REQUEST FOR PROPOSAL. City of Shenandoah. Proposal Title: Proposal for Financial Auditing Services for the City of Shenandoah

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1 REQUEST FOR PROPOSAL City of Shenandoah The City of Shenandoah is soliciting responses for financial auditing services for the three fiscal years ending September 30, 2018, 2019, and Sealed proposals, in duplicate, will be received at the City of Shenandoah City Hall, located at IH 45 N, Shenandoah, TX on April 23, 2018 at 10:00 am. Proposals received after the opening time and date will be returned to the sender, unopened. All responses will be publicly opened and the name of proposers will be disclosed. In submitting the attached proposal, as well as any attachments, Firm agrees that acceptance of any or all proposed items by the City of Shenandoah within a reasonable period of time constitutes a contract. Proposal Title: Proposal for Financial Auditing Services for the City of Shenandoah Opening Time/ Date: 10:00 am, April 23, Firms Name: Firms Address: Telephone Number: FAX Number: E mail address: Authorized Signature: Printed Name : Title: 1

2 All proposals should be signed by an authorized representative. Proposals received unsigned will not be considered. SCOPE AND INTENT The City of Shenandoah is seeking applications from experienced public accounting firms whose principal officers are independent certified public accountants. Services shall include (1) performance of the annual financial audit for the City, the Municipal Development District (special purpose district), the Hotel/Motel (special revenue) and Water/Sewer (enterprise fund) for the three fiscal years ending September 30, 2018, 2019, and 2020 (with an option to renew for two years), and (2) other related services as stated herein. GENERAL INFORMATION 1. REVIEW OF PROPOSER: The City of Shenandoah may make such investigations as it deems necessary to determine the ability of the proposer to provide satisfactory performance in accordance with specifications and the proposer shall furnish to the City of Shenandoah all such information and data for this purpose as the City of Shenandoah may request. 2. RESOURCE CONTACT: All information and/or questions pertaining to this proposal shall be directed to Lisa Wasner, Finance Director, , It is the responsibility of the proposer to seek clarification of any uncertain terms prior to submitting it proposal. 3. PRICES FIRM: The City of Shenandoah requires that submitted proposals remain in force until an award is made. 4. NEGOTIATION: Any attempt to negotiate with the City of Shenandoah or its representatives prior to the award shall be grounds for disqualification. 5. TAX EXEMPT: The City of Shenandoah is exempt from all sales tax and excise taxes. Tax exemption certificates are available upon request. 6. APPLICABLE LAW: This agreement shall be governed by the laws of the State of Texas. 7. ANTI DISCRIMINATION: The successful proposer, in performing the work required hereunder, shall comply with the provisions of Executive Order Number 1146 and shall not discriminate against any employee or applicant for employment because of religion, race, color, sex, age or national origin. 8. FAX/E MAIL: The City of Shenandoah will not accept a proposal or alterations to a proposal via a facsimile machine and/or e mail. The FAX machine and/or e mail are 2

3 available for information inquiries only. No proposal responses received via the FAX machine and/or e mail will be considered. 9. ALTERING PROPOSALS: Proposals cannot be altered or amended after submission deadline. Any interlineation, alteration, or erasure made before opening time and date, must be initialed by the signer of the proposal, guaranteeing authenticity. 10. REJECT PROPOSALS: The City of Shenandoah reserves the right to reject any or all proposals or parts of proposals and to waive informalities in the proposal process. 11. DEFAULT: In case of default after proposal acceptance, the City of Shenandoah/ City may exercise any and all rights it may have in compliance with the law. 12. AWARD: Award will be made to a single proposer. 3

4 INSTRUCTIONS TO THE PROPOSERS 1. The proposal shall be based on, but not necessarily limited to, the following factors: a. Municipal City experience will be based on client lists including government size and number of governmental clients; b. Fair and reasonable price (Section of the Texas Government Code). Price will be based on a three year total; c. Completeness of bid; d. Audit quality will be based on peer review and report; e. Guarantee of a draft for Council review by March 1 after completion of field work; f. Guarantee of final annual report no later than three weeks after receipt of draft report; g. Office located within Montgomery County. 2. Any exceptions to the proposal are to be clearly indicated on a page entitled, "Exceptions To Proposal". Any changes or deletions that alter the intent of the RFP may be grounds for the City of Shenandoah to disregard and reject the proposal. 3. Upon award, the successful proposer will designate in writing an individual to be the official contact person for all correspondence and the firm shall be responsible for training and communicating the terms of this agreement to employees of the firm. 4. The final appointment of an accounting firm shall be made by the City of Shenandoah City Council. The successful proposer shall be required to enter into a contract which incorporates all of the points in the completed RFP. REQUIREMENTS TO BE ADDRESSED IN PROPOSAL 1. Firm Background, Principal Officers and Prior Experience Firm Qualifications and Experience. This section should state: a. size of the firm; b. size of the firm's governmental audit staff; c. location of the office from which the work on this engagement is to be performed; d. number and nature of the professional staff to be employed in this engagement on a 4

