FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT EASTERN IOWA REGIONAL UTILITY SERVICE SYSTEMS COMMISSION

Transcription

1 FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT EASTERN IOWA REGIONAL UTILITY SERVICE SYSTEMS COMMISSION June 30, 2018

2 T A B L E 0 F C 0 N T E N T S Page INDEPENDENT AUDITOR'S REPORT 3 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) 6 BASIC FINANCIAL STATEMENTS STATEMENT OF NET POSITION STATEMENT OF REVENUES, EXPENSES, AND CHANGES CHANGES IN NET POSITION STATEMENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS OTHER REPORTS INDEPENDENT AUDITOR'S 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 32 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE 34 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 36

3 609 S. 4th Street, Sane B La Crosse, WI Phone: Fax: <errifi~d Pobfic Accountants Your Business Solely Nel INDEPENDENT AUDITOR'S REPORT Board of Commissioners Eastern Iowa Regional Utility Dubuque, Iowa Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities of the Eastern Iowa Regional Utility, Iowa ("Commission"), as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the Commission's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an -3-

4 opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of the Commission as of June 30, 2018, and the respective changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 6-9 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 opinions on the financial statements that collectively comprise the Commission's basic financial statements. The statement of revenues, expenses, and changes in net position by program is presented for purposes of addi tiona! analysis and is not a required part of the basic financial statements. 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 (Uniform Guidance), and is also not a required part of the basic financial statements. The statement of revenues, program, and schedule of responsibility of management expenses, and changes in net position by expenditures of federal awards are the and were derived from and relate directly to -4-

5 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 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 statement of revenues, expenses, and changes in net position by program, and schedule of expenditures of federal awards are fairly stated in all material respects in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 5, 2018, on our consideration of the Commission's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on 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 the Commission's internal control over financial reporting and compliance. November 5,

6 MANAGEMENT DISCUSSION AND ANALYSIS (MD&A) -6-

7 EASTERN IOWA REGIONAL UTILITY SERVICE SYSTEMS MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2018 The Eastern Iowa Regional Utility Service Systems (EIRUSS) is an organization created by the Cedar, Clinton, Delaware, Jackson, and Jones County Boards of Supervisors under Code of Iowa, Chapter 28E, which allows local governments to establish agreements that enable them to provide joint services and facilities with other agencies and cooperate in other ways of mutual advantage. The purpose of EIRUSS is to plan, design, develop, finance, construct, own, operate and maintain essential facilities and services including, but not limited to, wastewater treatment systems and water systems for and on behalf of the counties and the cities and unincorporated areas within the counties. East Central Intergovernmental Association (ECIA) is the management agent. As management agent of EIRUSS, we offer the readers of EIRUSS's financial statements this narrative overview and analysis of the financial activities of EIRUSS for the year ended June 30, We encourage readers to consider the information presented here in conjunction with EIRUSS's financial statements, which follow this discussion and analysis. During Fiscal Year 2018, engineering work funded by State Revolving Fund (SRF) loans continued for a water project in the Droessler Subdivision/Spruce Creek Campground in Jackson County, a wastewater treatment project in Petersburg in Delaware County, and the expansion of the Leisure Lake wastewater treatment system in Jackson County. University of Iowa students, through the Iowa Initiative of Sustainable Communities (IISC) program, selected as one of their projects the study and design of a sewer system for the Lake Delhi area in Delaware County. Additional properties to be served have been identified and will be addressed with future funding. FINANCIAL HIGHLIGHTS The assets of EIRUSS exceeded its liabilities at June 30, 2018 by $3,024,999 (net position). EIRUSS's net position decreased by 8.4%, or $276,413, from June 30, 2017 to June 30, 2018 primarily due to depreciation of fixed assets. Total revenues decreased 13.6%, or approximately $56,800 primarily due to a decrease in grant funding of $63,300 as USDA grant funds were received in FY17 for the addition of four grinder stations for the Leisure Lake Wastewater Treatment System while no USDA funds were received in FY18. The decrease in grant funding was offset by an increase of $8,600 in service fees collected. Total expenditures increased 1 0.8%, or approximately $61,900 from FY 2017 to FY 2018 due to an increase of $25,900 in ECIA Administration, an increase of $32,300 in operations and maintenance expense and the expensing of $3,600 in Leisure Lake spare parts inventory. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to EIRUSS's basic financial statements. The financial statements included in this report are designed to provide readers with a broad overview of EIRUSS's finances, in a manner similar to a -7-

