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Audit Report 09.30.2005 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Financial Statements Year Ended September 30, 2005 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Table of Contents As of September 30,2005 Introductory Section Title Page Table of Contents City Officials Financial Section Independent Auditors' Report Management's Discussion and Analysis Basic Financial Statements Government-wide Financial Statements . Statement of Net Assets · Statement of Activities Fund Financial Statements Governmental Funds . Balance Sheet · Statement of Revenues, Expenditures, and Changes in Fund Balances · Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Fiduciary Funds (Component Units that are Fiduciary in Nature) · Statement of Fiduciary Net Assets · Statement of Changes in Fiduciary Net Assets Notes to Financial Statements Required Supplementary Information Other Than Management's Discussion and Analysis · Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General Fund · Notes to Required Supplementary Information Single Audit Section · 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 · Independent Auditors' Report on Compliance With Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 and Chapter 10.550 · Schedule of Findings and Questioned Costs · Summary Schedule of Prior Audit Findings for Federal Programs · Schedule of Expenditures of Federal Awards and State Financial Assistance · Independent Auditors' Management Letter Page I 2 3 5 7 15 16 18 20 22 23 24 25 46 47 51 53 55 58 59 61 2 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA City Officials As of September 30,2005 James E. Kirk Mayor, Chairman Noel A. Chandler Roscoe Lowry Markham Dowling R. Watford, Jr. Lydia Jean Williams Council Members John R. Cook City Attorney Brian Whitehall City Administrator Lane Gamiotea City Clerk India Riedel Account Supervisor Herbert Smith Chief of Fire Denny Davis Chief of Police Donnie Robertson Director of Public Works Oscar Bermudez City Engineer 3 Tms PAGE IS INTENTIONALLY LEFT BLANK. 4 I I I I I I I I I I I I I I I I I I I HOYMAN DOBSON & COMPANY, P.A. CERTIFIED'PUBLlC ACCOUNTANTS run ffil!1n?~>t;\;/'ffi~;~Xf~flN:&lr"'''C''~ 215 Boy tree Drive, Melbourne, Florida 32940, 321-255-0088, Fox 327-259-8648, www.hoyman.com Independent Auditors' Report Charles W Hoyman, Jr Barbara J Oswoll Thomas l. Kirk Karen E Kirkland Deboroh A. Bradley DIRECTOR EMERITUS Roger W. Dobson Eugene K. Bierning Honorable Mayor and Members of the City Council City of Okeechobee, Florida We have audited the accompanying fmancial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Okeechobee, Florida, as of and for the year ended September 30, 2005, which collectively comprise the City's basic financial statements as listed in the table of contents. These fmancial statements are the responsibility of the City of Okeechobee, Florida's management. Our responsibility is to express opinions on these fmancial statements based on our audit. We did not audit the financial statements of the fiduciary fund type and the discretely presented component unit. Those fmancial statements were audited by other auditors whose reports have been furnished to us, and this report, insofar as it relates to the fiduciary fund type and the discretely presented component unit is based on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to fmancial 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 fmancial 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 opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Okeechobee, Florida, as of September 30, 2005, and the respective changes in fmancial position thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated May 20, 2006, on our consideration of the City of Okeechobee, Florida's internal control over fmancial reporting and 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 fmancial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over fmancial 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. '''\:}'~PLi~(<f?~&1Mr;if,:,~ < . American Institute of Certilled Public Accountants. Florida Institute of Certified Public Accountants. SEC Practice Section 01 the AI. C PA . CPAmerica International City of Okeechobee, Florida Page Two The management's discussion and analysis, and budgetary comparison information on pages 7-12 and 44-45 are not a required part of the basic fmancial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the [mancial statements that collectively comprise the City of Okeechobee, Florida's basic fmancial statements. The accompanying schedule of expenditures of federal awards and state [mancial assistance is presented on pages 59-60 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; and Chapter 10.550 Rules of the Auditor General, and is not a required part of the basic [mancial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. =~!:t~an~f fA-. May 20, 2006 6 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Management's Discussion and Analysis September 30, 2005 Our discussion and analysis of the City of Okeechobee, Florida's (the City) fmancial performance provides an overview of the City's financial activities for the year ended September 30, 2005. Please read it in conjunction with the City's basic financial statements, which immediately follow this discussion. FINANCIAL IDGHLIGHTS The following are highlights of financial activity for the year ended September 30, 2005: · The City's total assets exceeded its liabilities at September 30,2005 by $13,631,729. · The City's total revenues were $8,378,518 for the e September ared to total expenses of $5,060,636, which resulted' ~ $3,317,882 increase in net assets.? 1 OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The basic financial statements are comprised of three components: I) government-wide financial statements, 2) fund financial statements, and 3) notes to basic financial statements. A. Government-Wide Financial Statements The government-wide financial statements, which consist of the following two statements, are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private sector business. The statement of net assets presents information on all the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City's net assets changed during the year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods. The government-wide financial statements can be found on pages 15 and 16 of this report. B. Fund 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 City's funds can be divided into two fund types: governmental funds and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as balances of spendable resources available at the end of the year. Such information may be useful in evaluating a government's near-term financing requirements. 