5 full time basis; e. number and nature of the staff to be so employed on a part time basis, and f. number and percentage of clients who have achieved the GFOA Certificate of Achievement for Excellence in Financial Reporting in If the proposer is a joint venture or consortium, the qualifications of each firm comprising the joint venture or consortium should be separately identified. In addition, joint ventures or consortiums must identify a firm to serve as the principal auditor, and the principal auditor must accept responsibility for resolving all operational and contractual issues with the City. The firm is also required to submit a copy of the report on its most recent external quality control review, with a statement whether that quality control review included a review of specific government engagements. The firm shall also provide information on the results of any federal or state desk reviews or field reviews of its audits during the past three years. In addition, the firm shall provide information on the circumstances and status of any disciplinary action taken or pending against the firm during the past three years with state regulatory bodies or professional organizations. Partner, Supervisory and Staff Qualifications and Experience. The firm should identify the principal supervisory and management staff, including engagement partners, managers, other supervisors and specialists, who will be assigned to the engagement and indicate whether each such person is licensed to practice as a certified public accountant in Texas. The firm also should provide information on the governmental auditing experience of each person, including information on relevant continuing professional education for the past three years and membership in professional organizations relevant to the performance of this audit. The firm should provide as much information as possible regarding the number, qualifications, and experience and training (including relevant continuing professional education) of the staff to be assigned specifically to this engagement. The firm also should indicate how the quality of staff over the term of the agreement will be assured. Engagement partners, managers, other supervisory staff, and specialists assigned to the City s account in a proposal may be removed from the City's account if those persons leave the firm, are promoted, or are assigned to another office. These persons may also be changed for other reasons but only with the express prior written permission of the City of Shenandoah. However, in either case, the City retains the right to approve or reject replacements. Other audit personnel may be changed at the discretion of the proposer, provided that replacements have substantially the same or better qualifications or experience. 5

6 Similar Engagements with Other Government Entities. For the firm's office that will be assigned responsibility for the audit, list the most significant engagements (maximum of five) performed in the last five years that are similar to the engagement described in this request for proposals. These engagements should be ranked on the basis of relativity to the current proposal. Indicate the scope of work, date, engagement partners, total hours, and the name and telephone number of the principal client contact. Additional information should be included to describe the office's capabilities to audit computerized systems. 2. Scope and Audit Approach The proposal should set forth a work plan, including an explanation of the audit methodology to be followed, to perform the services required in Sections 4.1 and 4.2 of this RFQ. In developing the work plan, reference should be made to such sources of information as the City s budget and related materials, organizational charts, manuals, and programs, and financial and other management information systems. Proposers will be required to provide the following information on their audit approach: a. Proposed segmentation of the engagement; b. Level of staff and number of hours to be assigned to each proposed segment of the engagement; c. Sample sizes and the extent to which statistical sampling is to be used in the engagement; d. Type and extent of analytical procedures to be used in the engagement; e. Approach to be taken to gain and document an understanding of the City s internal control structure; f. Approach to be taken in determining laws and regulations that will be subject to audit test work; g. Approach to be taken in drawing audit samples for purposes of tests of compliance; The proposal should also identify in this section any anticipated potential audit problems, the firm's approach to resolving these problems and any special assistance that will be requested from the City. The work plan submitted should include separate time estimates for the financial audit and single audit work. A separate statement of the firm's approach to and understanding of the provision of technical assistance and advice concerning accounting and auditing issues that may arise during the course of the audit should be included. In addition, a discussion of the firm's approach to the level and amount of the Finance staff support necessary to complete the work as outlined in the proposal should be included. 6

