BUCKSKIN SANITARY DISTRICT

Transcription

1 Audited Financial Statements June 30, 2010 Prepared by: Gail Dean Kolesar, CPA, LLC 90 S. Acoma Blvd., Suite 100 Lake Havasu City, AZ 86403

2 Gail Dean Kolesar, CPA, LLC 90 S. Acoma, Suite 100, Lake Havasu City, AZ (928) office; (928) fax TABLE OF CONTENTS TABLE OF CONTENTS 1 INDEPENDENT AUDITORS' REPORT 2 MANAGEMENT DISCUSSION AND ANALYSIS 4 STATEMENT OF NET ASSETS 9 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS 10 STATEMENT OF CASH FLOWS 12 BUDGET VS ACTUAL REPORT 13 NOTES TO FINANCIAL STATEMENTS 15 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND 30 ON COMLPIANCE BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO 32 EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 34 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 36 1

3 Gail Dean Kolesar, CPA, LLC 90 S. Acoma, Suite 100, Lake Havasu City, AZ (928) office; (928) fax Independent Auditor's Report Board of Directors Buckskin Sanitary District Parker, Arizona We have audited the accompanying financial statements of each major fund of Buckskin Sanitary District (District) as of and for the year ended June 30, 20 10, which collectively comprise the basic financial statements of the District as listed in the table of contents. These basic financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these basic financial statements based on our audit. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall basic financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the basic financial statements referred to above present fairly, in all material respects, the respective financial position of each major fund of Buckskin Sanitary District as of June 30, 2010, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated December 15, 2010 on our consideration of the District 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 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management's discussion and analysis and budgetary comparison information on pages 4 through 8 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquires of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. 2

4 Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District s basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairy stated, in all material respects, in relation to the basic financial statements taken as a whole. Gail Dean Kolesar, CPA, LLC Certified Public Accountants December 31,

5 Management's Discussion and Analysis Year Ended June 30, 2010 The following Management's Discussion and Analysis (MD&A) of activities and financial performance of the Buckskin Sanitary District (District) provides an introduction to the financial statements of the District for the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with the basic financial statements and related notes, which follow this section. Overview of the Financial Statements The Buckskin Sanitary District is a governmental entity separate from the Town of Parker and La Paz County. The District s sole purpose is to collect, treat, and dispose of wastewater and its byproducts within the District boundaries located along the Parker Strip on the Colorado River. The accounting policies of the District conform with generally accepted accounting principles as applicable to state and local governments. Generally accepted accounting principles for state and local governments include those principles prescribed by the governmental accounting standards board (GASB), the American Institute of Certified Public Accountants and the Financial Accounting Standards Board (when applicable). It is the responsibility of the District to control and manage all matters pertaining to the Sewage Collection and Disposal System and all real and personal property of the Buckskin Sanitary District. The District is a self-supporting entity and works in conjunction with La Paz County. The County levies real property taxes, notifies the District on a monthly basis of the amount of tax collected and deposits the monies into the District s General Fund. The District also directly bills customers for monthly usage fees. Required Financial Statements This annual report consists of a series of financial statements required by GASB 34. The Statement of Net Assets, Statement of Revenues, Expenses and Changes in Net Assets and Statement of Cash Flows provide information about the activities and performance of the District using accounting methods similar to those used by private sector companies. The Statement of Net Assets includes all of the District's investments in resources (assets) and the obligations to creditors (liabilities). It also provides the basis for computing a rate of return, evaluating the capital structure of the District and assessing the liquidity and financial flexibility of the District. All of the current year's revenue and expenses are accounted for in the Statement of Revenues, Expenses and Changes in Net Assets. This statement measures the success of the District's operations over the past year and can be used to determine if the District has successfully recovered all of its costs through its rates and other charges. This statement can also be used to evaluate profitability and credit worthiness. The final required financial statement is the Statement of Cash Flows, which provides information about the District's cash receipts and cash payments during the reporting period. The Statement of Cash Flows reports cash receipts, cash payments and net changes in cash resulting from operations, investing, non-capital financing, and capital and related financing activities and provides answers to such questions as where did cash come from, what was cash used for, and what was the change in cash balance during the reporting period. 4

6 Management's Discussion and Analysis Year Ended June 30, 2010 The Statement of Net Assets and the Statement of Activities One of the most important questions asked about the District's finances is, "Is the District better off or worse off as a result of this year's activities?" The Statement of Net Assets and the Statement of Revenues, Expenses and Changes in Net Assets report information about the District in a way that helps answer this question. These statements include all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private sector companies. All of the current year's revenues and expenses are taken into account regardless of when the cash is received or paid. These two statements report the District s net assets and changes in them. You can think of the District s net assets the difference between assets and liabilities as one way to measure the District s financial health or financial position. The net assets are reported on one day in time, typically the last day of the year. Over time, increases and decreases in the District s net assets are one indicator of whether its financial health is improving or deteriorating. However, one will need to consider other non-financial factors such as changes in economic conditions and population growth. Budget vs Actual The Budget vs Actual report is presented at pages as supplementary information and is not a requirement of GASB 34 for proprietary entities. Notes to the Basic Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the basic financial statements. The notes can be found at pages Single Audit Reports Additionally, the Single Audit Reports, Schedules of Findings and Questioned Costs and the Schedule of Expenditures of Federal Awards provide essential information and can be found on pages