7 CITY OF OKEECHOBEE, FLORIDA Management's Discussion and Analysis September 30, 2005 Fund Financial Statements (continued) Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the City's near-term financing decisions. Both the governmental fund balance sheet and the statement of revenues, expenditures and changes in fund balances provide reconciliations to facilitate this comparison between governmental funds and governmental activities. The basic governmental fund financial statements can be found on pages 18 through 22 of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide fmancial statement because the resources of those funds are not available to support the City's own programs. The basic fiduciary fund financial statements can be found on pages 23 and 24 of this report. C. Notes to Basic Financial Statements The notes provide additional information that is essential for a full understanding of the data provided in the government-wide and fund financial statements. The notes to basic financial statements can be found on pages 25 through 43 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net assets may serve over time as a useful indicator of financial position. The following table reflects the condensed government-wide statement of net assets. City of Okeechobee Statement of Net Assets 2005 2004 Current and other assets Capital assets Total assets Other liabilities Noncurrent liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total net assets $ 7,471,081 6,967,824 14,438,905 147,310 659,866 807,176 $ 7,224,616 4,880,398 12,105,014 1,032,065 759,102 1,791,167 6,526,653 1,097,206 6,007,870 13,631,729 4,313,792 812,545 5,187,510 10,313,847 $ $ 8 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Management's Discussion and Analysis September 30, 2005 Governmental Activities Total net assets increased by approximately $3.3 million primarily as a result of an $885,000 decrease in other liabilities and a $2.1 million increase in capital assets. The decrease in other liabilities was due to an approximately $900,000 decline in accounts payable and accrued expenses which resulted mainly from the completion of construction. The City's capital assets, which make up 48% of total assets, increased by almost 43%. Improvements other than buildings represented a $1.375 million increase to capital assets while construction in progress amounted to an additional $915,000 increase. The following table shows condensed revenue and expense data: City of Okeechobee, Florida Statement of Activities 2005 2004 REVENUES: Program revenues: Charges for services Operating grants and contributions ~_.,'.",a1.grants. and contributiolls~ General revenues: roperty taxes Public utility taxes Franchise fees Investment income and other Total revenues $ 642,920 $ 530,981 1,010.019 649,861 Q,421,26~ 1,421,137 1,725,357 1,486,859 744,198 686,022 396,548 354,733 1,438,214 1,331,608 8,378,518 6,461,201 1,054,975 931,622 2,582,009 2,518,871 724,021 551,445 674,963 634,203 24,668 34,827 5,060,636 4,670,968 3,317,882 1,790,233 10,313,847 8,523,614 $ 13,631,729 $ 10,313,847 EXPENSES: General government Public safety Transportation Physical environment Interest on long-term debt Total expenses Change in net assets NET ASSETS, beginning NET ASSETS, ending 9 CITY OF OKEECHOBEE, FLORIDA Management's Discussion and Analysis September 30, 2005 Governmental Activities (continued) The City experienced an almost 30% rise in total revenues-a $1.917 million increase to $8.379 million. Capital grants and contributions increased primarily because of the $106,000 increase in an economic development grant, a $392,000 contribution of capital assets, a $588,000 transportation grant increase, and a $134,000 decline in rural infrastructure. A $360,000 increase in operating grants arose, in part, from a $300,000 special purpose grant. Much of the $112,000 increase in charges for services came about because of increased demand for professional and occupational licenses, building permits and fees, and solid waste collection fees. Finally, ad valorem propertY. taxes yielded $238.000 more revenue than in the prior year due to an increase in property values and new construction. . The transportation expenses increased by $173,000 to $724,000. Increased repairs and maintenance expenses, rising fuel prices, and higher prices for road materials and supplies all contributed to the increase in transportation expense. FUND FINANCIAL ANALYSIS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $6,577,473, an increase of $1,138,707 in comparison with the prior year. Approximately 83 percent of this total amount, $5,447,992 constitutes unreserved fund balance, which is available for spending at the government's discretion. The remainder of fund balance is reserved to indicate that it is not available for new spending because it has already been committed I) for public facilities of $1,083,797, and 2) for a variety of other restricted purposes $45,684. The general fund is the chief operating fund of the City. At the end of the current fiscal year, unreserved fund balance of the general fund was $5,597,821, while total fund balance was $6,698,449. As a measure of the general fund's liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures. Both unreserved fund balance and total fund balance represent approximately 120% of total ,./generalfund expeBditures;----._-. -----------------..--.... ..~--.. The Industrial Development Capital Project fund has a fund balance deficit of $(127,431). The net decrease 'n fund balance during the current year in the Industrial Development Capital Project fund was $(38,643). The funds were expended for development costs related to the Commerce Center project. The project is being funded on a reimbursement basis with federal and state grant funds. The grants do not allow for the cost of the grant administrator consultant fees, the engineering inspection fees, or for certain costs that were incurred before the grant was in place. The City may be required to absorb these costs. ~ ..