HomeMy WebLinkAbout; ; 2003-04 Encina Financing JPA Audit; 2004-09-29Encina Financing Joint Powers Authority -
c Financial and Compliance Report
Year Ended June 30,2004
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Contents
Independent Auditor's Report on the Financial Statements
and Supplementary Information 1
Basic Financial Statements
Statement of net assets and governmental funds balance sheet 2
Statement of activities and governmental funds statement of revenues,
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Notes to financial statements 4-8
expenditures and changes in fund balances
Supplementary Information
Combining balance sheet-governmental funds 9
governmental funds 10
Combining statement of revenues, expenditures and changes in fund balances-
Internal Control Structure and Compliance Matters
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 11
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McGladrey & Pullen
Certified Public Accountants
Independent Auditor's Report on
and Supplementary Information
To the Board of Directors
Encina Financing Joint Powers Authority
Carlsbad, California
he Financial Statements
We have audited the accompanying basic financial statements of the Encina Financing Joint Powers Authority (the
Authority) as of and for the year ended June 30,2004, as listed in the accompanying table of contents. These
financial statements are the responsibility of the Authority's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America
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 of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of the governmental funds and governmental activities of the Authority as of June 30,2004, and the respective
changes in financial position for the year then ended, in conformity with accounting principles generally accepted in
the United States of America.
In accordance with Government Auditing Standards, we have also issued our report, dated September 30,2004, 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, 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 the internal control over financial reporting or on compliance. That report is
an integral part of an audit performed in accordance with Government Auditing Standards and should be considered
in assessing the results of our audit.
The Authority has not presented a Management's Discussion and Analysis required by Governmental Accounting
Standards Board (GASB) Statement No. 34 that the GASB has determined is necessary to supplement, although not
required to be a part of, the financial statements.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole.
The combining balance sheet-governmental funds and combining statement of revenues, expenditures and
changes in fund balances-governmental funds, listed in the table of contents as supplementary information, are
presented for purposes of additional analysis and are not a required part of the financial statements. Such
information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our
opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole.
San Diego, California
September 30,2004
McGladrey & Pullen, LLP is a member firm of RSM International,
an affiliation of separate and independent legal entities. c
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Financial Statements
Encina Financing Joint Powers Authority c
Statement of Net Assets and Governmental Funds Balance Sheet
June 30,2004 c
Governmental Adjustments Statement of
Funds (See Note 2) Net Assets Assets c
c Current Assets, interest receivable $ 35,881 $ 281,662 E $ 31 7,543
Noncurrent Assets
Restricted cash and investments
Installment sale receivable
1,606,590 1,606,590
13,210,000 13,210,000
14,816,590 14,816,590
$ 14,852,471 $ 281,662 $ 15,134,133
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Total assets
c Liabilities
Current Liabilities Accrued interest $ - $ 281,662 B $ 281,662
Current portion of revenue bonds payable 925,000 A 925,000
Deferred revenue 13,210,000 (13,210,000) C
13,210,000 (12,003,338) 1,206,662
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Noncurrent Liabilities, revenue bonds payable, less
current Dortion and net of deferred charges of -
$983,102
Total liabilities
11,301,898 A 11,301,898
$ 13,210,000 $ (701,440) $ 12,508,560 c
Fund BalancelNet Assets
Reserved for Debt Service $ 1,642,471 $ (1,642,471) D $
Total liabilities and fund balance $ 14,852,471
Net Assets
Reserved for debt service
Unrestricted
Total net assets
$ 1,642,471 D $ 1,642,471
983,102 983,102
$ 2,625,573 $ 2,625,573
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Encina Financing Joint Powers Authority
Statement of Activities and Governmental Funds Statement of Revenues,
Year Ended June 30,2004
Expenditures and Changes in Fund Balances
Governmental Adjustments Statement of
Funds (See Note 2) Activities
Expenditureslexpenses, debt service:
Principal $ 875,000 $ (875,000) C $
Interest on long-term debt 700,052 85,492 A 785,544
Total expenditureslexpenses 1,575,052 (789,508) 785,544
Program revenues:
Installment sale
Investment earnings
Total revenues
1,488,639 (875,000) C 61 3,639
85,157 (20,053) 6 65,104
1,573,796 (895,053) 678,743
(Deficiency) of revenues (under) expenditures
Change in net assets (1 06,801) (1 06,801)
and change in fund balance (1,256) 1,256
Fund balancelnet assets at beginning of year
Fund balancelnet assets at end of year
1,643,727 1,088,647 2,732,374
$ 1,642,471 $ 983,102 $ 2,625,573
See Notes to Financial Statements.
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Encina Financing Joint Powers Authority
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies
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The Encina Financing Joint Powers Authority (the Authority) was created on February 1 , 1989 by the Buena
Sanitation District, the City of Carlsbad (the City), the Leucadia County Water District (LCWD) and the City of Vista.
