TOWNS COUNTY WATER AND SEWERAGE AUTHORITY YOUNG HARRIS, GEORGIA FINANCIAL STATEMENTS AS OF JUNE 30, 2016 AND INDEPENDENT AUDITOR S REPORT

Transcription

1 TOWNS COUNTY WATER AND SEWERAGE AUTHORITY YOUNG HARRIS, GEORGIA FINANCIAL STATEMENTS AS OF JUNE 30, 2016 AND INDEPENDENT AUDITOR S REPORT

2 TOWNS COUNTY WATER AND SEWERAGE AUTHORITY CONTENTS Financial Section Independent Auditor s Report... 1 Basic Financial Statements Statement of Net Position... 4 Statement of Revenues, Expenses and Changes in Net Position... 6 Statement of Cash Flows... 7 Notes to Financial Statements... 8 Required Supplementary Information Schedule of Changes in the Net Pension Liability and Related Ratios for Towns County Water and Sewerage Authority Retirement Plan Schedule of Contributions for Towns County Water and Sewerage Authority Retirement Plan Notes to Required Supplementary Information Other Supplemental Information Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Internal Control and Compliance Section Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Findings and Questioned Costs... 32

3 MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLC CERTIFIED PUBLIC ACCOUNTANTS 389 Mulberry Street Post Office Box One Macon, GA Telephone (478) Facsimile (478) mmmcpa.com November 30, 2016 INDEPENDENT AUDITOR S REPORT The Board of Directors Towns County Water and Sewerage Authority Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities of Towns County Water and Sewerage Authority as of and for the fiscal year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Authority s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to error or fraud. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Authority s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Authority s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities of Towns County Water and Sewerage Authority as of June 30, 2016, and the changes in financial position and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Management has omitted the management s discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. Our opinion on the basic financial statements is not affected by this missing information. Accounting principles generally accepted in the United States of America require that the Schedule of Changes in the Net Pension Liability and Related Ratios and Schedule of Contributions for Towns County Water and Sewerage Authority Retirement Plan on pages 23 and 24 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the basic financial statements of Towns County Water and Sewerage Authority. The Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The Schedule of Expenditures of Federal Awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Schedule of Expenditures of Federal Awards is fairly stated in all material respects in relation to the basic financial statements as a whole

5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 30, 2016, on our consideration of Towns County Water and Sewerage Authority s internal control over financial reporting and on our tests of compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Towns County Water and Sewerage Authority s internal control over financial reporting and compliance. McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLC - 3 -

6 TOWNS COUNTY WATER AND SEWERAGE AUTHORITY STATEMENT OF NET POSITION JUNE 30, 2016 ASSETS Current Assets Cash $ 935,121 Investments - Certificates of Deposit 396,297 Accounts Receivable, Net 209,640 Inventories 36,157 Prepaid Expenses 17,034 1,594,249 Noncurrent Assets Restricted Assets Cash 365,141 Investments - Certificates of Deposit 124,001 Capital Assets Land 181,689 Construction in Progress 3,070,233 Depreciable Capital Assets, Net 12,722,045 16,463,109 Deferred Outflows of Resources Deferred Outflows of Resources from Pension Amounts 43,173 Total Assets $ 18,100,531 See accompanying notes which are an integral part of these financial statements

7 TOWNS COUNTY WATER AND SEWERAGE AUTHORITY STATEMENT OF NET POSITION JUNE 30, 2016 LIABILITIES AND NET POSITION Current Liabilities Accounts Payable $ 566,753 Due to Other Government - Water Purchases 32,544 Accrued Interest Payable 27,598 Accrued Expenses - Other 19,144 Customer Deposits 127,438 Current Portion Notes Payable 269,435 Due to Other Government 13,500 Revenue Bonds Payable 99,405 1,155,817 Long-Term Liabilities, Net of Current Portion Net Pension Liability 77,083 Notes Payable 6,824,016 Due to Other Government 231,750 Revenue Bonds Payable 2,377,281 9,510,130 Total Liabilities 10,665,947 Deferred Inflows of Resources Deferred Inflows of Resources from Pension Amounts 20,964 Net Position Net Investment in Capital Assets 5,742,940 Restricted for Debt Service 244,299 Unrestricted 1,426,381 7,413,620 Total Liabilities, Deferred Inflows of Resources and Net Position $ 18,100,531 See accompanying notes which are an integral part of these financial statements