-...-.--..-______0'__------- 10 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Management's Discussion and Analysis September 30, 2005 //Th~ Downtown Redevelopment Capital Project fund has a fund balance deficit of $(6,954) as of September 0, ;/ 2005. This downtown redevelopment project is also being funded on a reimbursement basis with federal and st e grant funds. Just as the grants funding the Commerce Center, these grants do not allow for reimbursement of e cost of the grant administrator consultant fees, the engineering inspection fees, and certain costs that ere incurred before the grant was in place. The City will absorb the costs of the downtown redevelopmen roject not funded by the grants. GeDeral-F.u.ndBudgeta.ry Highlights ,.. The amount appropriated for expenditures increased from $5,583,040 to $5,754,192 an increase of $171,152. The amounts expended in the categories of general government, transportation and capital, outlay exceeded the budgeted amount by a total of $58,765 which was offset by expenditures of $252,494 less than the budgeted amounts for physical environment, public safety and debt service resulting in net expenditures of $193,729 less than budgeted. The expenditures in excess of appropriation were mostly due to additional costs as a result of the repairs completed for the 2004 hurricanes. CAPITAL ASSETS AND LONG- TERM LIABILITIES Capital assets. The City's investment in capital assets for its governmental funds as of September 30, 2005, amounts to $6,967,824 (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements, equipment, and construction in progress. During the year, the City's net capital asset balance increased $2,087,426 from $4,880;398. Major changes to capital assets during the current fiscal year included the following: . Entered into a lease for twenty two police vehicles. . Sold 20 used police vehicles. · Construction of the sidewalks and park for downtown redevelopment continued. · Construction of the infrastructure for the Commerce Center continued. . Sold Commerce Center lot. City's Capital Assets (net of depreciation) Land Buildings Improvements other than building Equipment Construction in progress Total $ 2005 1,301,965 1,253,601 1,275,903 835,983 2,300,372 6,967,824 $ $ 2004 1,304,465 1,278,582 65,816 846,294 1,385,241 4,880,398 $ Additional information on the City's capital assets can be found in note 4.C. on page 37 of this report. 11 CITY OF OKEECHOBEE, FLORIDA Management's Discussion and Analysis September 30, 2005 Long-term Liabilities. City's Outstanding Debt Long-term Liabilities Note payable Capital leases Compensated absences Total $ 2005 2004 29,338 $ 178,809 411,833 387,796 218,695 192,497 659,866 $ 759,102 $ The City's long-term liabilities decreased $99,236 (13 percent) during the current fiscal year. The decrease in long-term liabilities is due to payoff of two notes payable: the gas tax revenue note and a municipal promissory note. The addition of a new capital lease for new police cars and additional liability for compensated absences were offset by the sale of the old police cars and payoff of the amount owed on the related lease and by the use and payout of compensation for leave. Additional information on the City's long-term debt can be found in note 4E, 4F, and 4G. on pages 38-39 of this report. ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The City Council maintained the millage rate of7.1899 for fiscal year 2005. Revenues for the fiscal year 2006 adopted budget for all funds of the City total approximately $12,600,000 a decrease of 4.5% from the prior year budget for all funds of approximately $13,200,000. The major changes occur in the Industrial Development Fund and the CDBG Grant Fund. Expenditures for the fiscal year 2006 adopted budget for all funds of the City total approximately $7,100,000, a decrease of approximately 20% from the prior year budget for all funds of approximately $8,900,000. The major changes occur in the Industrial Development fund and CDBG Grant Funds. REQUESTS FOR INFORMATION This fmancial report is designed to provide a general overview of the City of Okeechobee' s finances for all those with an interest. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the City ofOkeechobee, 55 S.E. Third Avenue, Okeechobee, Florida 34974. 12 I I I I I I I I I I I I I I I I I I I BASIC FINANCIAL STATEMENTS 13 THIS PAGE IS INTENTIONALLY LEFT BLANK. 14 I CITY OF OKEECHOBEE, FLORIDA Statement of Net Assets - Governmental Activities I September 30, 2005 I ASSETS Cash and cash equivalents $ 5,817,104 Accounts receivable 13 7,902 I Due from other governments 756,197 Inventories 13,580 Overfunded pension costs 746,298 I Capital assets: Nondepreciable Land 1,301,965 I Construction in progress 2,300,372 Depreciable, net of accumulated depreciation I Buildings 1,253,601 Improvements other than buildings 1,275,903 Equipment 835,983 I Total assets 14,438,905 LIABILITIES I Accounts payable 78,728 Accrued expenses 32,343 Deferred revenue 36,239 I Noncurrent liabilities: Due within one year 116,066 Due in more than one year 543,800 I Total liabilities 807,176 NET ASSETS I Invested in capital assets, net of related debt 6,526,653 Restricted for: I Law enforcement 13,409 Public facilities 1,083,797 Unrestricted 6,007,870 I Total net assets $ 13,631,729 I I I I The accompanying notes are an integral part of this fmancial statement. 15 I CITY OF OKEECHOBEE, FLORIDA Statement of Activities - Governmental Activities Year Ended September 30, 2005 Functions/Programs General government Public safety Transportation Physical environment Interest on long term debt Total governmental activities Expenses Charges for Services Program Revenues Operating Grants and Contributions Capital Grants and Contributions $ 1,054,975 2,582,009 724,021 674,963 24,668 $ 575,888 30,231 36,801 $ 186,604 305,409 518,006 $ 958,524 1,462,738 $ 5,060,636 $ 642,920 $ 1,010,019 $ 2,421,262 General revenues Property taxes Public utility taxes Franchise fees Shared revenues not restricted to specific programs Unrestricted investment earnings Miscellaneous Gain on sale of capital assets Total general revenues Change in net assets Net assets, beginning Net assets, ending The accompanying notes are an integral part of this financial statement. Net (Expense) Revenue and Changes in Net Assets $ (292,483) (2,246,369) 789,310 787,775 (24,668) (986,435) 1,725,357 744,198 396,548 1,258,643 87,066 34,046 58,459 4,304,317 3,317,882 10,313,847 $ 13,631,729 16 I I I I I I I I I I I I I I I I I I I THIS PAGE IS INTENTIONALLY LEFT BLANK. 