Audit Committee Friday, November 17, 2017 at 8:00 a.m. 5th Floor Board Room, Board Building 735 Randolph Street, Detroit, Michigan 48226 GL.org MEETING BINDER ADDENDUM Agenda Item # 6B Review of Preliminary Financial Results Audit Progress Report PreFinal Close Draft PreClose Financial Statements
Date: November 17, 2017 To: Great Lakes Authority Audit Committee From: Nicolette N. Bateson, CPA, Chief Financial Officer/Treasurer Re: PreFinal Close Discussion Draft Background: The yearend close for the Great Lakes Authority s (GLWA) is nearing completion over the next few weeks. For discussion purposes only, a PreFinal Close Draft Yearend Analysis is being presented today. Please note: This document (Great Lakes Authority Financial Report as of June 30, 2017) is in draft form and is subject to further review and approval by GLWA management, the GLWA Audit Committee and Rehman Robson, and accordingly no assurances can be given with respect to the contents of the document until it is released in final form. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed in this draft. Additional yearend entries include the following (this is not an exhaustive list). Potential resolution of open accounting matters between GLWA and the Detroit & age Department (i.e. potential prepaid lease amount for the period of July 1, 2015 through December 31, 2015 and final terms for payment of other longterm liabilities as disclosed in the FY 2016 audited financial report) Final balancing of due to/due from amounts Final cash classifications among funds Ending reserve and net assets (equity) analysis Construction workinprogress recording to capital funds and related depreciation for those assets Due to Other Governments (i.e. City of Detroit and DWSD)
Internal cost center entries that have no impact on external financial reporting but provide improved budget to actual analysis and trend data for subsequent years Analysis: A PreFinal Close Draft Yearend report is attached. The tables below highlight budget to actual analysis based upon the present preclose financial data for the year ended June 30, 2017. As shown in the table below, the preclose analysis indicates that GLWA may achieve a positive operations and maintenance expense variance of 30.1 million or ten percent. Operating Expense Budget Category Basis (Amounts Rounded) (Unaudited as of 11.17.2017) Original Budget System Operations 64,904,000 Amended Budget Activity Variance () 58,962,800 5,941,200 Variance (%) 64,904,000 9% Wastewater System Operations 121,911,800 121,911,800 108,272,900 13,638,900 11% Centralized Services 73,026,400 73,701,100 67,551,400 6,149,700 8% Administrative Services 27,894,700 27,220,000 23,897,200 3,322,800 12% Operations & Maintenance (Budget Basis) 287,736,900 287,736,900 258,684,300 29,052,600 10% GRS Pension Administrative Expense (Financial Statement Basis) 3,945,500 3,945,500 2,821,400 1,124,100 28% Total Operating Expenses 291,682,200 291,682,200 261,505,600 30,176,600 10% The following table aligns with the draft, preclose report for Operations & Maintenance Expenses. Approximately 55 percent of the total is attributable to depreciation. Draft Financial Statements (Unaudited as of 11.17.2017) Operating expenses Total Percent of Total Personnel 17,906,639 27,083,193 44,989,832 8% Contractual services 4,339,837 31,793,620 36,133,457 6% Utilities 28,329,575 27,060,535 55,390,110 10% Chemicals 5,340,753 9,424,428 14,765,181 3% Supplies and other expenses 4,178,695 14,599,286 18,777,981 3% Centralized services 35,379,657 32,171,959 67,551,616 12% Administrative services 7,783,798 16,113,808 23,897,606 4% Operations & Maintenance Expense 103,258,954 158,246,829 261,505,783 45% Depreciation 143,879,191 171,538,746 315,417,937 55% Total Operating Expenses 247,138,145 329,785,575 576,923,720 100% As shown on the next page, the overall favorable variance for the revenue requirement compared to actual revenues is 24.7 million, or 8 percent, for the water system and 33.4 million, or 7 percent for the sewer system.
