OFICINA DEL COMISIONADO DE ASUNTOS MUNICIPALES ÁREA DE ASESORAMIENTO, REGLAMENTACIÓN E INTERVENCIÓN FISCAL ÁREA DE ARCHIVO DIGITAL

Transcription

1 OFICINA DEL COMISIONADO DE ASUNTOS MUNICIPALES ÁREA DE ASESORAMIENTO, REGLAMENTACIÓN E INTERVENCIÓN FISCAL ÁREA DE ARCHIVO DIGITAL MUNICIPIO DE FAJARDO AUDITORÍA DE JUNIO DE 2016

2 AUTONOMOUS MUNICIPALITY OF FAJARDO SINGLE AUDIT REPORTING PACKAGE FOR THE YEAR ENDED JUNE 30, 2016

3 TABLE OF CONTENTS FOR THE YEAR ENDED JUNE 30, 2016 SINGLE AUDIT REPORTING PACKAGE Statements Performed in Accordance with Government Auditing Standards 6970 and on Compliance and Other Matters Based on an Audit of Financial Independent Auditors Report on Internal Control over Financial Reporting INTERNAL CONTROL AND COMPLIANCE Schedule of Expenditures of Federal Awards 66 Notes to Schedule of Expenditures of Federal Awards 67 SUPPLEMENTARY INFORMATION Notes to Financial Data Schedule 64 Financial Data Schedule Financial Date Schedule Income Statement 6263 Balance Sheet 61 HOUSING AND URBAN DEVELOPMENT SUPPLEMENTARY INFORMATION REQUIRED BY THE U. S. DEPARTMENT OF Budgetary Comparison Schedule Notes to Budgetary Comparison Schedule Schedule of Proportionate Share of the Net Pension Liability 58 Schedule of Contributions to the Employee s Retirement Systems 59 General Fund 54 Fund 5557 General REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Notes to Basic Financial Statements 2353 in Fund Balances of Governmental Funds to the Statement of Activities 22 Statement of Net Position 20 Statement of Revenues, Expenditures, and Changes in Fund Balances 21 Reconciliation of the Governmental Funds Balance Sheet to the Reconciliation of the Statement of Revenues, Expenditures, and Changes Fund Financial StatementsGovernmental Funds Statement of Net Position 16 Statement of Activities 17 GovernmentWide Financial Statements: Basic Financial Statements: Management s Discussion and Analysis 515 Required Supplementary Information: Balance Sheet 1819 Independent Auditors Report 14 FINANCIAL SECTION Pages AUTONOMOUS MUNIC1PALITf OF FAJARDO

4 TABLE OF CONTENTS (Continued) FOR THE YEAR ENDEDJUNE 30, 2016 S1NGLE AUDIT REPORTING PACKAGE Schedule of Findings and Questioned Costs 7476 Schedule of Status of Prior Year Audit Findings and Questioned Costs 77 FINDINGS AND QUESTIONED COSTS and on Internal Control over Compliance Required by the Uniform Guidance 7172 Independent Auditors Report on Compliance for Each Major Federal Program Pages AUTONOMOUS MUNICIPALITY OF FAJARDO

5 FINANCIAL SECTION

6 Caitified Public Accountants and BnsinessAdtlisOrs Puerto Rico Board of Certifitd Public ive Suite (52, P0 Box 70250, San Juan, P.R Phone (787) , Fax (787) 27405h2 assessment of the risks of material misstatements of the financial statements, whether due to fraud or the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial the standards applicable to financial audits contained in Government Auditing Standards, issued by the statements. Comptroller General of the United States. Those standards require that we plan and perform the audit to of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating our audit in accordance with auditing standards generally accepted in the United States of America and 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 obtain reasonable assurance about whether the financial statements are free of material misstatement. error. In making those risk assessments, the auditors consider internal control relevant to the entity s the financial statements. The procedures selected depend on the auditors judgment, including the An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in Our responsibility is to express opinions on these financial statements based on our audit. We conducted Auditors Responsibility accordance with accounting principles generally accepted in the United States of America; this includes error. presentation of financial statements that are free from material misstatement, whether due to fraud or the design, implementation, and maintenance of internal control relevant to the preparation and fair Management is responsible for the preparation and fair presentation of these financial statements in Management s Responsibility for the Financial Statements Municipality s basic financial statements as listed in the table of contents. June 30, 2016, and the related notes to the financial statements, which collectively comprise the and the aggregate remaining fund information of the Municipality of Fajardo, as of and for the year ended We have audited the accompanying financial statements of the governmental activities, each major fund, Report on the Financial Statements Fajardo, Puerto Rico Municipality of Fajardo Municipal Legislature To the Honorable Mayor and INDEPENDENT AUDITORS REPORT 0 rt iz R ve ra & Co CPf Zoraida Cruz Claudio &ICPAs Prisate Companies Practice Setnon (PCPSI CPA Marco Antonio Rivera /Liñiga Accouflta.titS (AICPA) I I I CPA Orlando! uls Ortir ( atrera American Institute of CeniUed Publjt

7 government wide Statement of Net Position, and pension expense for the current period change in that The net pension liability and deferred outflows/inflows of resources in governmental activities of the Basis for Qualified Opinion on Governmental Activities and Note Disclosure Regarding Pension Plan Suite 152, P0 Box 70250, San Juan, PR Phone (787) 75o8524, Fax (787) CERTIFIEI) PUEL[C A COUNTANTS VALUE APUEI) SERVICES ORTIZ, RIVERA, RIVERA & CO. moratorium on debt obligations of GDB, among other measures. GDB s deteriorated financial condition by GDB, imposed restrictions on the withdrawal and transfer of deposits from GDB, and imposed a currently does not have sufficient liquid financial resources to meet obligations when they come due. Pursuant to recently enacted legislation, the Governor has ordered the suspension of loan disbursements depository of some of the Municipality s funds. GDB faces significant risks and uncertainties and it As discussed in Note 4 the Government Development Bank for Puerto Rico (GDB) serves as lender and Deposits with Governmental Bank Emphasis of Matters States of America. for the fiscal year then ended in accordance with accounting principles generally accepted in the United Municipality of Fajardo, as of June 30, 2016, and the respective changes in the financial position thereof respective financial position of each major fund, and the aggregate remaining fund information of the In our opinion, the financial statements referred to above present fairly, in all material respects, the Unmodified Opinions accepted in the United States of America. activities of the Municipality of Fajardo, as of June 30, 2016, and the respective changes in the financial position thereof for the fiscal year then ended in accordance with accounting principles generally above present fairly, in all material respects, the respective financial position of the governmental Activities and Note Disclosure Regarding Pension Plan paragraph, the financial statements referred to In our opinion, except for the matters described in the Basis for Qualified Opinion on Governmental Qualified Opinion determine whether any adjustments to these amounts and disclosures were necessary. The net pension percent and 9 percent of deferred outflows/inflows of resources, respectively, as of June 30, 2016, while sufficient appropriate audit evidence about the proportional share used to determine the deferred and the information disclosed in the notes of the pension plan. Consequently, we were unable to Commonwealth of Puerto Rico, costsharing multipleemployer pension plan. We were unable to obtain outflows/inflows of resources, net pension liability, and pension expenses of the governmental activities supplementary information of the Employees Retirement System of the Government of the application of the proportional share included in the unaudited financial statements, notes and required pension expense represents 10 percent of total expenses for the fiscal year then ended. liability in governmental activities of the governmentwide Statement of Activities were derived from the liability and deferred outflows/inflows of resources represent 52 percent of the total liabilities, 100 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

8 The basic financial statements do not include any adjustments that might result from the outcome of this Newly Adopted Standards to defaults by GOB on deposit transactions have been incurred by the Municipality through June, 30, uncertainty. Our opinions are not modified with respect to this matter. SUite 152 P0 Box 70250, Sait Juan, PR Phone (187) , Fax (78) UEIUflNEI) PUBLIC ACCOUNTAITS VALUE ADDED SEFtVICES ORTI.Z, RIVERA, RIVERA & Co. 3 of the basic financial statements. required by U. S. Department of Housing and Urban Development, on pages 61 through 64, and the Requirement, Cost Principles, and Audit Requirement for Federal Awards, and they are not a required part Our audit was conducted for the purpose of forming opinions on the financial statements that collectively Schedule of Expenditures of Federal Awards on pages 66 and 67 are presented for purposes of additional analysis as required by Title 2 U. S. Code of Federal Regulations Part 200, Uniform Administrative comprise the Municipality s basic financial statements. The accompanying Financial Data Schedule, as Supplementary Information with auditing standards generally accepted in the United States of America, which consisted of inquiries knowledge we obtained during our audit of the basic financial statements. We do not express an opinion sufficient evidence to express an opinion or provide any assurance. Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting consistency with management s responses to our inquiries, the basic financial statements, and other or provide any assurance on the information because the limited procedures do not provide us with for placing the basic financial statements in an appropriate operational, economic, or historical context. statements. Such information, although not a part of the basic financial statements, is required by the discussion and analysis, budgetary comparison information, and employee s retirement system schedule We have applied certain limited procedures to the required supplementary information in accordance of management about the methods of preparing the information and comparing the information for Accounting principles generally accepted in the United States of America require that the management s on pages 5 through 15, 55 through 57 and, 58 to 59 be presented to supplement the basic financial Required Supplementary Information Other Matters the implementation of GASB Statements No. 68. Our opinion is not modified in respect to this matter. As discussed in Note 15 to the financial statements, the 2015 financial statements have been restated for Restatement of Prior Year Financial Statements 68, during the fiscal year Our opinion is not modified with respect to this matter. for Contributions Made Subsequent to the Measurement Date an amendment of GASB Statement No. for Pensions an amendment of GASB Statement No. 27, and GASB Statement No. 71, Pension Transition Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting As discussed in Note 12 to the financial statements, the Municipality adopted new accounting guidance, the Municipality s financial condition. Deposit in GOB amounted $14,947,739. However, rio losses related and potential inability to comply with all of its legal and financial obligations could further adversely affect

9 auditing procedures applied in the audit of the basic financial statements and certain additional and other records used to prepare the basic financial statements or to the basic financial statements procedures, including comparing and reconciling such information directly to the underlying accounting other records used to prepare the basic financial statements. The information has been subjected to the Suite 152. PC) Box 70250, San Juan, PR Phone (787) , Fax (787) CERTIFIED PUBLIC ACCOUNTANTS VALUE ADDED SERVICES ORTJZ, RIVERA RIVERA & CO. was affixed to the Society of Certified The stamp E of San Juan, Puerto Rico 1121,Q if March 10, internal control over financial reporting or on compliance. That report is an integral part of an audit internal control over financial reporting and compliance. performed in accordance with Government Auditing Standards in considering Municipality of Fajardo s other matters. The purpose of that report is to describe the scope of our testing of internal control over tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and on our consideration of the Municipality of Fajardo s internal control over financial reporting and on our financial reporting and compliance and the results of that testing, and not to provide an opinion on In accordance with GovernmentAuditing Standards, we have also issued our report dated March 10,2017, Other Reporting Required by Government Auditing Standards statements as a whole. Expenditures of Federal Awards are fairly stated, in all material respects, in relation to the basic financial the United States of America. In our opinion, the Financial Data Schedule and the Schedule of themselves, and other additional procedures in accordance with auditing standards generally accepted in responsibility of management and was derived from and relates directly to the underlying accounting and The accompanying Financial Data Schedule and the Schedule of Expenditures of Federal Awards are the

10 The management of the Autonomous Municipality of Fajardo offers this narrative overview and analysis FOR THE FISCAL YEAR ENDED JUNE 30, 2016 MANAGEMENT S DISCUSSION AND ANALYSIS 5 to government) and enhance the Municipality s accountability. allow the user to address relevant questions, broaden a basis for comparison (year to year or government (governmentwide) and the major individual funds. Both perspectives (governmentwide and majorfund) This annual report consists of a series of financial statements focused on both the Municipality as a whole USING THIS ANNUAL REPORT of June 30, 2016 were $108,283,687. (net of accumulated depreciation) and net position invested in capital assets (net of related debt) as At June 30, 2016, the Municipality s assets exceeded its liabilities by $121,839,668, compared to an As of June 30, 2016, the Municipality s governmental funds reported combined ending fund balance At June 30, 2016, the statement of net position presented an unrestricted net position (deficit) of The Municipality s capital assets inventory increase as a result of this year s operations. Capital assets The Municipality s total net position decrease by $1,791,575 during fiscal year ; ($10,847,335); of $80,599,357, a decrease of $463,853 from the prior year; excess of assets over liabilities of $123,631,243 at June 30, 2015; The following are key financial highlights for the fiscal year: FINANCIAL HIGHLIGHTS with prior year results; acknowledgement of an overview of the Municipality s financial activities; provide for an evaluation of its financial condition as of the end of the indicated fiscal year, compared identification of uses of funds in the financing of the variety of activities and; assets management s ability to handle budgetary functions. a broader basis in focusing important issues; major information: and it is prepared among other purposes, to provide the financial statements users with the following Basic Financial Statements and Management s Discussion and Analysis for State and Legal Governments, This MD&A is prepared to comply with Governmental Accounting Standards Board Statement No. 34, those financial statements. read in conjunction with the accompanying basic financial statements and the accompanying notes to currently known facts, and much of the information is comparable to prior year. This MD&A should be Discussion and Analysis (MD&A) is designed to focus on the current year activities, resulting changes and of the financial activities of the Municipality for the fiscal year ended June 30, The Management s AUTONOMOUS MUNICIPALITY OF FAJARDO

