PORT HOPE GORE RUBICON UTILITY AUTHORITY HURON COUNTY, MICHIGAN FINANCIAL STATEMENTS FISCAL YEAR ENDED MARCH 31, 2016 and 2015
TABLE OF CONTENTS PAGE Independent Auditors Report 1 2 Management s Discussion and Analysis 3 6 Basic Financial Statements Statement of Net Position 7 Statement of Revenues, Expenses, and Changes in Net Position 8 Statement of Cash Flows 9 Notes to Basic Financial Statements 10 15 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 16-17
1010 N. JOHNSON STREET BAY CITY, MICHIGAN 48708 Phone: (989) 892-4549 Fax: (989) 892-4030 Partners: Timothy J. Quast, C.P.A. David G. Gwizdala, C.P.A. INDEPENDENT AUDITORS REPORT Members: American Institute of C.P.A.'s Michigan Association of C.P.A.'s To the Board of Directors Port Hope - Gore - Rubicon Utility Authority Bay County, Michigan We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Port Hope - Gore - Rubicon Utility Authority, as of and for the years ended and 2015 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 fraud or error. Auditor s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by 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. -1-
Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Port Hope - Gore - Rubicon Utility Authority as of and 2015, and the respective changes in financial position and cash flows for the years 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 information be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated July 22, 2016 on our consideration of the Authority s internal control over financial reporting and 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 Port Hope - Gore - Rubicon Utility Authority s internal control over financial reporting and compliance. QUAST, JANKE AND COMPANY Quast, Janke and Company July 22, 2016-2-
PORT HOPE GORE RUBICON UTILITY AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS This section of the Port Hope Gore Rubicon Utility Authority s Financial Report presents Management s Discussion and Analysis of the Authority s financial activities during the fiscal year ended. The analysis focuses on the Authority s financial performance as a whole. Please read it in conjunction with the Authority s financial statements, which immediately follow this section. FINANCIAL HIGHLIGHTS The assets of the Port Hope - Gore - Rubicon Utility Authority exceeded liabilities at, by $ 2,116,520. The unrestricted portion of net position is $ 763,375 this amount is unrestricted and may be used to meet the Authority s ongoing obligations to citizens and creditors. As of the close of the current fiscal year the Authority s net position decreased by $ 33,370 as compared to a prior year increase of $ 45,688. OVERVIEW OF FINANCIAL STATEMENTS The annual report consists of a series of financial statements as well as other requirements as follows: Management s Discussion and Analysis introduces the basic financial statements and provides an analytical overview of the Authority s financial activities. Financial Statements consists of Statements of Net Position; Statements of Revenues, Expenses and Changes in Net Position; and Statements of Cash Flows. The financial statements provide information on all of the functions of the Authority as business type activities. The activities of the Authority are s Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the basic financial statements. REPORTING THE CITY AS A WHOLE The Statements of Net Position, the Statement of Revenues Expenses and Changes in Net Position and the Statement of Cash Flows report information about the Authority as a whole using accounting methods similar to those used by private sector companies. The Statement of Net Position includes all of the Authority s assets and liabilities. -3-
PORT HOPE - GORE - RUBICON UTILITY AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS One of the most important questions asked about the Authority s finances is; is the Authority as a whole better or worse off as a result of the year s activities? The Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Net Position report information about the Authority as a whole and about its activities in a way that helps answer this question. These statements include all assets and liabilities using the accrual basis of accounting, which is very similar to the method of accounting used by most private sector companies. These two statements report the Authority s net position, which is the difference