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STILWELL AREA DEVELOPMENT AUTHORITY
Annual Financial & Audit Report
Year Ended June 30, 2017
STILWELL AREA DEVELOPMENT AUTHORITY ANNUAL FINANCIAL REPORT
For the Fiscal Year Ended June 30, 2017
TABLE OF CONTENTS
Page
MANAGEMENT'S DISCUSSION AND ANALYSIS REPORT (UNAUDITED)……………………… 1
INDEPENDENT AUDITOR'S REPORT………………………………………………………………… 8
FINANCIAL STATEMENTS
Statement of Net Position............................................................................................................. 10
Statement of Revenue, Expenses and Change in Net Position................................................... 11
Statement of Cash Flows............................................................................................................. 12
NOTES TO THE FINANCIAL STATEMENTS................................................................................. 13
REQUIRED SUPPLEMENTARY INFORMATION……………………………………………………… 25
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……………………………………………………………………………………………… 27
SCHEDULE OF FINDINGS AND RESPONSES……………………………………………………… 29
STILWELL AREA DEVELOPMENT AUTHORITY Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2017
As Management of the Stilwell Area Development Authority (the Authority), we offer readers of the Authority’s financial statement this narrative overview and analysis of the financial activities of the Authority for the year ended June 30, 2017. We encourage readers to consider the information presented here in conjunction with the Authority’s financial statements.
Financial Highlights
The Assets of the Authority exceeded its liabilities at the close of the current year by $13,038,210.
The Authority’s net position Increased from $12,512,348 to $13,038,210, which is an increase of $525,862.
The Authority’s cash and cash equivalents were $1,293,021 at June 30, 2017. The Authority also had cash and CD’s reserved of $2,529,871 at June 30, 2017.
Overview of the Financial Statements
This discussion and analysis is intended to serve as an introduction to the Authority’s audit report. The audit report consists of two parts: management’s discussion and analysis, and the financial statements. The financial statements also include notes that explain in more detail some of the information in the financial statements.
Required Financial Statements
The Authority uses fund accounting in its financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Authority has one fund type, proprietary. Proprietary funds are reported in the fund financial statements and generally report services for which the Authority charges customers a fee. There are two kinds of proprietary funds: enterprise funds and internal service funds. Enterprise funds essentially encompass the same functions reported as business-type activities in the government-wide statements.
Proprietary fund statements are Statement of Net Position, a Statement of Revenues, Expenses and Changes in fund Net Position and a Cash Flow Statement that is prepared using the direct method. The Statement of Net Position includes all of the Authority’s assets and liabilities and obligations to creditors (liabilities). It also provides the basis for assessing the liquidity and financial flexibility of the Authority. All of the current year’s revenues and expenses are accounted for in the Statement of Revenues, Expenses and Changes in Net Position. This statement measures the financial success of the Authority’s operations over the past year and can be used to determine whether the Authority has
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STILWELL AREA DEVELOPMENT AUTHORITY Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2017
Required Financial Statements, continued
successfully recovered all its costs through its user fees and other charges, profitability, and credit worthiness. The third required financial statement is the Statement of Cash Flows. The primary purpose of this statement is to provide information about the Authority’s cash receipts and cash payments during the reporting period. This statement reports cash receipts, cash payments, and changes in cash resulting from operating, investing, and financing activities and provides answers to such questions as where did cash come from, what was cash used for, and what was the change in the cash balance during the period.
GAAP requires state and local governments to use the enterprise fund type to account for “business-type activities” – activities similar to those found in the private sector. The purpose of the enterprise fund is 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 (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through users charges.
An enterprise fund establishes a separate accounting and financial reporting mechanism for municipal services for which a fee is charged in exchange for goods or services. Under enterprise accounting, the revenues and expenditures of the service are segregated into a separate fund with its own financial statements. Revenues are recognized when earned and expenses are recognized when incurred, under a full accrual basis of accounting. An enterprise fund provides management with information to measure performance, analyze the impact of financial decisions and to determine the cost of providing a service.
At year-end, the performance of an enterprise fund is measured in terms of positive and negative operations. An operating surplus is the result of revenue collected in excess of estimates and translates into retained earnings that are maintained in the fund.
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STILWELL AREA DEVELOPMENT AUTHORITY Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2017
The Authority’s net position Increased $525,862 for the year ended June 30, 2017. The following table provides a summary of net position.
NET POSITION
2015-2016 2016-2017Total Total
Proprietary Proprietary Net Funds Funds Change
ASSETSCurrent Assets 5,788,246$ 5,665,296$ (122,950)$
Net Fixed Assets 10,123,352 10,371,164 247,812
Deferred Outflows 100,932 782,655 681,723
TOTAL ASSETS 16,012,530$ 16,819,114$ 806,585$
LIABILITIES AND NET POSITION
Current Liabilities 540,277$ 1,119,455$ 579,178$
Long Term Liabilities 2,886,683 2,612,877 (273,806)
Deferred Inflows 73,223 48,572 (24,651)
Net Position 12,512,347 13,038,210 525,862
16,012,530$ 16,819,114$ 806,583$
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STILWELL AREA DEVELOPMENT AUTHORITY Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2017
SUMMARY OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
2015-2016 2016-2017Total Total
Proprietary Proprietary Funds Funds Net Change
Operating Revenue 7,893,442$ 8,027,769$ 134,327$
Operating Expenses 7,479,581 7,798,932 (319,351)
Net Income From Operations 413,861 228,837 (185,024)
Non-Operating Revenues &( Expense) (71,949) 297,025 368,974
Change in Net Position 341,912 525,862 183,950
Total Net Position Beginning of Year 12,170,435 12,512,348 552,924
Total Net Position End of Year 12,512,347$ 13,038,210$ 525,862$
Overall, Total Revenue Increased by $431,352 compared to the prior year.
