Port Audit 2013

Washington State Auditors Office

Financial Statements and Federal Single Audit Report

Port of Bremerton Kitsap County

Audit Period January 1, 2013 through December 31, 2013

Report No. 1012058

Issue Date June 12, 2014

June 12, 2014 Board of Commissioners Port of Bremerton Bremerton, Washington Report on Financial Statements and Federal Single Audit Please find attached our report on the Port of Bremertons financial statements and compliance with federal laws and regulations. We are issuing this report in order to provide information on the Ports financial condition. Sincerely,

TROY KELLEY STATE AUDITOR

Washington State Auditor Troy Kelley

Insurance Building, P.O. Box 40021 y Olympia, Washington 98504-0021 y (360) 902-0370 y TDD Relay (800) 833-6388

Table of Contents


January 1, 2013 through December 31, 2013

Federal Summary ............................................................................................................................ 1

Independent Auditors 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......................................................................... 3

Independent Auditors Report on Compliance for Each Major Federal Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 ............................... 5

Independent Auditors Report on Financial Statements ................................................................. 8

Financial Section ........................................................................................................................... 11

Federal Summary


January 1, 2013 through December 31, 2013 The results of our audit of the Port of Bremerton are summarized below in accordance with U.S. Office of Management and Budget Circular A-133. FINANCIAL STATEMENTS An unmodified opinion was issued on the basic financial statements. Internal Control Over Financial Reporting: x Significant Deficiencies: We reported no deficiencies in the design or operation of

internal control over financial reporting that we consider to be significant deficiencies. x Material Weaknesses: We identified no deficiencies that we consider to be material

weaknesses. We noted no instances of noncompliance that were material to the financial statements of the Port. FEDERAL AWARDS Internal Control Over Major Programs: x Significant Deficiencies: We reported no deficiencies in the design or operation of

internal control over major federal programs that we consider to be significant deficiencies.

x Material Weaknesses: We identified no deficiencies that we consider to be material

weaknesses. We issued an unmodified opinion on the Ports compliance with requirements applicable to its major federal program. We reported no findings that are required to be disclosed under section 510(a) of OMB Circular A-133.

_________________________________________________________________________________________________________ Washington State Auditor's Office

1

Identification of Major Programs: The following was a major program during the period under audit:

CFDA No. Program Title

20.106 Airport Improvement Program The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by OMB Circular A-133, was $300,000. The Port did not qualify as a low-risk auditee under OMB Circular A-133.


2

Independent Auditors 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

Port of Bremerton

Kitsap County January 1, 2013 through December 31, 2013

Board of Commissioners Port of Bremerton Bremerton, Washington We have audited, 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, the financial statements of the Port of Bremerton, Kitsap County, Washington, as of and for the year ended December 31, 2013, and the related notes to the financial statements, which collectively comprise the Ports basic financial statements, and have issued our report thereon dated June 9, 2014. As discussed in Note 14 to the financial statements, during the year ended December 31, 2013, the Port implemented Governmental Accounting Standards Board Statement No. 65, Items Previously Reported as Assets and Liabilities. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit of the financial statements, we considered the Ports internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Ports internal control. Accordingly, we do not express an opinion on the effectiveness of the Ports 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 Port'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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Our 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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the Ports financial statements are free from material misstatement, we performed tests of the Ports 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. PURPOSE OF THIS REPORT The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Ports internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Ports internal control and compliance. Accordingly, this communication is not suitable for any other purpose. However, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations.

TROY KELLEY STATE AUDITOR June 9, 2014


4

Independent Auditors Report on Compliance for Each Major Federal Program and on Internal Control over Compliance in Accordance with OMB Circular A-133

Port of Bremerton

Kitsap County January 1, 2013 through December 31, 2013

Board of Commissioners Port of Bremerton Bremerton, Washington REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM We have audited the compliance of the Port of Bremerton, Kitsap County, Washington, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2013. The Ports major federal programs are identified in the accompanying Federal Summary. Managements Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of the Ports major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Ports compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. Our audit does not provide a legal determination on the Ports compliance.


