. Water bills will be increased and after water meters are installed and a base line is established the bills will be recalculated. The number of Village employee s will remain the same. No changes in the Village taxes are anticipated at this time. III

9 Management s Discussion and Analysis Requests for Information This financial report is designed to provide our citizens and taxpayers with a general overview of the Village s finances and to demonstrate the Village s accountability for the money it receives. If you have questions about this report or need additional information, we welcome you to contact a Village of Ashley at , or write to us at: Village of Ashley P. O. Box 158 Ashley, MI IV

10 BASIC FINANCIAL STATEMENTS - GOVERNMENT-WIDE FINANCIAL STATEMENTS

11 Statement of Net Position February 29, 2016 Assets Current assets PRIMARY GOVERNMENT Governmental Business-Type Activities Activities Total Cash and cash equivalents $ 403,673 $ 537,716 $ 941,389 Cash and cash equivalents - restricted - 5,469 5,469 Accounts receivable 8,016 37,766 45,782 Due from other governments 32,415-32,415 Due from other funds 51,161-51,161 Total current assets 495, ,951 1,076,216 Noncurrent assets Capital assets - not depreciated 3,177 49,405 52,582 Capital assets - depreciated, net 265,407 3,257,247 3,522,654 Total noncurrent assets 268,584 3,306,652 3,575,236 Total assets 763,849 3,887,603 4,651,452 Liabilities Current liabilities Accounts payable 24,043 5,005 29,048 Accrued liabilities 5,507-5,507 Due to other funds 4,018 47,143 51,161 Current portion of long-term debt 24,837 51,000 75,837 Total current liabilities 58, , ,553 Noncurrent liabilities Noncurrent portion of long-term debt 30,313 2,810,000 2,840,313 Total noncurrent liabilities 30,313 2,810,000 2,840,313 Total liabilities 88,718 2,913,148 3,001,866 Net position Net investment in capital assets 213, , ,086 Restricted for: RRI reserve - 31,732 31,732 Streets and highways 64,429-64,429 Fire and ambulance services 62,195-62,195 Unrestricted 335, , ,144 Total net position $ 675,131 $ 974,455 $ 1,649,586 The notes to the financial statements are an integral part of this statement. 1

12 Statement of Activities For the Year Ended February 29, 2016 Program Revenues Net (Expense) Revenue and Changes in Net Position Functions / Programs PRIMARY GOVERNMENT Operating Charges Grants and Governmental Business-Type Expenses for Services Contributions Activities Activities Total Governmental activities General government $ 172,908 $ 190 $ - $ (172,718) $ - $ (172,718) Public safety 162,236 81,615 - (80,621) - (80,621) Public works 106,666 22,340 2,457 (81,869) - (81,869) Total governmental activities 441, ,145 2,457 (335,208) - (335,208) Business-type activities Sewer System 53,109 69, ,294 16,294 Water System 240, ,093 22,000 - (80,453) (80,453) Country Christmas 107, , ,091 24,091 Total business-type activities 401, ,309 22,000 - (40,068) (40,068) Total primary government $ 843,187 $ 443,454 $ 24,457 (335,208) (40,068) (375,276) General revenues Property taxes 100, ,859 State shared revenues 107, ,736 Unrestricted investment earnings 43, ,360 Other revenues 93,038 23, ,145 Total general revenues 345,410 23, ,100 Change in net position 10,202 (16,378) (6,176) Net position - beginning of year 664, ,833 1,655,762 Net position - end of year $ 675,131 $ 974,455 $ 1,649,586 The notes to the financial statements are an integral part of this statement. 2

13 FUND FINANCIAL STATEMENTS

14 Balance Sheet Governmental Funds February 29, 2016 Non-Major Total General Major Local Governmental Governmental Fund Street Street Funds Funds Assets Cash and cash equivalents $ 282,210 $ 19,686 $ 39,742 $ 62,035 $ 403,673 Accounts receivable 3, ,000 8,016 Due from other governments 22,528 7,050 2,837-32,415 Due from other funds 49, ,161 Total assets $ 357,467 $ 27,047 $ 42,898 $ 67,853 $ 495,265 Liabilities Accounts payable $ 12,869 $ 1,599 $ 3,917 $ 5,658 $ 24,043 Accrued liabilities 5, ,507 Due to other funds 4, ,018 Total liabilities 22,394 1,599 3,917 5,658 33,568 Fund balances Restricted - 25,448 38,981 62, ,624 Unassigned 335, ,073 Total fund balances 335,073 25,448 38,981 62, ,697 Total liabilities and fund balances $ 357,467 $ 27,047 $ 42,898 $ 67,853 $ 495,265 The notes to the financial statements are an integral part of this statement. 3