between assets and liabilities, as one way to measure the Authority s financial health, or financial position. Over time, increases or decreases in the Authority s net position are one indicator of whether its financial health is improving or deteriorating. In the Statements of Net Position and the Statements of Revenues Expenses and Changes in Net Position, all the activities are reported as business type activities: Business-Type Activities All of the Authority s basic services are reported here, such as the provision of water distribution to its customers. Customer charges finance most of these activities. Governmental Activities The Authority has no governmental activities. FINANCIAL ANALYSIS As noted earlier, Statement of Net Position serves, over time, as useful indicators of financial position. The following is a Condensed Statement of Net Position as of and 2015: March 31, 2015 Current Assets $ 799,393 $ 784,724 Capital Assets (Net) 2,593,152 2,717,131 Other Assets 256,488 235,805 Total Assets 3,649,033 3,737,660 Current Liabilities 91,018 92,274 Long Term Liabilities 1,441,495 1,495,495 Net Position $ 2,116,520 $ 2,149,890 Net Position decreased for the year ended by $ 33,370. Total unrestricted net position, the part of net position that can be used to finance day-to-day operations without constraints established by debt covenants, legislation, or other legal requirements is $ 763,375 as of as compared to an unrestricted net position at March 31, 2015 of $ 763,254. -4-
PORT HOPE - GORE - RUBICON UTILITY AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS The following is a Condensed Statements of Revenues, Expenses and Changes in Net Position for the years ended and 2015 March 31, 2015 Operating Revenues $ 378,219 $ 408,341 Interest Income 5,612 2,444 Total Revenues 383,831 410,785 Expenses: Depreciation 123,979 123,739 Other Operating Expenses 221,712 166,951 Interest of Debt 71,510 74,407 Total Expenses 417,201 365,097 Change in Net Position (33,370) 45,688 Net Positon Beginning Year 2,149,890 2,104,202 Net Position End of Year $ 2,116,520 $ 2,149,890 The Authority s change in net position for the current year is a decrease of $ 33,370 as compared to an increase in net position from the previous year of $ 45,688. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets - The Authority s investment in capital assets net of accumulated depreciation as of was $ 2,593,152 compared to $ 2,717,131 in 2015. The net decrease in capital assets is due to current year depreciation on the remaining assets. There were no capital asset acquisitions in the current year. The following summarizes the Authority s capital assets. Capital Assets March 31, 2015 Water System $ 4,662,859 $ 4,662,859 Water Tower 295,482 295,482 Water Meters 63,705 63,705 Office Equipment 11,749 11,749 Accumulated Depreciation (2,440,643) (2,316,664) Net Capital Assets $ 2,593,152 $ 2,717,131 All Capital Assets are being depreciated using straight line method on estimated useful lives. The Authority has no Capital Assets not being depreciated, such as land. -5-
PORT HOPE - GORE - RUBICON UTILITY AUTHORITY MANAGEMENT S DISCUSSION AND ANALYSIS Long Term Debt - The Authority has three outstanding revenue bonds with USDA Rural Development, the bonds mature through 2035. Following is a summary of outstanding bond debt. Balance Principal Balance March 31, 2015 Payments 1993 Water Supply Revenue Bonds $ 937,000 $ 31,000 $ 906,000 2004 Water Supply Revenue Bonds 287,000 9,000 278,000 2010 Water Supply Revenue Bonds 324,495 12,000 312,495 Total $ 1,548,495 $ 52,000 $ 1,496,495 ECONOMIC FACTORS Our officials consider many factors when setting the Authority s 2016 fiscal year budget. One of the most important factors affecting the budget is our customers water usage and costs related to providing the water distribution to our residents. CONTACTING THE AUTHORITY S FINANCIAL MANAGEMENT This financial report is designed to present our citizens, taxpayers, customers, investors, and creditors with a general overview of the Authority s finances and operating activities. If you have any questions or require additional information please contact the Administration at Port Hope - Gore - Rubicon Utility Authority, P.O. Box 149, Port Hope, Michigan, 48468. -6-