11 OVERVIEW OF THE BASIC FINANCIAL STATEMENTS FOR THE FiscAL YEAR ENDED JUNE 30, 2016 MANAGEMENT S DISCUSSION AND ANALYSiS (CONTINUED) 6 the difference is only in format, not substance. Whereas the bottom line in a commercial enterprise Although the statement of activities looks different from a commercial enterprise s income statement, during the fiscal year ended June 30, 2016, by presenting all of the Municipality s revenues and used cash during the current year. expenses. As previously discussed, the items reported in the statement of activities are measured in a months after the end of the fiscal year and expenses are recorded even though they may not have Municipality. Consequently, revenues are reported even when they may not be collected for several earned or established criteria are satisfied, and expenses are recorded when incurred by the manner similar to the approach used by a commercial enterprise in that revenues are recognized when The statement of activities presents information showing how the Municipality s net position changed STATEMENT OF ACTIVITIES the assets and reports all of its liabilities when they are incurred. For example, the Municipality reports deteriorating, respectively. useful indicator of whether the financial position of the Municipality is either improving or accumulate net position, as this amount increases or decreases over time, such amount represents a net position is presented as net position, which is similar to the total owners equity reported by a commercial enterprise in its financial statements. Although the purpose of the Municipality is not to The difference between the Municipality s total assets and total liabilities reported in the statement of though this liability might not be paid until several fiscal years into the future. incurred by the Municipality. On the other hand, the Municipality reports compensated absences even buildings and improvements as assets, even though they are not available to pay the obligations owed by the Municipality. The Municipality reports of all of its assets when it acquires ownership over The purpose of the statement of net position is to attempt to report all assets owned and all liabilities STATEMENT OF NET POSITION to a privatesector business. are designed to provide readers with a broad overview of the Municipality s finances, in a manner similar statement of activities. These financial statements can be found immediately following this MD&A, and The governmentwide financial statements are composed of: (1) the statement of net position and (2) the GOVERNMENTWIDE FINANCIAL STATEMENTS contains other supplementary information in addition to the basic financial statements themselves. financial statements; fund financial statements; and notes to the financial statements. This report also statements. The Municipality s basic financial statements comprise three components: governmentwide This discussion and analysis are intended to serve as an introduction to the Municipality s financial AUTONOMOUS MUNICiPALITY OF FAJARDO

12 STATEMENT OF ACTIViTIES (CONTINUED) FOR THE FISCAL YEAR ENDED JUNE 30, 2016 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTiNUED) 7. measures cash and all other financial assets that can readily be converted into cash. Governmental funds governmental fund financial statements focus on nearterm inflows and outflows of spendable resources, government wide financial statements. However, unlike the governmentwide financial statements, are used to account for essentially the same functions reported as governmental activities in the government funds are reported using an accounting method called modified accrual accounting, which The Municipality s basic services are reported in the government fund financial statements. The GOVERNMENTAL FUNDS intended purpose and is used to aid management in demonstrating compliance with legal, financial and contractual provisions. liabilities, fund equity, revenue, and expenditures. Fund accounting segregates funds according to their independent fiscal entity accounted for within a set of selfbalancing accounts that comprise its assets, demonstrate compliance with financerelated legal requirements. Each fund is considered an segregated for specific activities or objectives. The Municipality uses fund accounting to ensure and A fund is a grouping of related accounts that is used to maintain control over resources that have been Municipality s major governmental funds. position and the results of operations of the Municipality s governmental funds, with an emphasis on the revenues, expenditures and changes in fund balances. These financial statements report the financial The Municipality s fund financial statements consist of: (1) the balance sheet and (2) the statement of FUND FINANCIAL STATEMENTS depreciation and other operating expenses. transportation expenses, professional services, materials and supplies, purchase of equipment, include; payroll and related costs, facilities and payment for public services, purchased services, charges for services and Legislative appropriations. The governmental activities of the Municipality Both of the governmentwide financial statements of the Municipality are principally supported by function of the Municipality. This statement also presents a comparison between direct expenses and program revenues for each general revenues or is selffinancing through fees, intergovernmental aid, and other sources of resources. functions/programs identifies the extent to which each function of the Municipality draws from governmental functions. The difference between the expenses and revenues related to specific major functions. Another column identifies the revenues that are specifically related to the classified Municipality. The statement begins with a column that identifies the cost of each of the Municipality The focus of the statement of activities is on the net cost of various activities provided by the which is essentially the same concept. represents its net income, the Municipality reports an amount described as net change in net position, AUTONOMOUS MUNICIPAUTY OF FAJARDO COMMONWEALTH OF PUERTO RiCO

13 GOVERNMENTAL FUNDS (CONTINUED) FOR THE FISCAL YEAR ENDED JUNE 30, 2016 MANAGEMENT S DiscussIoN AND ANALYSIS (CONTiNUED) 8 Total assets 197,913, ,546,163 Capital assets 108,283, ,884,873 Current and noncurrent assets $ 89,629,950 $ 90,661,290 Statement of Net Position Z215. Table 1 governmental activities. analysis below focuses on the net position (Table 1) and changes in net positions of the Municipality s restated by $33,283,514 to account for the net effect of application of GASB Statements 68 and 71. Our versus $123,631,244 as of June 30, The net position as reported as of June 30, 2015 has been position. In the case of the Municipality, assets exceeded liabilities by $121,839,668 as of June 30, 2016, As noted earlier, net position may serve over time as a useful indicator of a government s financial GOVERNMENTAL NET POSITION GOVERNMENTWIDE FINANCIAL ANALYSIS funds. required supplementary information containing budget to actual comparisons for the general and major In addition to the basic financial statements and accompanying notes, this report also presents certain OTHER INFORMATION the governmentwide and fund financial statements. The notes provide additional information that is essential to a full understanding of the data provided in NOTES TO THE BASIC FINANCIAL STATEMENTS statement has been provided for the general fund to demonstrate compliance with this budget. The Municipality adopts an annual appropriated budget for its general fund. A budgetary comparison understand the longterm impact of the government s nearterm financing decisions. governmental funds is narrower than that of the governmentwide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the governmentwide financial statements. By doing so, readers may better be useful in evaluating a government s nearterm financing requirements. Because the focus of as well as on balances of spendable resources available at the end of the fiscal year. Such information may AUTONOMOUS MUNICIPALITY OF FAJARDO

14 Deferred outflows of resources $ 1,644,059 $ 1,621, FOR THE FIScAL YEAR ENDED JUNE 30, 2016 MANAGEMENT S DiscussioN AND ANALYSIS (CONTiNUED) of esources irtlows of iesources Total Assets and deferred outfow Total Labuits and deferred Tote! Net Assets 0, D0O,C0O 30,0DO,000 iso,000, ,000,000 Total net position, as restated S S Unrestricted (10847,335) Restricted 34,979,917 (20,725,609) 46,945,860 Net investment in capital assets 97,707,086 97,400,993 Net positions: Deferred inflows of resources 3,286,662 4,875,941 Total liabilities 74,431,366 72,660,883 Longterm liabilities 71,534,325 Current liabilities 2,897,041 1,643,890 71,016,993 AUTONOMOUS MUNICIPALITY OF FAJARDO

15 GOVERNMENTWIDE FINANCIAL ANALYSIS (CONTINUED) FOR THE FISCAL YEAR ENDED JUNE 30, 2016 MANAGEMENT S DISCUSSION AND ANALYSIS (CoNTINuED) 10 Human services and welfare 1,730,048 1,435,965 Public safety 1,643,373 1,263,172 Public education 7,909,028 7,490,205 Culture and recreation 928, ,348 Health and sanitation 4,234,197 3,982,158 Public works 987, ,048 General administration 10,991,619 9,503,666 Mayor and municipal legislature 2,720,088 2,220,626 Expenses: Total revenues 40,086,259 39,418,626 Other general revenues 1,537,595 1,094,405 Grant and entitlements 8,627,156 7,227,581 General revenues: Construction excise taxes 501, ,892 Sales and usage taxes 4,841,531 4,776,585 Volume of business taxes 5,715,703 7,470,446 Property taxes 11,002,062 10,013,514 Capital grants and contributions 1,027,651 1,644,275 Program revenues: Operating grants and contributions $ 6,831,310 $ 6,847,928 Revenues: Statement of Activities Table 2 of the Municipality s programs. The cost of all governmental activities this year was $41,875,834. Table 2 presents the revenue and costs GOVERNMENTAL ACTIVITIES the Municipality s net position represents unrestricted resources. resources that are subjected to external restrictions as how they may be used. The additional portion of assets are not available for future spending. Restricted net position amounting to $34,979,917 represents buildings and equipment. These capital assets are used to provide services to citizens; consequently these The largest portion of the Municipality s net position reflects its investment in capital assets, such land, AUTONOMOUS MUNICIPALITY OF FAJARDO

16 FOR THE FISCAL YEAR ENDED JUNE 30, 2016 MANAGEMENT S DiscussioN AND ANALYSIS (CONTiNUED) Program Revenues 11 2% 10% Interest cost Urban development 3%. 2% Human services and welfare 7 3% Public education 29% ( 2 Heath arid sanitation Culture and recreation I Public works, i Public safety ii General administration 2%6% Major and Municipal Legislature 2016 Expenditures Charges for services General Revenues I State Pssigments 2016 Revenues Net positionending S S Net positionbeginning, as restated 123,631, ,922 Changes in net position 1,791,575 1,251,322 Total expenses Interest costs 862, ,533 Urban development $ 9,868,560 $ 10,930,583 AUTONOMOUS MUNICIPALITY OF FAJARDO

17 GOVERNMENTWIDE FINANCIAL ANALYSIS (CONTINUED) FOR ThE FIsCALYEAR ENDED JUNE 30,2016 MANAGEMENT S DISCUSSION AND ANALYSIS (CONTiNUED) 12 improvement and constructions of facilities and infrastructure. represents approximately 98% of total ending general fund balance. For the year ended June 30, 2016, the fund balance of the general fund increased by $6,796,004 when compared with the prior year. During the year ended June 30, 2016 the Municipality transferred $4,223,654 to capital project funds for the The general fund is the operating fund of the Municipality. Unassigned fund balance of the general fund $80,599,358 a net decrease of $463,852 in comparison with the prior year. Of total combined fund balances, $24,522,849 constitutes unassigned fund balance of general fund. The remainder of fund balance is reserved to indicate that is not available for new spending. For the year ended June 30, 2016, the governmental funds reported combined ending fund balances of measure of a Municipality s net resources available at the end of a fiscal year. The focus of the Municipality s governmental funds is to provide information on nearterm inflows, Municipality s financing requirements. In particular, unreserved fund balance may serve as a useful outflows, and balances of resources available for spending. Such information is useful in assessing the FINANCIAL ANALYSIS government s net resources available for spending at the end of its fiscal year. financing requirements. In particular, unassigned fund balance may serve as a useful measure of a outflows, and balances of spendable resources. Such information is useful in assessing the Municipality s The focus of the Municipality s governmental funds is to provide information on nearterm inflows, GOVERNMENTAL FUNDS equipment. Approximately twentythree percent of the Municipality s governmental activities total revenue came from program revenues, while 77% resulted from general revenues. The Municipality s governmental activities expenses included items such as payroll and related costs, facilities and payment for public services, purchased services, transportation, professional services, materials, supplies and purchase of AUTONOMOUS MUNIC1PAL1TY OF FAJARDO

18 BUDGETARY HIGHLIGHTS FOR THE FSCAL YEAR ENDED JUNE 30, 2016 MANAGEMENT S DiscussioN AND ANALYSIS (CoNiiNuEo) 13 Total Assets S S108,884,873 Equipment 1,347,433 1,634,388 Vehicles 69, ,255 Infrastructure 23,739,023 24,019,816 Building 37,926,812 32,870,075 Depreciable assets: Nondepreciable assets: Others 765, ,615 Land and Construction in Progress $ 44,435,536 $ 49,405,724 Capital Assets Table 6 the major classes of capital assets. land, buildings and improvements, equipment, furniture and fixtures, and motorvehicles. Table 6 present amounted to $108,283,687 (net of accumulated depreciation). This investment in capital assets includes The Municipality investment in capital assets for its governmental type activities as of June 30, 2016 CAPITAL ASSETS AND DEBT ADMINISTRATION the budgeted charges to appropriations. (budgetary basis) for the fiscal year ended June 30, 2016 were $23,181,050, which is $5,575,289 less than which is $445,192 less than the budgeted resources. In addition, the total actual charges to appropriations The total actual resources (budgetary basis) for the fiscal year ended June 30, 2016 were $28,311,147, Excess or deficiency S , ,097 Total charges to appropriations 28, ,181,050 5,575,289 Total resources $ 28,756,339 $28,311,147 $ (445,192) Table 5 Final Budget Actual Amounts (Unfavorable) Variance favorable Table S summarizes the results of the Budgetary Comparison Schedule: budgets, the final revised budget, actual results, and variance between the final budget and actual results. Fund and the State Assignment Fund. The Budgetary Comparison Schedule shows the original adopted Budget and actual comparison schedules are provided in the Basic Financial Statements for the General AUTONOMOUS MUNICIPAUV( OF FAJARDO

19 The Municipality acquired a total of $2,014,992 of capital assets during the fiscal year ended June 30, 2016 as follows: CAPITAL ASSETS AND DEBT ADMINISTRATION (CONTINUED) FOR THE FISCAL YEAR ENDED JUNE 30, 2016 MANAGEMENT S DsCusSf ON AND ANALYSIS (CONTINUED) 14 were considered in preparing the Municipality s budget for the 2016 fiscal year. economic growth is correlated with increased revenues charges for services, as well as state grants. growth, unemployment, new construction, assessed valuation, and other revenues. All of these factors Economic growth in the local economy may be measured by a variety of indicators such as employment Local, national and international economic factors influence the Municipality s revenues. Positive ECONOMIC FACTORS AND NEXT YEAR S BUDGETS AND RATES Total S S Net pension liability 38,258,238 34,628,299 Compensated absences 1,878,987 2,072,519 Others 178, ,175 General and special obligations $31,219,000 $34,132,000 Long Term Debts Table 7 Table 7. At June 30, 2016 the Municipality had a total of $67,904,386 in outstanding longterm debts, as shown in LONGTERM DEBT statements. More detailed information about the Municipality s capital assets is presented in Note 7 to the financial fiscal year Other projects related to repair and maintenance of roads (not capitalized) were development during the Land$249,000 Acquisition of Equipment and Vehicles Buildings and Improvements and Infrastructure Construction in Progress $554,405 $300,888 $910,699 AUTONOMOUS MUNICIPALITY OF FAJARDO

20 REQUESTS FOR INFORMATION FOR THE FISCAL YEAR ENDED JUNE 30, 2016 MANAGEMENT S DiscussioN AND ANALYSIS (CONTINUED) this report or requests for additional information contact the Municipality Finance Department at (787) with an interest in the government s finances. Questions concerning any of the information provided in This financial report is designed to provide a general overview of the Municipality s finances for all those AUTONOMOUS MUNICIPALIVI OF FAJARDO