7 3. Proposed Schedule Comment on the firm's ability to meet the timelines indicated in the RFQ. The proposer should provide any recommended changes to the schedule that might be required to enhance the timelines and quality of the engagement. 4. Other References Describe recent local and regional office auditing experience similar to the type of audit requested and give the name and telephone numbers of client officials responsible for three of the audits listed. These references would be in addition to those listed in Section 2.5 under paragraph titled Similar Engagements. 5. Additional Data and Other Information Since data not specifically requested must not be included in the foregoing proposal sections, give any additional information considered essential to the proposal in this section. If there is no additional information to present, state in this section, "There is no additional information we wish to present." 6. Concluding Remarks This section shall contain any final remarks or elaboration which the proposer believes is important for a clear understanding of the proposed services and/or the proposer's capabilities. 7. Cost Proposal Payment for all services other than those described as "special projects" will be made based on an all inclusive, not to exceed fee estimate, with progress payments as mutually determined to be appropriate. The contract will be a three year contract with the option to renew for two additional years. The compensation proposal should be documented by including a cost proposal form and submitting it to the City. As provided for by the State Board of Public Accountancy rules, the contract award will not necessarily be made to the firm that provides the lowest cost proposal but rather to the firm that submits the most responsive proposal meeting the City's requirements. On the cost proposal form the firm should include for each of the three years and the possible fourth and fifth year the following information: a. Total estimated hours and all inclusive, not to exceed cost estimate for the financial and single audit (combined); break down total estimated hours by staff level (e.g. 7

8 partner, manager, senior, etc.) and show billing rates for each level; b. In addition, the firm should include proposed billing rates by staff level for any special projects that the proposer may be requested to perform during the initial year of the contract. The special project billing rates may be adjusted annually for inflation using the Consumer Price Index of the current fiscal year. 8. Manner of Payment Progress payments will be made on the basis of hour of work completed during the course of the engagement and out of pocket expenses incurred in accordance with the firm s dollar cost fee estimate. Interim billings shall cover a period of not less than a calendar quarter. Final billing should be presented no later than 30 days following council approval of the annual report. Description of the Entity 1. General The City operates under a council city administrator form of government, with the City Council comprised of six members including the mayor. The City Council is responsible for adopting ordinances and regulations governing the City, adopting the budget, determining policies, and appointing the city administrator, the city attorney, the city secretary, the judge of the municipal court, as well as members of various boards and commissions. As chief administrative officer, the city administrator is responsible to the Council for appointing and supervising employees of the City and for preparing and administering the annual budget and capital improvement program. Services provided by the City under general government functions include police protection, street maintenance, building inspection and code enforcement services, planning and zoning, recreation, and operation and maintenance of parks. The City operates its own water distribution system and sewer collection and treatment system. The City also includes a Special Purpose District and Convention and Visitors Bureau which are to be included in the audit. Copies of the City s 2017 Annual Financial Report have been included in Appendix A of this RFQ. These pages should give the reader additional information on the City s reporting entity, fund structure, accounting and budgeting policies, and federal and state financial assistance, etc. 2. Organization of the City s Finance Department The City s accounting function falls under the Director of Finance, who reports directly to the City Administrator, and is responsible for all financial accounting and reporting 8

9 activities of the City. The Finance Director has overall responsibility for the following functions: accounting for all funds, payroll, accounts payable, accounts receivable, fixed assets, municipal court, utility accounts and grant reporting. 3. Organization of the Accounting Function The accounting records of the City are maintained by the Finance Department. Although maintenance of the accounting records is centralized within the Finance Department, the City s accounting function is partially decentralized. Each department has the authority to initiate and submit all requests for cash disbursements for processing by the Finance Department. 4. Audit Assistance Finance department staff will prepare all workpapers necessary to prepare the financial statements for the individual funds. These workpapers will include trial balances, journal entries with back up documentation, fixed assets and depreciation schedules, etc. Personnel will be available to the auditors for the purpose of pulling invoices, directing auditors to the proper files, or for explaining procedures. Prepared by Client s (PBC's) can be provided; however, these should be coordinated with the Finance Director. The Auditor should provide the Finance Director an advance listing of the required forms. Nature of Services Required 1. Scope of Work to Be Performed The auditor shall express an opinion on the fair presentation of its general purpose financial statements in conformity with generally accepted accounting principles. The auditor is required to audit the general purpose financial statements, consisting of the combined statements for all fund types and account groups. However, the auditor is to provide an "in relation to" statement on the combining and individual fund financial statements and supplementary schedules based on the auditing procedures applied during the audit of the general purpose financial statements. The auditor is not required to audit the statistical section of the report; this section will remain unaudited but should be reviewed. The auditor shall also be responsible for performing certain limited procedures involving required supplementary information required by the Governmental Accounting Standards Board as mandated by generally accepted auditing standards. The auditor is required to audit the information contained in the schedule of federal financial assistance. This information should be subjected to the auditing procedures 9