Note: The asterisk in the table below denotes nondwsd revenues that were elements of the total GLWA revenue requirement. During the standup of the new budget system last year for, only the total revenue requirement was entered rather than by detailed line items. A primary reason for the positive revenue variance is the reversal of an allowance for doubtful accounts established on January 1, 2016 for retail receivables assumed by GLWA. This reversal of bad debt expense is based on actual collection trends since that date. Revenues (Unaudited as of 11.17.2017) Original Budget Amended Budget Activity Variance () Variance (%) WATER OPERATING REVENUE (Revenue Requirement) (Revenue Requirement) (Financial Reporting) Charges Wholesale 313,645,300 313,645,300 334,513,800 20,868,500 7% Local System Revenues 15,490,300 15,490,300 15,490,300 0% Bad Debt Expense Recovery Retail Receivables Assumed * 3,854,700 Other Revenue Energy Rebates * 3,500 Rent of Building and Space * 6,000 Total Operating Revenue 329,135,600 329,135,600 353,868,300 24,732,700 8% SEWER OPERATING REVENUE Sewage Treatment Wholesale * 280,290,300 266,476,800 Local System Revenues 187,304,100 187,304,100 187,304,100 0% Bad Debt Expense Recovery Retail Receivables Assumed * 27,184,500 Industrial Waste Charges * 14,293,300 IWC Penalties * 87,800 Other fees * 600 Other Revenue Energy Rebates * 4,100 Pollutant Surcharges * 5,206,300 Septic Tank Disposal * 534,100 Total Operating Revenue 467,594,400 467,594,400 501,091,600 33,497,200 7% Proposed Action: Receive and file report.
T R AF D GREAT LAKES WATER AUTHORITY Combining Schedule of Net Position Fund June 30, 2017 Businesstype Activities Enterprise Funds Operations Assets Current assets: Cash and cash equivalents Restricted cash and cash equivalents Restricted cash on deposit with trustee Investments Restricted investments Receivables: Billed Unbilled Other Allowance for doubtful accounts Due from other governments Contractual obligation receivable Due from other funds Prepaid items Total current assets Noncurrent assets: Restricted cash and cash equivalents Restricted investments Contractual obligation receivable Assets not subject to depreciation Capital assets being depreciated, net Prepaid insurance on debt Total noncurrent assets Total assets Deferred outflows of resources Deferred loss on refunding Deferred pension amounts Total deferred outflows of resources 267,524,492 54,271,402 1,169,187 36,459,563 31,685,656 10,781,833 (16,960,324) 48,075,159 11,196,150 31,521,184 2,437,047 478,161,349 Improvement and Extension 13,869,706 Construction Projects Total 6,905,062 281,394,198 61,176,464 1,169,187 55,203,699 69,073,405 861,108 7,766,170 164,054 21,382,794 511,234,752 455,143,305 1,584,738,463 14,112,324 2,586,775,692 178,344,675 178,344,675 178,508,729 21,382,794 511,234,752 455,143,305 1,584,738,463 14,112,324 2,765,120,367 3,064,937,041 69,073,405 186,110,845 3,320,121,291 99,294,499 21,491,506 99,294,499 21,491,506 120,786,005 120,786,005 36,459,563 31,685,656 10,781,833 (16,960,324) 48,075,159 11,196,150 87,585,991 2,437,047 555,000,924 continued This document (Great Lakes Authority Financial Report as of June 30, 2017) is in draft form and is subject to further review and approval by GLWA management, the GLWA Audit Committee and Rehman Robson, and accordingly no assurances can be given with respect to the contents of the document until it is released in final form. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed in this draft.
T R AF D GREAT LAKES WATER AUTHORITY Combining Schedule of Net Position Fund June 30, 2017 Businesstype Activities Enterprise Funds Operations Liabilities Current liabilities: Accounts and contracts payable Accrued salaries, wages and benefits Other accrued liabilities Due to other governments Due to other funds Interest payable Current portion of: Longterm debt Lease payable Obligation payable Accrued compensated absences Accrued workers' compensation Claims and judgments Total current liabilities 31,945,672 3,508,804 1,075,318 14,657,277 106,505,680 39,329,322 Improvement and Extension 181,333 3,271,943 Construction Projects Total 13,732,222 (596,372) 45,859,227 3,508,804 1,075,318 14,657,277 109,181,251 39,329,322 23,393,905 4,618,174 159,803 2,157,888 319,557 294,199 227,965,599 3,453,276 13,135,850 23,393,905 4,618,174 159,803 2,157,888 319,557 294,199 244,554,725 3,278,126 2,606,465,431 426,303,346 17,265,503 2,288,125 3,537,536 75,000 69,569,044 3,128,782,111 3,278,126 2,606,465,431 426,303,346 17,265,503 2,288,125 3,537,536 75,000 69,569,044 3,128,782,111 3,356,747,710 3,453,276 13,135,850 3,373,336,836 Deferred inflows of resources Deferred interest rate swap terminations Deferred gain on refunding Deferred pension amounts 85,068 62,822,646 6,565,776 85,068 62,822,646 6,565,776 Total deferred inflows of resources 69,473,490 69,473,490 65,620,129 172,974,995 Noncurrent liabilities: Other noncurrent liabilities Longterm debt Longterm lease payable Obligation payable Accrued compensated absences Accrued workers' compensation Claims and judgments Net pension liability Total noncurrent liabilities Total liabilities Net position Investment in capital assets Restricted for debt service Restricted for capital acquisition Restricted for payment assistance program Unrestricted (deficit) Total net position 400,187,482 69,797,836 977,278 (711,460,750) (240,498,154) 65,620,129 172,974,995 400,187,482 69,797,836 977,278 (472,865,626) (1,903,030) concluded. This document (Great Lakes Authority Financial Report as of June 30, 2017) is in draft form and is subject to further review and approval by GLWA management, the GLWA Audit Committee and Rehman Robson, and accordingly no assurances can be given with respect to the contents of the document until it is released in final form. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed in this draft.