21 Activities Governmental AS OF JUNE 30, 2016 STATEMENT OF NET POSITION 16 The accompanying notes are an integral part of these financial statements. Total assets Total assets and deferred outflows of resources Liabilities Accrued interest Advance from other government Total liabilities Total net position Deferred Inflows of Resources Unrestricted Contributions to employee s retirement plan Deferred outflows of resources Other purposes Urban development Total liabilities and deferred inflows of resources Debt service Capital assets, net (Note 2 and 9) Other Restricted for: Net investment in capital assets Deferred municipal license Unamortized investment in employee s retirement plan Net Position Sale and use tax Due to other governments Due within one year in Due more than one year Accounts receivable: Deposit with governmental bank (Note 4) Accounts payable and accrued expenses Longterm debts: (Note 10) Total deferred inflows of resources 4,277,800 3,286,662 77,718,028 14,947, ,283, ,913,637 1,644,059 3, ,443 Cash in bank (Notes 2 and 3) Due from other governmental (Note 8) 482, , ,557,696 1,705, , ,874 67,256,525 74,431,366 3,009, ,111 $ 73,881,486 $ 121,839, ,845 (10,847,335) 11,559,096 22,907,976 97,707,086 Assets MUNICIPAUTY OF FAJARDO

22 Program Revenues Changes in Net (Expense) Revenue and FOR THE FISCAL YEAR ENDED JUNE STATEMENT OF ACTIVITIES 17 The accompanying notes are an integral part of these financial statements. Urban development Human services and welfare Total governmental activities Sales and use taxes (Note 7) Rent Interest Health and sanitation Public works Public safety Public education (987,897) General administration Mayor and Municipal legislature Culture and recreational (928,258) (862,766) Grants and entitlements Municipal license taxes (Note 6) Property taxes (Note 5) (10,991,619) 94,813 (1,643,373) (7,909,028) 6,082,199 (9,868,560) (4,234,197) (1,730,048) 654,298 General revenues: Construction excise taxes $ (2,720,088) $ $ (41,875,834) $ 121,839,668 Governmental activities: (1,791,575) 123,631,243 Total general revenues Net position at beginning of year, as restated (Note 15) Net position at end of year Changes in net position (862,766) (34,016,873) 32,225,298 Other Interest income 256, , ,571 1,027,651 (8,840,909) (928,258) (987,897) 501,251 (10,896,806) (1,643,373) (1,826,829) (4,234,197) (1,075,750) 11,002,062 5,715,703 4,841,531 8,627,156 $ 6,831,310 $ 1,027,651 $ $ (2,720,088) Functions/ProErams Expenses Contributions Contributions Activities Grants and Grants and Governmental Operating Capital Net Position MUNICIPALITY OF FAJARDO

23 Total Debt Head Start Sales and Use Loan Other Governmental Assets General Service Program Taxes $21,490,000 Governmental Funds Cash Cash and cash equivalents (Notes 2 and 3) $ 27,769,132 $ 2,808,077 $ 416,208 $ 13,336,034 $ 11,570,879 $ 17,981,156 $ 73,881,486 (Notes 2 and 4) 12,471,184 Total assets $ 28,845,320 $ 15,279,261 $ 617,315 $ 13,651,605 $ 11,570,879 $ 22,818,782 $ 92,783,162 COMMONWEALTh OF PUERTO RICO MUNICIPAUTY OF FAJARDO BALANCE SHEETGOVERNMENTAL FUNDS AS OF JUNE 30, 2016 Receivables Due from others governmental 189, , ,062 Sale and use taxes 315, ,571 Due from other funds (Note 11) 1,076,188 12,037 2,064,987 3,153,212 Other deposit 3,092 3,092 Deposits with Governmental Bank 2,476,555 14,947,739 The accompanying notes are an integral part of these financial statements. 18

24 Liabilities, Deferred Inflows Debt Head Start Sales and Use Loan Other Governmental of Resources, and Fund Balances General Service Program Taxes $21,490,000 Governmental Funds Advance from other government Total 116, ,443 Total liabilities $ 923,643 $ 3,720,165 $ 617,315 $ 566,779 $ 128,624 $ 3,217,727 $ 9,174,253 Unassigned 24,522,849 COMMONWEALTh OF PUERTO RICO MUNICIPALITY OF FAJARDO BALANCE SHEETGOVERNMENTAL FUNDS (CONTINUED) AS OF JUNE 30, 2016 Liabilities Accounts payable and accrued expenses $ 445,046 $ 198,245 $ 566,779 $ 128,624 $ 367,142 $ 1,705,836 Bond payable 3,124,000 3,124,000 Interest payable 423, ,888 Due to other funds (Note 11) 419,070 2,734,142 3,153,212 Due to other government 478, , ,874 Deferred Inflows of Resources Deferred municipal license 3,009,551 3,009,551 Total deferred inflows of resources 3,009,551 3,009,551 Fund Balances Restricted for: Debt service 11,559,096 11,559,096 Urban development 11,442,255 11,465,722 22,907,977 Other purposes 512, ,845 Committed for Urban development 13,084,826 7,622,488 20,707,314 Assigned to: General administration 389, ,277 Total fund balances 24,912,126 11,559,096 Total liabilities, deferred inflows of 13,084,826 24,522,849 11,442,255 19,601,055 80,599,358 resources, and fund balances $ 28,845,320 $ 15,279,261 $ 617,315 $ 13,651,605 $ 11,570,879 $ 22,818,782 $ 92,783,162 The accompanying notes are an integral part of these financial statements. 19

25 AS OF JUNE 30, 2016 BALANCE SHEET TO THE STATEMENT OF NET POSITION RECONCILIATION OF THE GOVERNMENTAL FUNDS 20 The accompanying notes are an integral part of these financial statements. Net position of governmental activities $ 121,839,668 Amount Net pension liabilities due to MRCC Bonds Compensated governmental funds: absences and notes payable (28,095,000) (1,878,987) (38,258,238) (178,100) in the current period and therefore are not reported in the Longterm liabilities and accrual expenses are not due and payable Deferred Deferred outflows of resources related to pension inflows of resources related to pension 1,644,059 (277,111) fund balance due to different basis of accounting: Amount presented in the statement of net position, but not in governmental funds balance sheet. 108,283,687 financial resources and therefore are not reported in the Capital assets, net used in governmental activities are not current Amounts reported for governmental activities in the statement of net position are different because: Total fund balances governmental funds $ 80,599,358 MUNICIPALITY OF FAJARDO

26 807,068 (10,201,085) $ $ $ MUNICIPALITY OF FAJARDO STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR ThE FISCAL YEAR ENDED JUNE 30, 2016 REVENUES Property taxes (Note 5) Municipal license tax (Note 6) Sales and use taxes (Note 7) Construction excise taxes Grants and entitlements Rental income Interest income Other revenues Total revenues EXPENDITURES Mayor and municipal legislature General administration Public safety Culture and recreation Public works Public education Urban development Health and sanitation Human services and welfare Capital outlays Debt service: Principal Interest Total expenditures Excess (deficiency) of revenues over (under) expenditures OThER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) Net change in fund balances General $ 5,782,577 5,715, ,251 8,864, , , ,163 21,896, ,741 9,250, , , ,294 1,168, ,170 3,284, ,961 6,075 55,698 20,371,873 1,525,083 9,494,575 (4,223,654) 5,270,921 Debt Head Start Sales and Use Loan Other Governmental Service Program Taxes $21,490,000 Funds $ 5,661,853 $ 907, ,715,703 3,934,384 4,841, ,251 5,969,195 1,652,780 16,486, , , ,408 33,615 54,510 6,706,778 5,969,195 3,934,384 33,615 1,985,698 3,124,000 5,969,195 $ 2,236, ,233 3,931,068 5,969,195 2,797,429 2,775,710 1,136,955 (10,201,085) 6, (7,425,375) 784, ,345 FUND BALANCES AT BEGINNING OF YEAR 18,116,122 18,984,471 11,163,526 FUND BALANCES AT END OF YEAR $ 24,912,126 $ 11,559,096 $ 774,815 (741,200) (37,003) (37,003) 1,921,300 (778,203) 13,084, , ,119 12,220,458 $ 11,442,255 $ 101, ,036 5,071, ,639 1,009,679 7,146,098 (5,160,400) 4,223,654 (40,832) 4,182,822 Total Governmental Funds 376, ,526, ,741 9,351,286 1,147, , ,294 7,251,596 8, ,284,747 1,476, ,992 3,130, ,766 40,990, ,852) 14,502,574 (14,502,574) (977,578) (463,852) 20,578,633 81,063,210 S ,055 $ 80,599,358 The accompanying notes are an integral part of these financial statements. 21

27 FOR THE FISCAL YEAR ENDED JUNE 30, 2016 TO THE STATEMENT OF ACTIVITIES RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS 22 The accompanying notes are an integral part of these financial statements. Changes in net position of governmental activities $ (1,791,575) related to pension (3,607,776) Net pension liability net of deferred inflows/outflows of resources Deferred income (442,368) require the use of current financial resources: Compensating absences 193,532 Change in accrued expenses and other deferred changes which do not Amount due to MRCC 6,075 Bond and notes 3,124,000 in the statement of net position: expenditures, whereas the principal payments reduces the longterm debt Governmental funds report principal payments on longterm obligations as governmental funds. (2,616,178) Therefore, depreciation expense is not reported as expenditure in activities, but they do not require the use of current financial resources. capitalized. 2,014,992 estimated useful lives and reported as depreciation expense. This is the amount of capital assets recorded in the current period including interest the statement of activities, the cost of those assets is allocated over their Governmental funds report capital outlays as expenditures. However, in Depreciation expense on capital assets is reported in the statement of different because: Amounts reported for governmental activities in the statement of activities are Net change in fund balances total governmental funds $ (463,852) MUNICIPAUT! OF FAJARDO

28 Organization 1. FINANCIAL REPORTING ENTITY JuNE 30, 2016 NOTES TO THE 84sic FINANCIAL STATEMENTS 23 Board (when applicable). The more significant policies of the Municipality are described below. entitled Audits of State and Local Governmental Units and by the Financial Accounting Standards Standards Board (GASB), the American Institute of Certified Public Accountants in the publication principles for local governments include those principles prescribed by the Governmental Accounting United States of America applicable to state and local governments. Generally accepted accounting accompanying basic financial statements conform to accounting principles generally accepted in the The accounting and reporting policies of the Municipality relating to the funds included in the 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Component units are legally separate organizations for which the Municipality is financially accountable. The Municipality has no component units. Body through the budgetary process. services. The operation of each of these activities is directly controlled by Municipality s Legislative recreation (including parks), street maintenance and repair, sanitation, and general administrative Municipality. For the Municipality, these include various services such as police protection, of the Municipality consists of all funds and departments that are not legally separate from the that are included to ensure that financial statements are not misleading. The primary government A reporting entity consists of the primary government, component units, and other organizations Reporting entity many other general and administrative services. The Municipality provides the following services to its community: health, public works, education, public safety, housing, community and social services, welfare, culture and recreation, as wel! as and the legislative power by the Municipal Legislative Body. every four years in the Puerto Rico general elections. The executive power is exercised by the Mayor The municipal government is comprised of the executive and legislative bodies, which are elected Commonwealth of Puerto Rico. succession, existence and legal personality separate and independent from the governmental of the legislative and administrative faculties in every affair of municipal character, with perpetual The Autonomous Municipality of Fajardo (the Municipality) is a political and legal entity with full AUTONOMOUS MUNICIPALITY OF FAJARDO

29 2. SUMMARY OF SIGNIFiCANT ACCOUNTING POLICIES (CONTINUED) NOTES To THE BASIc FNANCIA STATEMENTS (CONnNUED) JUNE 30, major funds are aggregated and presented in a single column. statements present each major fund as a separate column on the fund financial statements; all non separate funds in order to aid financial management and to demonstrate legal compliance. These The fund financial statements segregate transactions related to certain functions or activities in Fund financial statements They are reported net of estimated uncollectible amounts. specifically attributable to a program reducing the net expense of that program to the Municipality. Programspecific capital and operating grant and contributions consist of transactions that are either Restricted capital and operating grants and contributions are program revenues because they are individuals that restrict the resources for use in a particular program. Capital grants and contributions specific program or can be used either for operating or capital purposes of a specific program. mandatory or voluntary nonexcharige transactions with other governments, organizations, or construct or renovate capital assets associated with a specific program. Operating grants and contributions consist of resources that are required to be used to finance the costs of operating a consist of capital assets or resources that are restricted for capital purposes that is to purchase, program revenues are reported instead as general revenues. requirements of a particular function or segment. Taxes and other items not properly included among or segment and b) grants and contributions that are restricted to meeting the operational or capital who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segments are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include a) charges to customers or applicants The statement of activities demonstrates the degree to which the direct expenses of a given function is financially accountable. reported separately from certain legally separate component units for which the primary government rely to a significant extent on fees and charges for support. Likewise, the primary government is removed from these statements. Governmental activities which normally are supported mainly by taxes and intergovernmental revenues are reported separately from businesstype activities, which government and its component units. For the most part, the effect of interfund activity has been statement of activities) these statements report information on all the activities of the primary The governmentwide financial statements (consists of the statement of net position and the Governmentwide statements Basic financial statements include both governmentwide and fund financial statements. Governmentwide and fund financial statements AUTONOMOUS MUNICIPALITY OF FAJARDO

30 2. SUMMARY OF SiGNIFiCANT ACCOUNTING POLICIES (CONTINUED) iune 30,2016 NOTES To THE BASIC FINANCIAL STATEMENTS (CONTINUED) 25 as revenue as soon as all eligibility requirements imposed by the provider have been met. recognized as revenues in the year for which they are levied. Grants and similar items are recognized time the liability is incurred, regardless of the timing of related cash flows. Property taxes are accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the and business like activities, are presented using the economic resources measurement focus and the The governmentwide Statement of Net Position and the Statement of Activities, both government Measurement Focus, Basis of Accounting and Financial Statement Presentation This fund used to account capital improvements through bond issuance. Loan $21,490,000 Fund This fund used to account for accumulation of resources for, and the payment of special purpose obligations. Sales and Usage Taxes Fund and toddlers so that the children will attain school readiness. developmental services primarily to economicallydisadvantaged preschool children and infants this program are to provide comprehensive health, educational, nutritional, social and other This is the fund used to account for all transactions of the Head Start Program. The objectives of Head Start Fund longterm general obligation debt of governmental funds. This fund accounts for resources accumulated and payments made for principal and interest on Debit Service Fund those required to be accounted for in another fund. This is the operating fund of the Municipality and accounts for all financial resources, except General Fund The Municipality reports the following major governmental funds: Governmentwide and fund financial statements (Continued) AUTONOMOUS MUNICIPALITY OF FAJARDO