8 TOWNS COUNTY WATER AND SEWERAGE AUTHORITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION FOR THE FISCAL YEAR ENDED JUNE 30, 2016 Operating Revenues Water Charges $ 1,845,553 Meter Installation Fees 61,100 Penalties 26,231 Impact Fees 5,100 Other 6, ,944,337 Operating Expenses Personnel Services and Employee Benefits Salaries and Wages 209,072 Director Fees 4,650 Group Insurance 33,739 Payroll Taxes 16,058 Pension 4,761 Purchased/Contracted Services Professional Fees 30,340 Repairs and Maintenance 81,402 Insurance 22,361 Communications 10,103 Water Purchased for Resale 365,108 Other 6,739 Supplies Office Supplies 29,985 Supplies and Materials 28,408 Electricity 66,859 Gasoline 12,524 Depreciation 431,115 1,353,224 Operating Income 591,113 Nonoperating Revenues (Expenses) Interest Income 3,626 Bad Debt (3,571) Interest Expense (325,033) (324,978) Income Before Contributions 266,135 Capital Contributions 394,081 Change in Net Position 660,216 Net Position, Beginning of Year 6,753,404 Net Position, End of Year $ 7,413,620 See accompanying notes which are an integral part of these financial statements.

9 TOWNS COUNTY WATER AND SEWERAGE AUTHORITY STATEMENT OF CASH FLOWS FOR THE FISCAL YEAR ENDED JUNE 30, 2016 Cash Flows from Operating Activities Cash Received from Customers $ 1,913,015 Cash Payments for Personnel Services (266,277) Cash Payments for Goods and Services (714,339) 932,399 Cash Flows from Capital and Related Financing Activities Acquisition of Capital Assets (2,416,118) Interest Paid on Capital Debt (323,789) Capital Contributions 394,081 Proceeds from Issuance of Capital Debt 2,128,037 Principal Paid on Capital Debt (370,366) (588,155) Cash Flows from Investing Activities Interest Received 3,626 Purchase of Certificate of Deposit (2,175) 1,451 Net Increase in Cash 345,695 Cash (Including Restricted Cash of $349,228), Beginning of Year 954,567 Cash (Including Restricted Cash of $365,141), End of Year $ 1,300,262 Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income $ 591,113 Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities Depreciation 431,115 Increase in Accounts Receivable, Net (31,322) Decrease in Inventories (598) Increase in Prepaid Expenses 3,872 Increase in Deferred Outflows of Resources Related to Pensions (43,173) Decrease in Accounts Payable (71,735) Increase in Water Purchases - Other Government 3,594 Increase in Accrued Expenses - Other 3,235 Increase in Customer Deposits 4,355 Increase in Net Pension Liability 53,225 Decrease in Deferred Inflows of Resources Related to Pensions (11,282) $ 932,399 Schedule of Non-Cash Capital and Financing Activities Construction in Progress Costs Incurred but not Paid $ 533,045 See accompanying notes which are an integral part of these financial statements

10 TOWNS COUNTY WATER AND SEWERAGE AUTHORITY NOTES TO FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies The financial statements of Towns County Water and Sewerage Authority (the Authority) have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the Authority s accounting policies are described below. Organization Towns County Water and Sewerage Authority was created on April 3, 1972 and operates under the direction of a five-member board. The board members are appointed by the Towns County Grand Jury for staggering three-year terms. The Authority is the basic level of government, which has responsibility for all activities related to water and sewer operations in its service territory within Towns County, Georgia. The Authority receives most of its operating revenues from sales of water, meter installation and connection fees, and related services. Reporting Entity In evaluating how to define the reporting entity for financial reporting purposes, management has considered all potential component units. The decision to include a potential component unit in the reporting entity was made by applying the criteria set forth in U.S. GAAP. Component units generally are legally separate entities for which a primary government is financially accountable. There are no entities which meet the criteria for inclusion in the Authority s financial statements as component units. Basic Financial Statements - GASB Statement No. 34 All activities of the Authority are accounted for within a single proprietary (enterprise) fund. Proprietary funds are used to account for operations that are (a) financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the cost (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. A fund is a separate accounting entity with a self-balancing set of accounts. Because the Authority is a special-purpose government engaged only in business-type activities, it is not required to present a statement of activities to comply with the provisions of GASB Statement No. 34. Basis of Accounting The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. Proprietary funds are accounted for on a flow of economic resources measurement focus and use the accrual basis of accounting. Under this measurement focus, all assets and liabilities associated with operations are included on the statement of net position. Net position (i.e., total assets, net of total liabilities) is segregated into net investment in capital assets, restricted and unrestricted