7 Management's Discussion and Analysis Year Ended June 30, 2010 The following table shows a condensed version of the District's Statement of Net Assets with corresponding analysis. Condensed Statements of Net Assets Change Assets: Current Assets $ 5,698,354 $ 7,300,769 $(1,602,415) Capital Assets, net 13,766,175 10,531,728 3,234,447 Non-Current Assets 693, , ,538 Total Assets 20,157,603 18,343,033 1,814,570 Liabilities: Current Liabilities $ 1,299,061 $ 1,065,762 $ 233,299 Long-Term Liabilities 8,889,078 7,844,791 1,044,287 Total Liabilities 10,188,139 8,910,553 1,277,586 Net Assets: Net investment in capital assets $ 3,936,568 $ 4,642,218 $( 705,650) Restricted 3,207,407 3,718,457 ( 511,050) Unrestricted 2,825,490 1,071,805 1,753,685 Total Net Assets $ 9,969,465 $ 9,432,480 $ 536,985 Financial Highlights The District's net assets increased 5.7% or $536,985 from $9,432,480 to $9,969,465 in fiscal year Essentially, the net inflow of cash from assessments and ad valorem taxes exceeded the net outlay of cash for expenses and loans payable. By far the largest portion of the District s net assets ( 39.5% as of June 30, 2010 and 49.2% as of June 30, 2009) reflect the District s investment in capital assets, (e.g., land, buildings and improvements, machinery and development costs) net of accumulated depreciation and any related debt used to acquire those assets that are still outstanding. The District uses these capital assets to provide services to customers within the District s service area; consequently, these assets are not available for future spending. At the end of fiscal year 2010 and 2009, the District had unrestricted net assets in the amount of $2,825,490 and $1,071,805, respectively, to be utilized in future years. As noted earlier, net assets over time may act as a useful indicator of a government s financial position. In the case of the District, assets of the District exceeded liabilities by 49.4% at the close of the fiscal year ended June 30, 2010 and 51.4% as of June 30,

8 Financial Highlights continued: Management's Discussion and Analysis Year Ended June 30, 2010 Condensed Statements of Revenues, Expenses and Changes in Net Assets Change Revenues: Operating revenues $ 218,686 $ 235,936 $( 17,250) Non-operating revenues 3,544,413 1,160,805 2,383,608 Total revenues $ 3,763,099 $ 1,396,741 $ 2,366,358 Expenses: Operating expenses $ 621,130 $ 477,626 $ 145,819 Depreciation 30,485 28,170 2,315 Non-operating expenses 226, , ,359 Total expenses 878, ,146 2,420,383 Change in net assets 2,884, , ,931 Net assets, beginning of year 9,432,480 8,656, ,922 Prior Period Adjustment ( 2,347413) ( 0) ( 2,347,960) Net assets, end of year $9,969,465 $9,432,480 $ 536,985 The statement of revenues, expenses and changes of net assets shows how the District's net assets changed during the fiscal year. In the case of the District, net assets increased by $775,922 for the fiscal year ended June 30, 2009, total revenues increased by $292,322 and total expenses increased by $57,044. Capital Asset Administration The District's operating revenues from user fees decreased by 7.3% or $17,250 from $235,936 to $218,686 in fiscal year The decrease is primarily due to a decrease in the ad valorem taxes billed and received during the fiscal year. The District's operating expenses increased a net 12.3% or $58,655 from $477,626 to $536,281 in fiscal year The biggest area of increase related to interim manager fees not incurred in the prior year although a decrease in wages and payroll taxes compensated for part of this expenditure. Other areas of increase included audit fees, utilities, equipment and materials, legal and office supplies. Areas that incurred the most decrease over the prior year related to travel & entertainment, repairs and maintenance and insurance. The District s non-operating revenues increased by 205% or $2,383,608, from $1,160,805 to $3,544,413. This large increase related to grant monies received from Rural Development for the expansion of the sewer system. The District s non-operating expenses increased by 96.7% or $111,359, from $115,180 in 2009 to $226,539 in fiscal year This change relates to interest expense paid on loan payments. 7

9 Management's Discussion and Analysis Year Ended June 30, 2010 Financial Highlights continued: Capital Asset Administration At the end of fiscal year 2010 and 2009, the District s investment in capital assets amounted to $13,766,175 and $10,531,728 (net of accumulated depreciation), respectively. Changes in capital asset amounts for 2010 were as follows: Balance Balance 2009 Additions Deletions 2010 Capital assets: Non-depreciable assets $10,134,933 $ 584,181 $ 0 $10,719,114 Depreciable assets 584,182 9, ,182 Accumulated depreciation ( 159,217) (28,170) (187,387) Total capital assets, net $10,559,898 $ 565,011 $ 0 $11,124,909 Changes in capital asset amounts for 2009 were as follows: Balance Balance 2008 Additions Deletions 2009 Capital assets: Non-depreciable assets $7,724,618 $2,410,316 $ 0 $10,134,933 Depreciable assets 556,179 28, ,182 Accumulated depreciation ( 152,276) ( 6,941) 0 (159,217) Total capital assets, net $8,128,521 $2,431,377 $ 0 $10,559,898 8

