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HomeMy WebLinkAbout; ; 2005-06 Encina Financing JPA Audit Report; 2006-06-30Encina Financing Joint Powers Authority Financial and Compliance Report Year Ended June 30,2006 McGladrey&Pullen Certified Public Accountants McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities. 411 Contents 9 Independent Auditor's Report on the Financial Statements and Supplementary Information 1_3 _, Basic Financial Statements •"« Statement of Net Assets and Governmental Fund Balance Sheet 2 „ Statement of Activities and Governmental Fund Statement of Revenues,-- Expenditures and Changes in Fund Balances 3 «* Notes to Financial Statements 4-7 — Supplementary Information *"*" Combining Balance Sheet—Governmental Fund 8 ~ Combining Statement of Revenues, Expenditures and Changes in Fund Balances— ** Governmental Fund 9_ Internal Control Structure and Compliance Matters 3 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements 3 Performed in Accordance with Government Auditing Standards 10 a a a McGladrey&Pullen Certified Public Accountants ^ Independent Auditor's Report on the Financial Statements *• and Supplementary Information ** To the Board of Directors — Encina Financing Joint Powers Authority * Carlsbad, California 3 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 30,2006, as listed in the accompanying table of contents. Thesem financial statements are the responsibility of the Authority's management. Our responsibility is to express an opinion 2 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 H of the governmental funds and governmental activities of the Authority as of June 30,2006, 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. II In accordance with Government Auditing Standards, we have also issued our report, dated October 5,2006, on our ^ consideration of the Authority's internal control over financial reporting and our tests of its compliance with certain 3 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. <MHft•*• 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 notm required to be a part of, the financial statements. a 1 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 Fund and Combining Statement of Revenues, Expenditures and Changes in Fund Balances—Governmental Fund, 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 *n opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole. &Uu* / Riverside, California October 5,2006 McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities. Financial Statements a **m a a - a Encina Financing Joint Powers Authority Statement of Net Assets and Governmental Fund Balance Sheet June 30,2006 3 1 1 a Assets Current Assets, interest receivable Noncurrent Assets Restricted cash and investments Installment sale receivable Total assets Liabilities Current Liabilities Accrued interest Current portion of revenue bonds payable Deferred revenue Noncurrent Liabilities, revenue bonds payable, less current portion and net of deferred charges of $777,181 Total liabilities Fund Balance/Net Assets Reserved for debt service Total liabilities and fund balance Net Assets, unrestricted Total net assets and fund balance Governmental Fund $ 35,881 1,606,590 11,320,000 12,926,590 $ 12,962,471 <R>P 11,320,000 11,320,000 $ 11,320,000 $ 1,642,471 $ 12,962,471 Adjustments Statement of (See Note 2) Net Assets $ 242,204 E $ - - $ 242,204 $ $ 242,204 B $ 1,020,000 A (11,320,000) C (10,057,796) 9,522,819 A $ (534,977) $ $ (1,642,471) D $ 2,419,652 $ 777,181 $ 278,085 1,606,590 11,320,000 12,926,590 13,204,675 242,204 1,020,000 1,262,204 9,522,819 10,785,023 2,419,652 2,419.652 The notes to the financial statements are an integral part of this statement. Encina Financing Joint Powers Authority Statement of Activities and Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balances Year Ended June 30,2006 e E Governmental Adjustments Statement of Fund (See Note 2) Activities Expenditures/expenses, debt service: Principal Interest on long-term debt Total expenditures/expenses Program revenues: Installment sale Investment earnings Total revenues (Deficiency) of revenues (under) expenditures and change in fund balance Change in net assets Fund balance/net assets at beginning of year Fund balance/net assets at end of year $ 965,000 $ 607,828 1,572,828 1,486,677 86,113 1,572,790 (38) - 1,642,509 $ 1,642,471 $ (965,000) C $ 79,838 A (885,162) (965,000) C (22,114) B (987,114) 38 (101,990) 879,133 777,181 $ - 687,666 687,666 521,677 63,999 585,676 - (101,990) 2,521,642 2,419,652 c B B e The notes to the financial statements are an integral part of this statement. Encina Financing Joint Powers Authority Notes to Financial Statements Note 1. Summary of Significant Accounting Policies2 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 *m 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 (i.e., 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 H expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Z 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 Authority 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. -B" 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. ^*ffiW «HM Budgets: The Authority does not adopt a combined annual budget; therefore, no budgetary comparisons are 2 presented. 9 Cash and investments: Investments are reported in the accompanying balance sheet at cost. 2 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, and any gains or losses realized upon the liquidation, 2 maturity or sale of investments. 3 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. Encina Financing Joint Powers Authority 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. 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. Use of restricted/unrestricted 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. 