Operating Expenses Increased by 241,425 compared to the prior year.
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STILWELL AREA DEVELOPMENT AUTHORITY Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2017
Capital Assets
The investment in capital assets as of June 30th Increased from $23,538,056 to $24,321,997.
Fiscal Year Fiscal Year Increase2015-2016 2016-2017 (Decrease)
Office Equipment 232,528$ 232,528$ -$ Trucks 1,496,806 1,509,006 12,200 Tractors/Trailers/Mowers 769,599 804,725 35,126 Construction Equipment 562,409 527,409 (35,000) Land/Improvements 1,441,853 1,441,853 - Infrastructure Improvements 19,034,861 19,371,632 336,771 Construction in Progress - 434,844 434,844
Investment in Capital Assets 23,538,056 24,321,997 783,941
Accumulated Depreciation (12,925,475) (13,950,834) (1,025,359)
Net Fixed Assets 10,612,581$ 10,371,162$ (241,419)$
The most significant increases to Fixed Assets and Equipment in 2016-2017 was to Infrastructure Improvements. The construction in progress was related to infrastructure improvement and should be completed in the next 12-18 months. The construction in progress is related to a sewer project to increase the efficiency of the current system.
During the fiscal year the Authority completed work on the Aeration Basin rehab for the wastewater treatment plant. The Authority paid $308,755 and they expect reimbursement from FEMA for 4256-DR-OK a federally declared disaster. It is expected that the Authority will receive 75% federal and 12.5% from the State of Oklahoma for a total of $290,611.
During 2016 the Authority contracted with a grant writer to pursue grants, donations and loans for a wastewater treatment plant improvement due to increase in demand. This increase in demand is the result of a local economic development project to increase an existing manufacturing facility. The facility began a 30,000 square foot expansion of their facility which will create 100 new jobs for the community. The projected cost of improvements to the wastewater treatment facility is $5,060,000. At June 30 or subsequent to the year end, $3,176,000 in grant funds had been secured, committed or received. The agencies funding these grants were the U.S. Economic Development Administration $1.5m; U.S. Department of Housing & Urban Development through the Community Development Block Grant-Economic Development Administration administered by the Oklahoma Department of Commerce $1.0m; U.S. Department of Agriculture $376k; Cherokee Nation Businesses $200k; Tom J. & Edna
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STILWELL AREA DEVELOPMENT AUTHORITY Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2017
M. Carson Foundation $100k. A low interest loan was also secured from USDA for $1.484mat 2% for a term of 40 years. The balance of $400k will be cash from operating income ofSADA. The project is slated for bidding in early calendar year 2018 with a completion date ofMay 2019
Debt
At June 30, 2017, the Authority had outstanding debt in the amount of $2,149,412.
SADA DEBT BALANCEInt Original 6/30/2015 Maturity
Rate Amount Balance Date
OWRB Sewer Plant Rebuild 3.27% 4,000,000$ 797,512$ 02/15/2021OWRB Water Plant Rebuild 4.04% 2,760,000 920,000 03/15/2022OWRB 1996 Retention Basin 1.51% 1,000,000 431,900 07/18/2023
7,760,000$ 2,149,412$
In the prior year the board approved paying off two loans at the Bank of Commerce for Service trucks; this was done during the current year.
Economic factors and next year’s budget and rates
During fiscal year 2017 the Authority purchased software additions to allow fixed assets and inventory to be tracked in the accounting software. At June 30, 2017 both software additions were implemented and integrated into the accounting software, allowing management to track inventory on the perpetual system and allow for all fixed assets to be depreciated within the software.
At the start of the current fiscal year the Authority had an unfunded pension liability of $(332,436) during the year the Authority paid down their pension liability with a contribution of $498,057, this payment left the plan in a positive position of $165,621. The payment on this liability is projected to save the Authority between $80-$85,000 per year going forward provided that they stay current on contributions.
On July 10, 2014, the Authority received notice from its primary lender, Oklahoma Water Resources Board (OWRB), that its net revenues from water and sewer operations were insufficient to meet the debt coverage ratio specified in the loan covenants. OWRB noted
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STILWELL AREA DEVELOPMENT AUTHORITY Management’s Discussion and Analysis For the Fiscal Year Ended June 30, 2017
that possible remedies included providing additional collateral, adjusting the rates or reducing expenses. The deficiency of water and sewer revenue to meet debt
coverage requirements specified in the OWRB loan covenants was effectively resolved by action of the Board at the September 8, 2015 regular meeting. The Authority approved by resolution various documents which specifically pledged electric system revenues to secure the indebtedness with OWRB. Pledging the electric system revenues does limit the Authority’s borrowing options pending payoff of that outstanding indebtedness.