10 Statements of Net Assets Years ended June 30, 2010 and 2009 (Prior year data for comparison purposes only) ASSETS CURRENT ASSETS Unrestricted: Cash and short-term investments $ 786,263 $ 739,536 Payroll tax refund receivable 1,288 - Other assets Restricted: Receivables: Assessments, net of allowance for uncollectibles 48,283 29,521 Grant - Environmental Protection Agency 485,000 - Rural Development receivable 5,458 1,190,749 Total Current Assets 1,326,542 1,960,194 NON CURRENT ASSETS Unrestricted: - - Restricted: Debt service reserve representing future assessment payments restricted for the retirement of long-term debt 4,372,358 5,340,575 Restricted cash in debt service fund 680, ,953 - Usage Fees - Deposits and Prepaids 12,765 12,583 Total Non-Current Assets 5,065,432 5,851,111 CAPITAL ASSETS Capital assets, net of accumulated depreciation 13,766,176 10,531,728 TOTAL ASSETS 20,158,150 18,343,033 LIABILITIES CURRENT LIABILITIES Accrued liabilities 340, ,409 Bonds and notes payable 632, ,178 Unearned revenue 308, ,743 Total Current Liabilities 1,281,362 1,049,330 NON CURRENT LIABILITIES Bonds and notes payable 4,339,916 4,970,967 Usage Fees - Deposits and Prepaids 17,699 16,432 Unearned revenue 4,549,162 2,873,824 Total Non-current Liabilities 8,906,777 7,861,223 TOTAL LIABILITIES 10,188,139 8,910,553 NET ASSETS Invested in capital assets net of related debt 3,936,568 4,642,218 Net assets - unrestricted (2,124,126) (4,117,059) Net assets - restricted Usage Fees - Deposits and Prepaids (4,934) (3,849) Debt service 680, ,458 Bonds & Notes Payable 4,972,249 5,209,145 Unearned revenue 4,857,359 2,993,567 Prior period adjustment (2,347,414) - TOTAL NET ASSETS 9,970,011 9,432,480 TOTAL LIABILITIES AND NET ASSETS $ 20,158,150 $ 18,343,033 See independent auditor's report and accompanying notes to the financial statements 9

11 Statements of Revenues, Expenses and Changes in Net Assets For the years ended June 30, 2010 and 2009 (Prior year data for comparison purposes only) Operating Revenues User fees $ 218,686 $ 235,936 Total Operating Revenues 218, ,936 Operating Expenses Plant Operations Dues & Subscriptions Equipment & Materials 44,907 33,207 Lab 5,255 3,000 Licenses & Permits 1,586 2,000 Mileage Repairs & Maintenance 3,961 2,179 Salaries and Wages 60,605 56,498 Sludge Management 12,310 12,376 Telephone 1, Training Travel Utilities 67,125 42,838 Administration & General Accounting & Audit 36,432 10,923 Advertising 3,773 1,125 Auto Repairs/Maintenance Bank Charges Computer Repairs Contract Labor 3,549 - County Fees - 1,334 Depreciation Expense 30,485 28,170 Dues & Subscriptions 1,220 1,180 Employee Benefits 15,469 27,208 Equipment Lease Insurance 13,713 30,738 Land Lease - State 11,859 1,402 Legal 136,699 59,304 Licenses & Permits Office Supplies 12,529 6,674 Other Administrative Expenses - 2 Payroll Taxes 9,531 12,953 Postage 3,883 3,702 Printing Professional - Interim Manager 63,521 - Rent 6,356 3,900 Repairs & Maintenance 5,747 15,000 Salaries and Wages 78, ,446 Storage 1,200 1,200 Telephone 5,183 3,478 Title & Escrow 1,291 - Training Travel & Entertainment 2,252 12,215 Utilities 7,557 2,215 Total Operating Expenses 651, ,796 Revenue/(loss) from operations (432,929) (269,860) See Independent Auditor's Report and accompanying notes to the financial statements 10

12 Statements of Revenues, Expenses and Changes in Net Assets For the years ended June 30, 2010 and 2009 (Prior year data for comparison purposes only) Nonoperating revenues (expenses) Assessments $ 229,146 $ 296,993 Grant Income 2,366,790 35,000 Ad Velorum Taxes 812, ,609 Interest income 134,035 88,203 Miscellaneous income 2,033-3,544,413 1,160,805 Interest expense (226,539) (115,180) Total non-operating revenues, net 3,317,874 1,045,625 Change in Net Assets Prior period adjustments (2,347,414) 157 Change in Net Assets 537, ,922 Net assets, beginning of year 9,432,480 8,656,558 Net assets, June 30, 2010 and 2009 $ 9,970,011 $ 9,432,480 See Independent Auditor's Report and accompanying notes to the financial statements 11