PORT HOPE - GORE - RUBICON UTILITY AUTHORITY STATEMENT OF NET POSITION and 2015 March 31, 2015 Assets Current Assets Cash and Cash Equivalents $ 641,598 $ 621,688 Accounts Receivable 100,071 99,613 Special Assessment Receivable 45,758 48,248 Due From Other Government Units 10,106 13,441 Prepaid Insurance 1,860 1,733 Total Current Assets 799,393 784,724 Capital Assets Water System 4,662,859 4,662,859 Water Tower 295,482 295,482 Meters 63,705 63,705 Office Equipment 11,749 11,749 Less: Accumulated Depreciation (2,440,643) (2,316,664) Net Capital Assets 2,593,152 2,717,131 Other Assets Unamortized Bond Issue Costs - 17,805 Restricted cash - debt reserves 256,488 218,000 Total Other Assets 256,488 235,805 Total Assets $ 3,649,033 $ 3,737,660 Liabilities Current Liabilities Bonds Payable, Current Portion $ 55,000 $ 53,000 Acrrued Interest 12,682 13,270 Payroll Taxes - - Due to Other Government Units 20,871 21,319 Accounts Payable 2,465 4,685 Total Current Liabilities 91,018 92,274 Long Term Liabilities Bonds Payable, Net of Current Portion 1,441,495 1,495,495 Total Long Term Liabilities 1,441,495 1,495,495 Total Liabilities 1,532,513 1,587,769 Net Position Net Investment in Capital Assets 1,096,657 1,168,636 Restricted for Debt 256,488 218,000 Unrestricted 763,375 763,254 Total Net Position $ 2,116,520 $ 2,149,890 The accompanying notes are an integral part of the financial statements -7-
PORT HOPE - GORE - RUBICON UTILITY AUTHORITY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For the Years Ended and 2015 March 31, 2015 Revenues Water Usage $ 357,738 $ 354,000 Water Fees 14,107 - Special Assessment - 48,248 Water Hookups 6,374 6,093 Total Revenues 378,219 408,341 Operating Expenses Bank Service Charges - 7 Contractual Services 9,131 6,293 Depreciation 123,979 123,739 Dues and Memberships 2,366 2,482 Insurance 5,734 5,571 Legal and Professional 34,099 10,421 Office Supplies and Postage 1,218 1,212 Printing 164 976 Repairs and Maintenance 18,998 5,303 Rental Expense 500 500 Sewer Collections 69,493 70,764 Supplies 6,240 504 Taxes - Payroll 1,602 1,486 Travel and Conference - 756 Utilities 282 418 Wages 20,939 19,425 Water Purchased 33,141 39,845 Total Operating Expenses 327,886 289,702 Operating Income (Loss) 50,333 118,640 Nonoperating Revenues (Expenses) Interest Income 5,612 2,444 Amortization of Bond Cost (17,805) (989) Interest Expense (71,510) (74,407) Total Nonoperating Revenues (Expenses) (83,703) (72,952) Change in Net Position (33,370) 45,688 Net Position, Beginning of Year 2,149,890 2,104,202 Net Position, End of Year $ 2,116,520 $ 2,149,890 The accompanying notes are an integral part of the financial statements -8-
PORT HOPE - GORE - RUBICON UTILITY AUTHORITY March 31, 2015 Cash Flows from Operating Activities Cash Received From Customers $ 380,203 $ 351,873 Cash Received From Other Funds for Services - Other Operating Cash Receipts - - Cash Payments to Suppliers (182,968) (141,864) Cash Payments to Employees for Services (20,939) (19,425) Cash Payments to Other Funds for Services - - Net Cash Provided (Used) by Operating Activities 176,296 190,584 Cash Flows from Capital and Related Financing Activities Acquisition of Capital Assets - (38,548) Nonoperating Income - - Interest Paid on Bonds (71,510) (74,404) Principal Payments on Bonds (52,000) (50,000) Release of Restricted Cash Requirement - - Net Cash Provided (Used) by Capital and Related Financing Activites (123,510) (162,952) Cash Flows from Investing Activities Interest on Investments 5,612 2,444 Net Cash Provided (Used) by Investing Activities 5,612 2,444 Net Increase (Decrease) in Cash 58,398 30,076 Cash, Beginning of Year 839,688 809,612 Cash, End of Year 898,086 839,688 Reconciliation of Income (Loss) From Operationg To Net Cash Provided by Operating Activities STATEMENT OF CASH FLOWS For the Years Ended and 2015 Income (Loss) From Operations 50,333 118,640 Adjustments to Reconcile Income (Loss) From Operations to Net Cash Provided (Used) by Operating Activities: Depreciation 123,979 123,739 Change in Assets and Liabilities: (Increase) Decrease in Accounts Receivable 5,367 (60,529) (Increase) Decrease in Prepaid (127) (11) Increase (Decrease) in Accounts Payable (2,668) (12,368) Increase (Decrease) in Accrued Expenses (588) 21,114 Total Adjustments 125,963 71,944 Net Cash Provided (Used) in Operating Activities $ 176,296 $ 190,584 The accompanying notes are an integral part of the financial statements -9-