15 Reconciliation of Fund Balances on the Balance Sheet for Governmental Funds to Net Position of Governmental Activities on the Statement of Net Position February 29, 2016 Total fund balance - governmental funds $ 461,697 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. Add: capital assets 894,876 Deduct: accumulated depreciation (626,292) Some liabilities are not due and payable in the current period and, therefore, are not reported in the funds. Those liabilities consist of: Deduct: long-term debt (55,150) Net position of governmental activities $ 675,131 The notes to the financial statements are an integral part of this statement. 4

16 Village of Ashely Statement of Revenue, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended February 29, 2016 Non-Major Total General Major Local Governmental Governmental Fund Street Street Funds Funds Revenues Taxes $ 100,859 $ - $ - $ - $ 100,859 Licenses and permits State grants 54,858 39,460 15, ,193 Charges for services 22, , ,955 Interest and rentals 43, ,777 Other revenues 21,736 8,696 2,955 56,151 89,538 Total revenues 243,467 48,367 18, , ,512 Expenditures General government 143, ,020 Public safety 29, , ,021 Public works 41,549 40,577 24, ,513 Debt service Principal 10, ,572 27,498 Interest 1, ,461 4,640 Other expenditures 18,320 1,481 1,068 1,482 22,351 Total expenditures 244,666 42,058 25, , ,043 Excess of revenues over (under) expenditures (1,199) 6,309 (6,603) 23,962 22,469 Other financing sources (uses) Transfers in - - 9,000-9,000 Transfers out - (9,000) - - (9,000) Total other financing sources (uses) - (9,000) 9, Excess of revenues and other financing sources over (under) expenditures and other uses (1,199) (2,691) 2,397 23,962 22,469 Fund balance, beginning 336,272 28,139 36,584 38, ,228 Fund balance, ending $ 335,073 $ 25,448 $ 38,981 $ 62,195 $ 461,697 The notes to the financial statements are an integral part of this statement. 5

17 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended February 29, 2016 Net change in fund balances - total governmental funds $ 22,469 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. Add: purchase of capital assets 15,135 Deduct: depreciation expense (58,400) Add: gain on sale of capital assets 3,500 Payment of principal on long-term debt is an expenditure in the governmental funds, but not in the statement of activities (where it reduces long-term debt). Add: payment of principal on long-term debt 27,498 Change in net position of governmental activities $ 10,202 The notes to the financial statements are an integral part of this statement. 6

18 Statement of Net Position Proprietary Funds February 29, 2016 Assets Current assets Business-Type Activities Country Sewer Water Christmas Fund Fund Fund Total Cash and cash equivalents $ 294,286 $ 122,421 $ 121,009 $ 537,716 Cash and cash equivalents - restricted - 5,469-5,469 Accounts receivable 14,934 22,832-37,766 Total current assets 309, , , ,951 Noncurrent assets Capital assets - not depreciated 12,405 37,000-49,405 Capital assets - depreciated, net 140,015 3,117,232-3,257,247 Total noncurrent assets 152,420 3,154,232-3,306,652 Total assets 461,640 3,304, ,009 3,887,603 Liabilities Current liabilities Accounts payable 841 4,164-5,005 Due to other funds ,871 47,143 Current portion of long-term debt - 51,000-51,000 Total current liabilities 1,113 55,164 46, ,148 Noncurrent liabilities Noncurrent portion of long-term debt - 2,810,000-2,810,000 Total liabilities 1,113 2,865,164 46,871 2,913,148 Net position Net investment in capital assets 152, , ,652 Restricted for: RRI reserve - 31,732-31,732 Unrestricted 308, ,826 74, ,071 Total net position $ 460,527 $ 439,790 $ 74,138 $ 974,455 The notes to the financial statements are an integral part of this statement. 7