31 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) JUNE 30, 2016 NOTES To THE BAsic FNANCIA STATEMENTS (CONTINUED) 26 The Municipality has elected to not apply all statements and interpretation issued by FASB after November 30, When both restricted and unrestricted resources are available for use, it is the government s policy to use restricted resources first, than unrestricted resources as they are needed. all taxes. reported as general revenues rather than as program revenues. Likewise, general revenues include capital grants and contributions, including special assessments. Internally dedicated resources are applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) financial statements. Amounts reported as program revenues include 1) charges to customers or As a general rule the effect of interfund activity has been eliminated from the governmentwide elected not to follow subsequent private sector guidance. Privatesector standards of accounting and financial reporting issued prior to December 1, 1989 businesstype activities and enterprise funds, subject to this same limitation. The government has Board. Governments also have the option of following subsequent privatesector guidance for their standards do not conflict with or contradict guidance of the Governmental Accounting Standards generally are followed in the governmentwide financial statements to the extent that those period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the government. Property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all expenditures which are reported when payment is due. collected within 90 days of the end of the current fiscal period. Expenditures generally are recorded current period. For this purpose, the government considers revenues to be available if they are when they are collectible within the current period or soon enough thereafter to pay liabilities of the when a liability is incurred, except for debt service, compensated absences and claims and judgments measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon The governmental fund financial statements are presented using the current financial resources as they are both measurable and available. Underthis method revenues are considered to be available Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) AUTONOMOUS MUNICIPAUTY OF FAJARDO

32 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTiNUED) JuNE 30, 2016 NOTES To THE BAsic FINANCIAL STATEMENTS (CONTINUED) 27 in the statement of net position. Interfunds receivables and payables between funds within the governmental activities are eliminated Activities between funds that are representative of lending/borrowing arrangements outstanding at of interfund loans) or advances to/from other funds (i.e., the noncurrent portion of interfund loans). the end of the fiscal year are referred to as either due to/from other funds (i.e., the current portion lnterfund Receivables and Payables and a significant reduction of liquidity in the local Puerto Rico capital markets. Then, the credit rating Deposit in GDB amounted to $14,947,739 as of June 30, by GDB on deposit transactions have been incurred by the Municipality through iune 30, downgrades could further adversely affect the GOB s liquidity. However, no losses related to defaults the Commonwealth and its public corporations, the Commonwealth s limited capital market access, The GDB s liquidity was adversely affected by a significant increase in credit spreads for obligations of these deposits. because in the event that this financial institution fails, the Municipality may not be able to recover Deposits with GOB are uninsured and uncollateralized and thus represent a custodial credit risk, agents designated by the Commonwealth s Secretary of Treasury but not in the Municipality s name. the amount in excess of federal depository insurance. All securities pledged as collateral are held by In addition, public funds deposited in commercial banks by the Municipality are fully collateralized for Federal Deposit Insurance Corporation (FDIC) generally up to. a maximum of $250,000 per depositor. Puerto Rico the balances deposited in commercial banks by the Municipality are insured by the Pursuant to the Statement of Investment Guidelines for the Government of the Commonwealth of Municipality s debt service, as established by law. retained by the Municipal Revenue Collection Center (MRCC) and restricted for the payment of the Governmental Bank in the debt service fund represents special additional property tax collections and notes issued for the acquisition and construction of major capital improvements. Deposits with Deposits with Governmental Bank in the governmental fund consists of unused proceeds from bonds funds are recorded in the corresponding fund as interest income. excess cash in interest bearing deposits with institutions qualified by the PRTD. Earnings from these the Government Development Bank for Puerto Rico (GOB). The Municipality s policy is to invest any as a depository of public funds by the Puerto Rico Treasury Department (PRTD) or in instruments of is restricted by law to invest only in savings accounts and certificates of deposit with banks qualified The Municipality s finance director is responsible for investing available resources. The Municipality Cash in Commercial Bank and Deposits with Governmental Bank AUTONOMOUS MUNICIPAUTY OF FAJARDO

33 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) JUNE 30, 2016 NOTES To THE BASIC FINANCIAL STATEMENTS (CONTINUED) 28 government should be measured using the method that best reflects the diminished service utility of of carrying value or fair value. Impairment losses on capital assets that will continue to be used by the Impaired capital assets that will no longer be used by the government should be reported at the lower events or changes in circumstances affecting capital assets to determine whether impairment of a impairment include evidence of physical damage, enactment or approval of laws or regulations or asset. magnitude and (b) the event or change in circumstance is outside the normal life cycle of the capital capital asset has occurred. Such events or changes in circumstances that may be indicative of should be considered impaired if both (a) the decline in service utility of the capital asset is large in in the manner or duration of use of a capital asset, and construction stoppage. A capital asset generally Statement No. 34, (Basic Financial Statements and Management s Discussion and Analysis for other changes in environmental factors, technological changes or evidence of obsolescence, changes of Capital Assets and for Insurance Recoveries Governments) are required to evaluate prominent State and Local Governments) and GASB No.42, (Accounting and Financial Reporting for Impairment The Municipality periodically evaluates longterm assets for impairment in accordance with GASB Impairment of Capital Assets Furniture, fixtures, machinery and equipment S to 10 Vehicles 5 Building, structures and building improvements 70 Infrastructure 10 to 70 Years useful lives: Depreciation in capital assets is calculated on the straightline basis over the following estimated available it is estimated using historic sales of the year of the acquisition of the related capital assets. and other capital outlays that significantly extend the useful life of an asset are capitalized. Other Contributed assets are recorded at fair market value as of the date donated. Additions, improvements costs incurred for repairs and maintenance are expensed as incurred. When historical cost is not Capital assets purchased or acquired are carried at historical cost or estimated historical cost. drainage system), are reported in the governmentwide financial statements. immovable and of value only to the Municipality, such as roads, bridges, streets sidewalks, and Capital assets, which include property, plant, equipment, and infrastructure (which is normally Capital Assets AUTONOMOUS MUNICIPALITY OF FAJARDO

34 2. SUMMARY OF SIGNiFICANT ACCOUNTING POLICIES (CONTINUED) JUNE 30, 2016 NOTES To THE BASIc FINANCIAL STATEMENTS (CONTINUED) 29 This statement establishes fund balance classifications that comprise a hierarchy based primarily on information by providing clearer fund balance classifications that can be more consistently applied. Governmental Fund Type Definitions (GASB 54), which enhanced the usefulness of fund balance The Municipality adopted the provisions of GASB Statement No. 54, Fund Balance Reporting and Fund Balances vested sick benefits are accounted for in the statement of net position. entitled to sick leave pay up to the maximum allowed. Employees maximum allowed vacations and all rights for compensation, except for regular employees with ten years or more of service who are maximum allowed. Separation from employment prior to use of all or part of the sick leave terminates event of employee resignation, the employee is paid for accumulated vacations days up to the Employees accumulate vacation leave at a rate of 2.5 days per month up to maximum of 60 days. Employees accumulate sick leave at a rate of 1.5 days per month up to a maximum 90 days. In the Unpaid vacation time accumulated is fully vested to the employees from the first day of work. Compensated Absences covering all municipal employees. terminated. The MRCC also deducted approximately $319,449 for workers compensation insurance amounted to approximately $503,832. The current insurance policies have not been cancelled or collections by the Municipal Revenue Collection Center (the MRCC ) for the year ended June 30, 2016 policies are held with private companies. Cost of insurance are deducted from the gross property tax The Municipality carries insurance to cover casualty, theft, tort claims and other losses. Insurance Risk Management capital asset and converts that cost to historical cost. replacement cost, an approach that quantifies the cost of the service currently being provided by the be measured using a service units approach, as described above, or using deflated depreciated units provided by the capital asset before and after the impairment event or change in circumstance. generally should be measured using a service units approach, an approach that compares the service other changes in environmental factors or are subject to technological changes or obsolescence Impairment of capital assets that are affected by enactment or approval of laws or regulations or asset to identify the portion of the historical cost of the capital asset that should be written off. using a restoration cost approach, an approach that uses the estimated cost to restore the capital the capital asset. Impairment of capital assets with physical damage generally should be measured impairment of capital assets that are subject to a change in manner or duration of use generally should Impairment of Capital Assets (Continued) AUTONOMOUS MUNICIPALITY OF FAJARDO

35 2. SUMMARY OF SiGNIFICANT ACCOUNTING POUC1ES (CONTINUED) iune 30,2016 NOTES To THE BAsic FINANCIAL STATEMENTS (CONTiNUED) 30 first, followed by assigned resources, and then unassigned resources. resources. Within unrestricted resources, the Municipality generally spends committed resources balance classifications, the Municipality uses restricted resources first, and then unrestricted In situations when expenditure is made for a purpose for which amounts are available in multiple fund spendable amounts not contained in the other classifications. In other funds, the unassigned purpose for which amounts had been restricted, committed, or assigned. classification is used only to report a deficit balance resulting from overspending for specific + Unassigned Represent the residual classification for the entity s general fund and includes all + Assigned Represent resources intended to be used by the entity for specific purposes but do not than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. official or body to which the governing body delegates authority. In governmental funds other meet the criteria to be classified as restricted or committed (generally resolutions approved by the governing body). Intent can be expressed by the Municipal Legislation, the Mayor or by only be changed by similar resolutions, no later than the end of the fiscal year. + Committed Represent entity s highest level of decision making authority (governing body through resolutions) and can resources used for specific purposes, imposed by formal action of the and restrict its use). Effectively, restrictions may be changed or lifted only with the consent of grantors), or through enabling legislation (that is, legislation that creates a new revenue sources constitutional provisions, external resource providers (externally imposed by creditors or resource providers. Restricted Represent resources that can be spent only for the specific purposes stipulated by longterm balances of loans and notes receivable. contractually required not to be spent, including but not limited to inventories, prepaid items, + Nonspendable Represent resources that cannot be spent readily with cash or are legally or be spent, as described follows: unassigned, based on the relative strength of the constraints that control how specific amounts can The fund balances amounts are reported as nonspendable, restricted, committed, assigned and resources reported in governmental funds. the extent to which the Municipality is bound to observe constraints imposed upon the use of Fund Balances (Continued) AUTONOMOUS MUNICIPALITY OF FAJARDO

36 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) JUNE 30, 2016 NOTES To THE Bp 1sic FINANCIAL STATEMENTS (CoNTINuED) 31 after December 15, Earlier application is encouraged. Pension Plans The requirements of this Statement are effective for reporting periods beginning + GASB Statement No. 78, Pensions Provided through Certain MultipleEmployer Defined Benefit encouraged. effective for reporting periods beginning after December 15, Earlier application is + GASB Statement No. 77, Tax Abatement Disclosures The requirements of this Statement are Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans Pensions The provisions in Statement 75 are effective for fiscal years beginning after June 15, + Statement No. 75, Accounting and Financial Reporting for Pasternployment Benefits Other Than The provisions in Statement 74 are effective for fiscal years beginning after June 15, which are effective for fiscal years beginning after June 15, nonemployee contributing entities for pensions that are not within the scope of Statement 68, Statements 67 and 68 The provisions in Statement 73 are effective for fiscal years beginning after June 15, 2016 except those provisions that address employers and governmental Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB + Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Future Adoption of Accounting Pronouncements of the employee contribution. pensions. The employer s proportionate share should be determined using the employer s proportion resources related to pension be recognized for employer s proportionate share of collective pension requires that the pension expenses, as well as deferred outflows of resources and deferred inflows of expense and collective deferred oufflows of resources and deferred inflows of resources related to Accounting and Financial Reporting for Pension (GASB 68) for the year ended June 30, 2016 which The Municipality adopted the statement no. 68 of the Governmental Accounting Standard Board benefit payments (including refunds of employee contributions) are recognized when due and position of Employees Retirement System (ERS) and additions to/deductions from ERS fiduciary net position have been determined on the same basis as they are reported by ERS. For this purpose, payable in accordance with the benefit terms. inflows of resources related to pensions, and pension expense, information about the fiduciary net For purposes of measuring the net pension liability, deferred outflows of resources and deferred Pensions AUTONOMOUS MUNICIPALITY OF FAJARDO

37 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICiES (CONTINUED) NOTES To THE BAsic FINANCIAL STATEMENTS (CONTINUED) JUNE 30, during the reporting period. Actual results could differ from those estimates. date of the financial statements and the reported amounts of revenues and expenditures/expenses the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the in the United States of America requires management to make estimates and assumptions that affect The preparation of financial statements in conformity with accounting principles generally accepted Use of estimates the future adoption of these GASB Statements. The Municipality management has not determined the impact in the Municipality financial statements reporting periods beginning after December 15, Earlier application is encouraged. + GASB Statement No. 84, Fiduciary Activities The requirements of this Statement are effective for Statement are effective for reporting periods beginning after June 15, Earlier application is encouraged. + GASB Statement No. 83, Certain Asset Retirement Obligation The requirements of this on or after June 15, Earlier application is encouraged. employer in the first reporting period in which the measurement date of the pension liability is fiscal yearend. In that circumstance, the requirements of paragraph 7 are effective for that ariemployer s pension liability is measured as of a date other than the employer s most recent after June 15, 2016, except for the requirements of paragraph 7 in a circumstance in which and No. 73 The requirements of this Statement are effective for reporting periods beginning. GASB Statement No. 82, Pension Issues an amendment of GASB Statements No. 67, No. 68 encouraged. Statement are effective for periods beginning after December 15, Earlier application is + GASB Statement No. 81, Irrevocable SplitInterest Agreements The requirements of this beginning after June 15, Earlier application is encouraged. GASB Statement No. 14 The requirements of this Statement are effective for reporting periods + GASB Statement No. 80, Blending Requirements for Certain Component Units an amendment of except for the provisions in paragraphs 18, 19, 23 26, and 40, which are effective for reporting periods beginning after December 15, Earlier application is encouraged. requirements of this Statement are effective for reporting periods beginning after June 15, 2016, + GASB Statement No. 79, Certain External In vestment Pools and Pool Participants The Future Adoption of Accounting Pronouncements (Continued) AUTONOMOUS MUNICIPAUTY OF FAJARDO