8 EASTERN IOWA REGIONAL UTILITY SERVICE SYSTEMS MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2018 private sector business. EIRUSS utilizes the accrual basis of accounting, which recognizes revenues and expenses when earned, regardless of when cash is received or paid. The following statements are included in this report: Statement of Net Position - This statement presents information on all of EIRUSS's assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of EIRUSS is improving or deteriorating. All of the current year's revenues and expenses are accounted for in the Statement of Revenues, Expenditures and Changes in Net Position. This statement measures the success of EIRUSS's operations. It can be used to determine whether EIRUSS has successfully recovered all its costs through its rates, fees and other revenues. This statement also measures EIRUSS's profitability and credit worthiness. Statement of Cash Flows - This statement presents the change in cash and cash equivalents during the year. This information can assist the user of the report in determining how EIRUSS financed its activities and how it met its cash requirements. Notes to Financial Statements provide additional information that is essential to a full understanding of the data provided in the financial statements. Supplemental Financial Information further explains and supports the financial statements and includes a schedule of Federal Financial Assistance. ANALYSIS OF NET POSITION As previously noted, net position may serve over time as a useful indicator of EIRUSS's financial position. The analysis that follows focuses on the changes in the components that make up net position. CONDENSED STATEMENT OF NET POSITION NET PERCENT CHANGE CHANGE Cash and investments 327, ,314 (26,843) (7.6) Other Current Assets 60,377 57,503 2, Capital Assets 6,714,455 6,982,476 (268,021) (3.8) Total Assets 7,102,303 7,394,293 (291,990) (3.9) Current Liabilities 108,155 93,714 14, Noncurrent Liabilities 3,969,149 3,999,167 (30,018) (0.8) Total Liabilities 4,077,304 4,092,881 (15,577) (0.4) Net Investment in Capital Assets 2,661,635 2,916,521 (254,886) (8.7) Restricted 156, ,793 33, Unrestricted 206, ,098 {55,207) (21.1} Total Net Position 3,024,999 3,301,412 (276,413) (8.4) -8-

9 EASTERN IOWA REGIONAL UTILITY SERVICE SYSTEMS MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2018 Cash and investments decreased $26,800 due to the increased expense of operating the systems. The increase of $2,900 in Other Current Assets is primarily due to an increase in accounts receivable of $11,400, offset by a decrease of $5,100 in grants receivable and a decrease of $3,600 in spare parts inventory. The decrease of $268,000 in capital assets is primarily due to annual depreciation of $334,700 offset by an increase of $66,700 in prepaid development costs related to the Petersburg and Leisure Lake projects. Current liabilities increased approximately $14,400 primarily due to the Petersburg SRF loan coming due in the next year. Noncurrent liabilities decreased $30,000 due to principal payments made on the USDA and Iowa Finance Authority loans. ANALYSIS OF REVENUES AND EXPENDITURES The Statement of Revenues, Expenses and Changes in Net Position identifies the various revenue and expense items which affect the change in net position. CONDENSED STATEMENT OF REVENUES EXPENSES AND CHANGES IN NET POSITION NET PERCENT CHANGE CHANGE Revenues: Grant income 1,000 64,303 (63,303) (98.4) Operating revenues 352, ,343 8, Mise Income 5,009 7,194 (2, 185) (30.4) Interest Income Total Revenue 359, ,391 (56,816) (13.6) Expenses: Operating Expenses 208, ,067 62, Depreciation 334, ,501 1, Interest Expense 92,888 94,508 {1,620} {1.7} Total Expenses 635, ,076 61, Change in Net Position (276,413) (157,685) Net Position July 1 3,301,412 3,459,097 Net Position June 30 3,024,999 3,301,412 {276,413) (8.4} Grant income decreased $63,300 as USDA grant funds were received in FY17 for the addition of four grinder stations for the Leisure Lake Wastewater Treatment System while no USDA funds were received in FY18. Operating revenue increased approximately $8,600 due to rate increases in Center Junction and Fairview along with the addition of four users to the Leisure Lake system. Miscellaneous income decreased $2,200 as FY17 included insurance proceeds received to repair the Center Junction lift station after it sustained lighting damage. The Operating expense increase of $62,400 primarily consists of an increase of $25,900 in ECIA Administration due to the addition of a part-time staff person to oversee EIRUSS operations, an increase of $32,300 in operations and maintenance expense and the expensing of $3,600 in Leisure Lake spare parts inventory. The operations and maintenance expense increase was primarily the result of lift station and grinder pump repair issues in Fairview and Leisure Lake. -9-

