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.
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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
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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.
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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
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Encina Financing Joint Powers Authority
Statement of Net Assets and Governmental Fund Balance Sheet
June 30,2006
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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
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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
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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.
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«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.
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« 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.
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^ 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.
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-*. 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.
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Supplementary Information
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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
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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.
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