17 CITY OF OKEECHOBEE, FLORIDA Balance Sheet - Governmental Funds September 30, 2005 Industrial Downtown Development Redevelopment General Capital Project Capital Project ASSETS Cash and cash equivalents $ 5,583,631 $ 43 $ 220,021 Accounts receivable 137,902 Due from other governments 243,375 475,424 37,398 Due from other funds 855,264 Inventory 13,580 Total assets $ 6,833,752 $ 475,467 $ 257,419 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 67,189 $ $ 11,539 Accrued expenses 32,343 Due to other funds 602,898 252,366 Deferred revenue 35,771 468 Total liabilities 135,303 602,898 264,373 Fund balances: Reserved for: Encumbrances 3,249 15,446 Inventory 13,580 Law enforcement Public facilities 1,083,799 Unreserved, undesignated 5,597,821 (127,431) (22,400) Total fund balances (deficit) 6,698,449 (127,431) (6,954) Total liabilities and fund balances $ 6,833,752 $ 475,467 $ 257,419 Amounts reported for governmental activities in the statement of net assets are different because: Negative net pension obligation resulting from overfunding of the police officers'and firefighters' pension plans. Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Long-term liabilities, including capital leases and notes payable are not due and payable in the current period and therefore are not reported in the funds. Net assets of governmental activities The accompanying notes are an integral part of this financial statement. 18 CITY OF OKEECHOBEE, FLORIDA Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Year Ended September 30, 2005 Industrial Development General Capital Project Revenues Taxes $ 2,671,865 $ Intergovernmental 2,513,349 1,676,965 Charges for services 305,917 Licenses and permits 249,149 Fines and forfeitures 37,406 Interest and other 86,819 250 Miscellaneous 34,036 Total revenues 5,898,541 1,677,215 Expenditures Current: General government 1,029,673 24 Public safety 2,409,682 Transportation 724,021 Physical environment 279,128 113,025 Capital outlay 558,138 1,618,293 Debt service: Principal retired 581,026 Interest 24,668 Total expenditures 5,606,336 1,731,342 Excess (deficiency) of revenues over (under) expenditures 292,205 (54,127) Other financing sources (uses) Capital lease proceeds 455,592 Proceeds from sale of capital assets 430,600 15,484 Total other financing sources 886,192 15,484 Net change in fund balances 1,178,397 (38,643) Fund balances (deficit), beginning of year 5,540,052 (88,788) Fund balances (deficit), end of year $ 6,698,449 $ (127,431) The accompanying notes are an integral part of this financial statement. 20 CITY OF OKEECHOBEE, FLORIDA Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year Ended September 30, 2005 Net change in fund balances - total governmental funds $1,138,707 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. 2,083,214 The net effect of various miscellaneous transactions involving capital assets (i.e. sales, trade ins, and donations) is to decrease net assets. 4,212 The net effect of overfunded pension contributions that are reported as expenditures in the fund fmancial statements and are recorded as a net pension asset on the statement of net assets. (7,489) The issuance of long-term debt (capital lease) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. This amount is the net effect of these differences in the treatment of long-term debt and related items. 125,434 Compensated absences reported in the statement of activities when earned, as they do not require the use of current financial resources. They are not reported as expenditures on governmental funds until they have matured. This is the amount of compensated absences reported in the statement of activities in the prior year, that has matured in the current year. (26,196) Change in net assets of governmental activities $ 3,317,882 22 I CITY OF OKEECHOBEE, FLORIDA I Statement of Fiduciary Net Assets - Pension Trust Funds September 30, 2005 I COMPONENT UNIT I General Pension Employees' Trust Funds Pension Trust I Assets Cash and cash equivalents $ 5,881,840 $ 4,378,452 I Receivables 29,177 70,121 Total assets $ 5,911,017 $ 4,448,573 I LIABILITIES AND FUND BALANCES Liabilities I Accounts payable $ 16,329 $ 14,365 Fund Balances I Reserved for pension benefits 5,894,688 4,434,208 Total liabilities and fund balances $ 5,911,017 $ 4,448,573 I I I I I I I I I The accompanying notes are an integral part of this financial statement. 23 I CITY OF OKEECHOBEE, FLORIDA Statement of Changes in Fiduciary Net Assets - Pension Trust Funds Year Ended September 30, 2005 COMPONENT UNIT General Pension Employees' Trust Funds Pension Trust Additions Contributions State $ 184,443 $ City 80,070 228,510 Employees 58,746 140,699 Total contributions 323,259 369,209 Investment earnings: Net increase in the fair value of investments 448,575 333,948 Interest and dividends 6,442 5,111 455,017 339,059 Less investment expense (36,608) (27,382) Net investment income 418,409 311,677 Total additions 741,668 680,886 Deductions Benefits paid to participants 171,664 155,650 Refunds on termination 13,432 43,306 Administrative expenses 39,289 18,347 Total deductions 224,385 217,303 Change in net assets 517,283 463,583 Net assets held in trust for pension benefits, beginning of year 5,377,405 3,970,625 Net assets held in trust for pension benefits, end of year $ 5,894,688 $ 4,434,208 The accompanying notes are an integral part of this fmancial statement. 24 THIS PAGE IS INTENTIONALLY LEFT BLANK. 