10 EASTERN IOWA REGIONAL UTILITY SERVICE SYSTEMS MANAGEMENT'S DISCUSSION AND ANALYSIS JUNE 30, 2018 OVERVIEW OF BUDGETS EIRUSS annually adopts an operating budget on a basis consistent with generally accepted accounting principles. Construction (development) budgets are established throughout the year as new projects are approved. CAPITAL ASSETS AND DEBT ADMINISTRATION As of June 30, 2018, EIRUSS had $6,714,455 invested in capital assets (net of depreciation), including a water treatment building and reservoir in Andover and Center Junction, Iowa and a lagoon, lift station and collection system in Center Junction, Fairview and Leisure Lake, Iowa. Also included in capital assets is $218,802 in prepaid development costs on four additional wastewater system projects, one water system project and the engineering and design work for the expansion of the Leisure Lake system. Total outstanding debt was $4,057,820, which represents the outstanding balance of the USDA long-term loans for the Center Junction wastewater system ($179,551), the Andover water system ($158,835), the Fairview wastewater system ($553,406) and the Leisure Lake wastewater system ($2,798,092); SRF Loans for the Center Junction water system ($187,000), the Droessler water project ($47,898), the Petersburg sewer project ($93,956) and the Leisure Lake wastewater system expansion ($34,082); and a $5,000 note payable to Clinton County for the benefit of the Andover water system. ECONOMIC FACTORS AND NEXT YEAR'S BUDGET EIRUSS's management and the Board of Commissioners considered many factors when setting the fiscal year 2019 development and operating budgets. Rate increases were approved and implemented for all of the systems. USDA funding in the amount of $535,000 has been secured for the expansion of the Leisure Lake wastewater system. This will result in 25 users being added to the system. Additional projects are dependent on USDA and other funding sources. Decreases in Federal funding levels will continue to be a concern in the year ahead. As we progress into 2019, we will continue to work collaboratively, developing new and building on already successful partnerships, while management remains committed to building strong and healthy communities and making our region a great place to live and work. FINANCIAL CONTACT These financial statements are designed to provide our member communities, funding agencies and creditors with a general overview of EIRUSS's finances and to show EIRUSS's accountability for the money it receives. Questions concerning any of the information provided in this report or requests for additional information should be addressed to Mark Schneider, ECIA's Director of Community Development and Public Services or Lisa Weinhold, Director of Finance and Human Resources, 7600 Commerce Park, Dubuque, la

11 BASIC FINANCIAL STATEMENTS -11-

12 STATEMENT OF NET POSITION June 30, 2018 CURRENT ASSETS Cash and cash equivalents Cash and cash equivalents - Accounts receivables Inventory Prepaid expense Total current assets NONCURRENT ASSETS Land Plant and equipment Lift station Grinder pumps Construction in progress Less accumulated depreciation Total noncurrent assets Total assets ASSETS restricted $ $ 168, ,074 49,118 7,176 4, , ,864 4,668,251 1,426,188 1,765, ,802 (1, 675, 491) 6,714,455 7,102,303 CURRENT LIABILITIES Accounts payable Accrued interest Unearned revenue Customer deposits Loans payable - current Total current liabilities NONCURRENT LIABILITIES Notes payable Loans payable Total noncurrent liabilities Total liabilities NET POSITION Net investment in capital assets Restricted Unrestricted Total net position LIABILITIES AND NET POSITION Total liabilities and net position $ $ 9,951 6, ,600 88, ,155 5,000 3,964,149 3,969,149 4,077,304 2,661, , ,891 3,024,999 7,102,303 The accompanying notes are an integral part of this statement. -12-

13 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Year ended June 30, 2018 OPERATING REVENUE Grant income Service fees collected Miscellaneous income Total operating revenue OPERATING EXPENSE Administrative expense Architect and engineering fees Audit fees Legal fees Subcontractor costs Other costs Depreciation expense Service fee costs Total operating expense Less construction in progress Net operating expense Operating income (loss) NONOPERATING REVENUE (EXPENSE) Interest income Interest expense Net nonoperating revenue Change in net position NET POSITION AT JULY 1, 2017 NET POSITION AT JUNE 30, 2018 $ 1, ,955 5, ,964 5,318 62,544 2, ,371 1, , , ,752 66, ,100 (184,136) 611 (92,888) (92,277) (276,413) 3,301,412 $ 3,024,999 The accompanying notes are an integral part of this statement. -13-