13 Statements of Cash Flows For the years ended June 30, 2010 and 2009 (Prior year data for comparison purposes only) Cash Flows from Operating Activities: Receipts from customers and users $ 208,147 $ 247,428 Payments to suppliers (439,395) (253,519) Payments to employees (163,503) (216,515) Net Cash Provided by Operating Activities (394,751) (222,606) Cash Flows from Capital and Related Financing Activities Grant income 2,366,790 35,000 Loan proceeds 1,185,291 (1,190,749) Receipts - other 1,784 1,835 Interest payments on debt (145,998) (115,180) Principal payments on bonds and loans (236,895) 2,720,774 Funds used/(reserved) for future debt (189,300) (119,743) Net Cash Provided/(Used) by Capital and Related Financing Activities 2,981,672 1,331,937 Cash Flows from Noncapital Financing Activities: Taxes and assessments 1,300,438 1,137,043 Net Cash and Cash Equivalents Provided by Noncapital Financing Activities 1,300,438 1,137,043 Cash Flows from Investing Activities: Purchase of property, plant and equipment (3,715,187) (2,015,169) Interest received on bond proceeds 57,093 80,045 Net Cash Provided/(Used) by Investing Activities (3,658,094) (1,935,124) Net increase/(decrease) in cash and cash equivalents 229, ,250 Cash and Cash Equivalents at beginning of year 1,250, ,666 Cash and Cash Equivalents at end of year 1,479,337 1,249,916 Reconciliation of Cash and Cash Equivalents to the Statement of Net Assets: Unrestricted cash 786, ,536 Restricted cash 693, ,536 Total Cash and Cash Equivalents 1,479,337 1,250,072 Reconciliation of operating income(loss) to net Cash provided/(used) by operating ativities: Operating Income (Loss) (432,929) (269,860) Adjustments to reconcile operating income/(loss) to net cash provided/(used) by operating activities: - Depreciation 30,485 28,170 ( Increase)/decrease in receivables (1,288) - (Increase)/decrease in other assets 388 4,624 (Increase)decrease in accrued liabilities 19,097 2,968 (Increase)/decrease in prepaid expenses - - (Increase)/decrease in security deposits (10,504) 11,492 - Net Cash Provided by Operating Activities $ (394,751) $ (222,606) See Independent Auditor's Report and accompanying notes to the financial statements 12

14 Statements of Cash Flows For the years ended June 30, 2010 and 2009 (Prior year data for comparison purposes only) Cash Flows from Operating Activities: Receipts from customers and users $ 208,147 $ 247,428 Payments to suppliers (439,395) (253,519) Payments to employees (163,503) (216,515) Net Cash Provided by Operating Activities (394,751) (222,606) Cash Flows from Capital and Related Financing Activities Grant income 2,366,790 35,000 Loan proceeds 1,185,291 (1,190,749) Receipts - other 1,784 1,835 Interest payments on debt (145,998) (115,180) Principal payments on bonds and loans (236,895) 2,720,774 Funds used/(reserved) for future debt (189,300) (119,743) Net Cash Provided/(Used) by Capital and Related Financing Activities 2,981,672 1,331,937 Cash Flows from Noncapital Financing Activities: Taxes and assessments 1,300,438 1,137,043 Net Cash and Cash Equivalents Provided by Noncapital Financing Activities 1,300,438 1,137,043 Cash Flows from Investing Activities: Purchase of property, plant and equipment (3,715,187) (2,015,169) Interest received on bond proceeds 57,093 80,045 Net Cash Provided/(Used) by Investing Activities (3,658,094) (1,935,124) Net increase/(decrease) in cash and cash equivalents 229, ,250 Cash and Cash Equivalents at beginning of year 1,250, ,666 Cash and Cash Equivalents at end of year 1,479,337 1,249,916 Reconciliation of Cash and Cash Equivalents to the Statement of Net Assets: Unrestricted cash 786, ,536 Restricted cash 693, ,536 Total Cash and Cash Equivalents 1,479,337 1,250,072 Reconciliation of operating income(loss) to net Cash provided/(used) by operating ativities: Operating Income (Loss) (432,929) (269,860) Adjustments to reconcile operating income/(loss) to net cash provided/(used) by operating activities: - Depreciation 30,485 28,170 ( Increase)/decrease in receivables (1,288) - (Increase)/decrease in other assets 388 4,624 (Increase)decrease in accrued liabilities 19,097 2,968 (Increase)/decrease in prepaid expenses - - (Increase)/decrease in security deposits (10,504) 11,492 - Net Cash Provided by Operating Activities $ (394,751) $ (222,606) See Independent Auditor's Report and accompanying notes to the financial statements 12