PORT HOPE - GORE - RUBICON UTILITY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of Port Hope-Gore-Rubicon Utility Authority (the Authority) conform to accounting principles generally accepted in the United States of America as applicable to governmental units. The following is a summary of the more significant policies used by the Authority. Reporting Entity The Port Hope - Gore - Rubicon Utility Authority, ( Authority ), was established as a municipal authority pursuant to the provisions of Michigan Public Act No. 233 of 1955. It is a joint authority created by contractual agreement between the Village of Port Hope and the townships of Gore and Rubicon. Its purpose is to provide its member Municipalities with a water supply system for the residents and property owners. The Authority is governed by a Board of Trustees, which is comprised of a three (3) representatives from each of the participating municipalities. Each board member is appointed by the Member Municipality. The Authority has followed the guidelines of the Governmental Accounting Standards Board s Statement (GASB) and has determined that no entities should be consolidated into its financial statements as component units, entities for which the government is considered to be financially accountable. Therefore, the reporting entity consists of the primary government financial statements only. Basis of Presentation The accounts of the Authority are organized on the basis of a fund which is considered a separate accounting entity. The operation of the fund is accounted for with a separate set of self- balancing accounts that comprise its assets, liabilities, net position, revenues and expenses. The financial activities of the Authority are recorded in one fund categorized as an Enterprise Fund. Enterprise Funds are the Proprietary Fund Type and are used to account for operations that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. Measurement Focus The accounting and financial reporting treatment applied to a fund is determined by its measurement focus. The proprietary fund is accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets, deferred outflow of resources, liabilities, and deferred inflows of resources associated with the operation of this fund is included on the Statement of Net Position. Fund equity (net position) is segregated into invested in capital assets, restricted and unrestricted net position. -10-
PORT HOPE GORE RUBICON UTILITY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): Basis of Accounting Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. Proprietary funds are accounted for using the accrual basis of accounting. The revenues are recognized when earned, and expenses are recognized when incurred. Report Presentation Management s Discussion and Analysis GASB requires the financial statements be accompanied by a narrative introduction and analytical overview of the Authority s financial activities in the form of management s discussion and analysis (MD&A). This analysis is similar to the analysis provided in the annual reports of private-sector organizations Government-Wide Financial Statements The reporting model includes financial statements prepared using full accrual accounting for all Port Hope Gore Rubicon Utility Authority s activities. This approach includes not just current assets and liabilities, but also capital and other long-term assets as well as long-term liabilities. Accrual accounting also reports all of the revenues and costs of providing services each year, not just those received or paid in the current year or soon thereafter. Government-wide financial statements also include the following: Statement of Net Position The statement of net position is designed to display the financial position of the Primary Government (governmental and business-type activities) and the total of its discretely presented component parts. Port Hope Gore Rubicon Utility Authority reports capital assets in the government-wide statement of net position and reports depreciation expense the cost of using up capital assets in the statement of revenues expenses and changes in net position. The net position of the Utility Authority reports capital assets in the government-wide statement of net position and reports depreciation expense the cost of using up capital assets in the statement of revenues expenses and changes in net position. The net position of the Authority is broken down into three categories: 1) invested in capital assets, net of related debt; 2) restricted; and 3) unrestricted. Statement of Revenues, Expenses and Changes in Net Position This statement reports expenses and revenues in a format that focuses on the cost of each of the Authority s functions. The expense of individual functions is compared to the revenue generated directly by the function. Accordingly, Port Hope Gore Rubicon Utility Authority has recorded capital assets and certain other long-term assets and liabilities in the statement of net position and has reported all revenues and the cost of providing services under the accrual basis of accounting in the statement of revenues expenses and changes in net position. -11-