10 applied in the audit of the general purpose financial statements and in accordance to Governmental Auditing Standards, the Single Audit Act as amended in 1996, and (OMB) Circular A 133. The auditor is to provide an opinion of the fair presentation of this schedule in relation to the general purpose financial statements taken as a whole. The scope of the City s annual audit, or of any other work for which the proposer is engaged, can only be broadened with the express written consent of the City. The City will have the right to negotiate fees for work related to broadening the scope of any work for which the proposer is engaged. From time to time, the City may request the auditor to perform other audits and reviews not specifically provided for under this section. If such a request is made, the auditor shall submit, at the City s request, a separate proposal for completing the engagement, along with a proposed fee schedule. The City reserves the right to contract any additional audits or reviews from whomever they choose. 2. Auditing Standards to Be Followed To meet the requirements of this RFQ, the audit shall be performed in accordance with generally accepted auditing standards as set forth by the American Institute of Certified Public Accountants and the Governmental Accounting Standards Board, the standards for financial audits set forth in the U.S. General Accounting Office's Government Auditing Standards, the provisions of the Single Audit Act of 1996, and the provisions of U.S. Office of Management and Budget (OMB) Circular A 133, Audits of State and Local Government, and any other requirements from like regulatory agencies. 3. Reports to Be Issued Following the completion of the audit of the fiscal year's financial statements, the auditor shall issue all reports currently required by State and Federal grantors and by such as the American Institute of Certified Public Accountants, the Governmental Accounting Standards Board, the Government Finance Officers Association of the United States and Canada, and any other regulatory agencies. The auditor shall likewise issue any other reports subsequently required by these or similar entities following completion of the financial or single audit. In the required reports on internal controls, the auditor shall communicate any reportable conditions found during the audit to the City Administrator. A reportable condition shall be defined as a significant deficiency in the design or operation of the internal control structure, which could adversely affect the organization's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. Reportable conditions that are also material weaknesses shall be identified as such in the report. Non reportable conditions discovered by the auditors shall be reported in a separate 10

11 letter to management, which shall be referred to in the reports on internal controls. The report on compliance shall include all instances of noncompliance. Auditors shall be required to make an immediate, written report of all irregularities and illegal acts or indications of which they become aware to the City Administrator. 4. Preparation of CAFR The City of Shenandoah does not prepare a CAFR. 5. Special Considerations The proposal shall include any additional costs associated with the firm submitting the City s annual financial report to the Government Finance Officers Association of the United States and Canada for Review in their Certificate of Achievement for Excellence in Financial Reporting Program. It is anticipated that the auditor may be required to provide special assistance to the City to meet the requirements of that program. 6. Regulation Updates and CPE Provisions The Auditor shall provide the City Administrator with information relating to regulation changes that would affect the City and its operation. Examples would be timely notification of changes proposed or initiated by GASB, FASB, or GAO. Some of the updates should provide the client with CPE credit opportunities. This training can be in either the current issues or simply general training. It should provide the client with opportunities to remain current or increase knowledge in governmental auditing/accounting or related areas. Other Information and Requirements 1. Audit Work Timing Preliminary work prior to closing accounts must occur and be concluded prior to September 1 of each year. Completion of fieldwork should be accomplished no later than December 20th. Fieldwork will be considered complete when all adjustments have been made by the auditor. Date for draft report presentation shall be no later than March 1 after completion of the respective year after the end of fieldwork. At that same time a draft management letter should be delivered. Final presentation shall be no later than three weeks after receipt of draft report. 2. Working Papers 11