14 STATEMENT OF CASH FLOWS Year ended June 30, 2018 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers Cash received from grants Miscellaneous income Cash payments to vendors Net cash provided by (used in) operating activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets Loan proceeds Principal payments Interest paid Net cash provided by (used in) capital and related financing activities CASH FLOWS FROM INVESTING ACTIVITIES Interest received Net increase in cash and cash equivalents CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR $ 348,444 1,000 5,009 (209, 079) 145,374 (66,652) 59,222 (72,358) (93,040) (172,828) 611 (26, 843) 354,314 $ ==3=2=7='=4=7=1 = RECONCILIATION OF CASH AND CASH EQUIVALENTS PER STATEMENT OF CASH FLOWS TO THE STATEMENT OF NET POSITION Cash and cash equivalents Cash and cash equivalents - restricted Cash and cash equivalents per Statement of Net Position $ 168, ,074 $ ==3=2=7='=4=7=1 = The accompanying notes are an integral part of this statement. -14-

15 STATEMENT OF CASH FLOWS - CONTINUED Year ended June 30, 2018 RECONCILIATION OF OPERATING INCOME TO TO NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM OPERATING ACTIVITIES Operating (loss) Adjustments to reconcile operating (loss) to net cash provided by operating activities: Depreciation Changes in assets and liabilities: (Increase) decrease in assets Accounts receivable Inventory Prepaid expense Increase (decrease) in liabilities Accounts payable Unearned revenue Customer deposits Net cash provided by (used in) operating activities $ (184, 136) 334,673 (6,304) 3,670 (240) (4, 081) (308) 2,100 $ ==1=4=5='=3=7=4 = The accompanying notes are an integral part of this statement. -15-

16 NOTES TO FINANCIAL STATEMENTS June 30, 2018 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity - On February 11, 2005, the Eastern Iowa Regional Utility ("Commission") was created as a public body corporate and politic and separate legal entity pursuant to Chapter 28E of the Code of Iowa by the Counties of Cedar, Clinton, Delaware, Jackson and Jones, Iowa. The Commission was created for the purpose of planning, designing, developing, financing, constructing, owning, operating and maintaining essential facilities and services including, but not limited to, wastewater treatment systems and water systems for and on behalf of the Counties and the cities and unincorporated areas within the Counties. All the programs of the Commission are included in these statements. The Commission has no component units. Basis of Accounting and Measurement Focus The Commission's basic financial statements are prepared on the full accrual basis of in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The Commission applies all pronouncements of the Governmental Accounting Standards Board (GASB) as well as U.S. GAAP, as codified by the Financial Accounting Standards Board (FASB). All activities of the Commission are accounted for within one proprietary (enterprise) fund. A proprietary fund is 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 government 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. 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 a proprietary fund's principal ongoing operations. The principal operating revenues of the Commission are charges for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. The transactions of the Commission are accounted for on a flow of economic resources measurement focus. With 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 components. When both restricted and unrestricted resources are available for use, it is the Commissions policy to use restricted resources first, and then unrestricted resources as they are needed. -16-

17 NOTES TO FINANCIAL STATEMENTS - CCONTINUED June 30, 2018 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Cash and Cash Equivalents - For purposes of the statement of cash flows, the Commission considers all highly liquid investments with an initial maturity of three months or less when acquired to be cash equivalents. Cash and Cash Equivalents Restricted Restricted cash is segregated resources for debt service and depreciation reserves and utility deposits. Accounts Receivable - Accounts receivable have been shown at gross amount. No provision for uncollectible accounts receivable has been provided since it is believed that the amount of such allowance would not be material. There is no unbilled revenue at June 30, Inventory - Inventories are The cost of inventories is than when purchased. valued at cost on a first-in, first-out basis. recorded as expenditures when consumed rather Prepaid Expenses - Prepaid expenses represent payments made to vendors for services that will benefit beyond June 30, Capital Assets Buildings and all equipment are carried at cost and depreciated on a straight-line basis over 5-40 years. When property is retired or otherwise removed from service, the accumulated provision for depreciation for that asset and its cost are removed from capital assets. Any gain or loss realized from retirement or removal is reported on the Statement of Revenues, Expenses and Changes in Net Position. Additions to and replacements of utility plant capital assets are recorded at original cost, which includes material, labor, overhead, and an allowance for the cost of funds used during construction when significant. The cost of renewals and betterments relating to retirement units is added to plant accounts. Construction period interest is capitalized on utility property as incurred. The amount of interest to be capitalized is calculated by offsetting interest expense incurred from the date of the borrowing until completion of the project with interest earned on invested proceeds over the same period. Capitalized interest cost is amortized on the same basis as the related asset is depreciated. Claims and Judgments - Claims and judgments are recorded as liabilities if all the conditions of Governmental Accounting Standards Board pronouncements are met. Claims and judgments are recorded in the proprietary funds as expenses when the related liabilities are incurred. There were no significant claims or judgments at year-end. -17-