38 2. SUMMARY OF SiGNIFICANT ACCOUNTING POLICIES (CONTINUED) JUNE 30, 2016 NOTES To THE BAsic FINANCIAL STATEMENTS (CONTINUED) 33 operating and capital grants contributions received from the Commonwealth of Puerto Rico and the operating and capital grant programs. federal government of the United States of America that are available for the operations of several Restricted cash in other governmental funds amounting $17,981,156 consists of intergovernmental Restricted deposits in the Loan $21,490,000 fund of $11,570,879 consist of unspent bonds and notes financed with public debt. proceeds that are restricted for the acquisition, construction or improvements of major capital assets sales and use taxes collected within the territorial limits of the Municipality. Restricted cash in Sales and Use Taxes fund amounting $13,336,034 consists of the portion of the for the operations of the grant programs contributions received from the federal government of the United States of America that are available Restricted cash in Head Start program funds amounting $416,208 consists of operating grants certain general obligations notes. Restricted cash in the debt service fund consist of unspent property tax and sales and usage tax collections amounting to $2,808,077 that are available for the debt service payments of bonds and requirements of the Municipality, Unrestricted deposits of $27,769,132 in the general fund are available to meet general operating and restricted demand deposits in various commercial banks. designated by the Secretary of the Treasury of the Government of Puerto Rico, but not in the Deposits Insurance Corporation (FDIC). All securities pledged as collateral are held by agents amounts deposited in excess of the federal depository insurance generally provided by the Federal public funds deposited by the Municipality in commercial banks must be fully collateralized for the Municipality s deposits may not be recovered. Under the laws and regulations of the Commonwealth, Municipality s name. The Municipality s cash and cash equivalents consist principally of unrestricted Custodial credit risk for cash and cash equivalents is the risk that in the event of bank failure, the 3. CASH AND CASH EQUIVALENTS IN COMMERCIAL BANKS statements were available to be issued. Managements has evaluated subsequent events through March 10, 2017 the date that the financial Subsequent events AUTONOMOUS MUNICIPALITY OF FAJARDO

39 4. DEPOSiTS WITH GOVERNMENTAL BANK JUNE 30, 2016 NoTzs To THE BAsic FINANCIAL STATEMENTS (CONTINUED) 34 conservation measures, and explored the sale of assets and other alternatives to address its liquidity As a result of the reductions in liquidity experienced, GOB took a number of liquidity enhancing and continue providing liquidity to the Commonwealth and its instrumentalities. instrumentalities of outstanding loans with GDB, which delays, in turn, have limited GDB s ability to factors. These factors have resulted in delays in the repayment by the Commonwealth and its high unemployment, population decline, and high levels of debt and pension obligations, among other of significant governmental deficits, a prolonged economic recession (which commenced in 2006), The Commonwealth currently faces a severe fiscal and liquidity crisis, the culmination of many years financial challenges. made by the Commonwealth and its instrumentalities, which currently face significant fiscal and As a result, GDB s liquidity and financial condition depends to a large extent on the repayment of loans Loans to the Commonwealth and its instrumentalities constitute a significant portion of GOB s assets. requirements under swap agreements and to meet mandatory payments of obligations. Commonwealth and its instrumentalities to finance their respective budget deficits, collateral entities in the municipal bond market. GDB has also historically provided financing to the corporations and municipalities in anticipation of the issuance of longterm bonds and notes by such GDB has traditionally served as interim lender to the Commonwealth of Puerto Rico and its public of bonds and certain general obligations notes. and usage tax collections amounting to $12,471,184 that are available for the debt service payments Deposits with governmental bank in the debt service fund consist of unspent property tax and sales Puerto Rico and the federal government of the United States of America that are available for the intergovernmental operating and capital grants contributions received from the Commonwealth of operations of several operating and capital grant programs. Deposits with governmental bank in other governmental funds amounting $2,476,555 consist of by the Municipality in GDB are not insured nor collateralized representing a custodial credit risk in the the charter, or to any other law of Puerto Rico, shall impair any outstanding obligations or commitments of GDB. Under the laws and regulations of the Commonwealth, public funds deposited of Puerto Rico. The charter of the Bank provides for its perpetual existence, and no amendment to to public entities and municipalities and private enterprises to promote the economic development instrumentalities, public corporations and municipalities; and to grant interim and longterm financing event of GDB s failure. agent, paying agent and financial advisor for the Commonwealth of Puerto Rico and its a component unit of the Commonwealth of Puerto Rico. GDB s principal functions are to act as fiscal The Municipality maintains deposits with the Government Development Bank for Puerto Rico (GDB), AUTONOMOUS MUNICIPALITY OF FAJARDO

40 4. DEPOSITS WITH GOVERNMENTAL BANK (CONTINUED) JUNE 30, 2016 NOTES To THE BASIC FINANCIAL STATEMENTS (CONIJNUEO) 35 the Municipality of the estimated amount of property tax expected to be collected for the ensuing of all the municipalities of Puerto Rico. Before the beginning of each fiscal year, the MRCC informs The MRCC is responsible for the billing and collections of real and personal property taxes on behalf installments by July 1 and January 1. The assessment is made as of January 1 of each year and is based on current values for personal be paid in full together with the return by May 15. The tax on real property may be paid in two property and on estimated value as of 1957 for real property tax. The tax on personal property must attached equipment. by the Commonwealth of Puerto Rico. Real property tax is assessed by the CRIM on real estate and The personal property tax is self assessed by the taxpayer on a return, which is to be filed by May 15 of each year with the Municipal Revenue Collector Center (the MRCC), a governmental entity created 5. PROPERTY TAX balances at June 30, The accompanying financial statements do not include any adjustments or reserves over these arrangements with its creditors, GOB may not be able to continue as a going concern and may need to consummate a comprehensive debt restructuring, or otherwise obtain additional funding or other to pursue the resolution processes provided for by GOB s enabling act and its receivership provisions. If GDB does not obtain adequate funding from the Commonwealth for fiscal year 2017 and is not able appropriations for the payment of debt service by the Commonwealth in fiscal year 2017 on GDB s appropriation loans or some other appropriation to GDB and the consummation of a comprehensive restructuring of its debt obligations for GOB to continue operating in fiscal year 2017 and beyond. emergency measures, 6DB will require additional sources of liquidity, in particular, through Management of GDB has determined that, even under the framework of the aforementioned Financial Rehabilitation Act, as amended. emergency pursuant to Act 21 of 2016, known as the Puerto Rico Emergency Moratorium and On April 8, 2016, the Governor signed Executive Order No declaring GOB to be in state of discretion. operational restrictions and declared a moratorium on debt service payments and to stay related creditor remedies through January 31, 2017, with a possible twomonth extension at the Governor s needs. In April 2016, the Governor of the Commonwealth imposed on 6DB certain emergency AUTONOMOUS MUNICIPALITY OF FAJARDO COMMONWEAlTH OF PUERTO RICO

41 5. PROPERTY TAX (CONTINUED) JUNE 30, 2016 NOTES To THE BASIC FINANCIAL STATEMENTS (CONTINUED) 36 was recorded as deferred revenue, and is presented as a liability in the accompanying financial statements. 30, 2016, $3,009,551 corresponding to the following fiscal year volume of business tax. This amount made on or before the filing date. The Municipality levied and collected during the year ended June the following fiscal year. The amount levied could be paid with a five percent discount if payment is institutions and.50% for the other business institutions. The taxpayers must file a return not later than April 15 of every year and the tax is payable in two installments, due in July 1 and January 1 of industrial organizations that operate in the Municipality. The tax rates are 1.50% for financing The municipal license tax is levied annually based on the volume of business of certain businesses and 6. VOLUME OF BUSINESS TAX represent the Municipality s basic property tax rate, which is appropriated for general purposes and the Commonwealth of Puerto Rico. From such fund, a distribution is made to all municipalities; (b) the property tax collected and the remaining rate is imposed to the taxpayer. accounted for in the general fund. A portion of such amount is deposited in an equalization fund accounted for in the debt service fund. The Commonwealth contributes an annual tax rate of 0.2% of 35% and 2%, respectively, represents the special ad valorem tax restricted for debt service and together with a percentage of the net revenues of the Puerto Rico electronic lottery and subsidy from Puerto Rico. The remaining percentage is distributed as follows: (a) 6.0% and 4.0%, respectively, which 1.03% of both tax rates are for the redemption of public debt issued by the Commonwealth of The annual rate for fiscal year 2016 is 10.53% for real property and 7.03% for personal property of $150,000. property taxes of up to $50,000 of the assessed value to retailers having annual net sales of less than frozen as of January 1, In addition, the law grants a tax exemption from the payment of personal the exempt amount to be paid by Puerto Rico Treasury Department to the Municipalities was less than $3,500 for which no payment is made. As part of Law No.83 of August 30, 1991, as amended, Department assumes payment of the basic tax to the Municipalities, except for property assessed at on the first $15,000 of the assessed value. For such exempt amounts, the Puerto Rico Treasury Residential real property occupied by its owner is exempt by law from the payment of property taxes receivable from the MRCC is recorded at June 30. However, if advances exceed the amount actually collected by the MRCC, a liability to the MRCC is recorded at June 30. remitted property tax advances to the Municipality, which are less than the tax actually collected, a yearend, and a final settlement made not later than six months after yearend. If the MRCC has estimated collections. The MRCC is required by law to prepare a settlement statement annually. fiscal year. Throughout the year, the MRCC advances funds to the Municipality based on the initial This settlement has to be completed on a preliminary basis not later than three months after fiscal AUTONOMOUS MUNICIPALITY OF FAJARDO

42 7. SALE AND USE TAXES JuNE 30, 2016 NoTEs To THE BASIC FINANCIAL STATEMENTS (CONTINUED) 37 corporations of the Commonwealth of Puerto Rico, such as the Puerto Rico Aqueduct and Sewer recorded in the General Fund, except for those that are legally restricted for expenditure for specified purposes which are recorded in other governmental funds. operations and for the financing of capital improvements. The intergovernmental revenues are Grants and entitlements revenue consists of contributions received from certain quasipublic subsidies from the Commonwealth of Puerto Rico which include, among others, a subsidy for general Municipality and the Puerto Rico Electric Power Authority. Also, the Municipality receives some 8. GRANTS AND ENTITLEMENTS REVENUE whole or in part, the debts of the municipalities of the Commonwealth payable or backed by the These revenues, which are deposited in COFIM s Redemption Fund, are used to pay and secure the faculties as the GDB under its Charter. debt issued by COFIM. As an independent corporation, COFIM has the same powers, rights and tax collected, the greater of: (i) an amount computed by applying a 0.3% fixed tax rate to the total financing capital project to the municipalities. COFIM is a public corporation and instrumentality of municipal sales and use tax. COFIM receives, from the first revenues of the municipal sales and use Commonwealth of Puerto Rico. A portion of the amount collected by the Treasury Department is authorized to issue and use other financing mechanisms to pay or refinance, directly or indirectly, in the Municipality and the remaining 0.5% is be collected by the Treasury Department of the submitted to Municipal Finance Corporation (COFIM, by is its spanish acronyn), a redention fund for the Commonwealth of Puerto Rico, attached to the Government Development Bank. COFIM is revenues collected, or (ii) a fixed amount that increases annually, known as the Annual Fixed Income. was uniformity established in 1.5%, for all the Municipality of Puerto Rico, of which 1% is collected by Pursuant to the provision at the Act and effective July 1, 2015, the citizenship contribution all transactions of sales of goods and services made on Fajardo boundaries. The retails are required Municipal Legislature approved a city tax contribution (SUT), effective October 3, 2006 to 1.5% over Pursuant to an amendment to Puerto Rico Internal Revenue Code, Act 117 of July 4, 2006, the to file monthly sales tax returns by 1O days following the month in which the tax are collected. AUTONOMOUS MUNICIPALITY OF FAJARDO

43 $ 9. CAPITAL ASSETS JUNE 30, 2016 NOTES To THE BASIC FINANCIAL STATEMENTS (CONTINUED) 38 Mayor and municipality legislative $ 163,683 Total depreciation expenses $2,616,178 Human services and welfare 98,323 Urban development 715,365 Public work 52,655 Public education 538,371 Health and sanitation 243,865 Culture and recreation 51,230 Public safety 48,131 General government 704,555 Governmental activities Amount Depreciation expense was charged to functions/programs of the Municipality as follows: Governmental activities capital assets, net $ 108,884,873 $ 5,172,407 $ (5,773,593) $ 108,283,687 Cost basis of capital assets, being depreciated and Total cost basis of capital assets, being Total accumulated depreciation and amortization (51,741,660) (2,616,178) (54,357,838) Total capital assets, being depreciated, net 58,713,534 4,369,002 Infrastructure (22,680,101) (701,425) (23,381,526) Less accumulated depreciation for: Infrastructure 46,699, ,632 47,120,549 Total capital assets, not being depreciated 50,171, ,405 (5,773,593) 45,201,151 Land $ 44,186,536 $ 249,000 $ Buildings $ 51,788,553 $ 6,263,660 $ 58,052,213 Buildings and building improvements (18,918,478) (1,206,923) (20,125,401) 44,435,536 Capital assets, not being depreciated or amortized: Vehicles (3,884,159) (119,987) (4,004,146) Governmental Activities: depreciated and amortized 110,455,194 6,985, ,440,374 63,082,536 Primary Government July 1, 2015 Increases Decreases June 30, 2016 Construction in progress 5,219, ,405 (5,773,593) amortized: Non depreciable assets 765, ,615 Vehicles 4,073,414 4,073,414 Balance Balance Equipment 7,893, ,888 8,194,198 Equipment (6,258,922) (587,843) (6,846,765) Capital asset activity for the year ended iune 30, 2016 was as follows: AUTONOMOUS MUNICIPALITY OF FAJARDO

44 10. LONGTERM DEBTS JUNE 30, 2016 Noms To THE BAsic FINANCIAL STATEMENTS (CONTINUED) 39 Advances from MRCC 184,175 (6,075) 178,100 6,457 Total longterm liabilities $ 71,016,993 $ 3,629,939 $ (3,112,607) $ 71,534,325 $ 4,277,800 General obligations bonds and notes $ 34,132,000 $ Net pension liability 34,628,299 3,629,939 38,258,238 Compensated absences 2,072,519 (193,532) 1,878,987 1,147,343 $ (2,913,000) $ 31,219,000 $ 3,124,000 Description Balance Adjustments Payments Ending Balance One Year Beginning Additions/ Due Within The longterm debt activity for the year ended June 30, 2016, was as follows: be sufficient to cover the projected debt service requirement. In addition, before any new bonds or notes are issued, the revenues of the debt service fund should property located within the Municipality plus the balance of the ad valorem taxes in the debt or notes guaranteed by the Municipality, exceed 10 percent of the total assessed value of the together with any amount paid by the Municipality in the preceding fiscal year on account of bonds and notes (and on all such bonds and notes issued thereafter), which are payable iii any fiscal year, service fund, for bonds payable to be repaid with the proceeds of property taxes restricted for debt service. Direct obligations are not to be issued if the amount of the principal of, and interest on, such bonds full faith, credit and taxing power of the Municipality; and Direct obligations of the Municipality (evidenced principally by bonds and notes) are backed by the Municipality. Nevertheless, the laws and regulations of the Commonwealth also provide that: The Municipality s Legislatures is legally authorized to determine the contracting of debts of the AUTONOMOUS MUNICIPALIV( OF FAJARDO