12 The firm selected shall maintain all working papers for a period of at least five years after the fiscal year end. The auditor shall make available all original working papers for examination by authorized representatives of Federal and State agencies, the City s Director of Finance, and any other entity to which access has been granted in writing by the City s Director of Finance. In addition, the firm shall respond to the reasonable inquiries of successor auditors and allow successor auditors to review working papers relating to matters of continuing financial significance. CALENDAR OF EVENTS March 30, 2018 Advertise Proposal in The Conroe Courier, City of Shenandoah website. April 23, 2018 Open Proposals, 10:00 am CST, City of Shenandoah, IH 45 N, Shenandoah, TX May/June 2018 Review recommendation with the City of Shenandoah City Council and award contract. 12

13 Appendix A 13

14 ANNUAL FINANCIAL REPORT of the City of Shenandoah, Texas For the Year Ended September 30, 2017

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16 TABLE OF CONTENTS September 30, 2017 FINANCIAL SECTION Independent Auditor s Report 1 Management s Discussion and Analysis 7 Basic Financial Statements Government Wide Financial Statements Statement of Net Position 19 Statement of Activities 20 Fund Financial Statements Governmental Funds: Balance Sheet 22 Reconciliation of the Balance Sheet to the Statement of Net Position Governmental funds 25 Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Funds 26 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 29 Proprietary Funds: Statement of Net Position 30 Statement of Revenues, Expenses, and Changes in Fund Net Position 31 Statement of Cash Flows 32 Notes to Financial Statements 35 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual General Fund 67 Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Hotel Occupancy Fund 68 Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual Shenandoah Municipal Development District Fund 69 Schedule of Changes in Net Pension Liability and Related Ratios 70 Schedule of Employer Contributions to Pension Plan 71

17 OTHER SUPPLEMENTARY INFORMATION Combining Balance Sheet Nonmajor Governmental Funds 74 Combining Statement of Revenues, Expenditures, and Changes in Fund Balance Nonmajor Governmental Funds 76

18 To the Honorable Mayor and Members of the City Council City of Shenandoah, Texas: INDEPENDENT AUDITOR S REPORT 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 City of Shenandoah, Texas (the City ), as of and for the year ended September 30, 2017, and the related notes to the financial statements, which collectively comprise the City s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements The City s 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 Heathrow Forest Pkwy Suite 530 Houston, TX Tel: Fax:

19 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 opinion Opinion 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 City as of September 30, 2017, 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. Emphasis of Matter As discussed in Note V.E. the City has restated beginning fund balance/net position within governmental type activities due to the change in accrued liabilities and change in fund reporting. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis, schedule of changes in net pension liability and related ratios, schedule of employee contributions to pension plan, 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 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. 2

20 Other Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City s basic financial statements. The accompanying supplementary information, such as the combining statements are presented for purposes of additional analysis and are not a required part of the basic financial statements. The other supplementary information is the responsibility of management and was derived from and relates 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 combining statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. BrooksWatson & Co. Certified Public Accountants Houston, Texas February 21,

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22 MANAGEMENT S DISCUSSION AND ANALYSIS 5

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24 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) September 30, 2017 As management of the City of Shenandoah, Texas (the City ), we offer readers of the City s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, Financial Highlights The Cityʹs total combined net position was $47,708,576 at September 30, Of this, $5,894,134 (unrestricted net position) may be used to meet the City s ongoing obligations to its citizens and creditors. At the close of the current fiscal year, the City s governmental funds reported combined fund balances of $14,809,019, an increase of $110,161. As of the end of the year, the unassigned fund balance of the general fund was $6,079,421 or 81% of total general fund expenditures. The City had an overall increase in net position of $2,394,295, which is due to revenues exceeding expenses that occurred in the current year. Overview of the Financial Statements The discussion and analysis provided here are intended to serve as an introduction to the City s basic financial statements. The City s basic financial statements consist of three components: 1) governmentwide financial statements, 2) fund financial statements, and 3) the notes to financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Government Wide Statements The government wide statements are designed to provide readers with a broad overview of the City s finances, in a manner similar to a private sector business. The statement of net position presents financial information on all of the City s assets, liabilities, and deferred inflows/outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). 7