19 Statement of Revenues, Expenses and Changes in Net Position Proprietary Funds For the Year Ended February 29, 2016 Business-Type Activities Country Sewer Water Christmas Fund Fund Fund Total Operating revenues Licenses and permits $ - $ - $ 120 $ 120 Federal grants - 22,000-22,000 Charges for services 69, , , ,189 Other revenues 4,503 14,078 4,526 23,107 Total operating revenues 73, , , ,416 Operating expenses Salaries and wages 10,991 15,744 15,403 42,138 Fringe benefits 4,544 4,883-9,427 Contractual services 6,439 42,972 53, ,806 Supplies 2,606 3,771 27,237 33,614 Insurance 521 1,884-2,405 Utilities 3,622 11,524-15,146 Printing and publishing - - 2,513 2,513 Repairs and maintenance 3,211 3,102 9,174 15,487 Equipment rental 8,907 8,809-17,716 Other expenses 4,559 2,883-7,442 Depreciation 7,709 83,647-91,356 Total operating expenses 53, , , ,050 Operating income (loss) 20,797 (5,048) 28,617 44,366 Nonoperating income (expense) Interest revenue Interest expense - (61,327) - (61,327) Total nonoperating income (expense) 426 (61,230) 60 (60,744) Change in net position 21,223 (66,278) 28,677 (16,378) Total net position, beginning 439, ,068 45, ,833 Total net position, ending $ 460,527 $ 439,790 $ 74,138 $ 974,455 The notes to the financial statements are an integral part of this statement. 8

20 Statement of Cash Flows Proprietary Funds For the Year Ended February 29, 2016 Business-Type Activities Country Sewer Water Christmas Fund Fund Fund Total Cash flows from operating activities: Receipts from customers $ 79,644 $ 187,186 $ 136,339 $ 403,169 Payments to employees (15,535) (20,627) (15,403) (51,565) Payments to suppliers (29,464) (74,446) (92,319) (196,229) Net cash provided by operating activities 34,645 92,113 28, ,375 Cash flows from investing activities: Interest revenue Cash flows from capital and related financing activities Principal and interest paid on capital debt - (111,327) - (111,327) Net increase (decrease) in cash and cash equivalents 35,071 (19,117) 28,617 44,571 Cash and cash equivalents, beginning 259, ,007 92, ,614 Cash and cash equivalents, ending $ 294,286 $ 127,890 $ 121,009 $ 543,185 Reconciliation of operating income (loss) to net cash provided (used) by Operating activities Operating income (loss) $ 20,797 $ (5,048) $ 28,617 $ 44,366 Adjustments to reconcile operating income to net cash provided (used) by operating activities Depreciation expense 7,709 83,647-91,356 Change in assets and liabilities (Increase) Decrease in accounts receivable 5,738 13,015-18,753 (Decrease) Increase in accounts payable Net cash provided by operating activities $ 34,645 $ 92,113 $ 28,617 $ 155,375 The notes to the financial statements are an integral part of this statement. 9

21 NOTES TO THE FINANCIAL STATEMENTS

22 Notes to Financial Statements NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the Village of Ashley (the Village) have been prepared in conformity with accounting principles generally accepted in the United States of America as applicable to governmental 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 Village s accounting policies are described below. Reporting Entity The Village is governed by an elected seven-member Council. The Village receives funding from local, state and federal sources and must comply with all of the requirements of these funding source entities. However, the Village is not included in any other governmental reporting entity as defined by the accounting principles generally accepted in the United States of America. Council members are elected by the public and have decision-making authority, the power to designate management, the ability to significantly influence operations, and the primary accountability for fiscal matters. The accompanying financial statements have been prepared in accordance with criteria established by the Governmental Accounting Standards Board for determining the various governmental organizations to be included in the reporting entity. These criteria include significant operational financial relationships that determine which of the governmental organizations are a part of the Village s reporting entity, and which organizations are legally separate, component units of the Village. Based on the application of the criteria, the Village does not contain any component units. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e. the statement of net position and the statement of activities) report information on all of the nonfiduciary activities of the Village. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities normally supported by taxes and intergovernmental revenues, are reported separately from business-type activities which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program revenues include: (1) charges to consumers who purchase, use or directly benefit from goods, services, or privileges provided by a given function; and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported instead as general revenues. Net position is restricted when constraints placed on it are either externally imposed or are imposed by constitutional provisions or enabling legislation. Internally imposed designations of resources are not presented as restricted net position. When both restricted and unrestricted resources are available for use, generally it is the Village s policy to use restricted resources first, then unrestricted resources as they are needed. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Measurement Focus, Basis of Accounting and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental Fund Financial Statements - The Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this 10