45 10. LONGTERM DEBTS (CONTINUED) NOTES To THE BASIC FINANCIAL STATEMENTS (CONTINUED) JUNE 30, property taxes and subsidies sent to the Municipality. retentions made by the Municipal Revenue Collection Center from monthly advances of annual from resources accumulated in the debt service fund. These obligations are paid through The Municipality s general obligations longterm bond retirements are appropriated and paid Total General Obligations S , 2016) through July 1, ,005,000 $2,045,000 municipal general obligation notes series payable in annual principal installments ranging from $310,000 to $360,000; plus interest due in semiannual installments 3.25% over the LIBOR rate (3.72% as of June $21,490,000 municipal general obligation notes series payable in annual principal installments ranging from $1,230,000 to $2,355,000; plus June 30, 2016) through July 1, ,380,000 interest due in annual installments 3.25% over the LIBOR rate (3.72% as of semiannual installments at 8.21% through July 1, ,000 principal installments ranging from $25,000 to $35,000; plus interest due in 370,000 public improvement bonds, series payable in annual of June 30, 2016) through July 1, ,584,000 interest due in semiannual installments at.24% oven the LIBOR rate (.71% as $14,440,000, municipal general obligation bonds series payable in annual principal installments ranging from $429,000 to $1,289,000; plus $ 1,130,000 one principal installment of $1,130,000; plus interest at 6.35% through July 1, $11,435,000, municipal general obligation bonds series payable in Amount Outstanding following debts Notes payable with: as, to cover certain operating needs. Longterm debt at June 30, 2016 is composed of the to provide for the acquisition and construction of mayor capital facilities and equipment, as well The Municipality issues general and special (public improvements) obligations bonds and notes A. GENERAL OBLIGATIONS BONDS AND NOTES AUTONOMOUS MUNICIPALITY OF FAJARDO

46 10. LONGTERM DEBTS (CONTINUED) JUNE 30, 2016 NOTES To THE BAsIc FINANCIAL STATEMENTS (CONTINUED) 41 The Commonwealth s Public Act No. 42 of January 26, 2000 (Act No. 42) was enacted to authorize Municipal Revenue Collection Center (MRCC) to enter into a financing agreement of up to $200 August 15, million, for a term not exceeding 30 years. The financing agreement authorized MRCC to finance fiscal year The amounts that the municipalities will collect from the additional property Act No. 42 to repay such note. The increase in this subsidy was the result of Public Act No. 238 of taxes resulting from the increases in the subsidy from the Commonwealth are assigned through municipalities and the actual property tax collections received by MRCC from taxpayers through between the yearly final settlements of property tax advances made by MRCC to the debt that the municipalities of Puerto Rico had with such entity, which arose from the difference B. ADVANCES FROM MRCC AND PR TREASURY DEPARTMENT (LAW 42) Total S S 4, S 35,715, ,289,000 4,505 1,293, ,090, ,484 2,632, ,642,000 1,273,582 14,915, $ 3,124,000 $ 779,182 $ 3,903, ,129, ,043 2,809, ,318, ,310 2,928, ,198, ,315 2,676, ,429, ,938 4,556,938 June 30, payment payment Total Year Ending Principal Interest The annual debt service requirements of maturity for bonds payable is as follows: AUTONOMOUS MUNICIPALITY OF FAJARDO

47 10. LONGTERM DEBTS (CONTINUED) JUNE 30, 2016 NOTES To THE BAsic FINANCIAL STATEMENTS (CONTINUED) 42 Total S 41907Q S 2.734,142 S 3,153,212 Other governmental funds 2, , Head Start fund 12,037 12,037 General fund $ 419,070 $ 657,118 $ 1,076,188 Due from fund fund Total Head Start Other governmental Due to Balance due to / from other funds at June 30, 2016, consist of the following: BALANCE DUE TO / FROM OTHER FUNDS: 11. INTERFUND BALANCES AND ACTIVITIES costs from future operations. benefits and accrued vacation benefits, representing the Municipality s commitment to fund such The governmentwide statement of net position includes $1,878,987 of accrued sick leave C. COMPENSATED ABSENCES $ S $ ,641 37,250 86, ,322 19,569 86, ,534 1,533 26, ,239 9,139 17, ,862 10,516 17, ,293, 10,085 17, ,752 9,626 17, $ 6,457 $ 10,921 $ 17,378 Year ended June 30 Principal Interest Obligation Aggregate The debt service requirement of these advances by the MRCC is as follows: AUTONOMOUS MUNICIPALITY OF FAJARDO

48 11. INTERFUND BALANCES AND ACTIVITIES (CONTINUED) JUNE 30, 2016 NOTES To THE BASIC FiNANCIAL STATEMENTS (CONTINUED) 43 employees of the Commonwealth, Commonwealth secretaries, head of public agencies arid instrumentalities, among others. covered by the ERS. Membership is mandatory for all regular, appointed, and temporary Commonwealth agencies, 78 municipalities, and 55 public corporations, including the ERS) are Substantially all fulltime employees of the Commonwealth and its instrumentalities (73 Commonwealth, public corporations, and municipalities of Puerto Rico program) and a defied contribution hybrid program. The pension plan is sponsored by the costsharing, multiemployer, defined benefit program, a defined contribution program (System The ERS consists of different benefit structures pursuant to ACT No. 447, as amended, including a employees commenced. The ERS is a pension trust fund of the Commonwealth. operations on January 1, 1952, at which date, contributions by employers and participating the Commonwealth, its public corporations and municipalities of Puerto Rico. The ERS began 1951 (Act no. 447), as amended, to provide pension and other benefits to retired employees of Administration (the ERS and irs Administration). It is a trust created by Act no. 447 on May 15, administered by the Puerto Rico Government Employees and Judiciary Retirement Systems A. Plan Description The ERS is a costsharing, multiemployer defined benefit pension plan 12. EMPLOYEE S RETiREMENT PLAN S S S S Other governmental Loan $21,490,000 37,003 37,003 Debt service fund 9,416, ,345 10,201,085 fund 40,832 40,832 General fund $ $ $ 4,223,654 $ 4,223,654 Transfer out General fund fund fund Total Sales and use governmental Other Transfer in Transfer to / from other funds at June 30, 2016 consist of the following: TRANSFER TO / FROM OTHER FUNDS: AUTONOMOUS MUNICIPALITY OF FAJARDO

49 12. EMPLOYEE S RETIREMENT PLAN (CONTINUED) JUNE 30, 2016 Norts To THE BAsic FINANCIAL STATEMENTS (CONTINUED) 44 Commonwealth does not guarantee benefits at retirement age. contributions. Investment income is credited to the member s account semiannually. The forfeitable right to the value of his/her account. Members have three options to invest their on or before June 30, 2013 (Defined Contribution Program). Each member has a no 3. Members of Act. No. 305 are generally those members hired on or after January 1, 2000 and before December 31, 1999 (Defined Program). 2. Members of Act No. 1 are generally those members hired on or after April 1, 1990 and on or 1. Members of Act No. 447 are generally those members hired on or after April 1, 1990 (Defined Benefit Program). July 1, 2013 as described below: Certain provisions are different for the three groups of members who entered the ERS prior to payments as these tiers wind down, and will make all future employer contributions available to were participants of previous plans will become part of the Defined Contribution Hybrid Program. 2013, in conjunction with other recent funding and design changes, provided for a comprehensive Program (the Defined Contribution Hybrid Program) to be administered by the ERS. Act No.3 of Program, and were rehired on or after July 1, 2013, became members of the Defined Contribution Program, and thereafter, all future benefits will accrue under the defined contribution formula used for the 2000 System Program participants. Ceasing future defined benefit accruals under 200 ) to establish, among other things, a defined contribution program similar to the System 2000 pay benefits and bonds payable debt service. February 16, 1990 ( Act No. 1 ) and Act. No. 305 of September 24, 1999 ( Act No. 305 or System pension design of the ERS. All regular employees hired for the first time on or after July 1, 2013, and former employees who participated in the Defined Benefit Program and the system 2000 On April 4, 2013, the Legislature enacted Act No. 3 which amended Act No. 447, Act no. 1 of Hybrid Program as a condition to their employment. In addition, employees who at June 30, 2013, Act No. 3 froze all retirement benefits accrued through June 30, 2012 under the Defined Benefit Act 447 and Act 1 and converting to a memberfunded hybrid plan will result in lower benefit on date of membership. amended only by the Legislature with the Governor s approval. Benefit provisions very depending The benefits provided to members of the ERS are established by Commonwealth law and may be AUTONOMOUS MUNICIPALITY OF FAJARDO

50 12. EMPLOYEE S RETIREMENT PLAN (CONTINUED) JUNE 30, 2016 NOTES To THE BAsic FINANCIAL STATEMENTS (CONTINUED) Information about plan fiduciary net position. the total liability is base. 4. Measurement date of collective net pension liability and date of actuarial valuation on which changes, discounts rate and mortality. 3. Significant assumption used to measure total pension liability, including inflation, salary which it was determined) and change on its proportion since prior measurement debts. 2. Employer s proportionate percentage of collective net pension liability (including the basis on 1. Employer s proportionate share amount of collective net pension liability. disclosures: pension liability of the ERS. In addition, the GASB 68 required among other the following that the Municipalities governmentalwide financial Statements presents the proportional net GASB 68, which accounting and Financial Reporting for Pension as recommended which required B. Effective for fiscal year ended June 30, 2016, the Municipality implemented the provision of the eligibility requirements and benefit amounts shall be determined in strict accordance with the plan document itself. This summary of plan provisions is intended to describe the essential features of the plan. All Benefit Program. on or after January 1, 2000 will be used by the ERS to reduce the unfunded status of the Defined be paid from the same pool of assets. In addition, employers contributions for members hired contribution hybrid program are pooled and invested by the ERS. Future benefit payments will The assets of the defined benefit program, the defined contribution program and the defined programs will become part of the Defined Contribution Hybrid Program. Each member has a no forfeitable right to the value of his/her contributions to the Defined Contribution Hybrid account. to their employment. In addition, employees who at June 30, 2013, were participants of previous or after July 1, 2013, become members of the defined contribution hybrid program as a condition participated in the defined benefit program and the System 2000 program, and were rehired on All regular employees hired for the first time on or after July 1, 2013, and former employees who AUTONOMOUS MUNiCIPALITY OF FAJARDO

51 12. EMPLOYEE S RETIREMENT PLAN (CONTINUED) JUNE 30, 2016 NoTES To THE BASIC FINANCIAL STATEMENTS (CONTINUED) Survivor benefits were modified. 9. Disability benefits were eliminated and substituted for a mandatory disability insurance policy. was reduced from $600 to $200 and was eliminated for future retirees. The summer bonus was eliminated. Resulting employer contribution savings will be contributed to the ERS. including Christmas and summer bonuses. The Christmas bonus payable to current retirees 8. Eliminated or reduced various retirement benefits previously granted by special laws, distribution, instead, they will be paid through a lifetime annuity. 7. For System 2000 participants, the retirement benefits will no longer be paid as a lump sum 6. The employee contribution rate was increased from 8.275% to 10% Eliminated the merit annuity available to participants who joined the ERS prior to April 1, plan similar to System Transitioning active participants under Act No. 1 and Act No. 447 to a defined contribution which the employee is eligible for retirement. 3. Increase the retirement age in a range within 58 to 63 years of age depending the act under 2. Increased the minimum pension for current retirees from $400 to $500 per month. used for System 2000 participants, and will be paid at retirement through a lifetime annuity. frozen, and thereafter, all future benefits will accrue under the defined contribution formula 1951 and Act No. 1 of 1990, all retirement benefits accrued through June 30, 2014 were 1. For active participants of the contributory defined benefit programs under Act No. 447 of following: provisions of the different benefit structures under the ERS, including, but not limited to, the a comprehensive reform of the ERS. Act No. 3 became effective on July and amended the C. On April 4, 2014, the Governor of Puerto Rico signed into law Act No. 3 of 2014, which represents information. Other information about the net pension liabilities should be disclosed as require supplemental AUTONOMOUS MUNIC1PAUTY OF FAJARDO

52 12. EMPLOYEE S RETIREMENT PLAN (CONTINUED) NOTES To THE BASIC FINANCIAL STATEMENTS (CONTINuED) JUNE 30, for the year ended June 30, At June 30, 2016, the Municipality reported deferred outflows of to contribute to ERS: resources and deferred inflows of resources from the following sources as a result of its requirement As a result of its requirement to contribute to ERS, the Municipality recognized expense of $4,069,879 the Municipality longterm share of contributions to the pension plan relative to the total projected contributions of the Commonwealth, actuarially determined. At June 30, 2014, the Municipality proportion was percent. as of that date. The Municipality proportion of the net pension liability was based on a projection of pension liability used to calculate the net pension liability was determined by an actuarial valuation the net pension liability. The net pension liability was measured as of June 30, 2015, and the total At June 30, 2016, the Municipality reported a liability of $38,258,238 for its proportionate share of Pension Liabilities, Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions 68. The net position as prior reported was restated by $33,283,511 due to the implementation of GASB Liabilities 38,388,694 72,660,883 Assets $ 199,546,172 $ 199,546,172 Expenses 37,121,362 38,667,302 Deferred outflows of resources 1,621,896 Deferred inflows of resources 455, ,700 Net Position (deficit) 156,914, ,631,246 Standards (GASB 27) Standards (GASB 68) Current Accounting New Accounting The effect in the financial Statement as of June 30, 2015 of the implementations of GASB 68 is as follow: COMMONWEAlTH OF PUERTO RICO AUTONOMOUS MUNICIPALITY OF FAJARDO

53 12. EMPLOYEE S RETIREMENT PLAN (CONTINUED) NOTES To THE BASIC FINANCIAL STATEMENTS (CONTINUED) JUNE 30, members covered under Act No. 127, RP2014 Employee improvements both before and after the measurement MP2015 from the 2006 base year and projected financial using MP2015 generational basis. For basis. As generational tables, they reflect mortality Pre retirement mortality Investment rate of return Projected salary increase Payroll growth Actuarial cost method: Remaining amortization period: Actuarial assumptions: Inflation Entryage normal and projected financial using MP2015 generational improvement scale MP2015 from the 2006 base year Mortality Rates with the blue collar adjustments for males and females, adjusted to reflect mortality females adjusted to reflect mortality improvement scale RP2014 Employee Mortality Rates for males and For general employees not covered under Act No. 127, 3.10% 17 years N/A N/A N/A Amortization method: 18 years closed (beginning July 1, 2014), level dollar Valuation date: June 30, 2015 actuarial assumptions: The total pension liability in the June 30, 2015 actuarial valuations was determined using the following Total S 1.644r059 S 27L111 Between the employer s contributions and the employer s proportionate share of contributions earnings on plan investments Change in employer s proportion and differences Differences between actual and expected experience Changes in assumptions Net differences between projected and actual date $ 462,103 $ 1,181, ,111 Pension contributions subsequent to measurement of Resources of Resources Deferred Outflows Deferred Inflows AUTONOMOUS MUNICIPALITY OF FAJARDO