15 Buckskin Sanitary District Budget vs. Actual Year ended June 30, 2010 Actual Budget Over/(Under) Budget % Change Operating Revenues User fees $ 218,686 $ 222,870 $ (4,184) (2%) Total Operating Revenues 218, ,870 (4,184) (2%) Operating Expenses Plant Operations Dues & Subscriptions % Equipment & Materials 44,907 20,000 24, % Lab 5,255 10,000 (4,745) (47%) Licenses & Permits 1,586 2,200 (614) (28%) Mileage (145) (58%) Repairs & Maintenance 3,961 3, % Salaries and Wages 60,605 65,609 (5,004) (8%) Sludge Management 12,310 19,000 (6,690) (35%) Telephone 1,160 1,180 (20) (2%) Training (195) (26%) Travel 900 2,750 (1,850) (67%) Utilities 67,125 54,650 12,475 23% Administration & General Accounting & Audit 36,432 24,382 12,050 49% Advertising 3,773 2,000 1,773 89% Bank Charges % Contract Labor 3,549 10,000 (6,451) (65%) County Fees 0 7,800 (7,800) (100%) Depreciation Expense 30,485-30,485 0% Dues & Subscriptions 1,220 1,512 (292) (19%) Employee Benefits 15,469 27,245 (11,776) (43%) Equipment Lease - 2,170 (2,170) (100%) Insurance 13,713 37,900 (24,187) (64%) Land Lease - State 11,859-11,859 0% Legal 136,699 60,000 76, % Licenses & Permits % Office Supplies 12,529 9,200 3,329 36% Payroll Taxes 9,531 22,880 (13,349) (58%) Postage 3,883 6,350 (2,467) (39%) Printing % Professional - Interim Manager 63,521-63,521 0% Rent 6,356 5,000 1,356 27% Repairs & Maintenance 5,747 5, % Salaries and Wages 78,113 86,922 (8,809) (10%) Storage 1,200 1, % Telephone 5,183 4,000 1,183 30% Title & Escrow 1,291-1,291 0% Training 450 2,000 (1,550) (78%) Travel & Entertainment 2,252 10,300 (8,048) (78%) Utilities 7,557 6, % Total Operating Expenses 651, , ,031 27% Revenue/(loss) from operations (432,929) (289,714) (143,215) 49% See Independent Auditor's Report and accompanying notes to the financial statements 13

16 Buckskin Sanitary District Budget vs. Actual Year ended June 30, 2010 Actual Budget Over/(Under) Budget % Change Nonoperating revenues (expenses) Assessments 229, ,653 (125,507) (35%) Grant Income 2,366,790 3,025,085 (658,295) (22%) Ad Velorum Taxes 812, ,680 (30,271) (4%) Interest income 134, ,035 0% Miscellaneous income 2,033-2,033 0% 3,544,413 4,222,418 (678,005) (16%) Interest expense (226,539) - Total non-operating revenues, net 3,317,874 4,222,418 (678,005) (16%) Change in Net Assets Prior period adjustments (2,347,414) - (2,347,414) Change in Net Assets $ 537,531 $ 3,932,704 $ (3,395,173) (86%) See Independent Auditor's Report and accompanying notes to the financial statements 14

17 Notes to the Basic Financial Statements June 30, 2010 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General The Buckskin Sanitary District (District) was established pursuant to Title-48, Arizona Revised Statutes. The District is administered by the board of directors who are elected by the qualified voters residing within the District. The District is considered to be a political subdivision of the State of Arizona and La Paz County. The accounting policies of the District conform with generally accepted accounting principles as applicable to state and local governments. Generally accepted accounting principles for state and local governments include those principles prescribed by the governmental accounting standards board (GASB), the American Institute of Certified Public Accountants and the Financi al Accounting Standards Board (when applicable). This summary of the Buckskin Sanitary District's significant accounting policies is presented to assist the reader in interpreting the financial statements and other data in this report. The policies are considered essential and should be read in conjunction with the accompanying financial statements. B. Basis of Accounting and Measurement of Accounting Management Discussion an Analysis: The Management's Discussion and Analysis introduces the basic financial statements and provides an analytical overview of the District's financial activities. Basic Financial Statements The basic financial statements consist of a statement of net assets, a statement of activities as well a statements of cash flows. The Buckskin Sanitary District is accounted for as an enterprise fund in accordance with generally accepted accounting principles (GAAP) as applied to governmental units. Enterprise funds are used to account for operations that are financed and operated in a manner similar to private business enterprises where the expenses, including depreciation, of providing good or services to the general public are recovered through user charges, grants and similar funding. Because the District is accounted for as an enterprise fund, the District uses the economic resources measurement focus and the accrual basis of accounting is used for financial statement reporting purposes. Revenues are recognized when earned and expenses are recognized when incurred, regardless of when the related cash flows take place. Operating revenues result from exchange transactions associated with the principal activity of the District. Exchange transactions are those in which each party receives and gives up essentially equal values. Non-operating revenues, such as grant funding and investment income, result from non-exchange transactions, in which, the District gives (receives) value without directly receiving (giving) value in exchange. The District maintains one proprietary fund. 15