23 Notes to Financial Statements purpose, the Village considers revenues to be available if they are collected within 60 days of the end of the current fiscal year end. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, expenditures relating to compensated absences, claims and judgments are recorded only when payment is due. Proprietary Fund Financial Statements - The financial statements of the proprietary funds are reported using the economic resources measurement focus and the accrual basis of accounting, similar to the government-wide statements described above. Proprietary funds distinguish operating revenue and expenses from nonoperating items. Operating revenue and expenses generally result from providing services in connection with a proprietary fund s principal ongoing operations. The principal operating revenue of the proprietary funds relate to charges to customers for services provided. Operating expenses for proprietary funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenue and expenses not meeting this definition are reported as nonoperating revenue and expenses. The Village reports the following major governmental funds: The General Fund is the Village s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Major Street Fund accounts for the resources of state gas and weight tax revenues that are restricted for use on major streets. The Local Street Fund accounts for the resources of state gas and weight tax revenues that are restricted for use on local streets. The Village reports the following major proprietary funds: The Water and Sewer Funds account for the activities of the water distribution system and sewage collection system. The Country Christmas Fund accounts for the financial resources and related expenditures of the Country Christmas events which are operated by the Village. All remaining governmental funds are aggregated and reported as non-major funds. Cash and cash equivalents The Village s cash and cash equivalents are considered to be cash on hand, money market funds, demand deposits and certificates of deposit. Receivables and Payables Receivables have been recognized for all significant amounts due the Village as of year-end. Valuation reserves have not been provided since their collection is not considered doubtful and any uncollected amounts would be immaterial. Inventories Inventories, which are immaterial in amount, are not recognized as an asset in these financial statements. Inventories are recorded as expenditures when purchased. Capital Assets Capital assets, which include property, plant and equipment, are reported in the governmental or business-type activities column in the government-wide financial statements. Capital assets are defined by the Village as individual assets with an initial cost equal to or more than $1,000 for computers and $2,500 for vehicles, furniture and equipment and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the date of donation. 11

24 Notes to Financial Statements Interest incurred during the construction of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. During the current year, no interest expense was incurred or capitalized. Capital assets of the Village are depreciated using the straight line method over the following estimated useful lives: Assets Years Buildings & Improvements Infrastructure 20 Vehicles & Equipment 5-20 Sewer System 5 50 Water System 5 50 Land Not Applicable Not Depreciated Long-Term Obligations In the government-wide financial statements and the proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. In the fund financial statements, the face amount of debt issued is reported as other financing sources. Deferred Outflows/Inflows of Resources In addition to assets, the financial statements will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Village has no items that qualify of reporting in this category. In addition to liabilities, the financial statements will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (revenue) until that time. The Village has no items that qualify for reporting in this category. Fund Balances The Village has implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This Statement provides more clearly defined fund balance categories to make the nature and extent of the constraints placed on a government s fund balances more transparent. The following classifications describe the relative strength of the spending constraints: Nonspendable fund balance amounts that are in nonspendable form (such as inventory or prepaid expenditures) or are either legally or contractually required to be maintained intact. Restricted fund balance amounts constrained to specific purposes by their providers (such as grantors, bondholders, and higher levels of government), through constitutional provisions, or by enabling legislation. Committed fund balance amounts constrained to specific purposes by the Village itself, using its highest level of decision-making authority (Village Council). To be reported as committed, amounts cannot be used for any other purpose unless the Village takes the same highest level action to remove or change the constraint. Assigned fund balance amounts the Village intends to use for a specific purpose. Intent can be expressed by the Village Council or by an official or body to which the Village Council delegates the authority. Unassigned fund balance amounts that are available for any purpose. Positive amounts are reported only in the general fund. 12