11 (1) Summary of Significant Accounting Policies (Continued) Basis of Accounting (Continued) The financial records are maintained on the accrual basis of accounting. Under this method, revenues are recognized when earned and expenses are recognized at the time liabilities are incurred regardless of the timing of the related cash flows. The allowance method is used to estimate uncollectible accounts receivable. Unbilled user charges (revenues) are recorded at year-end, when material to the financial statements. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with the proprietary fund s principal ongoing operations. The principal operating revenues of the Authority are charges to customers for water sales and services. Operating expenses include the purchase of water for resale, costs to operate the water delivery system, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the Authority s policy to use restricted resources first, then unrestricted resources as they are needed. Cash and Investments For purposes of the statement of cash flows, the Authority considers all highly liquid investments, including restricted assets, with an original maturity of three months or less when purchased to be cash equivalents. At June 30, 2016, the Authority had no cash equivalents. Cash of $935,121 and restricted cash of $365,141 equal the cash reported on the statement of cash flows as of June 30, Certain cash and investments set aside for the repayment of revenue bonds are classified as restricted cash and investments on the statement of net position because their use is limited by applicable bond covenants. Other restricted amounts include resources set aside to offset the liability for refundable customer deposits. State statutes authorize the government to invest in U.S. Government obligations, U.S. Government agency obligations, State of Georgia obligations, obligations of other counties, municipal corporations and political subdivisions of the State of Georgia which are rated AA or better by Moody s Investors Services, Inc., negotiable certificates of deposit issued by any bank or trust company organized under the laws of any state of the United States of America or any national banking association, repurchase agreements when collateralized by U.S. Government or agency obligations, and pooled investment programs sponsored by the State of Georgia for the investment of local government funds. Inventories Inventories consist of supplies and materials and are stated at the lower of first-in, first-out (FIFO) cost or market. The Authority uses the consumption method of accounting for inventories, under which materials and supplies are recorded as inventory when purchased and are recorded as an expense when used. Prepaid Expenses Payments made to vendors for services that will benefit periods beyond June 30, 2016 are recorded as prepaid items when material to the financial statements

12 (1) Summary of Significant Accounting Policies (Continued) Capital Assets Purchased or constructed capital assets are recorded at historical cost or estimated historical cost. Donated capital assets are recorded at estimated fair market value at the date of donation. Projects under construction, when completed and placed in service, are transferred from construction in progress to property, plant and equipment. Interest incurred during the construction phase of capital assets is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Major additions are capitalized while the cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are expensed as incurred. The Authority has set its capitalization threshold at $1,000. Upon disposal, the cost and related accumulated depreciation of capital assets are relieved from the accounts, and resulting gains or losses are reflected in income. Capital assets are depreciated using the straight-line method over the estimated useful lives of the related assets as follows: Land Improvements Water Systems Infrastructure Buildings Machinery and Equipment Office Furniture and Fixtures Vehicles years 50 years years 5-10 years 5-10 years 5 years Capital Contributions Capital contributions consist of capital grants or contributions from developers, customers and governmental agencies. Compensated Absences Vested personal leave is recorded as an expense and liability up to the maximum allowable amount as benefits accrue to employees. Personal leave can be accrued up to a maximum of 30 days (240 hours). Any excess leave is forfeited on June 30 of each year. Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until then. The Authority has deferred outflows of resources related to pensions. In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The Authority has deferred inflows of resources related to pensions

13 (1) Summary of Significant Accounting Policies (Continued) Pension For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Georgia Municipal Employees Benefit System (GMEBS) and additions to/deductions from GMEBS fiduciary net position have been determined on the same basis as they are reported by GMEBS. For this purpose, benefit payments are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Net Position Net position is the difference between assets and liabilities. Net investment in capital assets represents capital assets reduced by accumulated depreciation and by any outstanding debt related to the acquisition, construction or improvement of those assets. Net position restricted for debt service represents cash restricted in accordance with the Authority s revenue bonds. It is the Authority s policy to first apply restricted resources when an expense is incurred for which both restricted and unrestricted net position are available. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Budgets The Authority is not legally required to adopt a budget. However, the board of directors has approved an annual operating budget for planning, control and evaluation purposes. Subsequent Events The Authority has evaluated events and transactions for potential recognition or disclosure in the financial statements through November 30, 2016, the date in which the financial statements were issued. The Authority has determined that there are no other subsequent events to report or disclose. (2) Cash and Investments Cash on the accompanying statement of net position consists of cash on hand and on deposit with banking financial institutions. These balances are classified on the statement of net position as unrestricted and restricted cash. Investments consist of banking certificates of deposit and are similarly classified. Custodial credit risk for deposits and investments is the risk that, in the event of the failure of a depository financial institution, the Authority s deposits and investments may not be fully recovered. State of Georgia statutes require all financial institution deposits and investments in excess of the federal depository insured amount to be fully collateralized by an equivalent amount of state or U.S. Government obligations, or bonds of public authorities, counties or municipalities. At June 30, 2016, the Authority had no deposits or investments that were exposed to custodial credit risk