T R AF D GREAT LAKES WATER AUTHORITY Combining Schedule of Revenues, Expenses and Changes in Fund Net Position Fund For the Year Ended June 30, 2017 Businesstype Activities Enterprise Funds Improvement and Extension Operations Operating revenues Wholesale customer charges Local system charges Other revenues 338,368,479 15,490,300 37,388 Construction Projects Total 338,368,479 15,490,300 37,388 Total operating revenues 353,896,167 353,896,167 Operating expenses Personnel Contractual services Utilities Chemicals Centralized services Administrative services Supplies and other expenses Depreciation 17,906,639 4,339,837 28,329,575 5,340,753 35,379,657 7,783,798 4,178,695 143,879,191 147,884 17,906,639 4,339,837 28,329,575 5,340,753 35,379,657 7,783,798 4,326,579 143,879,191 Total operating expenses 247,138,145 147,884 247,286,029 Operating income (loss) 106,758,022 (147,884) 106,610,138 1,308,242 25,269,750 (132,434,943) 2,723,067 (1,364,610) 40,342,098 (93,630) 6,626 (858,302) 483,974 (320,049) (39,483,796) 1,798,842 25,269,750 (132,434,943) 2,403,018 (1,364,610) (93,630) (64,250,026) (851,676) (39,319,871) (104,421,573) 42,507,996 (999,560) (39,319,871) Nonoperating revenues (expenses) Earnings on investments Interest income Interest expense, net of capitalized interest Amortization of debt related items Other Capital outlay Loss on disposal of capital assets Total nonoperating revenues (expenses) Income (loss) before contributions and transfers Other financing sources (uses) Transfers, operating Change in net position 42,507,996 Net position, beginning of year Net position, end of year (240,498,154) (999,560) (283,006,150) 66,619,689 65,620,129 2,188,565 (39,319,871) 2,188,565 212,294,866 (4,091,595) 172,974,995 (1,903,030) This document (Great Lakes Authority Financial Report as of June 30, 2017) is in draft form and is subject to further review and approval by GLWA management, the GLWA Audit Committee and Rehman Robson, and accordingly no assurances can be given with respect to the contents of the document until it is released in final form. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed in this draft.
T R AF D GREAT LAKES WATER AUTHORITY Combining Schedule of Net Position Sewage Disposal Fund June 30, 2017 Businesstype Activities Enterprise Funds Operations Assets Current assets: Cash and cash equivalents Restricted cash and cash equivalents Restricted cash on deposit with trustee Investments Restricted investments Receivables: Billed Unbilled Other Allowance for doubtful accounts Due from other governments Contractual obligation receivable Due from other funds Prepaid items Inventories Total current assets 184,425,895 68,580,334 31,371,834 6,159,246 Construction Projects Total 8,024,754 190,585,141 76,605,088 31,371,834 106,096,255 112,255,501 132,966 26,237 8,183,957 348,403 65,626,506 356,460,890 346,357,538 2,507,576,571 18,581,897 3,294,951,805 122,164,886 16,981,850 139,146,736 122,513,289 82,608,356 356,460,890 346,357,538 2,507,576,571 18,581,897 3,434,098,541 3,807,683,602 112,255,501 147,330,693 4,067,269,796 Deferred outflows of resources Deferred interest rate swap terminations Deferred pension amounts 198,351,942 38,462,972 198,351,942 38,462,972 Total deferred outflows of resources 236,814,914 236,814,914 Noncurrent assets: Restricted cash and cash equivalents Restricted investments Contractual obligation receivable Assets not subject to depreciation Capital assets being depreciated, net Prepaid insurance on debt Total noncurrent assets Total assets 52,234,778 24,279,170 35,280,722 (61,085,355) 95,076,523 10,581,938 62,413,220 1,063,284 8,509,454 512,731,797 Improvement and Extension 52,234,778 24,279,170 35,280,722 (61,085,355) 95,076,523 10,581,938 168,642,441 1,089,521 8,509,454 633,171,255 continued This document (Great Lakes Authority Financial Report as of June 30, 2017) is in draft form and is subject to further review and approval by GLWA management, the GLWA Audit Committee and Rehman Robson, and accordingly no assurances can be given with respect to the contents of the document until it is released in final form. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed in this draft.