Based on comprehensive study and analysis of costs, revenues and rates, the Authority developed a proposed rate schedule that addressed all rate categories. It was understood that sewer rates which would be required to make that aspect of the operation self-supportive could not implemented in a single year, but rather would have to be phased-in over a period of several years. At the October 13, 2015, regular meeting, the Authority approved submission of a rate proposal to the Stilwell City Council (Council). Representatives from the Authority, made a presentation on the rate proposal to the Council at a special meeting on November 6, 2015. The Council approved a new rate ordinance which incorporated the proposed rate schedule at its regular meeting held December 7, 2015. The new rates became effective in January 2016. As a result of the increases to water and sewer rates, revenues for the remainder of the fiscal year increased. In June 2017, the Authority approved additional rate increases for water, sewer and electric which were presented to the City Council for approval. The council approved these increases on July 3, 2017, ordinance 309D. The increases are to be effective August 1, 2017, July 1, 2018-2020.
The Authority was notified March 1, 2017 by the Oklahoma Water Resources Board that the cost savings measures initiated by the board along with the rate increases and pledging of electric revenues were sufficient to meet the debt coverage ratio (DCR) as required in the original debt agreements.
This financial report is designed to provide a general overview of the Authority’s finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Chief Financial Officer, P.O. Box 1512, Stilwell, Oklahoma 74960.
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MICHAEL W. GREEN Certified Public Accountant 827 W. Locust Street STILWELL, OK. 74960
(918) 696-6298
INDEPENDENT AUDITOR'S REPORT
The Board of Trustees Stilwell Area Development Authority Stilwell, Oklahoma
I have audited the accompanying financial statements of the business-type activities, each major fund, and the aggregate remaining fund information of the Stilwell Area Development Authority, a component unit of the City of Stilwell, Oklahoma, as of and for the year ended June 30, 2017, which collectively comprise the Authority’s basic financial statements as listed in the table of con-tents.
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 prepara-tion and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
My responsibility is to express an opinion on these financial statements based on my audit. I con-ducted my 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 Stand-ards, issued by the Comptroller General of the United States. Those standards require that I 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 disclo-sures in the financial statements. The procedures selected depend on the auditor's judgment, in-cluding 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 rel-evant 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, I 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.
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I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business type activities, each major fund, and the aggregate remaining fund information of the Stilwell Area Development Authority as of June 30, 2017, and the changes in financial position and cash flows thereof for the year 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 manage-ment’s discussion and analysis and pension exhibits with the related notes be presented to supple-ment the financial statements. Such information, although not a part of the basic financial state-ments, 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. I have applied certain limited procedures to the re-quired 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 pre-paring the information and comparing the information for consistency with management’s re-sponses to my inquiries, the basic financial statements, and other knowledge I obtained during my audit of the basic financial statements. I do not express an opinion or provide any assurance on the information because the limited procedures do not provide me with sufficient evidence to express an opinion or provide any assurance.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, I have also issued my report dated December 26, 2017, on my consideration of Stilwell Area Development Authority's internal control over financial reporting and on my 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 my 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 in considering Stilwell Area Development Authority's internal control over financial reporting and compliance.
Michael Green Certified Public Accountant
December 26, 2017
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ASSETSCurrent Assets
Cash and cash equivalents 1,293,021$ Restricted Cash 631,650 Receivables-utility billings 911,096 Receivables Grants 242,215 Restricted Investments 1,898,221 Prepaid Assets 38,573 Inventories 650,519 Total Current assets: 5,665,296
Noncurrent assets: Buildings, Property, & Equipment 23,887,154 Construction in Progress 434,844 Accumulated depreciation (13,950,834) Total Noncurrent assets: 10,371,164
Total assets 16,036,460
Deferred Outflows of Resources: Total Deferred Outflows-OkMRF 782,655
LIABILITIES AND FUND BALANCESCurrent Liabilities
Accounts payable & accruals 638,117 Current portion of LTD 481,338 Total Current liabilities: 1,119,455
Noncurrent liabilities: Accrued compensated absences 98,646 Net Pension Liability 568,462 Customer Deposits 277,695 Non current portion of LTD 1,668,074 Total Noncurrent liabilities: 2,612,877
Total liabilities 3,732,332
Defferred Inflows of Resources: Total Deferred Inflows of Resources-OMRF 48,572
NET POSITION Investment in Capital Assets Net of Debt 8,221,752 Restricted for Debt Service 1,898,221 Restricted for Line Extension & Repairs and Meter Deposits 2,918,237
TOTAL NET POSITION 13,038,210$
The accompanying footnotes are an integral part of these financial statements.