26 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY The City ofOkeechobee (the City) was originally incorporated in 1915 and its present charter was adopted in 1919 under Chapter 8318 of Special Acts of 1919. The City operates under the council form of government and provides the following services: general government, public safety, transportation, and physical environment. These fmancial statements present the primary government and its component units. Blended component units, although legally separate entities, are, in substance, part of the government's operations and so data from these units are combined with data of the primary government. The City has no blended component units. Discretely presented component units are entities that are legally separate from the City, but whose relationship with the City are such that the exclusion would cause the City's fmancial statements to be misleading or incomplete. The fmancial data of these entities are reported in a separate column in the combined fmancial statements. Discretelv Presented Component Unit City of Okeechobee and Okeechobee Utility Authority Employees' Retirement System - Substantially all of the City's general employees and the employees of the Okeechobee Utility Authority participate in this cost sharing, multiple employer public employee retirement system. The plan was established by City Ordinance No. 655, as amended and restated by City Ordinance No. 686. Complete fmancial statements for this component unit may be obtained from the City's administrative offices located at: 55 S. E. Third Avenue Okeechobee, Florida 34974 B. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS The government-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the primary government. Governmental activities are those which normally are supported by taxes and intergovernmental revenues. Likewise the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. Program reve- nues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported instead as general revenues. 27 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the fiduciary fund fmancial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 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 to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, franchise taxes, licenses, charges for services, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. The City reports the following major governmental funds: The general fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The industrial development capital project fund accounts for the assets, liabilities, revenues and expenditures related to the development of the Okeechobee Commerce Center. The downtown redevelopment capital project fund accounts for the assets, liabilities, revenues and expenditures related to the construction of infrastructure and other improvements to the downtown area of Okeechobee. Additionally, the City reports the following fund types: The pension trust fund account is used to account for assets held by the City in a fiduciary capacity for the police officers' and firefighters' pension plans. The funds are operated by carrying out specific terms of statutes, ordinances and other governing regulations. 28 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2005 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION (CONTINUED) Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in the government-wide financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. The effect of interfund activity has been eliminated from the government-wide fmancial statements. Amounts report.ed as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Expenses for compensated absences are allocated based on the assigned function of the related employee. When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first, then unrestricted resources as they are needed. D. ASSETS, LIABILITIES, AND NET ASSETS OR EQUITY 1. Cash and investments State statutes authorize the government to invest in the Local Government Surplus Funds Trust Fund or any intergovernmental investment pool authorized pursuant to the Florida Interlocal Cooperation Act, SEC registered money market funds with the highest credit quality rating, interest-bearing time deposits or savings accounts in qualified public depositories, and direct obligations of the U. S. Treasury. Investments in the Local Government Surplus Funds Trust Fund, a 2a-7 like pool, are carried at amortized cost, which approximates fair value. A "2a- 7 like pool" is an external investment pool that is not registered with the SEC as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC's Rule 2a-7 of the Investment Company Act of 1940, which comprises the rules governing money market funds. Thus, the pool operates essentially as a money market fund. The fair value of the position in the pool is the same as the share value of the pool share. The City pools the investments of its governmental funds. Investment earnings of the pool are allocated to the participating funds at the end of each month based on the ratio of each participant funds' investment to the total pooled investment. For purposes of the fiduciary funds, cash and cash equivalents include cash deposits and cash funds held in broker accounts. 29 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. ASSETS, LIABILITIES, AND NET ASSETS OR EQUITY (CONTINUED) 1. Cash and investments (continued) Within the pension trust fund, the City of Okeechobee Police Officers' and Firefighters' Retirement System is authorized within certain limitations by its governing board to invest in time, savings, and money market deposits, obligations of the U.S. government and government agencies, stocks, commingled funds administered by national or state banks, mutual funds, bonds, and foreign securities. The City of Okeechobee General Employees' Retirement System is authorized within certain limitations by its governing board to invest in certificates of deposit, repurchase agreements, commercial paper, obligations of the U.S. government and government agencies, stocks, bonds, and foreign securities. Pension trust fund investments are reported at fair value. Short-term investments are reported at cost, which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price. Investments that do not have an established market are reported at estimated fair value. Gains and losses from the sale or exchange of investments are recognized on the transaction date. The difference between the excess of fair value over cost represents unrealized gains. 