18 NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2018 NOTE A - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Grinder Pump Reserve - An additional $5.00 per household or business is added to the monthly sewer bills of customers in the Fairview North extension of the Fairview Wastewater System for the use of grinder pumps. These funds are set aside for repair and replacement of the pumps. Customer Deposits Deposits are required of all Center Junction water system customers having no established credit and of those who have an unacceptable credit record or who have a prior record of unpaid water bills. Net Position Classifications Net position represents the difference between the total assets and the total liabilities. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for acquisition, construction or improvements of those assets. Net position is reported as restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors or laws or regulations of other governments. 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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Construction Projects - There are certain major construction projects in process at June 30, 2018 totaling $218,802. Subsequent Events - On July 29, 2015, an Iowa State Revolving Fund planning and design loan was approved for engineering, land acquisition and related work on the Petersburg sewer system project for $25, 000. As of June 30, 2018, EIRUSS has drawn $15,300 from this loan. On September 18, 2015, an Iowa State Revolving Fund planning and loan was approved for engineering, land acquisition and related work Droessler water system project for $54, 400. As of June 30, 2018, has drawn $47,898 from this loan. On September 23, 2016, an Iowa State Revolving Fund planning and loan was approved for engineering, land acquisition and related work Petersburg sewer system project for $289,500. As of June 30, 2018, has drawn $78,656 from this loan. design on the EIRUSS design on the EIRUSS On March 21, 2017, an Iowa State Revolving Fund planning and design loan was approved for engineering, land acquisition and related work on the Leisure Lake sewer system project for $57,300. As of June 30, 2018, EIRUSS has drawn $34,082 from this loan. -18-

19 NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2018 NOTE B - CASH AND CASH EQUIVALENTS The Commission is authorized by statute to invest public funds in obligations of the United States government, its agencies and instrumentalities; certificates of deposit or other evidences of deposit at federally-insured depository institutions approved by the Commission; prime eligible bankers acceptances; certain high rated commercial paper; perfected repurchase agreements; certain registered open-end management investment companies; certain joint investment trusts; and warrants or improvement certificates of a drainage district. At June 30, 2018, the Commission reported cash and cash equivalents as follows: Cash and cash equivalents Cash and cash equivalents - Total restricted $ 168, ,074 $ 327,471 ====== Fair Value of Deposits - Deposits are reported at fair value. At June 30, 2018, the fair value of the Commission's deposits approximated original cost; therefore, no fair value adjustments were necessary. Determining Fair Value Fair value of the Commission's deposits are determined by deposits with stated interest rates (operating accounts, savings accounts, certificate of deposit, repurchase agreements, and money market accounts) are stated at cost. Income Allocation - Interest income is generally allocated equally to the four projects, with Center Junction's share split between water and sewer. Custodial Credit Risk - Deposits: Custodial credit is the risk that, in the event of a bank failure, the Commission's deposits may not be returned to it. The Commission does not have a deposit policy for custodial risk. As of June 30, 2018, none of the Commission's $345,733 bank balance was exposed to custodial risk. The Commission's deposits in banks were entirely covered by federal depository insurance or by the State Sinking fund in accordance with Chapter 12C of the Code of Iowa. This Chapter provides for additional assessments against the depositories to ensure there will be no loss of public funds. The Commission had no investments Governmental Accounting Standards Statement No. 40. meeting the disclosure Board Statement No. 3, requirements as amended of by -19-

20 NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2018 NOTE C - CAPITAL ASSETS A summary of changes in capital assets is as follows: Andover Water System Land (non-depreciated) Depreciated assets: Well and well pump Distribution system Storage reservoir Treatment building Other capitalized costs Accumulated depreciation Well and well pump Distribution system Storage reservoir Treatment building Other capitalized costs Net capital assets Center Junction Wastewater System Land (non-depreciated) Depreciated assets: Collection system Lift station Service lines Lagoon Other capitalized costs Accumulated depreciation: Collection system Lift station Service lines Lagoon Other capitalized costs Net capital assets Water System Land (non-depreciated) Depreciated assets: Well and well pump Distribution system Storage reservoir Treatment building Other capitalized costs $ Balance 6/30/17 1, , , , , , ,709 29,618 36,723 16,458 26,256 22, , ,600 61, ,831 40,000 61, , , ,938 67' ,083 12,449 39,121 43, , ,284 20,000 36, ,000 71, , , ,635 $ Additions 3,737 4,543 2,036 3,248 2, ,293 (16,293) 8,396 1,000 1,540 4,840 5,336 21,112 (21,112) $ Reductions Balance 6/30/18 $ 1, , ,724 81, , , ,709 33,355 41,266 18,494 29,504 24, , ,307 61, ,831 40,000 61, , , ,938 76,263 9,083 13,989 43,961 48, , ,172 20,000 36, ,000 71, , , ,