Stilwell Area Development Authority Statement of Net Position
Proprietary FundsJune 30, 2017
Business-type Activities-Enterprise Funds
10
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7
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CASH FLOWS FROM OPERATING ACTIVITIESReceipts from customers 8,092,990$ Payments to suppliers & others (5,264,697) Payments to employees (1,825,018) Payments to/from other funds
Net cash provided by operating activities 1,003,275
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIESPurchase of capital assets (783,942) Principal paid on capital debt (500,609) Interest and fees paid (84,101)
Net cash used by financing activities (1,368,652)
CASH FLOWS FROM INVESTING ACTIVITIESChange in restricted assets 591,366 Changes in meter deposit accounts 7,267
Interest revenue 17,047
Net cash provided by investing activities 615,680
Net change in cash & cash equivalents 250,303
Beginning balance 1,042,718
Ending balance 1,293,021$
RECONCILIATION OF OPERATING INCOME
(LOSS) TO NET CASH PROVIDED (USED) BYOPERATING ACTIVITIESOperating income 592,916$ Depreciation 538,749 Depreciation Disposals (2,619) Change in: Receivables (214,758) Prepaids (38,573) Inventory 35,219 Accounts payable & accruals and pension liability 92,341
Net cash provided by operating activities 1,003,275$
The accompanying footnotes are an integral part of these financial statements.
Stilwell Area Development Authority Statement of Cash Flows
Proprietary Funds For the Year Ended June 30, 2017
Business-type Activities-Enterprise Funds
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STILWELL AREA DEVELOPMENT AUTHORITY NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2017
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Stilwell Area Development Authority is a trust created July 18, 1962 under the provisions of Title 60, Oklahoma Statutes 1951, Sections 176 to 180, inclusive, the Oklahoma Trust Act and other applicable statues of the State of Oklahoma. The trust agreement transferred all rights and privileges of the water and sewer systems of the City of Stilwell to the Authority for the life of the trust. In 2000 the trust agreement was amended and the electric system of the City of Stilwell was also transferred to the Authority. References to prior year balances in the financial statements reflect the inclusion of the electric system.
The trust complies with generally accepted accounting principles (GAAP). GAAP includes all relevant Governmental Accounting Standards Board (GASB) pronouncements. In the government-wide financial statements and the fund financial statements for the proprietary funds, Financial Accounting Standards Board (FASB) pronouncements and Accounting Principles Board (APB) opinions issued on or before November 30, 1989, have been applied unless those pronouncements conflict with or contradict GASB pronouncements, in which case, GASB prevails. For enterprise funds, GASB Statement Nos. 20 and 34 provide the trust the option of electing to apply FASB pronouncements issued after November 30, 1989. The accounting and reporting framework and the more significant accounting policies are discussed in subsequent subsections of this Note.
In determining the financial reporting entity, the trust complies with the provisions of GASB Statement No. 14, "The Financial Reporting Entity,". The Stilwell Area Development Authority is considered a component unit of the City of Stilwell, Oklahoma.
Blended Component Units Blended component units are separate legal entities that meet the component unit criteria described above and whose governing body is the same or substantially the same as the trusts or the component unit provides services entirely to the trust. There are no component units.
Discretely Presented Component Units Discretely presented component units are separate legal entities that meet the component unit criteria described above but do not meet the criteria for blending.
Basis of Presentation Government-wide Financial Statements: The Statement of Net Position and Statement of Activities display information about the reporting government as a whole. They include all funds of the reporting entity except for fiduciary funds. The statements distinguish between governmental and business-type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange revenues. Business-type activities are financed in whole or in part by fees charged to external parties for goods or services. Since the trust is engaged only in business type activities it is not required to present government-wide statements.
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STILWELL AREA DEVELOPMENT AUTHORITY NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2017
Fund Financial Statements: Fund financial statements of the reporting entity are organized into funds, each of which is considered to be separate accounting entities. Each fund is accounted for by providing a separate set of self-balancing accounts that constitute its assets, liabilities, fund equity, revenues, and expenditure/expenses. Funds are organized into three major categories: governmental, proprietary, and fiduciary. An emphasis is placed on major funds within the governmental and proprietary categories. A fund is considered major if it is the primary operating fund of the trust or meets the following criteria:
a. Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental orenterprise fund are at least 10 percent of the corresponding total for all funds of that category ortype; and
b. Total assets, liabilities, revenues, or expenditures/expenses of the individual governmentalfund or enterprise fund are at least 5 percent of the corresponding total for all governmental andenterprise funds combined.
The funds of the trust are described below:
Proprietary Funds
Enterprise Funds - Enterprise Funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises--where the intent of the governing body is that the cost (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned,expenses incurred, and/or net income is appropriate for capital maintenance, public policy,management control, accountability, or other purposes. The trust believes that all of its funds are in this category since they all relate to or provide for the business type activity.
Measurement focus is a term used to describe "which" transactions are recorded within the various financial statements. Basis of accounting refers to "when" transactions are recorded regardless of the measurement focus applied.
Measurement Focus and Basis of Accounting
Measurement Focus
On the government-wide Statement of Net Assets and the Statement of Activities, both governmental and business-like activities would be presented using the economic resources measurement focus as defined in item b. below.