2. Receivables and payables All trade and property tax receivables are considered to be fully collectible. The City's property tax is levied annually on the real and personal property located in the City on January 1st of the prior year. Tax collections by the Okeechobee County tax collector begin in November of each year with a due date of March 31 of the following year. All property taxes remaining unpaid at May 30 are subject to a tax certificate sale. The City is permitted by state law to levy taxes up to 10 mills on assessed valuation for the General Fund. The tax rate for the fiscal year was 7.1899 mils. The City Council determines the millage rates and adopts a tax levy by resolution prior to September 30 to fund the next ensuing fiscal year's budget. The assessment of all properties and collection of municipal taxes are provided by the County's Property Appraiser and Tax Collector. The ad valorem tax calendar is as follows: Lien date Levy date Due date Delinquent date January 1 Prior to September 30 November 1 April 1 All property taxes remaining unpaid at May 30 are subject to a tax certificate sale by the Tax Collector. 3. Prepaid items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. 30 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. ASSETS, LIABILITIES, AND NET ASSETS OR EQUITY (CONTINUED) 4. Capital assets Capital assets, which include: property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $750 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Property, plant, and equipment is depreciated using the straight line method over the following estimated useful lives: Assets Years 25-60 12-20 10 5-15 Buildings Building improvements Vehicles Equipment 5. Compensated absences It is the government's policy to permit employees to accumulate earned but unused vacation and sick pay benefits. All sick and vacation pay is accrued when incurred in the government-wide financial statements A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. 6. Long-term obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the statement of net assets. In the governmental fund financial statements, the face amount of debt issued is reported as other financing sources. The City has no bond premiums, discounts, or issuance costs associated with its long-term obligations. 31 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2005 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. ASSETS, LIABILITIES, AND NET ASSETS OR EQUITY (CONTINUED) 7. Fund equity In the fund fmancial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Reserves for encumbrances represent amounts remaining on outstanding purchase orders and contracts that are not available for appropriation. Reserves for inventory represent amounts paid from current resources for use in future years that are not available for appropriation. Reserves for law enforcement and public facilities represent amounts that are legally restricted by outside parties for specific purposes. NOTE 2 - RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS A. EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUND BALANCE SHEET AND THE GOVERNMENT-WIDE STATEMENT OF NET ASSETS The governmental fund balance sheet includes a reconciliation between fund balance-total governmental funds and net assets-governmental activities as reported in the government-wide statement of net assets. One element of that reconciliation explains that "long-term liabilities, including bonds payable, if any, are not due and payable in the current period and therefore are not reported in the funds". The details of this $659,864 difference are as follows: Notes payable Capital leases payable Compensated absences Net adjustment to reduce fund balance - total governmental funds to arrive at net assets-governmental activities $ 29,338 411,833 218,695 $ 659,866 B. EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUND STATEMENT OF REVENUES, EXENDITURES, AND CHANGES IN FUND BALANCES AND THE GOVERNMENT-WIDE STATEMENT OF ACTIVITIES The governmental fund statement of revenues, expenditures, and changes in fund balances includes a reconciliation between net changes in fund balances - total governmental funds and changes in net assets of governmental activities as reported in the government-wide statement of activities. One element of that reconciliation explains that "governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense". The details of this $2,083,214 difference is as follows: Capital outlay $ Depreciation expense 2,448,835 (365,621) Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ 2,083,214 32 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2005 NOTE 2 - RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (CONTINUED) B. EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUND STATEMENT OF REVENUES, EXENDITURES, AND CHANGES IN FUND BALANCES AND THE GOVERNMENT-WIDE STATEMENT OF ACTMTIES (CONTINUED) Another element of that reconciliation states that "The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins, and donations) is to decrease net assets". The details of this $4,212 difference are as follows: In the statement of activities, only the gain on the sale of capital assets is reported. However, in the governmental funds, the proceeds from the sale increase financial resources. Thus, the change in net assets differs from the change in fund balance by the cost of the capital assets sold. $ (446,084) The statement of activities reports gains arising from the disposal of capital assets. However, these disposals do not appear in the governmental funds because the assets are not financial resources. 58,459 Donations of capital assets increase net assets in the statement of activities, but do not appear in the governmental funds because they are not financial resources 391,837 Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ 4,212 Another element of that reconciliation states that "the issuance of long-term debt (e.g., bonds, leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current fmancial resources of governmental funds." Neither transaction, however, has any effect on net assets. The details of this $125,434 difference are as follows: Debt issued or incurred: Capital lease financing $ Principal repayments Net adjustment to decrease net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ (455,592) 581,026 125,434 NOTE 3 - STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. BUDGETARY INFORMATION As permitted by GASB Statement No. 34, Basic Financial Statements and Management Discussion and Analysis for State and Local Governments, the City has elected to disclose all budgetary information in the notes to the required supplementary information on page 47. 