18 Notes to the Basic Financial Statements June 30, 2010 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. Financial Reporting Governmental Accounting Standards Board Statement No. 34 The District s basic financial statements are presented in conformance with the provisions of Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments (GASB No. 34). This statement revised financial reporting requirements for state and local governments throughout the United States for the purpose of enhancing the understandability and usefulness of financial reports. GASB No. 34 and its related GASB pronouncements provide for a revised view of financial information and restructure the format of financial information provided prior to its adoption. A statement of net assets replaces the balance sheet and reports assets, liabilities, and the difference between them as net assets, not equity. A statement of revenues, expenses and changes in net assets replaces both the income statement and the statement of changes in retained earnings and contributed capital. GASB No. 34 also requires that the statement of cash flows be prepared using the direct method. Under the direct method, cash flows from operating activities are presented by major categories. The District s basic financial statements include the accounts of all District operations. The criteria for including organizations as component units within the District s entity, as set forth in section 2100 of GASB s codification of governmental accounting and financial reporting standards, include whether: The organization is legally separate and can sue and be sued in their own name The district holds the corporate powers of the organization The district appoints a voting majority of the organizations board The district is able to impose its will on the organization The organization has the potential to impose a financial benefit/burden on the district There is fiscal dependency by the organization on the district Based on the aforementioned criteria, Buckskin Sanitary District has no component units. Governmental Accounting Standards Board Statement No. 20 GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities that Use Proprietary Fund Accounting, requires enterprise funds to apply all FASB Statements and Interpretations, APB Opinions, and ARBS issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. GASB 34 does not provide an opportunity to change that election. The option used in the past for a district's proprietary funds must now be used in accounting for the information included in the government wide financial statements. 16

19 Notes to the Basic Financial Statements June 30, 2010 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. Financial Reporting Governmental Accounting Standards Board Statement No. 46 In December 2004, GASB issued Statement No. 46, Net Assets Restricted by Enabling Legislation, an amendment of GASB Statement No. 34. GASB Statement No. 34 requires that limitations on the use of net assets imposed by enabling legislation be reported as restricted net assets. In the process of applying this provision, some governments have had difficulty interpreting the requirement that those restrictions be "legally enforceable." The confusion over this phrase has resulted in a diversity of practice that has diminished comparability. This statement clarifies that a legally enforceable enabling legislation restriction is one that a party external to a government - such as citizens, public interest groups, or the judiciary - can compel the government to honor. This statement also specifies the accounting and financial reporting requirement if new enabling legislation replaces existing enabling legislation or if legal enforceability is reevaluated. Finally, this statement requires governments to disclose the portion of net assets that are restricted by enabling legislation. Governmental Accounting Standards Board Statement No. 47 In June 2005, GASB issued Statement No. 47, Accounting for Termination Benefits. This statement establishes accounting standards for voluntary and involuntary termination benefits. Governmental Accounting Standards Board Statement No. 54 In February of 2009 the Governmental Accounting Standards Board (GASB) issued Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definitions. GASBS 54 redefines the components of fund balances of governmental funds effective for periods beginning after June 15, 2010, with early implementation encouraged. GASBS No. 54 replaces those components of governmental fund balances with five new classifications: nonspendable, restricted, committed, assigned, and unassigned. The GASB encourages, but does not require, governments to retroactively restate fund balances for all prior periods presented. The District has not opted for early implementation of GASBS No. 54 at June 30, 2010 but will implement it during the upcoming fiscal year ending June 30, For that purpose, the five new classifications are listed below. Nonspendable Fund balances that cannot be spent because they are: Not in Spendable Form generally, amounts that are not expected to be converted to cash, such as inventories or prepaid amounts. This classification also includes some long-term amounts such as property acquired for resale or the long-term portion of loans receivable. Restricted amounts that can be used only for specific purposes because of (a) constitutional provisions or enabling legislation or (b) externally imposed constraints. (External constraints might be imposed by creditors, grantors, contributors, or even the laws or regulations of other governments.) 17

20 Notes to the Basic Financial Statements June 30, 2010 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C. Financial Reporting continued Committed amounts that can be used only for specific purposes because of a formal action by the government's highest level of decision-making authority. This classification might also include contractual obligations if existing resources have been committed for use in satisfying those contractual requirements. (The formal action to establish constraints should be taken before year-end, even if the amount might not be determined until the subsequent period.) Assigned amounts intended to be used for specific purposes but that do not meet the criteria to be classified as restricted or committed. Intent can be stipulated by the governing body, another body (such as a finance committee), or by an official to whom that authority as been given. This is the residual fund balance classification for all governmental funds except the general fund. Assigned fund balances should not be reported in the general fund if doing so causes the government to report a negative unassigned general fund balance. Unassigned this is the residual classification for the general fund (i.e., everything that is not in another classification or in another fund). The general fund is the only governmental fund that can report a positive unassigned fund balance. Other governmental funds might have a negative unassigned fund balance as a result of overspending for specific purposes for which amounts had been restricted, committed or assigned. The District will be required to disclose more information in the Notes to the Financial Statements about amounts reported in their fund balances. Due to this requirement, new policies need to be drafted and approved effective with the fiscal year, if applicable to the following: Description of authority and actions that lead to committed and assigned fund balance. The government s policy regarding order of spending regarding restricted and unrestricted fund balance and the order of spending for committed, assigned and unassigned. For any stabilization arrangements, the authority for establishing, requirements for additions, and the conditions under which amounts may be used. If not reported on the face of the financial statements, the stabilization balance. Description of any formally adopted minimum fund balance policies. The purpose of each major special revenue fund and which revenues or other sources are reported in each of those funds. Encumbrances, if significant, are reported in conjunction with other disclosures of significant commitments. D. Reclassifications Certain amounts in the prior year financial statements have been reclassified for comparative purposes to conform to the presentation on the current year financial statements. 18