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STILWELL AREA DEVELOPMENT AUTHORITY NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2017
In the fund financial statements, the "current financial resources" measurement focus or the "economic resources" measurement focus is used as appropriate:
a. All governmental funds utilize a "current financial resources" measurement focus. Onlycurrent financial assets and liabilities are generally included on their balance sheets. Theiroperating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable financialresources at the end of the period.
b. The proprietary fund utilizes an "economic resources" measurement focus. The accountingobjectives of this measurement focus are the determination of operating income, changes in netassets (or cost recovery), financial position, and cash flows. All assets and liabilities (whethercurrent or noncurrent) associated with their activities are reported. Proprietary fund equity isclassified as net assets.
c. Agency funds are not involved in the measurement of results of operations; therefore,measurement focus is not applicable to them.
Basis of Accounting
In the government-wide Statement of Net Position and Statement of Activities, both governmental and business-like activities would be presented using the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place.
In the fund financial statements, governmental funds and agency funds would be presented on the modified accrual basis of accounting. Under this modified accrual basis of accounting, revenues are recognized when "measurable and available." Measurable means knowing or being able to reasonably estimate the amount. Available means collectible within the current period or within sixty days after year end. Expenditures (including capital outlay) are recorded when the related fund liability is incurred, except for general obligation bond principal and interest which are reported when due.
All proprietary funds utilize the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used.
Cash and Cash Equivalents
The Authority considers all cash on hand, demand deposits and highly liquid investments, with an original maturity of three months, or less, to be cash or cash equivalents.
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STILWELL AREA DEVELOPMENT AUTHORITY NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2017
Interfund Receivables and Payables
During the course of operations, numerous transactions occur between individual funds that may result in amounts owed between funds. Those related to goods and services type transactions are classified as "due to and from other funds”.
Long-Term Liabilities
All proprietary funds are accounted for on a cost of services or "capital maintenance" measurement focus. This means that all assets and all liabilities (whether current or noncurrent) associated with their activity are included on their balance sheets.
Compensated Absences
Unused sick leave may be accumulated by an employee up to a maximum of 720 hours, however, should an employee quit or be terminated, payment of earned sick leave is limited to 240 hours. Per GASB 16, these accruals have been made in current year.
Inventories
Inventories consist of materials and supplies and are stated at cost.
Property and Equipment
The Authority values its fixed assets at historical cost or estimated historical cost if actual historical cost is not available. Depreciation of all exhaustible fixed assets is charged as an expense against operations. Accumulated depreciation is reported on the balance sheets. Depreciation has been provided on the straight-line method over the estimated useful life.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
NOTE 2: CASH AND INVESTMENTS
Cash and investments include all deposits held by financial institutions - money market accounts, savings accounts and certificates of deposit. At year-end, the bank balance of the Authority’s deposits was $3,822,892. All funds were either covered by federal depository insurance or collateralized by securities pledged to the Authority by various depository banks.
The Authority is statutorily limited to investing public funds in obligations of the United States Government or the State of Oklahoma, certificates of deposit, insured checking and savings accounts and insured savings certificates. Custodians of those funds are required to secure
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STILWELL AREA DEVELOPMENT AUTHORITY NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2017
collateral for amounts in excess of the amount insured by the Federal Deposit Insurance Corporation or Federal Savings & Loan Insurance Corporation. This collateral must be in the form of United State or state and local government obligations or a surety bond.
Deposits - The Authority's cash deposits at June 30, 2017 are categorized to give an indication of the level of risk assumed by the Authority at year end as follows:
(A) Insured or collateralized with securities held by the Authority or by its agent in theAuthority’s name.
(B) Collateralized with securities held by the pledging financial institution's trust departmentor agent in the Authority’s name.
(C) Uncollateralized.
Category
(A) (B) (C) Balance
Cash $1,293,021 $2,529,871 $3,822,892
NOTE 3: RESTRICTED ASSETS & RESERVED NET POSITION Net Position is displayed in three components:
a. Net investment in capital assets – Consists of capital assets including restricted capitalassets, net of accumulated depreciation and reduced by the outstanding balances of anybonds, mortgages, notes, or other borrowings that are attributable to the acquisition,construction, or improvements of those assets.
b. Restricted net position – Consists of net position with constraints placed on the use eitherby 1) external groups such as creditors, grantors, contributors, or laws and regulations ofother governments or 2) law through constitutional provisions or enabling legislation.
c. Unrestricted net position – All other net position that does not meet the definition of“restricted” or “ net investment in capital assets.”
The majority of restricted assets of the Authority consist of cash on deposit in banks.
Net Position is reserved for restricted cash, debt retirement, extension and replacement funds and for customer meter deposits.
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STILWELL AREA DEVELOPMENT AUTHORITY NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2017
NOTE 4: CAPITAL ASSETS
Major classifications of property and equipment and their respective depreciable lives are listed below.