T R AF D GREAT LAKES WATER AUTHORITY Combining Schedule of Net Position Sewage Disposal Fund June 30, 2017 Businesstype Activities Enterprise Funds Operations Liabilities Current liabilities: Accounts and contracts payable Accrued salaries, wages and benefits Other accrued liabilities Due to other governments Due to other funds Interest payable Current portion of: Longterm debt Lease payable Obligation payable Accrued compensated absences Accrued workers' compensation Claims and judgments Total current liabilities 12,013,399 327 905,835 23,988,598 138,254,523 41,011,198 Improvement and Extension 513,990 2,298,037 Construction Projects Total 15,019,168 47,539 6,494,621 27,546,557 327 905,835 24,036,137 147,047,181 41,011,198 65,920,307 5,644,435 359,448 679,260 390,165 17,861,750 307,029,245 2,812,027 21,561,328 65,920,307 5,644,435 359,448 679,260 390,165 17,861,750 331,402,600 8,755,093 3,236,016,730 521,037,424 38,835,597 4,390,938 1,493,350 124,506,503 3,935,035,635 8,755,093 3,236,016,730 521,037,424 38,835,597 4,390,938 1,493,350 124,506,503 3,935,035,635 4,242,064,880 2,812,027 21,561,328 4,266,438,235 Deferred inflows of resources Deferred interest rate swap terminations Deferred gain on refunding Deferred pension amounts 214,393 49,257,784 11,750,654 214,393 49,257,784 11,750,654 Total deferred inflows of resources 61,222,831 61,222,831 109,443,474 125,769,365 Noncurrent liabilities: Other noncurrent liabilities Longterm debt Longterm lease payable Obligation payable Accrued workers' compensation Claims and judgments Net pension liability Total noncurrent liabilities Total liabilities Net position Investment in capital assets Restricted for debt service Restricted for capital acquisition Restricted for payment assistance program Unrestricted (deficit) Total net position 451,547,037 108,742,193 164,326,618 (983,405,043) (258,789,195) 109,443,474 125,769,365 451,547,037 108,742,193 164,326,618 (748,192,204) (23,576,356) concluded. This document (Great Lakes Authority Financial Report as of June 30, 2017) is in draft form and is subject to further review and approval by GLWA management, the GLWA Audit Committee and Rehman Robson, and accordingly no assurances can be given with respect to the contents of the document until it is released in final form. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed in this draft.
GREAT LAKES WATER AUTHORITY Combining Schedule of Revenues, Expenses and Changes in Fund Net Position Sewage Disposal Fund For the Year Ended June 30, 2017 Businesstype Activities Enterprise Funds Improvement Construction Operations and Extension Projects Total Operating revenues Wholesale customer charges 293,661,330 293,661,330 Industrial waste charges 14,381,106 14,381,106 Pollutant surcharges 5,206,294 5,206,294 Local system charges 187,304,100 187,304,100 Other revenues 538,807 538,807 Total operating revenues 501,091,637 501,091,637 Operating expenses Personnel 27,083,193 27,083,193 Contractual services 31,793,620 31,793,620 Utilities 27,060,535 27,060,535 Chemicals 9,424,428 9,424,428 Centralized services 32,171,959 32,171,959 Administrative services 16,113,808 16,113,808 Supplies and other expenses 14,599,286 14,599,286 Depreciation 171,538,746 171,538,746 Total operating expenses 329,785,575 329,785,575 Operating income (loss) 171,306,062 171,306,062 Nonoperating revenues (expenses) Earnings on investments 1,323,993 27,404 825,645 2,177,042 Interest income 17,062,678 17,062,678 Interest expense, net of capitalized interest (159,118,779) (159,118,779) Amortization of debt related items (17,375,200) (17,375,200) Other (4,695,302) (4,695,302) Capital outlay 52,046,029 (2,104,720) (49,941,309) Total nonoperating revenues (expenses) (110,756,581) (2,077,316) (49,115,664) (161,949,561) Income (loss) before contributions, impairment loss and transfers 60,549,481 (2,077,316) (49,115,664) 9,356,501 Capital contributions 320,707 320,707 Loss on impairment of capital assets (22,661,279) (22,661,279) Other financing sources (uses) Transfers, operating Change in net position 38,208,909 (2,077,316) (49,115,664) (12,984,071) Net position, beginning of year (296,998,104) 111,520,790 174,885,029 (10,592,285) Net position, end of year (258,789,195) 109,443,474 125,769,365 (23,576,356)