21 Notes to the Basic Financial Statements June 30, 2010 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES E. Assets, Liabilities and Net Assets 1. Use of 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 and disclosures of contingent assets and liabilities at the date of the financial statements and reported changes in the District's net assets during the reporting period. Actual results could differ from those estimates. Significant estimates used in preparing these financial statements include: collectibility of accounts receivable; useful lives of capitalized assets; and depreciation methods of capitalized assets. 2. Budgetary Control The District established the fiscal year as the twelve-month period beginning on July 1. The District's board of directors adopts an annual non-appropriated budget as a management control device. The budget amounts shown in the financial statements are the final authorized amounts as revised during the year. 3. Cash and Cash Equivalents Cash includes the amount in demand deposits as well as short-term investments with a maturity date within three months of the date acquired by the government, as well as amounts on deposit with the La Paz County Treasurer in a government pool. All cash in bank was covered by federal depository insurance or by collateral held by the District or its agent in the District s name. The District had no investments at June 30, Inventories The cost of inventories is recorded as expenditures when purchased. All inventories of the District are considered immaterial. 5. Prepaid Expenses Certain payments to vendors reflect costs or deposits applicable to future accounting periods and are recorded as prepaid items in the basic financial statements. 6. Capital Assets Fixed assets accounted for as development costs related to the engineering and construction of the waste water system improvement that is still in process will not be depreciated until the project is complete. The costs incurred to construct this fixed asset has been substantially provided from federal and state grants. Property, plant and equipment are recorded at cost and are depreciated using the straight line method over the following estimated useful lives: 19

22 Notes to the Basic Financial Statements June 30, 2010 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES E. Assets, Liabilities and Net Assets continued Assets Years Treatment plant 39 Plant equipment 7 Office equipment 5 All fixed assets are valued at historical cost or estimated historical cost if actual historical cost is not available. In management's opinion, the extent to which costs have been estimated is not material. Donated assets are valued at their fair market value on the date donated. Assets having an original cost of $1,000 or greater with a useful life of more than three years of life are capitalized. 7. Authority Limits Policy The Buckskin Sanitary District Board of Directors revised its Authority Limits Policy during the fiscal year. Important elements of this policy include the following provisions: All contracts or purchases must be processed within the District's Purchase Order System. All contract or purchases in excess of the authority limits established must be authorized by the Board of Directors. Authority Limits are as follows: Plant Operations - Budgeted $100; Non-Budgeted $ None; Administration - Budgeted $4,000; Non-Budgeted $2,000; District Manager - Budgeted $20,000; Non-Budgeted $5, Compensated Absences The District s policy is to permit employees to accumulate a limited amount of earned annual pay, sick leave and holiday benefits, as follows: Annual Leave Annual leave is a fringe benefit for each employee of the District. Annual leave will begin to accrue after six months of full time employment.. The rate of accrual will be 3.08 hours per each two week pay period for the first five years of employment. After five (5) years of full time employment, the annual leave accrual rate will increase to 4.6 hours per two week pay period. After ten (10) years of full time employment the annual leave accrual rate will be 6.15 hours per two week pay period. After fifteen (15) years of full time employment the annual leave accrual rate will be 7.7 hours per two week pay period. 20

23 Notes to the Basic Financial Statements June 30, 2010 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES E. Assets, Liabilities and Net Assets continued Sick Leave - Employees who become ill or are injured away from work or who may require a doctor-authorized medical procedure are entitled to sick leave with full pay for varying amounts of time depending on the employee s accrued sick leave, as stated below. Sick leave will be granted beginning after six months of full time employment. The rate of accrual will be 3.08 hours of sick leave per each two week pay period in which a full 80 hour work period has been performed. Holiday Benefits The Buckskin Sanitary District observes the following paid holidays: New Years Day Martin Luther King President s Birthday Memorial Day Independence Day Labor Day Veteran s Day Thanksgiving Day Day after Thanksgiving Christmas Day Authorized holidays falling on a Saturday will be observed on the preceding Friday; those falling on a Sunday will be observed the following Monday. 9. Net Assets The financial statements utilize a net assets presentation. Net assets are categorized as follows: Net Investment in Capital Assets - This component of net assets consists of capital assets, net of accumulated depreciation and reduced by any debt outstanding against the acquisition, construction or improvement of those assets. Restricted Net Assets - This component of net assets consists of constraints placed on net assets used through external constraints imposed by creditors, grantors, contributors, as well as laws and regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Assets - This component of net assets consists of net assets that do not meet the definition of restricted or net investment in capital assets. 10. Inter-Fund Transfers An inter-fund transfer is an accounting transaction which moves fund balance (reserves) from one fund to another fund. By definition, transfers cannot occur within the same fund. There is never a net economic impact on the District as a whole due to a transfer, since the transaction is entirely between funds. There is no external cash involved. A transfer does not increase or decrease the District's total revenues or expenses. 21