Beginning EndingBalance Additions Deletions Balance
Prop & Equipment with Life of Less than 20 yrs 5,433,563$ 384,097$ (35,000)$ 5,782,660$ Prop & Equipment with Life of More than 20 yrs 18,104,493 - - 18,104,493 Total Depreciable Assets 23,538,056 384,097 (35,000) 23,887,153
Construction In Progress - 434,844 - 434,844 Total Non Depreciable Assets - 434,844 - 434,844
Accumulated Depreciation (13,414,704) (538,748) 2,619 (13,950,833)
Total Fixed Assets 10,123,352$ 280,193$ (32,381)$ 10,371,164$
NOTE 5: LONG-TERM DEBT
On February 1, 1996 the Stilwell Area Development Authority signed an agreement to borrow $1,000,000.00 from the Oklahoma Water Resources Board for the purpose of replacing and adding water lines, conducting a sewer system evaluation study, rehabilitating wastewater collection system, constructing water storage facilities and constructing a flow equalization basin. Principal balance on the loan was $431,900 at June 30, 2017. The note bore an initial interest rate of 4.622%. On March 1, 1996 and periodically thereafter until final maturity the rate will be subject to adjustment. The rate will be calculated upon the rate of interest on the Board’s State Loan Program Revenue Bonds, Series 1994A plus applicable program costs. Current rate is 1.51%.
On October 26, 1999 the Stilwell Area Development Authority signed an agreement to borrow up to 4,000,000.00 from the Oklahoma Water Resources Board for the purpose of making sanitary sewer system improvements benefiting the City of Stilwell, Oklahoma. Principal payments commenced upon completion of the project. Principal balance on the loan was $ 797,512 at June 30, 2017. The note bore an initial interest rate not to exceed 4.25% per annum plus an administrative fee of 0.5% per annum. Current rate is 3.27%.
On March 12, 2002 the Stilwell Area Development Authority signed an agreement to borrow $2,760,000.00 from the Oklahoma Water Resources Board for the purpose of making improvements to the water treatment plant. Principal payments commenced on September 15, 2002, Principal balance on the loan was $ 920,000 at June 30, 2017. The note bears interest at an average rate of 4.04%.
On December 15, 2009, the Stilwell Area Development Authority entered into a lease purchase agreement with the Bank of Commerce in the amount of $ 81,187.53 for the purpose of purchasing a 2009 Ford Truck. The Board voted to pay this agreement off in full during the current fiscal year.
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STILWELL AREA DEVELOPMENT AUTHORITY NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2017
On May 30, 2012, the Stilwell Area Development Authority entered into a lease purchase agreement with the Bank of Commerce in the amount of $57,222.00 for the purpose of purchasing (2) 2012 Ford F-150 Crew Cab 4x4 Pickups. The Board voted to pay this agreement off in full during the current fiscal year.
Current maturities of principal for each of the next five years and in aggregate, under the indebtedness mentioned above, is as follows:
Notes Payable Principal Interest
2018 481,338 65,949 2019 500,710 49,583 2020 525,864 32,407 2021 260,100 16,765 2022 275,900 6,873
2023-2024 105,500 1,889
Total Notes Payable 2,149,412 173,466
NOTE 6: EMPLOYEE RETIREMENT PLAN
Plan Description-The Authority contributes to the OkMRF for all eligible employees. The participation by the Authority in the City of Stilwell agent multiple employer defined benefit plan requires the accounting treatment as a cost-sharing multiple employer plan. The plan is administered by OkMRF for the City of Stilwell. The OkMRF plan issues a separate financial report and can be obtained from OkMRF or from their website: www.okmrf.org/reports.html. Benefits are established or amended by the City Council in accordance with O.S. Title 11, Section 48-101-102.
Summary of Significant Accounting Policies - For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the City’s plan and additions to/deductions from the City’s fiduciary net position have been determined on the same basis as they are reported by OkMRF. For this purpose, benefit payments are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value based on published market prices. Detailed information about the OkMRF plans’ fiduciary net position is available in the separately issued OkMRF financial report.
Eligibility Factors and Benefit Provisions
As of 07/01/16 Provision OkMRF Plan
a. Eligible to participate Full-time employees except police, firefighters and other employees who are covered under an approved system.
b. Period Required to Vest 5 years of credited service
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STILWELL AREA DEVELOPMENT AUTHORITY NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2017
c. Eligibility for Distribution -Normal retirement at age 65 with 5 years ofservice-Early retirement at age 55 with 5 years ofservice-Disability retirement upon disability with 5years of service-Death benefit with 5 years of service formarried employees
d. Benefit Determination Base Final average salary - the average of the five highest consecutive annual salaries out of the last 10 calendar years of service
e. Benefit Determination Methods: Normal Retirement -2.25% of final average salary multiplied by
credited years of service
Early Retirement -Actuarially reduced benefit based upon age,final average salary, and years of service attermination
Disability Retirement -Same as normal retirement
Death Benefit -50% of employees accrued benefit, butterminates upon spouse re-marriage
Prior to 7 Years of Service -No benefits
f. Benefit Authorization -Benefits are established and amended by CityCouncil adoption of an ordinance in accordance with O.S. Title, 11, Section 48-101-102
g. Form of Benefit Payments Normal form is a 60 months certain and life thereafter basis. Employee may elect, with City consent, option form based on actuarial equivalent.