14 (3) Accounts Receivable, Net Accounts receivable represent amounts due from customers for water sales and related services. The balance outstanding at June 30, 2016 on the accompanying statement of net position is net of an allowance for uncollectible accounts of $7,388. Included in accounts receivable are unbilled amounts of approximately $49,285. (4) Restricted Assets Certain assets have been restricted for debt service and customer water deposits. The related current liabilities to be repaid from these assets are classified separately on the statement of net position. At June 30, 2016, restricted assets are summarized as follows: Restricted Purpose Cash Certificates of Deposit Total Debt Service Debt Service $ 237,703 $ 124,001 $ 361,704 Customer Deposits 127, ,438 $ 365,141 $ 124,001 $ 489, Water Revenue Bonds - Assets totaling $51,094 at June 30, 2016 are restricted for the purpose of paying principal and interest on the Series 1977 Water Revenue Bonds. The Authority deposited monthly increments to cover principal and interest into the sinking fund. The debt service reserve along with the interest earned on these accounts cannot be withdrawn until a reserve of $26,500 has been maintained. At June 30, 2016, the required reserve had been maintained Water Revenue Bonds - Contract with City of Hiawassee, Georgia - Assets totaling $58,637 at June 30, 2016 are restricted for the purpose of paying principal and interest on the Series 1989 Water Revenue Bonds. The Authority deposited monthly increments to cover principal and interest into the sinking fund. The debt service reserve along with the interest earned on these accounts cannot be withdrawn until a reserve of $27,000 has been maintained. At June 30, 2016, the required reserve had been maintained Water Revenue Bonds - There are no sinking fund requirements. The amount restricted in the debt service reserve at June 30, 2016 is $68,946. The debt service reserve along with the interest earned on this account cannot be withdrawn until a reserve of $52,932 has been maintained. At June 30, 2016, the required reserve had been maintained Revenue Bonds - There are no sinking fund requirements. The amount restricted in the debt service reserve at June 30, 2016 is $114,337. The debt service reserve along with the interest earned on this account cannot be withdrawn until a reserve of $76,284 has been maintained. At June 30, 2016, the required reserve had been maintained Revenue Bonds - There are no sinking fund requirements. The amount restricted in the debt service reserve at June 30, 2016 is $61,015. The debt service reserve along with the interest earned on this account cannot be withdrawn until a reserve of $40,212 has been maintained. At June 30, 2016, the required reserve had been maintained

15 (4) Restricted Assets (Continued) Debt Service (Continued) 2011 Subordinate Revenue Bond - Deposits are required into a sinking fund of amounts sufficient to pay the principal and interest on the bond as the same become due and payable. A reserve for that purpose is required. No minimum reserve balance is specified by the Bond Resolution; however, $7,674 has been deposited into a sinking fund. Customer Deposits Cash in the amount of $127,438 as of June 30, 2016 is restricted for refunding water deposits to customers at the time customers leave the system. (5) Capital Assets Changes in capital assets by major classes for the year ended June 30, 2016 are as follows: Beginning Balance Increases Decreases Ending Balance Business-Type Activities Capital Assets Not Being Depreciated Land $ 181,689 $ - $ - $ 181,689 Construction in Progress 150,249 2,919,984-3,070, ,938 2,919,984-3,251,922 Capital Assets Being Depreciated Land Improvements 125, ,829 Water Systems Infrastructure 17,300,773 23,049-17,323,822 Buildings 100, ,796 Machinery and Equipment 1,217,088 6,130-1,223,218 18,744,486 29,179-18,773,665 Less Accumulated Depreciation For Land Improvements (53,262) (3,947) - (57,209) Water Systems Infrastructure (4,646,724) (363,990) - (5,010,714) Buildings (58,366) (2,399) - (60,765) Machinery and Equipment (862,153) (60,779) - (922,932) (5,620,505) (431,115) - (6,051,620) Total Capital Assets Being Depreciated, Net 13,123,981 (401,936) - 12,722,045 $ 13,455,919 $ 2,518,048 $ - $ 15,973,967 Depreciation expense of $431,115 was charged to operations for the year ended June 30,