The purpose of the Authority is to issue revenue bonds in order to acquire additional capacity for the Encina Water
Pollution Control Facility (Facility) and to finance any other authorized costs. The Authority is governed by a Board of
Directors which consists of one director appointed by each member. Action can be taken at any meeting of the Board
by the vote of any three directors. The Authority is not subject to federal or state income taxes. From time to time, the
Authority will issue debt on behalf of those members wishing to participate in the financing.
The accounting policies of 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:
Measurement focus, basis of accounting and financial statement presentation: The government-wide financial
statements (Le., the statement of net assets and the statement of activities) are reported using the economic
resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and
expenses are recorded when a liability is incurred, regardless of the timing of related cash flows.
Governmental fund financial statements are reported using the current financial resources measurement focus and
the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and
available. Revenues are considered available when they are collectible within the current period or soon enough
thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available
if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when
a liability is incurred, as under accrual accounting. Principal and interest on long-term debt are recorded as fund
liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early
in the following year.
Amounts reported as program revenues include lease and installment sale payments and interest earned on
investments.
Use of estimates: The preparation of financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying note disclosures.
Accordingly, actual results could differ from those estimates.
Budgets: The Authority does not adopt a combined annual budget; therefore, no budgetary comparisons are
presented.
Cash and investments: Investments are reported in the accompanying balance sheet at fair value, except for
certain certificates of deposit and investment contracts that are reported at cost because they are not transferable
and they have terms that are not affected by changes in market interest rates.
Changes in fair value that occur during a fiscal year are recognized as interest on investments reported for that fiscal
year. Interest on investments includes interest earnings, changes in fair value, and any gains or losses realized upon
the liquidation, maturity or sale of investments.
Long-term obligations: In the government-wide financial statements, long-term debt and other long-term obligations
are reported as liabilities in the applicable governmental activities statement of net assets. Bond premiums, discounts
and issuance costs are deferred and amortized over the life of the bonds using the effective interest method. Bonds
payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred
charges and amortized over the term of the related debt.
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Encina Financing Joint Powers Authority c
Notes to Financial Statements
Note 1. Summary of Significant Accounting Policies, Continued
In the fund financial statements, governmental fund types recognize bond premiums, discounts and issuance costs
during the current period. The face amount of debt issued is reported as other financing sources. Premiums received
on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other
financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt
service expenditures.
Deferred revenue: Deferred revenue represents installment sale amounts receivable that are not available to
finance expenditures of the current period.
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Fund equity: The reserved portion of the fund balances represents those amounts which have been legally identified
for the specific purpose or amounts which are not available to liquidate current liabilities. The unreserved portion
represents the amount available for future appropriations. Designated fund balances represent tentative plans for the
future use of financial resources.
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Use of restrictedlunrestricted net assets: When an expense is incurred for purposes for which both restricted and
unrestricted net assets are available, the Authority's policy is to apply restricted net assets first.
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r Note 2. Adjustments
The following adjustments were made in the conversion of the governmental fund balance sheet to the statement of
net assets:
A To record revenue bond payable, less deferred charges, as not recognized in the governmental funds until
amounts are due and payable. c
IC- B To record accrued interest on the revenue bond payable as of June 30,2004 as not recorded in
governmental funds as recognized as expenditure when due. c_
C To recognize deferred revenue as sale was complete in September 1997; therefore, no further obligation
exists.
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D To reclassify fund balance as net assets.
E To record interest receivable on the installment sale receivable, which is not accrued in the governmental
funds until amounts are due and receivable.
c The following adjustments were made in the conversion of the governmental fund statement of revenues,
expenditures and changes in fund balances to the statement of activities:
A interest expense in the statement of activities differs because additional accrued interest was calculated for
the bond and a reversal of prior year's accrued interest was made.
B Interest income in the statement of activities differs because it is not considered a current resource in the
governmental funds until received.
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Encina Financing Joint Powers Authority
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Notes to Financial Statements
Note 2. Adjustments, Continued
C Principal payments in the statement of activities (on long-term debt and installment sale receivables) differs
because the payment/ repayment of principal consumedprovides current financial resources for
governmental funds; however, the paymenffrepayment does not have any effect on net assets in the
statement of activities.
Note 3. Restricted Cash and Investments
Authority for investments: The Trust Agreement by and among State Street Bank and Trust Company of
California, as trustee, and the Authority, dated February 1 , 1997, authorizes the trustee to invest in U.S. Treasury
Securities; U.S. Agency Securities; interest-bearing demand or time deposits; money market funds rated AAAm,
AAAm-G or better by Standard & Poor's Corporation; commercial paper rated A-1 -+ by Standard and Poor's
Corporation and P-1 by Moody's Investors Service, with original maturities of not more than 270 days; bankers
acceptances rated A-1 or A-1 + by Standard & Poor's Corporation and P-1 by Moody's Investors Service, with
maturities of not more than 180 days; certain municipal obligations, as defined in the Trust Agreement; and
investment agreements approved by AMBAC Indemnity Corporation with notice to Standard and Poor's. During the
2004 fiscal year, the Bank of New York assumed the role of successor trustee for the Authority bonds, and the
agreement with U.S. Bank (formerly State Street Bank and Trust Company) was terminated. The responsibilities of
the new trustee were identical to those of the prior trustee.