54 12. EMPLOYEE S RETIREMENT PLAN (CONTINUED) NOTES To THE BAsic FINANCIAL STATEMENTS (CONTINUED) JUNE 30, Net pension liability as a % covered payroll 1,001.66% 1,169.68% Covered payroll $3,319,280,000 3,270,832 Fiduciary net position (578,633,000) (665,833) Net pension liability 33,247,795,000 38,258,238 Fiduciary net position as a % of total pension liability 1.77% 1.77% Total pension liability $33,669,162,000 $37,592,405 Net Pension Liability Total ( %) Share Proportional as follows: The net pension liability (information provided by Actuaries Valuation Report) as of June 30, 2015 is the measurement date. reflects mortality improvements both before and after UP1994 Mortality Table for Females, both projected Mortality Table for Males and 95% of the rates form the on a generational basis. As a generational table, it rates are equal to 92% of the rates from the UP1994 regarding future mortality improvement. The 2010 base from 1994 to 2010 using Scale AA. These base rates are Postretirement heathy mortality Rates which vary by gender are assumed for healthy Act No assumed to be occupational for members covered under experience from 2007 to 2012 and updated expectations projected using Mortality Improvement Scale MP2015 date. 100% of deaths while in active services are retirees and beneficiaries based on a study of plan s AUTONOMOUS MUNICIPALITY OF FAJARDO

55 12. EMPLOYEE S RETIREMENT PLAN (CONTINUED) JUNE 30, 2016 NOTES To THE BASIC FINANCIAL STATEMENTS (CONTINUED) 50 *Bond Buyer General Obligation 20Bond Municipal Bond Index Municipal bond rate* 4.29% 3.80% Discount rate 4.29% 3.80% Longterm expected rate of return net of investment expense 6.75% 6.55% June 30, 2014 June 30, 2015 The discount rates used to measure total pension liability were as follow: Net Pension Liability S ,843 S S Fiduciary Net Position (deficit) ( ) ( ) ( ) Total Pension Liability $ 42,962,010 $ 37,592,405 $ 33,192, % Rate 3.80% 1% Increase 4.80% 1% Decrease Current Discount liabilities would be if it was calculate using a discount rate that is 1% lower (2.80%) or 1% higher discount rate of 3.80%, as well as what the Municipality a proportionate share of the net pension The following presents the Municipality proportionate share of the net pension liability using the (4.80%) than the current rate: AUTONOMOUS MUNICIPALITY OF FAJARDO

56 12 EMPLOYEE S RETIREMENT PLAN (CONTINUED) JUNE 30, 2016 NOTES To THE Bisic FINANCIAL STATEMENTS (CONTINUED) 51 Administration provides additional information of the ERS. They issue a public available financial Administration at P0 Box 42003, Minillas Station, San Juan, P. R report that includes financial statements and required supplementary information for ERS, as a component unit of the Commonwealth of Puerto Rico. That report may be obtained by writing to the statements of the ERS as of and for the fiscal year ended June 30, The P.R. Retirement Plan in the ERS is not available. For the tenyear trend information, refer to the separately issued financial The historical trend information regarding the accumulation of assets and pension benefit obligation , , $425,511 Amount 2015 were as follows: The employer contributions to the above mentioned plans during the three year ended June 30, 2016, Balance as of June 30, 2015 S 32, S ) 533,247, S , , ( ) ( ) Member contributions 339,650,000 (339,650,000) (390,835) Other expenses (13,242,000) 13,242,000 15,238 or inputs 2,781,098,000 2,781,098,000 3,251,992 Administrative expenses (25,744,000) 25,744,000 29,624 Effect of economic/demographic Effect of plan changes (gains) of losses (463,898,000) (463,898,000) (533,807) Cost of bonds (194,400,000) 194,400, ,696 Interest on total pension liability 1,279,556,000 1,279,556,000 1,472,385 Service cost 425,564, ,564, ,696 Effect of assumptions changes Net investment income 70,143,000 (70,143,000) (80,714) Changes for the year: Benefit payments (1,572,675,000) (1,572,675,000) Employer contributions Balance as of June 30, 2014 $ 30,219,517,000 $ 80,666,000 $30,138,851,000 $ 34,628,993 Changes in net pension liability Total Pension liability position liability Share.11507% net Net pension Proportional Plan Fiduciary Increase (Decrease) ended June 30, 2016 was a follows: Change in Net Pension Liabilities (information provided by Actuaries Valuation Report) for the Year AUTONOMOUS MUNICIPALITY OF FAJARDO

57 13. CONTINGENCIES JUNE 30, 2016 NOTES To THE BMIc FINANCIAL STATEMENTS (CONTINUED) 52 like recreational. assume the postclosure cost during the term of the agreement. Annually, management assess the contingent liability for closure and postclosure costs. As of June 30, 2016, management believes that depreciation, because in the opinion of management, the premises may be used for other purposes, for Municipal Solid Waste Landfill Closure and Postclosure Care Costs. The land is not subject to a contingent liability could not be determined to be probable as required by GASB No. 18 Accounting on February 15, 2034, to certain revenues resulting from the use of the landfill. In addition, the ability of the Corporation to fulfill its obligation, as required by state and federal laws to retain a The Municipality owns a landfill, which is administered by Landfill Technologies of Fajardo Corp. (the landfill will be realized by the Corporation within the term of the agreement. The Corporation will Municipality and no charge is made for these services. As part of the agreement, the closure of the Corporation) under an agreement. The Municipality is entitled, under a thirty year agreement expiring Corporation provides the services of collection, transportation and disposition of solid waste of the waste. and postclosure care costs that will be incurred near or after the date the landfill no longer accepts landfill, an expense provision and related liability needs to be recognized based on futures closure State and Federal laws and regulations require the Municipality to place a final cover on its landfill when closed and perform certain maintenance and monitoring functions at the landfill site for thirty years after closure. In addition to the operating expenditures related to current activities of the 14. ESTIMATED MUNICIPAL SOLID WASTE LANDFILL CLOSING COSTS coverage, if any, resulting from such pending litigations will not have a material adverse effect on the consultation with legal counsel is of the opinion that the ultimate liability, in excess of insurance Municipality s operations. Most of the cases are covered by insurance. Management, after Municipality s financial position. The Municipality is defendant and/or codefendant in several litigations arising out of the normal cannot be determined at this time, although the Municipality expects such amounts, if any, to be Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of the expenditures which may be disallowed by the grantor immaterial. AUTONOMOUS MUNICIPALITY OF FAJARDO

58 15. RESTATEMENT JUNE 30, 2016 NOTES To THE BASIC FINANCIAL STATEMENTS (CONTINUED) 53 Net assets as restated S Implementation GASB 68 (33,283,514) Net asset as prior reported $ 156,914,757 follows: The 2015 net assets has been intended to accounts for the effect of implementation of GASB68 as AUTONOMOUS MUNICIPALITY OF FAJARDO

59 m C m C I m m z I z 1 0 I 0 z

60 Final Budget Variance with FOR THE FISCAL YEAR ENDED JUNE 30, 2016 BUDGETARY COMPARISON SCHEDULE GENERAL FUND 55 See the accompanying notes to the Schedule of Budgetary Comparison expenditures $ $ $ 5,130,097 Excess of revenues over Human services and welfare 1,044,770 1,078,470 EXPENDITURES I nte rest 150, ,000 Grants and entitlements 7,414,449 7,414,449 General government 8,012,926 9,154,546 Health and sanitation 4,476,463 4,489,403 Culture and recreational 942,918 1,076,119 Urban development 965,477 1,587,772 Public education 1,167,974 1,482,114 Public safety 1,641,859 1,731,608 Public works 958,310 5,171,593 Municipal license taxes 6,120,200 6,120,200 Rent 273, ,020 Property taxes $ 5,912,479 $ 5,912,479 Construction excise taxes 500, ,000 Other revenues 625,343 8,386,191 REVENUES Original Ammended Total revenues 20,995,491 28,756,339 Mayor and municipal legislature 1,784,794 2,984,714 Total expenditures 20,995,491 28,756,339 1,200,599 6,091, , ,611 5,397, ,061 9,886,575 28,311,147 2,429,604 7,653,081 4,877,157 1,130, ,653 1,272,099 3,293, ,068 23,181,050 $ 5,913,877 Budgeted Amounts (Budgetary Basis) (See Note 1) Actual Amounts MUNICIPALITY OF FAJARDO $ 5,130,097 (1,501,465) (555,110) (601,444) (379,466) (294,436) (281,515) (315,673) (1,195,778) (450,402) (5,575,289) (2,016,617) 75,591 21,061 1,500,384 (445,192) 1,251 (28,260) $ 1,398 Positive (Negative)

61 1. BUDGETS AND BUDGETARY ACCOUNTING NOTES TO SCHEDULE OF BUDGETARY COMPARISON FOR THE YEAR ENDED JUNE 30, provisions. generally requiring several years to complete or effective budgetary control is alternatively achieved through general obligation bond indentures and legal and contractual grant agreement debt service and special revenue funds because projects are funded on a multiyear nature, The presentation of the budgetary data excludes other appropriations such as capital projects, the budget information. in conformity with the budgetary accounting of the Municipality for a better comparison with presented in the Statement of Revenues and Expenditures Budget and Actual General Fund, is The budget is prepared on the budgetary basis of accounting. The actual results of operations, 5) Unused appropriations for the annual budgeted funds lapse at the end of the year. by the Municipal Legislative Body. fund; however, any revisions that alter the total appropriations of any fund must be approved basis. The Mayor is authorized to transfer budgeted amounts between departments within any 4) The Municipal Legislative Body approves, by ordinance budget appropriations by functional 3) Prior to June 13, the budget is legally enacted through passage of an ordinance. budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means for financing them. 2) On or before May 15, the Mayor submits to the Municipal Legislative Body a proposed operating because effective budgetary control is alternatively achieved through legal and contractual grant the General Fund. Formal budgetary integration is not employed for special revenue funds requirements provisions. 1) Formal budgetary integration is employed as a management control device during the year for statements: The Municipality follows these procedures in establishing the budgetary data reflected in the financial AUTONOMOUS MUNICIPALITY OF FAJARDO

62 2. RECONCiLIATION OF GAAP TO BUDGETARY BASIS FOR THE YEAR ENDED JUNE 30, 2016 NOTES TO SCHEDULE OF BUDGETARY COMPAmSON 57 change in fund balancegovernmental funds S S ,873 Amount on statement of revenues, expenditures and Other adjustments to convert from budgetary basis to GAAP (385,926) (190,741) recorded in the schedule of budgetary comparison 3,466,310 1,605,218 Revenue and expense related to utilities that were not budgetary basis but not for financial reporting purpose (9,494,575) (4,223,654) Transfer to/from other funds recorded as expense for Amount on budgetary basis $ 28,311,147 $ 23,181,050 Revenues Expenditures the year, from the generally accepted accounting principles to budgetary basis, are as follows: Adjustments necessary to reconcile the revenues and expenditures of the general fund at the end of AUTONOMOUS MUNICIPALITY OF FAJARDO

63 SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY FOR THE YEAR ENDED JUNE 30, Puerto Rico; Actuarial Valuation Report. Data Reference: Employees Retirement System of the Government of the Commonwealth of * Fiscal year 2015 was the first year of implementation. Notes to Schedule: Plan s fiduciary net position $ 92,822 $ (665,833) Plan s fiduciary net position as a percentage of the pension.26% 1.77% liability Covered employee payroll $ 3,372,765 $ 3,270,832 Proportionate share of the net pension liability $34,628,993 $38,258,238 Proportionate share of the net pension liability as percentage of coveredemployee payroll.1027%.1170% Proportion of the net pension liability.11507%.11507% AUTONOMOUS MUNICIPALITY OF FAJARDO

64 FOR THE YEAR ENDED JUNE 30, 2016 SCHEDULE OF C0NTrnBUTONS 59 Fiscal year 2016 was the first year of implementation, therefore one year is presented. Note to schedule: payroll 13.01% 9.58% Contributions as a percentage of covered employee Covered employee payroll $ 3,270,832 $ 3,372,765 Contribution deficiency contributions 425, ,249 Contribution in relation to the actuarially required determined) $ 425,511 $ 323,249 Contractually required contribution (actuarially AUTONOMOUS MUNICIPALITY OF FAJARDO

65 if C <IC 0n ox> I G)m Cm >< z I = m

66 JUNE 30, 2016 SECTION 8 HOUSING CHOICE VOUCHERS PROGRAM Equity Liabilities and equity Assets Line Item Number 61 See Notes to Financial Data Schedule. Total liabilities and equity $ 278,966 Total equity net position 276,692 Restricted net position Unrestricted net position 252,475 24,217 Total liabilities 2,274 Total current liabilities 2,274 Account payable Account payableother Government 1, Total current assets $ 278,966 Total receivables, net of allowances 3,092 Accounts receivable 3,092 Total cash 275,874 Cash Cash other restricted 24,217 unrestricted $ 251,657 DescriDtion Amount Balance Sheet FINANCIAL DATA SCHEDULE RQ036 MUNICIPALITY OF FAJARDO

67 SECTION 8 HOUSING CHOICE VOUCHERS PROGRAM FOR THE YEAR ENDED JUNE 30, 2016 FINANCIAL DATA SCHEDULE RQ Administrative salaries Employee benefit contributions Office expenses Other Total operating administrative 62 See Notes to Financial Data Schedule Excess (deficiency) of total revenues over (under) total expenses $ 31, Total expenses 548, Housing assistance payments HAP portabilityin 396,964 93,580 58,058 Expenses Administrative: 6,826 8,093 5,985 $ 37, Total revenues 579, $ 474,414 Revenues 105, Other revenues Investment income unrestricted HUD PHA operating grants Line Item Number DescriQtion Amount Income Statement MUNICIPAliTY OF FAJARDO