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. B To record accrued interest on the revenue bond payable as of June 30, 2006, not recorded in the governmental funds as it is recognized as expenditure when due. C To recognize deferred revenue as revenue since the sale was complete in September 1997; therefore, no further obligation exists. 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 received. 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. Encina Financing Joint Powers Authority Notes to Financial Statements ^ Note 2. Adjustments, Continued5 C Principal payments in the Statement of Activities (on long-term debt and installment sale receivables) differs 2 because the payment/repayment of principal consumes/provides current financial resources for governmental funds; however, the payment/repayment does not have any effect on net assets in the ™ Statement of Activities. a « 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 •jg 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 2 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 2 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 S 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 H 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 trustee. •mf ^ At June 30, 2006, 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. *•m -*. Note 4. Installment Sale Receivableturn —' Under the terms of an "amended and restated installment purchase agreement related 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 wastewater/sewage treatment capacity in the facility from the Authority for the 2 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 35 February 1 and August 1, and the payments are to be made from the net revenues of the City's and LCWD's Enterprise fund (sewer revenue). For financial reporting purposes, the amounts due from the City and LCWD under 2 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 in full of the installment payments 2 or default. Encina Financing Joint Powers Authority Notes to Financial Statements Note 5. Wastewater Revenue Bonds The following is a summary of changes in the principal balance of the revenue bond payable for the year ended June 30,2006: Principal Principal Balance at Balance at Due Within June 30,2005 Additions Reductions June 30,2006 One Year Revenue bond payable $ 12,285,000 $ Less deferred charges $ 965,000 $ 11,320,000 $ 1.020.000 777,181 $ 10,542.819 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. Covenants within the Installment Purchase Agreement require 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. Debt service requirements to maturity for the bonds are as follows: Years Ending June 30, Principal 2007 2008 2009 2010 2011 2012-2015 Interest Total $ $ 1,020,000 $ 1,080,000 1,135,000 1,185,000 1,240,000 5,660,000 11,320,000 $ 553,240 496,840 440,683 383,250 321,850 598,600 2,794,463 $ $ 1,573,240 1,576,840 1,575,683 1,568,250 1,561,850 6,258,600 14,114,463 Note 6. Fund Balance Reserve/Net Assets The reserve for debt service represents resources legally restricted to the payment of the revenue bond principal and interest maturing in future years. Note 7. Interfund Transfers 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. a a a a Supplementary Information a a a tj Ii I) ij i) ii ii ti 11 U tJ ii ti ii ii ti ti ti ii ti ti il ti il II II IJ Ii ii II ii t Encina Financing Joint Powers Authority Combining Balance Sheet—Governmental Fund June 30,2006 City of Carlsbad Leucadia County Water District Assets Interest Receivable Restricted Cash and Investments Installment Sale Receivable Total assets Liabilities and Fund Balances Liabilities, deferred revenue Fund Balances, reserved for debt service Total liabilities and fund balances $ $ $ $ Debt Payment 6,730,000 6,730,000 6,730,000 6,730,000 $ $ $ $ Reserve 21,300 953,706 975,006 975,006 975,006 $ $ $ $ Debt Payment 4,590,000 4,590,000 4,590,000 4,590,000 $ $ $ $ Reserve 14,581 652,884 667,465 667,465 667,465 $ $ $ $ Total 35,881 1,606,590 11,320,000 12,962,471 11,320,000 1,642,471 12,962,471 Encina Financing Joint Powers Authority Combining Statement of Revenues, Expenditures and Changes in Fund Balances—Governmental Fund Year Ended June 30,2006 City of Carlsbad Leucadia County Water District Revenues: Installment sale Interest on investments Total revenues Expenditures, Debt Service: Principal Interest Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses): Transfers in Transfers out Total other financing (uses) Net change in fund balances Fund balance at beginning of year Fund balance at end of year Debt Payment $ 885,237 885,237 575,000 361,394 936,394 (51,157) 51,157 51,157 $ Reserve $ 51,157 51,157 - - 51,157 (51,157) (51,157) 975,006 $ 975,006 Debt Payment $ 601,440 $ 601,440 390,000 246,434 636,434 (34,994) 34,994 34,994 $ - $ Reserve - $ 34,956 34,956 - - 34,956 (34,994) (34,994) (38) 667,503 667,465 $ Total 1,486,677 86,113 1,572,790 965,000 607,828 1,572,828 (38) 86,151 (86,151) - (38) 1,642,509 JJ42.471 II fl II II II ii ii ii ii n n ii n ii n n n n n Internal Control Structure and Compliance Matters McGladrey&Pullen 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 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, 2006, and have issued our report thereon dated October 5, 2006. 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. Internal Control over Financial Reporting 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. Compliance and Other Matters 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. This report is intended for the information of the Authority's management and the Board of Directors, and is not intended to be, and should not be, used by anyone other than these specified parties. Riverside, California October 5, 2006 McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities. 10