Restricted cash and investments are stated at fair value. All restricted cash and investments of the Authority are held
by the trustees.
At June 30, 2004, the Authority's restricted cash and investments consisted of a guaranteed investment contract in
the amount of $1,606,590 which is not subject to custodial credit risk categorization.
Note 4. Installment Sale Receivable
Under the terms of an "amended and restated installment purchase agreement relating to Encina Water Pollution
Control Facility Expansion" between the Authority, as seller of additional capacity at the wastewater facility, and the
City and LCWD, as purchasers of such additional capacity at the facility, dated February 1997, the City and LCWD
agreed to purchase certain wastewaterlsewage treatment capacity in the facility from the Authority for the
purchasers' consideration of payment of installments of principal and interest on the unpaid price which equaled the
amounts owed under the revenue bonds (see Note 5). Interest payments under the installment sale are due every
February 1 and August 1, and the payments are to be made from the net revenues of the City's and LCWDs
enterprise fund (sewer revenue). For financial reporting purposes, the amounts due from the City and LCWD under
the agreement are reflected on the Authority's statement of net assets as installment sale receivable. The amended
agreement will terminate in August 2014, unless terminated earlier upon payment of the installment payments in full
or default.
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Encina Financing Joint Powers Authority c
Notes to Financial Statements c
Note 5. Wastewater Revenue Bonds
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The following is a summary of changes in the principal balance of the revenue bond payable for the year ended
June 30,2004: c
Principal Principal
Balance at Balance at Due Within
June 30,2003 Additions Reductions June 30,2004 One Year
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Revenue bond payable $ 14,085,000 $ - $ 875,000 $ 13,210,000 $ 925,000
Less deferred charges 983,102
$ 12,226,898
In February 1997, the Authority issued Wastewater Revenue Refunding Bonds, Series A, to refund the remaining
balance of its outstanding 1989 Revenue Bonds. The 1997 Refunding Bonds bear interest with rates ranging from
4.0% to 5.5%, payable every February 1 and August 1 of each year and maturing on August 1 of each year through
2014. In addition, under the debt agreements, the Authority must maintain reserve funds equal to the lesser of the
maximum annual debt service on the bonds or 10% of the original principal amount of the bonds, and the debt
agreement is secured by the net revenue of the City's and LCWDs water sewer system and the Installment
Purchase Agreement.
II Covenants within the Installment Purchase Agreement requires the members to, among other things, (1) maintain
insurance on the facility and (2) establish wastewater rates which are sufficient to pay the operating costs and debt
service on the bonds, and which will result in net revenues equal to at least 125% of the annual installment payments
due. c-
Debt service requirements to maturity for the bonds are as follows: c
Principal Interest Total Years Ending June 30, c
2005
2006
2007
2008
2009
201 5
201 0-2014
$ 925,000 $ 655,177 $ 1,580,177
965,000 607,828 1,572,828
1,020,000 553,240 1,573,240
1,080,000 496,840 1,576,840
1,l 35,000 440,683 1,575,683
6,560,000 1,264,622 7,824,622
1.525.000 39.078 1.564.078
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$ 13,210,000 $ 4,057,468 $ 17,267,468 c
Note 6. Fund BalanceslNet Assets Reserve
The reserve for debt service represents resources legally restricted to the payment of the revenue bond principal and
interest maturing in future years. c
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Encina Financing Joint Powers Authority
Notes to Financial Statements
Note 7. lnterfund Transfers
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Transfers are used to move interest earned in the reserve funds to the lease payment funds for the required
payments of principal and interest on the revenue bonds.
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Supplementary Information
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Internal Control Structure and Compliance Matters
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McGladrey & Pullen c
Certified Public Accountants
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
Encina Financing Joint Powers Authority
Carlsbad, California c
We have audited the financial statements of the governmental activities of the Encina Financing Joint Powers
Authority (the Authority) as of and for the year ended June 30,2004, and have issued our report thereon dated
September 30, 2004. 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. c
Internal Control over Financial Reporting c
In planning and performing our audit, we considered the Authority's internal control over financial reporting in order to
determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to
provide assurance on the internal control over financial reporting. Our consideration of the internal control over
financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might
be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or
more of the internal control components does not reduce to a relatively low level the risk that misstatements caused
by error or fraud in amounts that would be material in relation to the financial statements being audited may occur
and not be detected within a timely period by employees in the normal course of performing their assigned functions.
We noted no matters involving the internal control over financial reporting and its operation that we consider to be
material weaknesses.
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Compliance and Other Matters c
As part of obtaining reasonable assurance about whether the Authority's financial statements are free of 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
statement 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.
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This report is intended for the information of the Authority's management, the Board of Directors, federal awarding
agencies and pass-through entities, and is not intended to be, and should not be, used by anyone other than these
specified parties.
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1- San Diego, California
September 30,2004
McGladrey 8 Pullen, LLP is a member firm of RSM International.
an affiliation of separate and independent legal entities. c
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