25 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued September 30, 2017 Both of the government wide financial statements distinguish functions of the City 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 (businesstype activities). The governmental activities of the City include general government, public safety, community development, and public works. The business type activities of the City include a water and sewer operations. 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 City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. 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 year. Such information may be useful in evaluating the City 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 may 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 City of Shenandoah, Texas maintains nine individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general, debt service fund, the hotel occupancy fund, the Shenandoah Municipal Development District, and the Capital Improvements fund considered to be major funds. Fund data for the remaining nonmajor governmental funds is provided in the form of combining statements in the combining and individual fund statements and schedules section of this report. The City of Shenandoah, Texas adopts an annual appropriated budget for its general, debt service, special revenue, and utility funds. A budgetary comparison schedule has been provided to demonstrate compliance with the general fund budget and each major special revenue fund. Proprietary Funds. The City maintains one type of proprietary fund. Enterprise funds are used to report the same functions presented as business type activities in the government wide financial statements. The City uses enterprise funds to account for its water distribution, wastewater collection/treatment 8

26 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued September 30, 2017 and water construction operations. The proprietary fund financial statements provide separate information for the water distribution, and wastewater collection/treatment fund. The basic proprietary fund financial statements can be found in the basic financial statements of this report. Notes to Financial Statements. The notes to the financial statements provide additional information that is necessary to a full understanding of the data provided in the government wide and fund financial statements. The notes are the last section of the basic financial statements. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information (RSI) concerning the City s progress in funding its obligation to provide pension and other post employment benefits to its employees. The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the required supplementary information on pension. Government Wide Financial Analysis As noted previously, net position over time, may serve as a useful indicator of the City s financial position. For the City of Shenandoah, Texas, assets exceed liabilities by $47,708,576 as of September 30, The largest portion of the City s net position, $33,978,102, reflects its investments in capital assets (e.g., land, city hall, police station, streets, and drainage systems, as well as the public works facilities), less any debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the assets themselves cannot be used to liquidate these liabilities. Current and other assets of Business Type Activities as of September 30, 2017 and September 30, 2016 were $2,217,028 and $3,291,798, respectively. The decrease of $1,074,770 was primarily attributable to transfers out, $1,574,899 of which transferred to the Capital Improvement fund for capital projects. Long term liabilities of Governmental Activities as of September 30, 2017 and September 30, 2016 were $23,740,049 and $25,540,880, respectively. The decrease of $1,800,831 was attributable to principal payment made in the amount of $1,550,000 during the year, in addition to the amortization of bond premiums. 9

27 Statement of Net Position: City of Shenandoah, Texas MANAGEMENT S DISCUSSION AND ANALYSIS, Continued September 30, 2017 The following table reflects the condensed Statement of Net Position: Governmental Business Type Governmental Business Type Activities Activities Total Activities Activities Total Current and other assets $ 15,778,923 $ 2,217,028 $ 17,995,951 $ 15,721,825 $ 3,291,798 $ 19,013,623 Capital assets, net 39,978,822 15,024,463 55,003,285 38,137,746 14,885,179 53,022,925 Total Assets 55,757,745 17,241,491 72,999,236 53,859,571 18,176,977 72,036,548 Deferred Outflows 1,745,799 87,299 1,833,098 2,051, ,041 2,168,080 Other liabilities 2,664, ,815 2,876,381 2,693, ,390 2,889,431 Long term liabilities 23,740, ,928 24,187,977 25,540, ,036 26,000,916 Total Liabilities 26,404, ,743 27,064,358 28,233, ,426 28,890,347 Deferred Inflows 52,272 7,128 59,400 Ne t Position: Ne t inve stment in capital assets 18,953,639 15,024,463 33,978,102 15,639,590 14,885,179 30,524,769 Restricted 7,836,340 7,836,340 7,972,018 7,972,018 Unrestricted 4,256,678 1,637,456 5,894,134 4,065,081 2,752,413 6,817,494 Total Net Position $ 31,046,657 $ 16,661,919 $ 47,708,576 $ 27,676,689 $ 17,637,592 $ 45,314,281 10