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Opinion on Each Major Federal Program In our opinion, the Port complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2013. REPORT ON INTERNAL CONTROL OVER COMPLIANCE Management of the Port is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Ports internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program in order to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Port's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance 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. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. PURPOSE OF THIS REPORT The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. However, this report is a matter of public record and its distribution is not limited.


6

It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations.



7

Independent Auditors Report on Financial Statements


January 1, 2013 through December 31, 2013 Board of Commissioners Port of Bremerton Bremerton, Washington REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of the Port of Bremerton, Kitsap County, Washington, as of and for the year ended December 31, 2013, and the related notes to the financial statements, which collectively comprise the Ports basic financial statements as listed on page 11. Managements 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 preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including 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 relevant to the Ports 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 Ports internal control. Accordingly, we 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.


8

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Port of Bremerton, as of December 31, 2013, 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. Matters of Emphasis As discussed in Note 14 to the financial statements, in 2013, the Port adopted new accounting guidance, Governmental Accounting Standards Board Statement No. 65, Items Previously Reported as Assets and Liabilities. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the managements discussion and analysis on pages 12 through 17 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, 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. We have applied certain limited procedures to the required 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 preparing the information and comparing the information for consistency with managements responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Ports basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. This schedule is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.


9

OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS In accordance with Government Auditing Standards, we have also issued our report dated June 9, 2014 on our consideration of the Ports internal control over financial reporting and on our 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 our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on 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 the Ports internal control over financial reporting and compliance.



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Financial Section


January 1, 2013 through December 31, 2013 REQUIRED SUPPLEMENTARY INFORMATION

Managements Discussion and Analysis 2013

BASIC FINANCIAL STATEMENTS Statement of Net Position 2013 Statement of Revenues, Expenses and Changes in Fund Net Position 2013 Statement of Cash Flows 2013 Notes to Financial Statements 2013

SUPPLEMENTARY AND OTHER INFORMATION

Schedule of Expenditures of Federal Awards 2013 Notes to the Schedule of Expenditures of Federal Awards 2013


11

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MCAG No. 1729

ASSETS

CURRENT ASSETS: Cash and cash equivalents (Note 1 and 2) 12,630,516$ Restricted assets: Cash and cash equivalents (Note 1 and 2) 266,083 Taxes receivable (Note 3) 359,970 Accounts receivable (net of allowance for 127,308 uncollectibles) (Note 1) Due from other governments - current portion (Note 1 and 5) 100,000 Other receivables 149,574 Inventory (Note 1) 65,965 Prepaid expenses 278,836

TOTAL CURRENT ASSETS 13,978,252

NON-CURRENT ASSETS:Capital assets not being depreciated (Note 4) Land 7,139,949 Construction in progress 1,540,751 Capital assets being depreciated (Note 4) Buildings & structures 38,181,816 Machinery and equipment 1,897,900 Marina and other improvements 51,194,072 Less: Accumulated depreciation (34,600,530)

Total Net Capital Assets 65,353,958

Other Non-Current Assets Due from other governments - Long term portion (Note 1 and 5) 2,799,905

TOTAL OTHER NON-CURRENT ASSETS 2,799,905

TOTAL NONCURRENT ASSETS 68,153,863

TOTAL ASSETS 82,132,115$

PORT OF BREMERTONStatement of Net Position

December 31, 2013

See Accompanying Notes to Financial Statements


18

MCAG No. 1729

LIABILITIES

CURRENT LIABILITIES: Warrants payable 602,792$ Accounts payable 248,067 Accrued expenses 273,914 Accrued interest payable 22,388 Payable from restricted assets (customer deposits) 249,492 Current portion of long-term liabilities (Note 9) 325,946

TOTAL CURRENT LIABILITIES 1,722,599

NON-CURRENT LIABILITIES: General obligation bonds (Note 9) 3,556,450 CERB loans (Note 9) 543,315 Employee leave benefits (Note 1) 72,874