16 (5) Capital Assets (Continued) Construction in progress as of June 30, 2016 and 2015 included costs to date related to the rehabilitation of the existing water distribution system, booster pump station and related improvements. The Authority entered into construction contracts in the amount of $2,873,617 related to the improvements. Contract costs incurred through June 30, 2016 totaled $2,654,678 with $218,939 committed under the contract. The improvements are being financed with a loan from the Georgia Environmental Finance Authority as described in Note 6. (6) Notes Payable The Authority has incurred debt to the Georgia Environmental Facilities Agency (GEFA) for construction of various water projects. These notes as of June 30, 2016 are as follows: Origination Interest Rate Term Due Date Balance % 20 Years July 1, 2031 $ 4,949, % 20 Years January 1, ,128,037 The loan agreements require, among other things, the maintenance of a minimum fixed charges coverage ratio as defined in the agreements. At June 30, 2016, the Authority was in compliance with this requirement. The Authority financed the purchase of a vehicle with a local bank on January 31, The note payable requires 72 monthly principal and interest payments of $534 through February 1, The note bears interest at a rate of 3.25 percent per annum. The vehicle serves as collateral for the note. Interest expense incurred on the notes payable during the year ended June 30, 2016 was $152,190. Changes in notes payable for the year ended June 30, 2016, are as follows: Beginning Balance Increases Decreases Ending Balance Due Within One Year Notes Payable - GEFA $ 5,204,806 $ 2,128,037 $ (255,691) $ 7,077,152 $ 263,467 Note Payable - Vehicle 22,076 - (5,777) 16,299 5,968 $ 5,226,882 $ 2,128,037 $ (261,468) $ 7,093,451 $ 269,

17 (6) Notes Payable (Continued) Payments of principal and interest on the notes for each of the next five years and until maturity are as follows: Notes Payable Year Principal Interest Total 2017 $ 269,435 $ 145,311 $ 414, , , , , , , , , , , , , ,626, ,489 2,089, ,889, ,665 2,041, , ,027 4,965,414 $ 1,258,716 $ 6,224,130 * 2,128,037 $ 7,093,451 * Repayment of the 2015 GEFA note payable commences the earlier of: (1) the project completion date, (2) January 1, 2019, or (3) the date the loan is fully disbursed. As of June 30, 2016, the commencement date had not been established. Upon commencement of repayment, the note payable will be due in 239 consecutive monthly payments of principal and interest

18 (7) Due to Other Government and Bonds Payable Due to Other Government At June 30, 2016, due to other government represents the balance due under the Authority s 1988 agreement to contribute 45 percent of the sinking fund requirements of the 1989 Series A and B Water and Sewer Revenue Bonds of the City of Hiawassee, Georgia (the City). The bonds were issued by the City to finance water system facilities. The amount due the City is as follows: $438,300 Water Contract - City of Hiawassee, Georgia, Bearing Interest at 5% and Due in Annual Principal and Interest Installments of Approximately $26,000 Through December 1, $ 245,250 Effective May 3, 2011, the City and the Authority renegotiated a wholesale water agreement, wherein the City affirmed its original 1988 agreement to reserve up to 45 percent of the capacity of the City s water treatment plant for use by and sale to the Authority on a monthly basis, and the Authority affirmed its original 1988 agreement to contribute 45 percent of the sinking fund requirements of the City s 1989 Series A and B Water and Sewer Revenue Bonds, as outlined in the bond ordinance, through December 1, The Authority maintains separate debt service and sinking fund accounts for its contribution obligation toward the sinking fund requirements of the City s 1989 bonds and has substantially met all requirements of the City at June 30, Under the wholesale water agreement, the Authority agreed to pay the City at a rate of $1.50 per thousand gallons of water purchased up to 45 percent of state-permitted plant capacity. Amounts in excess of 45 percent are to be paid at a then current rate, plus 20 percent. The Authority additionally agreed to contribute up to $250,000 toward the addition of a third water filter and related fixtures at the City s water plant in order to ensure an adequate water supply, whenever any filter is off-line for repair or maintenance. The wholesale water agreement expired on May 31, 2016; however, the Authority renewed the agreement under the same terms expiring on May 31, See Note