28 Statement of Activities: City of Shenandoah, Texas MANAGEMENT S DISCUSSION AND ANALYSIS, Continued September 30, 2017 The following table provides a summary of the City s changes in net position: For the Year Ended September 30, 2017 Total For the Year Ended September 30, 2016 Total Governmental Business Type Primary Governmental Business Type Primary Activities Activities Government Activities Activities Government Revenues Program revenues: Charges for services $ 783,672 $ 2,526,510 $ 3,310,182 $ 847,651 $ 2,722,533 $ 3,570,184 General revenues: Property tax 1,943,370 1,943,370 1,867,070 1,867,070 Sales tax 7,489,554 7,489,554 8,091,739 8,091,739 Franchise and local taxes 456, , , ,399 Hotel occupancy taxes 1,213,222 1,213,222 1,111,966 1,111,966 Investment income 23,179 2,556 25,735 20,767 2,704 23,471 Other revenues 331, , ,059 1, ,630 Total Revenues 12,240,879 2,529,206 14,770,085 12,652,651 2,726,808 15,379,459 Expenses General government 3,884,119 3,884,119 3,321,513 3,321,513 Public safety 2,670,667 2,670,667 2,685,385 2,685,385 Public works 2,199,688 2,199,688 2,023,328 2,023,328 Community development 107, ,182 97,048 97,048 Economic development 137, ,258 57,942 57,942 Tourism 756, , , ,644 Garbage collection 251, , , ,822 Interest and fiscal charges 757, , , ,763 Water & sewer 1,611,843 1,611,843 1,552,470 1,552,470 Total Expenses 10,763,947 1,611,843 12,375,790 9,774,445 1,552,470 11,326,915 Change in Net Position Before Transfers 1,476, ,363 2,394,295 2,878,206 1,174,338 4,052,544 Transfers in (out) 1,893,036 (1,893,036) 1,007,849 (1,007,849) Total 1,893,036 (1,893,036) 1,007,849 (1,007,849) Change in Net Position 3,369,968 (975,673) 2,394,295 3,886, ,489 4,052,544 Beginning Ne t Position 27,676,689 17,637,592 45,314,281 23,790,634 17,471,103 41,261,737 Ending Net Position $ 31,046,657 $ 16,661,919 $ 47,708,576 $ 27,676,689 $ 17,637,592 $ 45,314,281 11

29 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued September 30, 2017 Graphic presentations of selected data from the summary tables are displayed below to assist in the analysis of the City s activities. For the year ended September 30, 2017, revenues from governmental activities totaled $12,240,879. Overall revenues decreased by $411,772 or 3%. Sales tax, property tax, and hotel occupancy taxes are the City s largest revenue sources. Sales taxes decreased by $602,185 or 7% due primarily to the relocation of one large tax paying company to outside the City. In addition, other revenue increased $58,634 or 21% due to various nonrecurring activities. This graph shows the governmental function expenses of the City: For the year ended September 30, 2017, expenses for governmental activities totaled $10,763,947. This represents an increase of $989,502 or 9% from the prior year. The City s largest functional expense is 12

30 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued September 30, 2017 general government of $3,884,119. This is an increase of $562,606 primarily as a result of additional personnel costs and professional fees. Spending on economic development increased $79,316 or 137%, in addition to an increase in tourism expenses in the amount of $302,824 or 67%, resulted due to the City hosting an NCCA sports competition in the current year. Public works expenses increased by $176,360 or 9% due to increased salaries and fire inspection fees. Business type activities are shown comparing operating costs to revenues generated by related services. For the year ended September 30, 2017, charges for services by business type activities totaled $2,526,510. This is a decrease of $196,023, or 7%, from the previous year. This decrease is a result of decreased consumption when compared to the prior year. Total expenses increased $59,373 or 4% due to equipment maintenance and utility costs. FINANCIAL ANALYSIS OF THE CITY S FUNDS As noted earlier, fund accounting is used to demonstrate and ensure compliance with finance related legal requirements. Governmental Funds The focus of the City s governmental funds is to provide information of nearterm inflows, outflows and balances of spendable resources. Such information is useful in assessing the City s financing requirements. In particular, unreserved fund balance may serve as a useful measure of the City s net resources available for spending at the end of the year. As of the end of the year the general fund reflected a total fund balance of $6,079,421. The general fund reflected an increase of $109,217. This is primarily a result of the general fund receiving more revenue than anticipated. 13