PORT HOPE GORE RUBICON UTILITY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): Cash and Cash Equivalents Cash and cash equivalents consist of deposits in checking accounts, other demand accounts, and certificates of deposits with an original maturity date less than 90 days from the original issue date. Michigan Compiled Laws, 129.91: authorizes local governmental units to deposit and invest in the accounts of federally insured banks, credit unions, and savings and loan associations that have offices in Michigan. The local unit is allowed to invest in bonds, securities, and other direct obligations of the United States, or any agency or instrumentality of the United States; repurchase agreements; banker s acceptance of United States banks; commercial paper rated within the two highest classifications, which matures not more than 270 days after the date of purchase; obligations of the State of Michigan or its political subdivision which are rated as investment grade; and mutual funds composed of investment vehicles that are legal for direct investment by local units of government in Michigan. The Authority s deposits and investment policy are in accordance with statutory authority. Custodial Credit Risk Custodial credit risk is the risk that in the event of a bank failure, the Authority s deposits may not be returned. Deposits of the Authority are maintained at various financial institutions. At year-end, the carrying amounts and bank balance of the Authority s deposits were $ 898,087, $ 691,418 of which was fully insured through depository insurance arrangements. The Authority s deposits are in accordance with statutory authority. Deferred Outflows/Inflows of resources In addition to assets, the statement of net position and/or balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to future period and so will not be recognized as an outflow of resources (expense) until then. In addition to liabilities the statement of net position and/or balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (revenues) until that time. The Authority had no deferred outflow or inflows of resources as of. -12-
PORT HOPE GORE RUBICON UTILITY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): Capital Assets and Depreciation Capital assets are defined by the Authority as assets with an initial individual cost of more than $ 1,000 and an estimated useful life in excess of two (2) years. Such assets are recorded at a historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Capital assets placed in service are depreciated on a straight-line basis over the following estimated useful lives: Water System and Tower Water Meters Office Equipment 40 years 10 years 2 7 years Cost and related accumulated depreciation are removed from the records when capital assets are sold or abandoned. Risk Management The Authority is expected to various risks of loss related to claims, theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The Authority purchases commercial insurance to provide for these risks. Restricted Assets The terms of the Water System Revenue Bonds with Rural Development requires the Authority to set aside or reserve an amount in a Bond Reserve Account. The cash balance maintained in these accounts are restricted for future principal and interest payments on the debt. An additional reserve is required to be maintained in a replacement and improvement account restricted for future capital repairs and improvements. The required minimum restricted bond reserve is $116,000 and improvement reserve is $114,000. The Authority has complied with the reserve requirements and has restricted cash accounts in excess of the bond requirements. Subsequent Events Management has evaluated subsequent events and transactions for potential recognition and disclosure through July 22, 2016, the date the financial statements were available to be issued. No such significant events or transactions were identified. -13-