21 NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2018 NOTE C - CAPITAL ASSETS - CONTINUED A summary of changes in capital assets is as follows: Center Junction - continued Water System - continued Accumulated depreciation: Well and well pump Distribution system Storage reservoir Treatment building Other capitalized costs Net capital assets Fairview Wastewater System Land (non-depreciated) Depreciated assets: Equipment Storage shed Collection system Lift station Grinder pumps Service lines Lagoon Other capitalized costs Accumulated depreciation: Equipment Storage shed Collection system Lift station Grinder pumps Service lines Lagoon Other capitalized costs Net capital assets Leisure Lake Wastewater System Land (non-depreciated) Depreciated assets: Collection system Lift station Grinder pumps Service lines Lagoon Other capitalized costs Balance 6/30/17 3,800 14,250 3,592 5,732 5,796 33, ,465 1,345,749 37,762 3,959 5, , ,388 81, , , ,319 1,261,848 1,122 1,722 12,412 17,420 32,480 36,385 42,361 44, ,521 1,073, , ,001 1,250,800 1,684, , , ,320 4,726,014 Additions 1,900 7,125 1,797 2,866 2,896 16,584 (16,584) ( ) ,526 3,384 8,120 7,075 7,786 10,680 40,944 (40,944) Reductions Balance 6/30/18 5,700 21,375 5,389 8,598 8,692 49, ,881 1,308,053 37,762 3,959 5, , ,388 81, , , ,319 1,261,848 1,914 2,303 14,938 20,804 40,600 43,460 50,147 55, ,465 1,032, , ,001 1,250,800 1,684, , , ,320 4,726,

22 NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2018 NOTE C - CAPITAL ASSETS - CONTINUED A summary of changes in capital assets is as follows: Balance 6/30/17 Additions Reductions Leisure Lake Wastewater System Accumulated depreciation: Collection system 25,112 7,175 Lift station 109,445 31,270 Grinder pumps 570, ,464 Service lines 13,160 3,760 Lagoon 38,283 10,938 Other capitalized costs 60,503 18, , ,740 Net capital assets 3,908,650 (239, 740) Other projects Prepaid development costs capitalized not depreciated 152,150 66,652 Total net capital assets $ 6,982,476 $ (268,021) $ Balance 6/30/18 32, , ,325 16,920 49,221 78,636 1,057,104 3,668, ,802 $ 6,714,455 A summary of changes in construction in progress is as follows: Balances Projects 6/30/17 Additions Reductions Prepaid development costs capitalized not depreciated Droessler $ 47,972 $ $ Elvira 8,296 Lake Delhi 9,916 Leisure Lake 7,800 26,584 Morley 132 Petersburg 78,034 40,068 Total construction in progress $ 152,150 $ 66,652 $ Balances 6/30/18 $ 47,972 8,296 9,916 34, $ 218,

23 NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2018 NOTE D - LOAN RESERVES The Commission secured loans from the USDA which require certain amounts to be reserved for operations and maintenance, debt service and depreciation. As of June 30, 2018 the sum of these reserve balances were as follows: Center Leisure Andover Junction Fairview Lake Total Debt service $ 7,956 $ 9,396 $ 11' 033 $ 41,492 $ 69,877 Depreciation 13,320 15,894 11,446 45,936 86,596 Totals $ 21,276 $ 25,290 $ 22,479 $ 87,428 $ 156,473 The debt service requires annual deposits of $918 for Andover, $1,044 for Center Junction, $2,244 for Fairview and $11,316 for Leisure Lake until they are fully funded. Andover will be fully funded when it reaches $9,180 in fiscal year 2020, Center Junction when it reaches $10,440 in fiscal year 2019, Fairview when it reaches $22,440 in fiscal year 2024, and Leisure Lake when it reaches $95,740 in fiscal year Annual depreciation deposits of $1,537 for Andover, $1,766 for Center Junction, $2,328 for Fairview and $12,528 for Leisure Lake are required, until the loan is paid in full. The future debt service and depreciation reserve required deposits are as follows: Center Leisure Andover Junction Fairview Lake Total 2019 $ 2,455 $ 2,810 $ 4, 572 $ 23,844 $ 33, ,843 1,766 4,572 23,844 32, ,537 1,766 4, ,844 31, ,537 1,766 4,572 23,844 31, ,537 1,766 4,572 21,512 29, ,685 8,830 11' ,640 90, ,685 8,830 11' ,640 90, ,685 8,830 11,640 62,640 90, ,685 8,830 11,640 62,640 90, ,685 8,683 11,640 62,640 90, ,537 11,640 62,640 75, ,132 3,132 Totals $ 48,871 $ 53,877 $ 92,887 $ 495,860 $ 691,495 NOTE E - NONCURRENT LIABILITIES Summary of the Commission's noncurrent liabilities are set below: Balance Balance Current 06/30/17 Additions Reductions 06/30/18 Maturity Note payable $ 5,000 $ $ $ 5,000 Loans payable 4,065,955 59,222 72,358 4,052,819 88,671 Totals $ 4,070,955 $ 59,222 $ 72,358 $ 4,057,819 $ 88,671 The $5,000 note payable with Clinton County is to be repaid over ten years at zero percent interest. No date has been set to begin payments. -23-