Contribution Requirements-The City Council has the authority to set and amend contribution rates by ordinance for the OkMRF defined benefit plan in accordance with O.S. Title 11, Section 48-102. The contribution rates for the current fiscal year have been made in accordance with an actuarially determined rate. The actuarially determined rate is 7.73% of covered payroll as of 7-1-16; however, management elected to contribute 10% of covered payroll as of 7-1-16. For the year ended June 30, 2017, the Authority recognized $594,092 of employer contributions to the plan which exceeds the actuarially determined amount based on covered payroll of $935,581; included in the contributions the Authority made is an additional payment in the amount of $500,543. Employees’ contribution is 4.5% of covered payroll as of 7-1-16.
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STILWELL AREA DEVELOPMENT AUTHORITY NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2017
Actuarial Assumptions
Date of Last Actuarial Valuation July 1, 2016 a. Actuarial cost method Entry age normal
b. Rate of Return on Investments and Discount Rate 7.75%
c. Projected Salary Increase Varies between 7.42% and 4% based on age
d. Post Retirement Cost-of-Living Increase Benefits (attributable to service prior to 1/1/2010) in payment status are adjusted each July 1st based on the percentage change in the CPI. The maximum increase or decrease in any year is 3%.
e. Inflation Rate 3%
f. Mortality Table UP 1994, with projected mortality improvement
g. Percent of married employees 100%
h. Spouse age difference 3 years (female spouses younger)
i. Turnover Select and ultimate rates Ultimate rates are age-related as shown Additional rates per thousand are Added during the first 5 years:
Year 1: 215 Year 2: 140 Year 3: 95 Year 4: 65 Year 5: 40
j. Date of last experience study September 2012 for fiscal years 2007 thru 2011
Discount Rate – The discount rate used to value benefits was the long-term expected rate of return on plan investments, 7.75% since the plan’s net fiduciary position is projected to be sufficient to make projected benefit payments.
The City Council has adopted a funding method that is designed to fund all benefits payable to participants over the course of their working careers. Any differences between actual and expected experience are funded over a fixed period to ensure all funds necessary to pay benefits have been contributed to the trust before those benefits are payable. Thus, the sufficiency of pension plan assets was made without a separate projection of cash flows.
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STILWELL AREA DEVELOPMENT AUTHORITY NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2017
The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of
return by the target asset allocation percentage and by adding expected inflation (3.0%). Best estimates of arithmetic real rates of return for each major asset class included in the pension plan’s target asset allocation as of July 1, 2016 are summarized in the following table:
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STILWELL AREA DEVELOPMENT AUTHORITY NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2017
Sensitivity of the net pension liability to changes in the discount rate-The following presents the net pension liability of the Authority, calculated using the discount rate of 7.75 percent, as well as what the Authority’s net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.75 percent) or 1-percentage-point higher (8.75 percent) than the current rate:
1% Current 1%Decrease Discount Increase
6.75% Rate 7.75% 8.75%
Net Pension Liability 1,096,654$ 568,462$ 135,457$
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions - At June 30, 2017, the Authority reported a liability of $568,462 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of July 1, 2016. The Authority’s proportion of the net pension liability was based on the Authority’s contributions received by the pension plan relative to the total contributions received by pension plan for all participating employers as of June 30, 2017. Based upon this information, the Authority’s proportion was 47.248% The Authority reported $96,033 in pension expense for the year ended June 30, 2017. At June 30, 2017, the Authority reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Outflows of Resources
Deferred Inflows of Resources
Differences between expected and actual experience 1,401$ 21,201$
Net difference between projected and actual earnings on pension plan investments 159,702 -
Changes in proportion 27,460 27,371 City contributions subsequent to the measuremnt date 594,092 - Total 782,655$ 48,572$
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STILWELL AREA DEVELOPMENT AUTHORITY NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2017
Amortization of Pension Deferrals - In the year ending June 30, 2018, $594,092 reported as deferred outflows of resources related to pensions resulting from Authority contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:
TotalYear ended June 30:
2018 13,817 2019 13,816 2020 72,332 2021 42,411 2022 (2,385)
139,991$
NOTE 7: CLAIMS AND JUDGEMENTS
From time to time the Authority participates in federal and state programs that are fully or partially funded by grants received from other governmental units. Expenditures financed by grants are subject to audit by the appropriate grantor government. If expenditures are disallowed due to non-compliance with grant program regulations, the Authority may be required to reimburse the grantor government. No provision is made in the financial statements for these possible contingencies.
NOTE 8: SUBSEQUENT EVENTS
Subsequent events have been evaluated through the date of the Auditor’s report which is the date which the financial statements were available to be issued.
NOTE 9: ALLOCATION OF INDIRECT COSTS
Indirect cost of the Authority are accumulated in cost centers until such time as they are allocated. The Authority currently has three cost centers that are allocated to the service cost centers. The Indirect cost centers are Administration, Billing and Collection, and Water and Sewer Construction.
The Administration function and Billing and Collection are currently allocated to the Electric, Water, and Sewer services based on a percentage of revenue each department has at the end of the month and reconciled at the end of the year.
The Water and Sewer construction cost center is allocated between the Water and Sewer services based on labor reports. Currently the water and sewer is being allocated 50/50 between Water and Sewer.