68 FOR THE YEAR ENDED JUNE 30, 2016 SECTION 8 HOUSING CHOICE VOUCHERS PROGRAM RQ See Notes to Financial Data Schedule. Number of unit months leased Unit months available Housing assistance payments equity $ 24,217 Administrative fee equity $ 252,475 Memo account information FINANCIAL DATA SCHEDULE MUNICIPALITY OF FAJARDO

69 1. BASIS OF PRESENTATION JUNE 30, 2016 SECnON 8 HOUSING CHoicE VOUCHERS PROGRAM NOTES To SUPPLEMENTARY INFORMATiON FINANCIAL DATA SCHEDULE 64 prepared using the accrual basis of accounting. accompanying FDS is included as information supplementary to the financial statements and is In accordance with the guidelines for reporting and attestation requirements of UFRS, the 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a selected portion of the operations of Municipality, it is not intended to, and does not present, the Subpart H, for the electronic filing of financial information to HUD. Because the FDS presents only owned and assisted properties. The UFRS are rules to implement requirements of 24 CFR, Part 5, Urban Development ( HUD ) national management center created to assess the condition of HUD financial position and changes in the net position of the Municipality. the Uniform Financial Reporting Standards ( UFRS ). REAC is the US Department of Housing and FDS was created in order to standardize the financial information reported ( REAC ), as required by the Section 8 Housing Choice Voucher Program administered by the Municipality of Fajardo. The The accompanying Financial Data Schedule ( FDS ) is a trial balance of the financial statements of MUNICIPALITY OF FAiARDO

70 C. o I m m z I z I, 0 I 0 z

71 Federal PassThrough Passed Federal FOR THE FISCAL YEAR ENDED JUNE 30, 2016 SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 66 See notes to Schedule of Expenditures of Federal Awards. Total U.S. Department of Health and Human Services: 5,708,395 Total Expenditures of Federal Awards $ 7,496,588 Development Child Care and Development Block Grant ,747 Nutrition Services ,826 Special Program for this aging Special Program for this aging Title Title III Part C Passthrough programs from: Administration for the Childhood Care and Integral: Grant for Supported Services and Senior Center ,893 Ill Part B Oficina Procuradora Pacientes Edad Avanzada: Head Start Program ,501,929 U.S. Department of Health and Human Services: Federal Transit Formula Grants ,739 Direct Programs: U.S. Department of Transportation: Total U.S. Department of Housing and Urban Development 1,176,932 Emergency Shelter Grants Programs ,285 Housing Opportunities for Person with AIDS (HOPWA) ,764 of the Commonwealth of Puerto Rico: Autonomous Municipality of San Juan Passthrough programs from: Puerto Rico Department of Family: Total Direct Programs Entitlements Grants (CDBG) ,281 Community Development Block Grant/ Section 8 Housing Choice Vouchers Program ,602 Direct Programs: U.S. Department of Housing and Urban Development: Child and Adult Care Food Program ,522 Puerto Rico Department of Education: Passthrough program from: U.S. Department of Agriculture: Federal Grantor/PassThrough Grantor/Program Title Number Number Subrecepient Expenditures CFDA Entity Identifying Through Disbursements/ MUNICIPALIrY OF FAJARDO

72 1. SIGNIFICANT ACCOUNTING POLICIES JUNE 30, 2016 NOTES TO SCHEDULE O EXPENDITURES OF FEDERAL AWARDS 67 allowed under the Uniform Guidance. The Municipality did not elected to use the ten (10) percent of the minimum indirect cost rate 3. INDIRECTCOSTRATE Total expenditures per schedule of expenditures of federal awards $ 7A96,588 Federal expenditures included in other governmental funds Federal expenditures included in Head Start Program 5,969,195 1,527,393 Federal expenditures per basic financial statement includes within: Total federal expenditures per schedule $ 7,496,588 Expenditures Federal Awards is as follows: reconciliation of expenditures in the basic financial statements to the Schedule of Expenditures of The expenditures of the schedule are included in the Municipality s basic financial statements. The 2. BASIS OF PRESENTATION presented in the basic financial statements. of Autonomous Municipality of Fajardo, Puerto Rico and is prepared on the modified accrual basis of accounting. Accordingly, amounts presented in the accompanying schedule agree to amounts The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity AUTONOMOUS MUNICIPALITY OF FAiARDO

73 INTERNAL CONTROL AND COMPLIANCE

74 Siii III li.iiii CeitetI FLIhII A[cDI1IdI1ls ii1[i Biisiii ss Arivisops SiILiiiIHiiIiIIIi4iiIIIII iiiiii,iiiiililii Ortiz, Rivera, Rivera & Co , SIll III IlIllIlIIIIL II Lii i IS \II 1\) I IS IlilIII,ILI1iiI I I (LILLILIL IL 55 Stili AIlI HI 1 / Siii 5, IS ki\ 7I5I. Sm JLIas. VR. I) (725(I 7K7 75( a l item accompanying schedule of findings and questioned costs that we consider to be material weakness as exist that were not identified. We did identify certain deficiencies in internal control, described in the weaknesses or, significant deficiencies and therefore, material weaknesses or significant deficiencies may section and was not designed to identify all deficiencies in internal control that might be material Our consideration of internal control was for the limited purpose described in the first paragraph of this than a material weakness, yet important enough to merit attention by those charged with governance. significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination management or employees, in the normal course of performing their assigned functions, to prevent, or A deficiency in internal control exists when the design or operation of a control does not allow Accordingly, we do not express an opinion on the effectiveness of the Municipality s internal control. appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, internal control over financial reporting (internal control) to determine the audit procedures that are but no for the purpose of expressing an opinion on the effectiveness of the Municipality s internal control In planning and performing our audit of the financial statements, we considered the Municipality s Internal Control over Financial Reporting to obtain sufficient appropriate audit evidence about the proportional share used to determine the dated March 10, The report on the governmental activities was qualified because we were unable deferred outflows/inflows of resources and net pension liability. collectively comprise the Municipality s basic financial statements, and have issued our report thereon as of and for the year ended June 30, 2016, and the related notes to the financial statements, which issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Municipality of Fajardo, America and the standards applicable to financial audits contained in Government Auditing Standards We have audited, in accordance with the auditing standards generally accepted in the United States of Municipality of Fajardo Municipal Legislature Fajardo, Puerto Rico To the Honorable Mayor and COMPLIANCE AND OTHER MAflERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS INDEPENDENT AUDITORS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON ORK Co.,,Ii%ir.

75 regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on from material misstatement, we performed tests of its compliance with certain provisions of laws, As part of obtaining reasonable assurance about whether the Municipality s financial statements are free Suitc 52. Pt I I, 1P2)2 Sn ludil lift iil Pliuiii (J/ O H52. thu 114IIi(,2 HIll 1 II III li H ItiIANI AI l IWlI SfRII S ORTIL, RIVERAIU VERA & CO. was affixed to the oi Society of Certified Pul The stamp E of u1jc_ 4 0, San Juan, Puerto Rico 7) March 10,2017 and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal this communication is not suitable for any other purpose. control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, The purpose of this report is solely to describe the scope of our testing of internal control and compliance Purpose of this Report opinion on it. schedule of findings and questioned costs. Municipality of Fajardo s response was not subjected to the auditing procedures applied in the audit of the financial statements, and, accordingly, we express no Municipality of Fajardo s response to the findings identified in our audit is described in the accompanying Municipality of Fajardo s Response to Findings required to be reported under Government Auditing Standards and which are described in the such an opinion. The results of our tests disclosed instances of noncompliance or other matters that are compliance with those provisions was not an objective of our audit, and accordingly, we do not express accompanying schedule of findings and questioned costs as item Compliance and Other Matters

76 ,,IIII.iIII.. iiiii) PuIii ArioinIaIlls anli I3is ss itvisijis,ii Ni,, Hi,iiij iii I iii,!,, ii Pu!,),, ( ) r tiz, I \ era, I?i era Cc..,.,,,,,,,,,,,,,, I I1Ii, \IIIIIIII I Ii I IIIIIIII liii i\i I)!I)i I.2. P1) ))I 7I)5fl. Sm IIIIfl. PR )) ))t. ii) IThIIIF 7Wli li\ is?i 71 federal program. However, our audit does not provide a legal determination of Municipality s compliance. We believe that our audit provides a reasonable basis for our opinion on compliance for each major the Federal Awards (Uniform Guidance). Those standards and Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. programs based on our audit of the types of compliance requirements referred to above. We conducted federal program occurred. An audit includes examining, on a test basis, evidence about Municipality s Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for by the Comptroller General of the United States; and the audit requirements of Title 2 U. S. code of Federal Our responsibility is to express an opinion on compliance for each of Municipality s major federal America; the standards applicable to financial audits contained in GovernmentAuditing Standards, issued our audit of compliance in accordance with auditing standards generally accepted in the United States of Auditors Responsibility conditions of its federal awards applicable to its federal program. Management is responsible for compliance with federal statutes, regulations, and the terms and Management s Responsibility findings and questioned costs. programs are identified in the summary of auditors results section of the accompanying schedule of Municipality s major federal programs for the year ended June 30, Municipality s major federal described in the 0MB Compliance Supplement that could have a direct and material effect on each of We have audited Municipality of Fajardo s compliance with the types of compliance requirements Report on Compliance for each Major Federal Program Municipality of Fajardo Fajardo, Puerto Rico and Municipal Legislature To the Honorable Mayor BY THE UNIFORM GUIDANCE PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED INDEPENDENT AUDITORS REPORT ON COMPLiANCE FOR EACH MAJOR FEDERAL F..

77 Report on Internal Control over Compliance programs for the year ended June 30, requirements referred to above that could have a direct and material effect on each of its major federal in our opinion, the Municipahty complied, in all material respects, with the types of compliance Suite I. I) ii(l Si liii II)lñ ]SH liii 7l/) IS6 )4 li (Ji]) /4 1S62 PUUI H ( ( OU AI 1 AIIIII) SI R/I( is ERA1{IVERA & CO. was affixed to the Society of Certified The stamp E of San Juan, Puerto Rico March 10, 2017 Uniform Guidance, Accordingly, this report is not suitable for any other purpose. of internal control over compliance and the results of that testing based on the requirements of the The purpose of this report on internal control over compliance is solely to describe the scope of our testing deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. compliance that might be material weaknesses or significant deficiencies. We did not identify any paragraph of this section and was not designed to identify all deficiencies in internal control over Our consideration of internal control over compliance was for the limited purpose described in the first than a material weakness in internal control over compliance, yet important enough to merit attention by deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal federal program will not be prevented, or detected and corrected, on a timely basis. A significant there is a reasonable possibility that material noncompliance with a type of compliance requirement of a A deficiency in internal control over compliance exists when the design or operation of a opinion on the effectiveness of Municipality s internal control over compliance. expressing an opinion on compliance for each major federal program and to test and report on internal opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that control over compliance with a type of compliance requirement of a federal program that is less severe the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over those charged with governance. performing our audit of compliance, we considered Municipality s internal control over compliance with control over compliance in accordance with Uniform Guidance, but not for the purpose of expressing an control over compliance does not allow management or employees, in the normal course of performing over compliance with the types of compliance requirements referred to above, in planning and Management of the Municipality is responsible for establishing and maintaining effective internal control Opinion on Each Major Federal Program

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79 1. SUMMARY OF AUDIT RESULTS JUNE 30, 2016 SCHEDULE OF FINDINGS AND QUESTiONED COSTS 74 reported in accordance with the 2 CFR (a)? Yes X No Any audit findings disclosed that are required to be programs: Unmodified opinion Type of auditors report issued on compliance for major Significant deficiency (is) identified? Yes X reported None Material weakness (es) identified? Yes X No Internal control over major programs: Federal Awards X Yes No Noncompliance material to financial statements noted? Reportable condition(s) identified that are not None considered to be material weakness? Yes X reported Material weakness (es) identified? X Yes No Internal control over financial reporting: Government wide financial statements Qualified Governmental funds financial statements Unmodified Opinion Unit Type of Opinion Type of auditors report issued: Financial Statements AUTONOMOUS MUNICIPAUTY OF FAJARDO

80 Identification of major programs: JUNE 30, 2016 SCHEDULE OF FNDING5 AND QUESnONED Cosm (CONTiNUED) 15 Municipality, audited information related to the pension plan. The State Employee Retirement System Administration did not provided in a timely manner, to the Cause plans provided to employees of state and local governments that are administered through costsharing pension plan. This statement requires that the Municipality report in its proportionate the actuarial and financial information used in the calculation of the net pension liability and the share of the collective net pension liability, pension expense and deferred outflows/inflows of reporting of historical pension data as Required Supplementary Information. resources related to pensions as of the measurement date. ft also requires disclosures related to GASB Statement No. 68 states the accounting and financial reporting requirements for pension Criteria deferred outflows/inflows of resources, net pension liability, and pension expense of the information provided by the State Employees Retirement System Administration. We were unable resources and pension expense, in the government wide financial statements based on unaudited governmental activities and the note disclosure of the pension plan. Employee Retirement System Administration and the related deferred outflows/deferred inflows of to obtain sufficient appropriate audit evidence about the proportional share used to determine the The Municipality recorded the proportionate net pension liability of its participation in the State Condition Weakness (Prior year finding number ) : Accounting Records Recognition and Reporting of Net Pension Uability Material 2. FINDINGS FINANCIAL STATEMENTS AUDIT Audited qualified as lowrisk auditee? Yes X No Dollar threshold used to distinguish between type A and Type B programs: $750, Head Start CFDA Numbers Name of Federal Programs or Cluster AUTONOMOUS MUNICIPALITY OF FAJARDO

81 Effect JUNE 30, 2016 SCHEDULE OF FINDINGS AND QUESTiONED COSTS (CONTINUED) 76 None 3. FINDINGS AND QUESTIONED COSTS MAJOR FEDERAL AWARD PROGRAM AUDIT our accounting records. We will communicate as soon as possible with the Employees Retirement System Administration plan. Once we obtain the information we will proceed to make the necessary adjusting entries to of the Commonwealth of Puerto Rico in order to request the audited information about the pension Management Response and Corrective Action adjustments in the Government Wide financial statements in order to comply with the requirements of the GASB Statement No. 68. Administration, the audited actuarial and financial information and make the necessary We recommend management to request to the State Employees Retirement System Recommendation the net pension, deferred inflows/outflows of resources and the pension expense. The Municipality s GovernmentWide Financial Statements presents unaudited amounts related to AUTONOMOUS MUNICIPALITY OF FAJARDO

82 77 AUTONOMOUS MUNICIPALITY OF FAJARDO SCHEDULE OF STATUS OF PRIOR YEAR AUDIT FINDINGS AND QUESTIONED COSTS JUNE 30? 2016 None