19 (7) Due to Other Government and Bonds Payable (Continued) Revenue Bonds Payable At June 30, 2016, revenue bonds consisted of the following debt associated with the Authority s water distribution system and improvements: $340,000 Series 1977 Revenue Bonds Bearing Interest at 5%, and Due in Annual Principal and Interest Installments of Approximately $22,000 Through December 1, $ 20,000 $100,000 Series 1977A Revenue Bonds Bearing Interest at 5%, and Due in Annual Principal and Interest Installments of Approximately $6,000 Through December 1, ,000 $310,900 Series A 1995 Revenue Bonds Bearing Interest at 5%, and Due in Monthly Principal and Interest Installments of $1,515 Through March 13, ,321 $594,600 Series B 1995 Revenue Bonds Bearing Interest at 5%, and Due in Monthly Principal and Interest Installments of $2,896 Through March 13, ,496 $1,181,700 Series A 2000 Revenue Bonds Bearing Interest at 4.75%, and Due in Monthly Principal and Interest Installments of $5,554 Through September 20, ,174 $180,000 Series B 2000 Revenue Bonds Bearing Interest at 4.375%, and Due in Monthly Principal and Interest Installments of $803 Through September 20, ,585 $472,900 Series A 2001 Revenue Bonds Bearing Interest at 4.5%, and Due in Monthly Principal and Interest Installments of $2,147 Through November 13, ,831 $265,000 Series B 2001 Revenue Bonds Bearing Interest at 4.5%, and Due in Monthly Principal and Interest Installments of $1,204 Through November 13, ,254 $145,711 Series 2011 Subordinate Revenue Bond Bearing Interest at 4.85%, and Due in Monthly Principal and Interest Installments of $1,535 Through August 1, 2016; Thereafter, Interest and Monthly Installments are Recalculated at Prime Plus 1.6% Through August 1, ,025 $ 2,476,

20 (7) Due to Other Government and Bonds Payable (Continued) Changes in Due to Other Government and Bonds Payable Changes in due to other government and bonds payable for the year ended June 30, 2016 are as follows: Beginning Balance Increases Decreases Ending Balance Due Within One Year Due to Other Government $ 258,300 $ - $ (13,050) $ 245,250 $ 13,500 Revenue Bonds Payable 2,572,533 - (95,847) 2,476,686 99,405 $ 2,830,833 $ - $ (108,897) $ 2,721,936 $ 112,905 Interest expense incurred on due to other government and bonds payable during the year ended June 30, 2016, was $135,928. Maturities of Bonds Payable Payments of principal and interest related to bonds payable for each of the next five years and until maturity are as follows: Due to Other Government Revenue Bonds Payable Year Principal Interest Total Principal Interest Total 2017 $ 13,500 $ 12,263 $ 25,763 $ 99,405 $ 115,741 $ 215, ,400 11,588 25,988 76, , , ,300 10,867 26,167 80, , , ,750 10,102 25,852 84, , , ,700 37, , , , , ,600 12, , , , , , , , ,080 78, , ,967 1,974 73,941 $ 245,250 $ 94,658 $ 339,908 $ 2,476,686 $ 1,543,233 $ 4,019,919 (8) Risk Management The Authority is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters for which the Authority carries commercial insurance to cover such risks. There were no significant reductions of insurance coverage compared to the prior year. Settled claims have not exceeded the commercial excess coverage in any of the past three years