33 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements Septernber30,2005 NOTE 4 - DETAILED NOTES ON ALL FUNDS A. DEPOSITS AND INVESTMENTS Banks and savings and loans must meet the criteria to be a qualified public depository as described in the Florida Security for Public Deposits Act in accordance with Chapter 280, Florida Statutes before any investment of public funds can be made with them. At year end, the carrying amount of the City's (primary Government) deposits was $2,289,388 and the bank balance was $2,438,516. In addition, the City holds $350 of petty cash. The component unit's carrying amount of deposits was $19,527 and the bank balance was $19,527. Monies invested in amounts greater than the FDIC insurance coverage are secured by the banks pledging securities with the State Treasurer in the multiple fmancial institutions collateral pool. The investment of municipal funds is authorized by local ordinance and Florida Statutes which allow the City to invest in the Local Government Surplus Funds Trust Fund or any intergovernmental investment pool authorized pursuant to the Florida Interlocal Cooperation Act, SEC registered money market funds with the highest credit quality rating, interest-bearing time deposits or savings accounts in qualified public depositories, direct obligations of the U.S. Treasury, commercial paper with certain ratings, pre-refunded municipal obligations, banker's acceptances maturing within one year, investment agreements, direct and general long-term and short-term obligations of any state with proper credit rating and full faith and credit pledge, municipal obligations with proper credit rating and repurchase agreements with maturities of 30 days or less with organizations with certain stipulations and requirements. The Municipal Police Officers' and Firefighters' pension trust funds are authorized to invest in annuity and life insurance contracts; insured time or savings accounts of banks, saving and loan associations, and credit unions; obligations of the U.S Government or agencies thereof; bonds issued by the State of Israel; stocks, commingled funds administered by national or state banks, mutual funds, bonds, or other evidences of indebtedness issued or guaranteed by a corporation organized under the laws of the United States, any state or organized territory of the United States, or the District of Columbia; foreign securities up to 10% of the fund assets; and real estate, provided the cost is no more than 10%. The City of Okeechobee and the Okeechobee Utility Authority Employees' Retirement System (Discretely Presented Component Unit) is authorized to invest in annuity and life insurance contracts; insured time or savings accounts of banks or savings and loan associations; obligations of the U.S Government or agencies thereof; bonds issued by the State of Israel; and bonds, stocks, commingled funds administered by national or state banks, or other evidences of indebtedness issued or guaranteed by a corporation organized under the laws of the United States, any state or organized territory of the United States, or the District of Columbia, provided the security is traded on a nationally recognized exchange and holds a rating in one of the three highest classifications. Credit risk In accordance with Florida Statute 218.415, it is the City's policy to invest in certificates of deposit and pooled investment accounts with the State Board of Administration. Interest rate risk In accordance with Florida Statute 218.415(6) the City's policy is to match investment maturities with known cash needs and anticipated cash flow requirements. 34 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Notes to financial Statements September 30, 2005 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) A. DEPOSITS AND INVESTMENTS (CONTINUED) At September 30, 2005, the City had the following investments: Investment Tvpe Investment Maturity (vears) Less than 1 1-5 Over 6 Ratinf! Fair Valoe Government-wide Local government surplus fund trust fund investment pool $3,557,066 $3,557,066 Unrated Pension Funds During 2005, the Plan adopted GASB Statement No. 40, Deposit and Investment Risk Disclosures, an Amendment of GASB Statement No.3 (GASB 40). The adoption of GASB 40 modifies certain fmancial statement disclosure requirements. The new standard enhances the deposit and investment risk disclosures by updating the custodial credit risk disclosure requirements of GASB 3 and addressing other common risks, including concentrations of credit risk, interest rate risk, and foreign currency risk. The implementation of GASB 40 had no effect on fmancial statement amounts. Statement 3 disclosures generally referred to as category 1 and 2 deposits and investments are eliminated. However, this Statement does not change the required disclosure of authorized investments or the requirements for reporting certain repurchase agreements and reverse repurchase agreements, and it maintains, with modification, the level-of- detail disclosure requirements of Statement 3. Fixed income securities have inherent fmancial risks, including credit risk and interest rate risk. Credit risk for fixed income securities is the risk that the issuer will not fulfill its obligations. Nationally recognized statistical rating organizations ("NSROs"), such as Moody's and Standard and Poor's, assign credit ratings to security issuers and issues that indicate a measure of potential credit risk to investors. Fixed income securities considered investment grade are those rated at least Baa by Moody's and BBB by Standard and Poor's. Concentration of credit risk is an increased risk of loss which occurs as more investments are acquired from one issuer (i.e. lack of diversification). Interest rate risk exists when there is a possibility that changes in interest rates could adversely affect an investment's fair value. Custodial credit risk for deposits exists when, in the event of the failure of a depository fmancial institution, an entity may be unable to recover deposits, or collateral securities, that are in the possession of an outside party. The investments of the Plan included shares of an intermediate term bond fund comprising approximately 38% of the investments and an international equity fund comprising approximately 6% of the investments. The portfolio characteristics of the intermediated term bond fund, which was comprised of approximately 90% U.S. Government and Federal Agency Securities, includes an average maturity of 6.6 years with an effective duration of 3.6 years. The fund philosophy is to invest in domestic corporate investment grade bonds rated A or higher by major credit rating agencies, mortgages and U.S. Government Securities. The Fund itself was not rated by a major credit rating agency. 