25 Notes to Financial Statements The Village would typically use restricted fund balance first, followed by committed resources, and then assigned resources as appropriate opportunities arise, but reserves the right to selectively spend unassigned resources first to defer the use of these classified funds. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. Budgetary Data Budgets are adopted by the Village for the general fund, the major street fund and the local street fund. The budget is adopted and prepared on the modified accrual basis of accounting. The budget is also adopted at the function level. The budgeted revenues and expenditures for governmental fund types, as presented in this report, include any authorized amendments to the original budget as adopted. The Village does not maintain a formalized encumbrance accounting system. Property Taxes The Village s property tax is levied on July 1 st on the taxable valuation of property (as defined by State statutes) located in the Village as of the preceding December 31 st. Although the Village s 2015 ad valorem tax is levied and collectible on July 1 st, 2015, it is the Village s policy to recognize revenue from the current tax levy in the year when the proceeds of this levy are budgeted and made available for the financing of operations. Available means collected within the current period or expected to be collected soon enough thereafter to be used to pay liabilities of the current period (60 days). The 2015 taxable valuation of real and personal property located in the Village totaled $8.9 million, on which ad valorem taxes levied consisted of mills for operating purposes. NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary Information Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds. All annual appropriations lapse at fiscal year-end. On or before the first day of February of each year, a proposed budget for the next fiscal year is submitted to the budget committee. The budget committee compiles such information and submits it to the council, along with recommendations, in February of each year. This operating budget includes proposed expenditures and the means of financing them for the fiscal year commencing the following March 1 st. The council holds public hearings and final budgets are adopted prior to March 1 st. Prior to March 1st, the budget is legally enacted pursuant to the Uniform Budgeting and Accounting Act (P.A. 621 of 1978, as amended). Council must approve any revisions to the budget. Excess of Expenditures over Appropriations in Budgeted Funds P.A. 621 of 1978, Section 18(1), as amended, provides that a local unit shall not incur expenditures in excess of the amount appropriated. During the year, the Village incurred expenditures in excess of the amounts appropriated, as shown in the Budgetary Comparison Schedules in this report. 13

26 Notes to Financial Statements NOTE 3 CASH AND CASH EQUIVALENTS Cash and cash equivalents as of year-end for the Village are as follows: Governmental Activities Business-Type Activities Total Primary Government Cash Deposits 403, , ,389 Cash Deposits Restricted - 5,469 5,469 Cash and Cash Equivalents Restricted Restricted cash amounts represent amounts remaining in the federal deposits account to be used for the ongoing water improvement project. Custodial Credit Risk Deposits Custodial credit risk is the risk that, in the event of a bank failure, the Village s deposits might not be recovered. At year-end, the bank balance of the primary government s deposits was $980,886 of which $250,000 was covered by federal depository insurance. The remaining amount was uninsured and uncollateralized. Deposits which exceed FDIC insurance coverage limits are held at local banks. The Village believes that due to the dollar amounts of cash deposits and the limits of FDIC insurance, it is impractical to insure all bank deposits. As a result, the Village evaluates each financial institution with which it deposits funds and assesses the level of risk of each institution. Only those institutions with an acceptable estimated risk level are used as depositories. Deposits which exceed FDIC insurance coverage limits are held at local banks. Investments State statutes authorize the Village to invest in obligations and certain repurchase agreements of the United States Treasury and related governmental agencies, commercial paper, banker s acceptances of the United States banks, obligations of the State of Michigan or any of its political subdivisions, and mutual funds composed entirely of the above investments. The Village s investment policy complies with the State statutes and has no additional investment policies that would limit its investment choices. Interest Rate Risk In accordance with its investment policy, the Village will minimize interest rate risk, which is the risk that the market value of securities in the portfolio will fall due to changes in market interest rates, by; structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities in the open market; and, investing operating funds primarily in shorter-term securities, liquid asset funds, money market mutual funds, or similar investment pools and limiting the average maturity in accordance with the Village s cash requirements. Custodial Credit Risk Custodial credit risk is the risk that, in the event of a failure of the counterparty, the Village will not be able to recover the value of its investments that are in the possession of an outside party. The Village requires all security transactions, including collateral for repurchase agreements, to be made on a cash basis or a delivery vs. payment basis. Securities may be held by a third party custodian and must be evidenced by safekeeping receipts. The Village does not have any additional policies for custodial credit risk over investments. Credit Risk State statutes limit investments in commercial paper to be rated at the time of purchase within the three highest classifications established by not less than two standard rating services. Investments in obligations of the State of Michigan or its political subdivisions must be rated as investment grade by not less than one rating service. Investments in bonds, obligations, or repurchase agreements must be made with the U.S. Treasury and banker s acceptances with United States banks. The Village s investment policy limits investments to be made with prudent judgment as to the safety of the invested capital and probable outcome of income. 14