2. LONG TERM DEBTS: PORT HOPE GORE RUBICON UTILITY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS The following is a summary of changes in long-term debt for the year ended March 31, 2016. Balance Principal Balance 3-31-15 Payments 3-31-16 $1,272,000 1993 Water Supply System Revenue Bonds, due in annual installments of $11,000 to $81,000 plus interest semi-annually at a rate of 5.25% through March 31, 2033 $ 937,000 31,000 $ 906,000 $360,000 2004 Water Supply System Revenue Bonds, due in annual installments of $6,000 to $20,000 plus interest semi-annually at a rate of 4.375% through April 1, 2035 287,000 9,000 278,000 $503,000 2010 Water Supply System Revenue Bonds, due in annual installments of $10,000 to $21,000 plus Interest semi-annually at a rate of 3.25% through December 1, 2034 324,495 12,000 312,495 $1,548,495 $ 52,000 $1,496,495 The annual principal and interest requirements are as of March 31: Principal Interest Total 2017 $ 55,000 $ 69,884 $ 124,884 2018 57,000 67,367 124,367 2019 59,000 64,722 123,722 2020 64,000 61,972 125,972 2021 66,000 58,989 124,989 2022 69,000 55,900 124,900 2023 2027 405,000 226,952 631,952 2028-2032 641,000 121,116 762,116 2033-2035 80,495 13,506 94,001 Total $ 1,496,495 $ 740,408 $ 2,236,903-14-
3. CAPITAL ASSETS: PORT HOPE GORE RUBICON UTILITY AUTHORITY NOTES TO THE FINANCIAL STATEMENTS Capital asset activity for the year ended was as follows: Balance Additions Balance 3/31/2015 (Deletions) 3/31/2016 Capital asset not being depreciated Land $ 0 $ 0 $ 0 Capital assets being depreciated Water system 4,662,859 0 4,662,859 Water tower 295,482 0 295,482 Water meters 63,705 0 63,705 Office equipment 11,749 0 11,749 Subtotal 5,033,795 0 5,033,795 Less Accumulated Depreciation Water system 2,088,998 116,571 2,205,569 Water tower 152,244 7,387 159,631 Water meter 63,705 0 63,705 Office equipment 11,717 21 11,738 Subtotal 2,316,664 123,979 2,440,643 Net capital assets $ 2,717,131 $ (123,979) $ 2,593,152 4. FUND BALANCE CLASSIFICATION: Net Position Flow Assumption Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the Authority s policy to consider restricted net position to have been depleted before unrestricted net position is applied. Fund Balance Flow Assumption - Sometime a government will fund outlays for a particular purpose from both restricted and unrestricted resources (including committed and assigned). In order to calculate the amounts to report as restricted, committed, assigned and unassigned fund balance in the governmental fund financial statements, a flow assumption must be made about the order in which resources are considered to be applied. It is the Village s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. -15-
1010 N. JOHNSON STREET BAY CITY, MICHIGAN 48708 Phone: (989) 892-4549 Fax: (989) 892-4030 Partners: Timothy J. Quast, C.P.A. David G. Gwizdala, C.P.A. Members: American Institute of C.P.A.'s Michigan Association of C.P.A.'s 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 To the Board of Directors Port Hope Gore Rubicon Utility Authority Port Hope, Michigan 48468 We have audited, in accordance with the 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 governmental activities, each major fund, and the aggregate remaining fund, of the Port Hope Gore Rubicon Utility Authority, as of and for the years ended March 31, 2016 and 2015, and the related notes to the financial statements, which collectively comprise the Port Hope Gore Rubicon Utility Authority s basic financial statements, and have issued our report thereon dated July 22, 2016. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Port Hope Gore Rubicon Utility Authority 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 Port Hope Gore Rubicon Utility Authority s internal control. Accordingly, we do not express an opinion on the effectiveness of the Port Hope Gore Rubicon Utility Authority 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 a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A 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. -16-
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Port Hope Gore Rubicon Utility Authority s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statements amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Sincerely, Quast, Janke and Company, P.C. Bay City, Michigan July 22, 2016-17-