TOTAL NON-CURRENT LIABILITIES 4,172,639

TOTAL LIABILTITES 5,895,238$

NET POSITION: Net investment in capital assets 61,036,107 Restricted for capital projects (Note 10) 16,114 Unrestricted 15,184,656 TOTAL NET POSITION 76,236,877$

December 31, 2013


PORT OF BREMERTONStatement of Net Position


19

MCAG No. 1729

PORT OF BREMERTON Statement of Revenues, Expenses and Changes in Fund Net Position

For Year Ended December 31, 2013

REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION

OPERATING REVENUES: Airport operations 231,276$ Marina operations 1,589,472 Property lease/rental operations 1,554,724 Other 1,437 Total Operating Revenues 3,376,909

OPERATING EXPENSES: General operations 3,716,882 Maintenance 206,376 General and administrative 570,611 Depreciation (Note 4) 2,870,886 Total Operating Expenses 7,364,755

Operating Income (Loss) (3,987,846)

NONOPERATING REVENUES (EXPENSES): Investment income 21,259 Taxes levied for: General purposes (Note 3) 3,073,794 Debt service principal/interest (Note 3) 306,440 Gain (loss) on disposition of assets (Note 15) (248,299) Interest expense (157,762) Election expense (29,822) Other nonoperating revenues (expenses) 88,173 Total Non-Operating Revenues (Expenses) 3,053,783

Income (loss) before other revenues, expenses, gains, loses and transfers (934,063)

Capital contributions 612,338 Special items (Note 15) (1,292,843)

INCREASE (DECREASE) IN NET POSITION (1,614,568)$

Net Position as of January 1 77,927,198$ Change in Accounting Principle (Note 14) (53,929) Less: Prior Period adjustments (Note 15) (21,824)

Net Position as of December 31 76,236,877$



20

2013CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 3,642,187$ Payments to suppliers (2,989,173) Payments to employees (2,015,018) Other receipts 88,474 Other payments (31,129) Net cash provided (used) by operating activities (1,304,659)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Property tax receipts 3,250,279 Net cash provided (used) by noncapital financing activities 3,250,279

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Property tax receipts for capital assets 306,440 Receipts from capital asset sale 100,000 Acquisition and construction of capital assets (1,429,606) Capital Contributions 860,476 Principal paid on bonds and note (344,611) Interest paid on bonds and note (157,762) Net cash provided (used)by capital and related financing activities (665,063)

CASH FLOWS FROM INVESTING ACTIVITIES Interest received on investments 21,259 Net increase (decrease) in cash and cash equivalents 1,301,816

Balances - beginning of year 11,594,783 Balances - end of year 12,896,599

RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED)BY OPERATING ACTIVITIES Operating income (loss) (3,987,846)$ Adjustment to reconcile operating income (loss) to net cash provided used) by operating activities: Depreciation 2,870,886 Change in assets and liabilities: (Increase) decrease in accounts receivable (net) 327,587 (Increase) decrease in fuel inventory (34,520) (Increase) decrease in prepayments (22,845) Increase (decrease) in warrants payable (479,879) Increase (decrease) in accounts payable 32,131 Increase (decrease) in customer deposits 37,690 Increase (decrease) in accrued expenses (47,863) Net cash provided (used) by operating activities (1,304,659)

SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS

Port of BremertonStatement of Cash Flows

For the year ended December 31, 2013


21

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28

Port of Bremerton

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%(*,11,1* (1',1* $66(7%$/$1&( $66(7%$/$1&( -DQXDU\ $'',7,216 '(/(7,216 'HFHPEHU Capital assets, not being depreciated: /DQG &RQVWUXFWLRQLQSURJUHVV Total capital assets, not being depreciated

10,677,871 1,733,580 3,730,751 8,680,700

Capital assets being depreciated: %XLOGLQJVVWUXFWXUHV 0DFKLQHU\DQGHTXLSPHQW 0DULQDDQGRWKHULPSURY Total capital assets being 89,451,480 2,518,611 696,304 91,273,787depreciated Less accumulated depreciation for : %XLOGLQJVVWUXFWXUHV 0DFKLQHU\DQGHTXLSPHQW 0DULQDDQGRWKHULPSURY Total accumulated 32,177,650 2,870,886 448,005 34,600,530 depreciation Total capital assets, beingdepreciated, net