24 NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2018 NOTE E - NONCURRENT LIABILITIES - CONTINUED Details of the Commission's loans payable are set below: Detailed Description Balance at 6/30/18 Due Within One Year Center Junction $199,796 sewer revenue bonds financed by the USDA dated June 3, 2009, and due in monthly installments of $870, including interest at 4.125% per annum beginning August 1, 2010, until May 1, 2048 $ 179,551 $ 3,093 Andover $140,000 utility bonds financed by the USDA dated November 3, 2009, and due in monthly installments of $609, including interest at 4.125% per annum beginning August 1, 2011, until June 1, ,753 2,077 Andover $33,000 utility bonds financed by the USDA dated November 3, 2009, and due in monthly installments of $152, including interest at 4.50% per annum beginning August 1, 2011, until November 1, , Andover $1,000 utility bonds financed by the USDA dated November 3, 2009, and due in monthly installments of $4 including including interest at 2.50% per annum beginning August 1, 2011, until December 1, Fairview $373,000 utility bonds financed by the USDA dated July 11, 2014, and due in monthly installments of $1,246 including interest at 2.375% per annum beginning July 1, 2015, with interest only payments for the first two years. 353,762 6,620 Fairview $210,860 utility bonds financed by the USDA dated July 11, 2014, and due in monthly installments of $663 including interest at 2.00% per annum beginning July 1, 2015, with interest only payments for the first two years. 199,644 3,626 Leisure Lake $2,656,000 utility bonds financed by the USDA dated November 6, 2014, and due in monthly installments of $8,686 including interest at 2.25% per annum beginning December 6, 2016, with interest only payments for the first two years 2,583,044 46,649 Leisure Lake $221,000 utility bonds financed by the USDA dated November 4, 2014, and due in monthly installments of $739 including interest at 2.375% per annum beginning December 6, 2016, with interest only payments for the first two years 215,048 3,806 Center Junction $216,000 water revenue bond financed by the Iowa Finance Authority dated June 5, 2015, due in annual installments beginning June 1, 2016, and interest at 1.75% per annum payable semi-annually. 187,000 7,

25 NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2018 NOTE E - NONCURRENT LIABILITIES - CONTINUED Details of the Commission's loans payable are set below: Detailed Description Balance at 6/30/18.Due Within One Year Droessler $54,400 water revenue bond financed by the Iowa Finance Authority dated September 18, 2015, payable as to principal in full on October 4, 2021, at 0% interest. Petersburg $25,000 sewer revenue bond financed by the Iowa Finance Authority dated September 18, 2015, payable as to principal in full on September 18, 2018, at 0% interest. Petersburg $289,500 sewer revenue bond financed by the Iowa Finance Authority dated September 23, 2016, payable as to principal in full on September 23, 2019, at 0% interest. Leisure Lake $57,300 sewer revenue bond financed by the Iowa Finance Authority dated March 24, 2017, payable as to principal in full on March 24, 2020, at 0% interest. Total loans payable Less current maturities 47,898 15,300 78,656 34,082 4,052,820 88,671 15,300 $ ==8 8='=6=7=1 = Total noncurrent loans payable $ ==3='=9=6=4='=1=4=9= Maturities of Commission's loans payable at June 30, 2018 are as follows: Principal 2019 $ 88, , , , , , , , , , , ,888 $ 4,052,820 $ Interest 92,310 90,563 88,775 86,944 85, , , , , ,146 53,485 2,454 $===1='=85=0=,7=6=5== $ Total 180, , , , , , , , , , , ,342 $==5=, 9=0=3='=5=8=5= -25-