27 Notes to Financial Statements Concentration of Credit Risk The Village will minimize concentration of credit risk, which is the risk of loss attributed to the magnitude of the Village s investment in a single issuer, by diversifying the investment portfolio so that the impact of potential losses from any one type of security or issuer will be minimized. NOTE 4 - DUE FROM OTHER GOVERNMENTAL UNITS Due from other governmental units as of September 30 th consists of the following: General Fund: Description Amount State of Michigan State shared revenues 17,106 Gratiot County delinquent taxes 5,422 Total 22,528 Major Street Fund: State of Michigan Act 51 revenues 7,050 Local Street Fund: State of Michigan Act 51 revenues 2,837 Total 32,415 NOTE 5 INTERFUND RECEIVABLES AND PAYABLES Receivable Fund Amount Payable Fund Amount General Fund 49,713 General Fund 4,018 Major Street Fund 311 Sewer Fund 272 Local Street Fund 319 County Christmas Fund 46,871 Fire Fund Ambulance Fund Totals 51,161 Totals 51,161 15

28 Notes to Financial Statements NOTE 6 - CAPITAL ASSETS Capital asset activity of the primary government for the current year was as follows: Governmental Activities Beginning Balance Increases Decreases Ending Balance Assets Buildings & Improvements 94, ,024 Infrastructure 124,718 15, ,853 Land 8, ,177 Vehicles & Equipment 658,822 - (6,000) 652,822 Subtotal 885,741 15,135 (6,000) 894,876 Accumulated Depreciation Buildings & Improvements (56,411) (1,789) - (58,200) Infrastructure (56,483) (6,499) - (62,982) Vehicles & Equipment (460,098) (50,112) 5,100 (505,110) Subtotal (572,992) (58,400) 5,100 (626,292) Net Capital Assets 312,749 (43,265) (900) 268,584 Business Type Activities Sewer System Fund Beginning Balance Increases Decreases Ending Balance Assets Buildings & Sewer System 759,590 - (800) 758,790 Land 12, ,405 Subtotal 771,995 - (800) 771,195 Accumulated Depreciation Buildings & Sewer System (611,866) (7,709) 800 (618,775) Net Capital Assets 160,129 (7,709) - 152,420 Business Type Activities Water System Fund Assets Beginning Balance Increases Decreases Ending Balance Buildings & Water System 113,895 3,141,279-3,255,174 Construction in Process 3,141,279 - (3,141,279) - Land 37, ,000 Subtotal 3,292,174 3,141,279 (3,141,279) 3,292,174 Accumulated Depreciation Water System (54,295) (83,647) - (137,942) Net Capital Assets 3,237,879 3,057,632 (3,141,279) 3,154,232 16

29 Notes to Financial Statements Capital assets not being depreciated include land. Depreciation expense was charged to programs of the primary government as follows: Governmental Activities General Government 7,537 Public Safety 35,575 Public Works 15,288 Total Governmental Activities 58,400 Business-Type Activities Sewer System Fund 7,709 Water System Fund 83,647 Total Business-Type Activities 91,356 The Village is considered a Phase 3 Government, as defined by GASB 34. Accordingly, the Village has elected to not retroactively apply the reporting of major general infrastructure assets. NOTE 7 - LONG-TERM LIABILITIES The Village s long-term debt as of year-end was as follows: 2009 Fire Truck Note $160,000 note dated November 30, 2009 for the purchase of a fire truck. Payments are due in annual installments of $20,034 through November 30, 2019, with interest at 4.25 percent Caterpillar Backhoe Note $55,863 note dated October 20, 2011 for the purchase of a backhoe. Payments are due in annual installments of $12,105 through October 20, 2016, with interest at 3.20 percent. Water Supply Revenue Bonds $3,008,000 Water Supply Revenue Bonds dated August 22, Payments are due in annual installments ranging from $48,000 to $115,000 through August 1, 2053, with interest of percent, payable semi-annually. Debt balances and transactions for the year ended February 29, 2016 are as follows for the Governmental Activities: Governmental Activities: Beginning Balance Additions Retirements Ending Balance Due Within One Year 2009 Fire Truck Note 63,800 - (16,572) 47,228 16, Caterpillar Backhoe Note 18,848 - (10,926) 7,922 7,922 Totals 82,648 - (27,498) 55,150 24,837 Debt balances and transactions for the year ended February 29, 2016 are as follows for the Business-Type Activities: Business-Type Activities Beginning Balance Additions Retirements Ending Balance Due Within One Year Water Supply Revenue Bonds 2,911,000 - (50,000) 2,861,000 51,000 For additional information, see the schedules of long-term debt included in the back of this report. 17