57,273,830

(352,275)

248,300

56,673,256

Total Net Capital Assets $67,951,701 1,381,305 3,979,051 $65,353,958

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29

Port of Bremerton

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Receivable Amount

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30

Port of Bremerton

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31

Port of Bremerton

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33

Port of Bremerton

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Port of Bremerton

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37

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44

MCAG No.172

9PORT OF BREMERTO

NSched

ule 16

Pag

e 1 of 2

SCHEDULE

OF EXPENDITURES OF FEDERAL AWARDS

For The

Yea

r End

ed Decem

ber 3

1, 201

3

Expen

ditures

Fed

eral Age

ncy

From Pass -

From

Total

Nam

e/Pasthroug

hFed

eral Program

CFDA

Other Id

entification

Throu

gh

Dire

ctFoo

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Age

ncy Nam

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ber

Num

ber

Awards

Awards

Referen

ceU.S. D

ept o

f Transp

ortation:

U.S. D

epartm

ent o

f Transpo

rtation

FAA Airp

ort Improvem

ent

20.106

3-53

-000

7-26

157,72

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157,72

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1,2

Program

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L AWARD EXPENSES

117,48

9$

396,76

2$

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45

cowartdThe accompanying Notes to the Schedule of Expenditures of Federal Awards is an integral part of this statement

NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

NOTE 1 - Basis of Accounting

This schedule is prepared on the same basis of accounting as the Port of Bremerton's financial statements. The Port uses the Budgeting, Accounting and Reporting System for Port Districts in the State of Washington.

NOTE 2 - Program Costs

The amounts shown as current year expenses represent only the federal grant portion of the program costs. Entire program costs, including the Port's portion, may be more than shown.

PORT OF BREMERTONDecember 31, 2013


46

ABOUT THE STATE AUDITOR'S OFFICE The State Auditor's Office is established in the state's Constitution and is part of the executive branch of state government. The State Auditor is elected by the citizens of Washington and serves four-year terms. We work with our audit clients and citizens as an advocate for government accountability. As an elected agency, the State Auditor's Office has the independence necessary to objectively perform audits and investigations. Our audits are designed to comply with professional standards as well as to satisfy the requirements of federal, state, and local laws. The State Auditor's Office employees are located around the state to deliver services effectively and efficiently. Our audits look at financial information and compliance with state, federal and local laws on the part of all local governments, including schools, and all state agencies, including institutions of higher education. In addition, we conduct performance audits of state agencies and local governments and fraud, whistleblower and citizen hotline investigations. The results of our work are widely distributed through a variety of reports, which are available on our Web site and through our free, electronic subscription service. We take our role as partners in accountability seriously. We provide training and technical assistance to governments and have an extensive quality assurance program. State Auditor Troy Kelley Chief of Staff Doug Cochran Director of Performance and State Audit Chuck Pfeil, CPA Director of Local Audit Kelly Collins, CPA Deputy Director of State Audit Jan M. Jutte, CPA, CGFM Deputy Director of Local Audit Sadie Armijo Deputy Director of Local Audit Mark Rapozo, CPA Deputy Director of Performance Audit Lou Adams, CPA Deputy Director of Quality Assurance Barb Hinton Deputy Director of Communications Thomas Shapley Local Government Liaison Mike Murphy Public Records Officer Mary Leider Main number (360) 902-0370 Toll-free Citizen Hotline (866) 902-3900 Website www.sao.wa.gov Subscription Service portal.sao.wa.gov/saoportal/Login.aspx

Federal SummaryIndependent Auditors 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 StandardsIndependent Auditors Report on Compliance for Each Major Federal Program and on Internal Control over Compliance in Accordance with OMB Circular A-133Independent Auditors Report on Financial StatementsFinancial Section

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