26 NOTES TO FINANCIAL STATEMENTS - CONTINUED June 30, 2018 NOTE F - RELATED PARTY The Eastern Iowa Regional Utility, related to the East Central Intergovernmental Commission through common management, is provided management services and office space. Balances with ECIA at and for the years ended June 30, 2018 and June 30, 2017 are as follows: Accounts payable Management services $ 7,797 $ 68,163 $ 2,754 $ 47,463 NOTE G - BUDGETS The Commission is not required to adopt a by-laws. The Commission prepares budgets decide to pursue and utilize them at this through to completion. formal budget per the existing specific to each project they level to manage their progress NOTE H - RISK MANAGEMENT The Commission is exposed to various risks of loss related to torts; theft; damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. These risks are covered by the purchase of commercial insurance. Settled claims from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. NOTE I - NET POSITION The following is a summary of individual net asset restrictions at June 30, 2018: Project PURPOSE AMOUNT Andover Reserve Deposits $ 21,276 Center Junction Reserve Deposits 25,290 Fairview Reserve Deposits 22,479 Leisure Lake Reserve Deposits 87,428 $ 156,

27 SUPPLEMENTARY INFORMATION -27-

28 COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Year ended June 30, 2018 Center Junction Andover Sewer Water Fairview OPERATING REVENUE Grant income $ $ $ $ Service fees collected 32,988 31,207 30,820 42,318 Miscellaneous income Total operating revenue 33,074 31,387 30,905 42,681 OPERATING EXPENSE Administrative expense Architect and engineering fees Audit fees Legal fees Insurance , Other costs Depreciation expense 16,293 21,112 16,584 40,944 Service fee costs 20,330 30,768 32,545 44,376 Total operating expense 37,984 52,608 51,464 86,204 Less construction in progress Net operating expense 37,984 52,608 51,464 86,204 Operating income (loss) (4, 910) (21,221) (20,559) (43,523) NONOPERATING INCOME (EXPENSE) Interest income Interest expense (6,700) (7,464) (3,344) (11, 620) (6,594) ( ) (3,296) (11,514) Change in net position (11,504) (28, 627) (23,855) (55,037) NET POSITION AT JUNE 30, , , , ,618 NET POSITION AT JUNE 30, 2018 $ 329,226 $ 550,096 $ 387,706 $ 455,581 Leisure Lake Droessler Petersburg Subtotal General Total $ $ $ $ $ 1,000 $ 1, , , ,955 2,904 3,618 1,391 5, , ,573 2, ,964 3,928 3,928 1,390 5,318 26,584 35,960 62,544 62, ,980 2, ,447 5,371 5,371 1,175 1, , , ,673 69, , , ,859 40, ,187 2, ,752 26,584 40,068 66,652 66, , ,535 2, ,100 (93, 749) (183,962) (174) (184,136) (63,760) (92,888) (92,888) (63,654) (92,464) 187 (92,277) (157,403) (276,426) 13 (276,413) 1,367,693 3,209,325 92,087 3,301,412 $ 1,210,290 $ $ $ 2,932,899 $ 92,100 $ 3,024,

29 Dubuque, Iowa SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For the year ended June 30, 2018 Federal Grantor/Program Title/ Catalog Award Award Name and Number Number Amount Federal Expenditures UNITED STATES DEPARTMENT OF AGRICULTURE - Direct Programs Water and Waste Disposal Systems for Rural Communities Center Junction $ 199,796 Andover ,000 Andover ,000 Andover ,000 Fairview ,000 Leisure Lake ,656,000 Fairview ,860 Leisure Lake ,000 TOTAL EXPENDITURES OF FEDERAL AWARDS $ 182, ,746 30, ,495 2,628, , ,761 $ 3,755,243 NOTE 1 - Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of the Eastern Iowa Regional Utility Service Systems Commission ("Commission") and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the presentation of the financial statements. -29-

30 Dubuque, Iowa SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS - For the year ended June 30, 2018 Continued NOTE 2 - Summary of Significant Accounting Policies Expenditures presented on this schedule are reported on the accrual basis basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. The Commission has elected not to use the 10-percent de minimus indirect cost rate allowed under the Uniform Guidance NOTE 3 - Disclosure of Other Forms of Assistance The Eastern Iowa Regional Utility has guaranteed debt in bonds financed by the U.S. Department of Agriculture in the amount of $3,689,884 as of June 30, NOTE 4 - Subrecipients The Commission provided no federal awards to subrecipients during the fiscal year ending June 30,

31 OTHER REPORTS -31-

32 609 S. 4th Street, Suite B La Crosse, WI Phone: Fax: <.ertifi~d Public Accountants Your Business Safety Net INDEPENDENT AUDITOR'S 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 Board of Commissioners Eastern Iowa Regional Utility Dubuque, Iowa We have audited in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the Eastern Iowa Regional Utility ("Commission"), as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the Commission's basic financial statements and have issued our report thereon November 5, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Commission's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Commission's internal control. Accordingly, we do not express an opinion on the effectiveness of the Commission's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Commission's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. -32-