31 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued September 30, 2017 The debt service fund reflected a fund balance of $103,946, a decrease of $2,905, which is considered minimal. The Shenandoah Municipal Development District (SMDD) reflected a fund balance of $5,410,589, a decrease of $442,057 due to a transfer of funds to the general fund. The capital improvements fund reflected a fund balance of $411,177, an increase of $3,022, which is considered minimal. The hotel occupancy fund reflected a fund balance of $2,311,625. The fund balance increased by $304,155 from the prior year due to more hotel occupancy tax revenue received compared to expenses incurred. There was an overall increase in governmental fund balance of $110,161. This is primarily due to funds transfers received from the water and sewer fund. Proprietary Funds The City s proprietary funds provide the same type of information found in the government wide financial statements, but in more detail. GENERAL FUND BUDGETARY HIGHLIGHTS There was a positive budget variance of $312,781 before other financing sources and uses, with a total positive budget variance of $150,695 in the general fund after other sources and uses. Total actual revenue exceeded budgeted revenue by $571,081. Total actual expenditures were $258,300 over budget. Expenditures exceeded appropriations at the legal level of control in the amount of $511,697 for general government and $142,411 for transfers out. All other expenditures were less than budgeted. CAPITAL ASSETS As of the end of the year, the City s governmental activities funds had invested $39,978,822 in a variety of capital assets and infrastructure, net of accumulated depreciation. Depreciation is included with the governmental capital assets as required by GASB Statement No. 34. The City s business type activities funds had invested $15,024,463 in a variety of capital assets and infrastructure, net of accumulated depreciation. Major capital asset events during the current year include the following: Water line, water plant facility, and park improvements totaling $3,524,438 Purchase of new vehicles and equipment totaling $156,170 Automatic meters, detention pond, and water lift improvement assets totaling $610,159 transferred from governmental activities to the water and sewer fund. 14

32 MANAGEMENT S DISCUSSION AND ANALYSIS, Continued September 30, 2017 More detailed information about the City s capital assets is presented in note IV. C to the financial statements. LONG TERM DEBT At the end of the current year, the City had total bonds outstanding of $20,595,000. During the year, the City had a net reduction in the long term debt of $1,550,000, not including premium amortization. More detailed information about the City s long term liabilities is presented in note IV. F to the financial statements. ECONOMIC FACTORS AND NEXT YEAR S BUDGET The Mayor and City Council are committed to maintaining and improving the overall wellbeing of the City of Shenandoah, Texas and improving services provided to their public citizens. The City is budgeting for growth in the upcoming year. CONTACTING THE CITY S FINANCIAL MANAGEMENT This financial report is designed to provide a general overview of the City of Shenandoah, Texas s finances for all those with an interest in the City s finances. Questions concerning this report or requests for additional financial information should be directed to the City Administrator, I 45 North, Shenandoah, Texas

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34 FINANCIAL STATEMENTS 17

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36 Assets Current assets: Cash and cash equivalents $ 14,110,331 $ 1,826,166 $ 15,936,497 Receivables, net 1,668, ,862 2,059,454 Total Current Assets 15,778,923 2,217,028 17,995,951 Capital assets: Non depreciable 7,829,600 1,673,568 9,503,168 Net depreciable capital assets 32,149,222 13,350,895 45,500,117 39,978,822 15,024,463 55,003,285 Total Assets 55,757,745 17,241,491 72,999,236 Deferred Outflows of Resources Pension contributions 371,837 50, ,542 Pension investment earnings 268,354 36, ,948 Deferred charge on refunding 1,105,608 1,105,608 Total Deferred Outflows of Resources 1,745,799 87,299 1,833,098 Liabilities Current liabilities: Accounts payable 417,616 72, ,410 Accrued liabilities 387,674 11, ,651 Accrued interest payable 92,234 92,234 Customer deposits 34, , ,010 Due within one year 1,732,968 20,108 1,753,076 2,664, ,815 2,876,381 Noncurrent liabilities: Due in more than one year 20,471,629 2,234 20,473,863 Net pension liability 3,268, ,694 3,714,114 23,740, ,928 24,187,977 Total Liabilities 26,404, ,743 27,064,358 Deferred Inflows of Resources Pension losses on investments 52,272 7,128 59,400 Net Position City of Shenandoah, Texas STATEMENT OF NET POSITION September 30, 2017 Governmental Primary Government Business Type Activities Activities Total Net investment in capital assets 18,953,639 15,024,463 33,978,102 Restricted for: Debt service 103, ,946 Economic development 5,410,589 5,410,589 Tourism 2,311,625 2,311,625 Municipal court 7,939 7,939 Public safety 2,241 2,241 Unrestricted 4,256,678 1,637,456 5,894,134 Total Net Position $ 31,046,657 $ 16,661,919 $ 47,708,576 See Notes to Financial Statements. 19