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Schedules of Required Supplementary InformationSCHEDULE OF AUTHORITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITYOKLAHOMA MUNICIPAL RETIREMENT FUNDLast 10 Fiscal Years* (Dollar amounts in thousands)
2015 2016 2017
Authority's proportion of the net pension liability 47.3441% 44.3228% 47.2478%
Authority's proportionate share of the net pension liability 262,999$ 360,145$ 568,462$
Authority's covered-employee payroll 1,076,766$ 1,115,570$ 993,230$
Authority's proportionate share of the net pension liability as a percentage of its covered-employee payroll 24% 32% 57%
Plan fiduciary net position as a percentage of the total pension liability 24.42% 35.36% 57.55%
*The amounts present for each fiscal year were determined as of 6/30
Notes to Schedule:
1. Only the current and prior fiscal years are presented because 10-year data is not yet available.
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Schedules of Required Supplementary InformationSCHEDULE OF THE AUTHORITY'S CONTRIBUTIONSOKLAHOMA MUNICIPAL RETIREMENT FUNDLast 10 Fiscal Years (Dollar amounts in thousands)
2015 2016 2017
Actuarial Determined Employer Contribution 93,373$ 99,323$ 93,558$
Contributions in relation to the actuarial determined employer contribution 111,557 99,323 594,092
Contribution deficiency (excess) (18,184)$ -$ (500,534)$
College's covered-employee payroll 1,115,570$ 993,230$ 935,581$
Contributions as a percentage of covered-employee payroll 10.00% 10.00% 63.50%
Notes to Schedule:
1. Only the current and prior fiscal years are presented because 10-year data is not yet available.
2. Latest Valuation Date: July 1, 2016
3. Actuarially determined contribution rate is calculated as of July 1, 2016 and is 7.73%.
4. Methods and assumptions used to determine contribution rates:Actuarial cost method - Entry age normalAmortization method - Level percent of payroll, closedRemaining amortization period - 28 yearsAsset valuation method - Actuarial:
Smoothing period - 4 yearsRecognition method - Non-asymptoticCorridor - 70% - 130%
Salary increases - 4.00% to 7.42% (varies by attained age)Investment rate of return - 7.50%
5. This information includes activity for the City and the SADA, a discretely presented component unit.
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MICHAEL W. GREEN Certified Educational Accountant
827 W. LOCUST STREET Stilwell, Ok. 74960
(918) 696-6298
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
Board of Trustees Stilwell Area Development Authority Stilwell, Oklahoma
I have audited the financial statements of the Stilwell Area Development Authority, a component unit of the City of Stilwell, as of and for the year then ended June 30, 2017, which collectively comprise the Authority’s basic financial statements and have issued my report thereon dated December 26, 2017. I conducted the audit in accordance with 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 my audit of the financial statements, I considered Stilwell Area Development Authority’s (the Authority) internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing my opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization’s internal control. Accordingly, I do not express an opinion on the effectiveness of the Organization’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.
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My 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. I did identify certain deficiencies in internal control, described in the accompanying schedule of findings and responses that I consider to be material weaknesses. (17-1)
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Stilwell Area Development Authority's financial statements are free of material misstatement, I 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 my audit and, accordingly, I do not express such an opinion. The results of my tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards.
Response to Findings
The Authority’s response to the findings identified in my audit is described in the accompanying schedule of findings and responses. The Authority’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, I express no opinion on it.
Purpose of this Report
The purpose of this report is solely to describe the scope of my testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization’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 organization’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Michael Green, CPA Certified Public Accountant
December 26, 2017
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SCHEDULE OF FINDINGS AND RESPONSES
2017-1
Criteria: The segregation of duties and responsibilities between different individuals for custody of assets, record keeping for those assets, and reconciliation of those asset accounts is an important control activity needed to adequately protect the entity's assets and ensure accurate financial reporting.
Condition: Presently a limited number of individuals have responsibility for all functions of the encumbering and purchasing system. This individual has oversight responsibilities for encumbering of monies, issuing the purchase orders, reconciling the invoices to the purchase orders and printing the checks for payments of the invoices. In addition to that, this individual also records employee time and prepares payroll as well as preparing the tax reports for the Chief Financial Officer’s approval; maintains personnel record files, administers employee group insurance, prepares and distributes agendas, maintains documents as needed for historical and legal requirements as well as minutes for board meetings, maintains and distributes as necessary the policy and procedures manual, personnel policies, job descriptions as directed by the general manager or board of directors. In addition, only limited oversight is provided over this individual in the conduct of their daily functions.
Cause: The entity's limited size and staffing resources have made it difficult for management to provide sufficient staffing to fully segregate incompatible duties in a cost-effective manner.
Effect or Potential Effect: Without sufficient segregation of duties, the risk significantly increases that errors and fraud related to purchases or to payroll, including misappropriation of assets, could occur and not be detected within a timely basis.
Recommendation: Management and the board should consider a formal evaluation of their risks associated with this lack of duties segregation over assets. In response to the Identified risks, consideration should be given to adding additional office personnel or identifying and implementing compensating duties to act as controls that could help mitigate the risks associated with lack of segregation of duties, such as management performing review procedures for the reconciliation of accounts.
Responsible Official's Response: The organization concurs with the recommendation, and will strive to implement procedures and compensating duties to help mitigate the risks associated with the lack of segregation of duties.
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