21 (9) Pension Plan Plan Description. Towns County Water and Sewerage Authority Retirement Plan (TCWSARP) is affiliated with the Georgia Municipal Employees Benefit System (GMEBS), an agent multiple-employer pension plan administered by the Georgia Municipal Association. The GMEBS assigns the authority to establish and amend the benefit provisions of the plans that participate in GMEBS to the respective employer entities; and for TCWSARP, that authority rests with Towns County Water and Sewerage Authority. TCWSARP provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. All full-time employees of the Authority are eligible to participate upon employment. Qualification for normal retirement is age 65 with five years of service or at least age 55 with ten years of service. Participants who have completed ten years of credited service, or who have attained normal retirement, are eligible to designate a beneficiary to receive death benefits. At January 1, 2016, the plan had five active participants, one vested former participant and two retired participants or beneficiaries currently receiving benefits. Contributions. Required contributions are determined by the GMEBS based on actuarial calculations performed by an independent actuary. The actuarially-determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The Authority s recommended contribution rate for the year ended June 30, 2016, was 7.29 percent of covered payroll. The Authority s contribution to the plan for the year ended June 30, 2016 was $5,991. Participants in the plan are not required to contribute. Pension Liabilities, Pension Expense, Deferred Outflows of Resources, and Deferred Inflows of Resources Related to Pensions. At June 30, 2016, the Authority reported a liability of $77,083. The net pension liability was measured as of September 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. For the year ended June 30, 2016, the Authority recognized pension expense of $4,761. At June 30, 2016, the Authority had deferred outflows of resources and reported deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences Between Expected and Actual Experience $ 34,958 $ (17,076) Change in Assumptions - (3,888) Net Differences Between Projected and Actual Earnings on Pension Plan Assets 8,215 - $ 43,173 $ (20,964)

22 (9) Pension Plan (Continued) Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows for the years ending June 30: 2017 $ 3, , , , , and Thereafter 6,494 $ 22,209 Actuarial Assumptions. The total pension liability in the September 30, 2016 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation Salary Increases Net Investment Rate of Return 3.25 percent 3.25 percent, including inflation 7.75 percent Mortality rates were based on the RP-2000 Combined Healthy Mortality Table with sex-distinct rates, set forward two years for males and one year for females. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan s target asset allocation as of September 30, 2015 are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return Domestic Equity 50% 5.95% International Equity Fixed Income Real Estate Cash % Discount Rate. The discount rate used to measure the total pension liability was 7.75 percent. The projection of cash flows used to determine the discount rate assumed that employer contributions will be made at the actuarially-determined recommended rates

23 (9) Pension Plan (Continued) Changes in Net Pension Liability. Changes in the Authority s net pension liability for the year ended September 30, 2016 were as follows: Total Pension Liability (a) Fiduciary Net Position (b) Net Pension Liability (a) - (b) Balance at September 30, 2015 $ 306,248 $ 282,390 $ 23,858 Changes for the Year: Service Cost 2,243-2,243 Interest 22,840-22,840 Difference Between Expected and Actual Experience 39,951-39,951 Contributions - Employer - 10,023 (10,023) Contributions - Employees Net Investment Income - 3,736 (3,736) Benefit Payments Including Refunds of Employee Contributions (23,080) (23,080) - Administrative Expense - (1,950) 1,950 Other ,954 (11,271) 53,225 Balance, September 30, 2016 $ 348,202 $ 271,119 $ 77,083 Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability calculated using the discount rate of 7.75 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.75 percent) or 1-percentage-point higher (8.75 percent) that the current rate: Discount Rate Net Pension Liability 1 Percent Decrease 6.75% $130,720 Current Discount Rate ,083 1 Percent Increase ,894 Plan Fiduciary Net Position. Detailed information about the plan s fiduciary net position is available in the separately issued GMEBS financial report. That report may be obtained by writing to the Georgia Municipal Association or by calling (404)

24 (10) Commitment In connection with the wholesale water agreement with the City of Hiawassee, Georgia, as discussed in Note 7, Due to Other Government and Bonds Payable, the Authority has agreed to contribute up to $250,000 toward the addition of a third water filter and related fixtures at the City s water plant in order to ensure an adequate water supply, whenever any filter is off-line for repair or maintenance. (11) Concentration Risk The Authority s ability to provide water to current and future customers and maintain operations is currently dependent on obtaining sufficient quantities of water at favorable wholesale rates from other water authorities or supply sources. At present, the Authority purchases all of its water from the City of Hiawassee. The Authority does not own wells or a water treatment plant. As discussed in Note 7, Due to Other Government and Bonds Payable, the Authority and the City of Hiawassee entered into a long-term agreement during 1988 wherein the City agreed to reserve up to 45 percent of the capacity of the City s water treatment plant for use by and sale to the Authority on a monthly basis in exchange for the Authority s commitment to fund 45 percent of the City s revenue bond sinking fund requirements. Such agreement runs concurrently with the City s 1989 revenue bonds and extends to December 1, 2028, when the bonds are fully amortized. As further stated in Note 7, effective May 3, 2011, the Authority and the City renegotiated a wholesale water agreement, wherein the City affirmed its 1988 agreement to reserve up to 45 percent of plant capacity and the Authority affirmed its commitment to fund 45 percent of the sinking fund requirements of the City s 1989 bonds. Under terms of the agreement, which expires May 31, 2017, the wholesale cost of water to the Authority is $1.50 per thousand gallons up to 45 percent of state permitted plant capacity. Amounts in excess of 45 percent are to be paid at a then current rate, plus 20 percent. The Authority s management is confident that the current agreement with the City for 45 percent of the City s water capacity is sufficient to meet the current demand of its customers and certain measured growth; however, management has identified alternate supply sources should additional capacity be necessary or other contingencies arise in the future. Additionally, land with lake access was purchased during 2010 as a future water treatment plant site should pumping water from the lake become necessary to meet long-term customer demand and future growth