24 Notes to the Basic Financial Statements June 30, 2010 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES E. Assets, Liabilities and Net Assets continued 11. Tax Exempt Status The District is exempt from federal and state income taxes. F. Operating and Non-operating Revenues and Expenses Operating revenues and expenses generally result from operating activities and are divided between plant and general/administrative costs. Operating activities are the costs of providing services, producing and delivering goods to customers and the revenues thus generated. Usage fees are considered operating revenues. Taxes and assessments, interest income, grant income and other income are considered to be non-operating revenues. Sludge management and pumping; plant equipment and supplies; salaries and wages; administration and general; and depreciation are considered operating expenses. Bond and loan interest expense and other extraordinary expenses are considered non-operating expenses. NOTE 2 - REVENUES Ad valorem taxes The county levies real property taxes on or before the third Monday in August which becomes due and payable in two equal installments. The first installment is due on the first day of October and becomes delinquent after the first business day of May. The county notifies the District in the monthly treasurer s report of the amount of ad valorem taxes collected and then deposits the monies into the General Fund account. The majority of the monies are received in October, March and April. Inter-governmental revenues Inter-governmental revenues include grants and loan proceeds from the federal and Arizona governments. Revenues are accrued on the construction projects based on the work completed prior to June 30, The related expenditures on the construction projects are accrued as accounts payable/accrued liabilities on the statement of net assets. Charges for Services Monthly usage charges are collected from residents who are hooked up to the sewer system. Assessments Assessment revenue is billed semi-annually to customers based on units owned. Funds received are used for repayment of loans made to the District by the U.S. Department of Agriculture and Water Infrastructure Finance Authority of Arizona. 22

25 Notes to the Basic Financial Statements June 30, 2010 NOTE 3 GENERAL FUND BALANCE The District's general fund had a balance of $742,821 at June 30, The District consistently pursues grant funding to ensure that there is sufficient cash flow for the District's needs. NOTE 4 - ASSESSMENTS Assessments consist of the following: Assessments from property owners of area 1 are used as collateral for a note payable to the United States Department of Agriculture, Rural Development described in note 6 below. The balance at June 30, 2010 was $953,300. The future scheduled assessment collections are based on 364 equivalent dwelling units, as follows: Years ending June 30: Principal Interest 2011 $ 67,000 $ 42, ,000 39, ,000 36, ,000 33, ,000 29, ,300 98,962 $ 953,300 $ 281,862 Assessments from property owners of Area 2 are used as collateral for a note payable to the Water Infrastructure Finance Authority of Arizona described in Note 6 below. The balance at June 30, 2010 was $642,704. The future scheduled assessment collections are based on 743 equivalent dwelling units, as follows: Years ending June 30: Principal Interest 2011 $ 68,073 $ 24, ,393 22, ,739 19, ,112 16, ,511 14, ,876 27,162 $ 642,704 $ 124,918 23

26 Notes to the Basic Financial Statements June 30, 2010 NOTE 4 - ASSESSMENTS continued: Assessments from property owners of area 3 are used as collateral for a note payable to the United States Department of Agriculture, Rural Development described in note 6 below. The balance at June 30, 2010 was $2,948,572. Based on the collectibility of the receivables during the year over a period of years, a $25,000 allowance for doubtful accounts was established. The future scheduled assessment collections are based on 410 equivalent dwelling units, as follows: Years ending June 30: Principal Interest 2011 $ 69,587 $ 136, , , , , , , , , ,566,929 1,494,017 $2,948,572 $2,142,167 NOTE 5 CHANGES IN CAPITAL ASSETS Below is a summary of capital assets: Balance Balance June 30, 2009 Additions Deletions June 30, 2010 Office Equipment $ 18,073 $ 7,499 $ 0 $ 25,572 Vehicles 20, ,128 System Improvements 10,134,932 3,255, ,390,926 Operating Plant 426,662 $ 1,323 $ 0 $ 427,985 Plant Equipment 81, ,688 Office Equipment 1, ,580 Vehicles 36, ,170 Less: Accumulated Depreciation ( 187,388) ( 30,485) 0 ( 217,873) $ 10,531,173 $ 3,234,449 $ 0 $ 13,766,176 24