25 REQUIRED SUPPLEMENTARY INFORMATION

26 TOWNS COUNTY WATER AND SEWERAGE AUTHORITY SCHEDULE OF CHANGES IN THE NET PENSION LIABILITY AND RELATED RATIOS FOR TOWNS COUNTY WATER AND SEWERAGE AUTHORITY RETIREMENT PLAN FOR THE FISCAL YEAR ENDED JUNE 30 Total Pension Liability Service Cost $ 2,243 $ 2,511 Interest 22,840 24,592 Differences Between Expected and Actual Experience 39,951 (22,769) Changes in Assumptions - (5,187) Benefit Payments (23,080) (20,439) Net Change in Total Pension Liability 41,954 (21,292) Total Pension Liability - Beginning 306, ,540 Total Pension Liability - Ending $ 348,202 $ 306,248 Plan Fiduciary Net Position Contributions - Employer $ 10,023 $ 15,224 Contributions - Employee - - Net Investment Income 3,736 29,590 Benefit Payments (23,080) (20,439) Administrative Expense (1,950) (1,610) Net Change in Plan Fiduciary Net Position (11,271) 22,765 Total Plan Fiduciary Net Position - Beginning 282, ,625 Total Plan Fiduciary Net Position - Ending $ 271,119 $ 282,390 Net Pension Liability Net Pension Liability - Ending $ 77,083 $ 23,858 Plan s Fiduciary Net Position as a Percentage of the Total Pension Liability 77.86% 92.21% Covered-Employee Payroll $ 159,350 $ 134,170 Net Pension Liability as a Percentage of Covered-Employee Payroll 48.37% 17.78%

27 TOWNS COUNTY WATER AND SEWERAGE AUTHORITY SCHEDULE OF CONTRIBUTIONS FOR TOWNS COUNTY WATER AND SEWERAGE AUTHORITY RETIREMENT PLAN FOR THE FISCAL YEAR ENDED JUNE 30, Actuarially-Determined Contribution --* $ 11,367 Contributions in Relation to the Actuarially-Determined Contribution --* 11,367 Contribution Deficiency (Excess) --* -- Covered-Employee Payroll --* 134,170 Contributions as a Percentage of Covered-Employee Payroll --* 8.47% * 2016 information will be determined after fiscal year-end and will be included in the 2017 valuation report. This information is not available in the current actuarial report

28 TOWNS COUNTY WATER AND SEWERAGE AUTHORITY NOTES TO REQUIRED SUPPLEMENTARY INFORMATION FOR THE FISCAL YEAR ENDED JUNE 30, Notes to Required Supplementary Information Valuation Date Actuarial Cost Method Amortization Method Remaining Amortization Period Asset Valuation Method The actuarially-determined contribution rate was determined as of January 1, 2016, with an interest adjustment to the fiscal year. Contributions in relation to this actuarially-determined contribution rate will be reported for the fiscal year ending June 30, Projected Unit Credit Closed Level Dollar for Remaining Unfunded Liability Remaining amortization period varies for the bases, with a net effective amortization period of 15 years. Sum of actuarial value at beginning of year and the cash flow during the year plus the assumed investment return, adjusted by 10 percent of the amount that the value exceeds or is less than the market value at end of year. The actuarial value is adjusted, if necessary, to be within 20 percent of market value. Actuarial Assumptions: Net Investment Rate of Return Projected Salary Increases Cost of Living Adjustments 7.75 Percent 3.25 Percent Plus Service-Based Merit Increases 0.00 Percent The accompanying schedules of the Authority s net pension liability and contributions to TCWSARP are required supplementary information to be presented for 10 years. However, until a full 10-year trend is compiled, information is presented in the schedules for those years for which information is available