35 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements Septernber30,2005 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) A. DEPOSITS AND INVESTMENTS (CONTINUED) Investment Tvpe Fair Value Ratioe Proprietary Funds $ 628,005 Unrated Common and Collective Funds 9,583,060 Unrated $ 10,211,065 B. RECEIVABLES Receivables as of September 30, 2005 are as follows: Municipal Municipal Component Unit Police Officers' Firefighters' General Pension Pension Employees General Fund Trust Trust Pension Trust FranchiselUtility taxes $ 84,532 $ $ $ Garbage 42,130 Contributions 25,540 3,637 70,121 Other 11,240 .. ~Receivables, net $ 13 7,902 $ 25,540 $ 3,637 $ 70,121 36 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2005 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) C. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2005 was as follows: Beginning Ending Balance Increases Decreases Balance Governmental activities: Capital assets, not being depreciated: Land $ 1,304,465 $ $ (2,500) $ 1,301,965 Construction in progress 1,385,241 915,131 2,300,372 Total capital assets, not being depreciated 2,689,706 915,131 (2,500) 3,602,337 Capital assets, being depreciated: Buildings 1,564,655 27,622 1,592,277 Improvements other than buildings 155,606 1,374,509 1,530,115 Equipment 1,622,912 523,410 (525,500) 1,620,822 Total capital assets being depreciated 3,343,173 1,925,541 (525,500) 4,743,214 Less accumulated depreciation for: Buildings (286,073) (52,603) (338,676) Improvements other than buildings (89,790) (164,422) (254,212) Equipment (776,618) (148,596) 140,375 (784,839) Total accumulated depreciation (1,152,481) (365,621 ) 140,375 (1,377,727) Total capital assets, being depreciated, net 2,190,692 1,559,920 (385,125) 3,365,487 Governmental activities capital assets, net $ 4,880,398 $ 2,475,051 $ (387,625) $ 6,967,824 Depreciation expense was charged to functions /programs of the government as follows: Governmental activities: General government Public safety Physical environment Total depreciation expense - governmental activities $ 15,282 158,963 191,376 365,621 $ 37 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2005 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) D. INTERFUND RECEIVABLES, PAY ABLES, AND TRANSFERS The composition of interfund balances as of September 30, 2005, is as follows: Due to/from other funds: Receivable Fund General General Total Payable Fund Downtown Redevelopment Industrial Development Amount $ 252,366 602,898 $ 855,264 The City began two capital projects that will be funded by federal and state grants on a reimbursement basis. The City advanced funds from the General Fund to the Capital Project Funds for the payment of the project costs. Once reimbursement is received under the grants the advances will be repaid. E. CAPITAL LEASE The government has entered into a lease agreement as lessee for fmancing the acquisition of certain vehicles for the police, fIre and public works departments. This lease agreement qualifies as a capital lease for accounting purposes and, therefore, has been recorded at the present value of its future minimum lease payments as of the inception date. The assets acquired through the capital lease are as follows: Asset: Vehicles Less: Accumulated depreciation Total $ 455,592 (25,192) 430,400 $ Obligations of governmental activities under the capital lease at September 30,2005, were as follows: Year Ending Sept. 30, Principal Interest Total 2006 $ 53,379 $ 18,621 $ 72,000 2007 55,960 16,040 72,000 2008 119,265 12,620 131,885 2009 145,712 6,133 151,845 2010 37,517 445 36,162 Total $ 411,833 $ 53,859 $ 465,692 38 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2005 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) F. NOTES PAYABLE Notes payable as of September 30, 2005 are as follows: 4.75% note to a bank, payments of $29,899, including interest, due annually through March 8, 2006, unsecured $ 29,338 Annual debt service requirements to maturity for the note is as follows: Year Ending Sept. 30, Principal Interest Total 2006 $ 29,338 $ $ 561 29,899 G. CHANGES IN LONG-TERM LIABILITIES Long-term liability activity for the year ended September 30, 2005, was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities: Notes payable $ 178,809 $ $ (149,471) $ 29,338 $ 29,338 Capital lease 387,796 455,592 (431,555) 411,833 53,379 Compensated absences 192,497 65,542 (39,344) 218,695 33,349 Long-term liabilities $ 759,102 $ 521,134 $ (620,370) $ 659,866 $ I l6,066 For the governmental activities, compensated absences and capital leases are generally liquidated by the general fund. NOTE 5 - OTHER INFORMATION A. RISK MANAGEMENT The City is exposed to various risks of loss, including, but not limited to theft, damage or destruction of its buildings, equipment, records, and monetary assets, and liability for personal injury, property damage, and consequences of employee and public official actions. The City participates in a non-assessable public risk pool to cover significant loss exposure and purchases commercial insurance for third party pollution liability coverage. The pool maintains a loss reserve and purchases specific excess insurance, aggregate excess insurance and multiple loss coverage from commercial carriers and underwriters. 39 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements Septernber30,2005 NOTE 5 - OTHER INFORMATION (CONTINUED) B. RETIREMENT COMMITMENTS - DEFINED BENEFIT PLANS Plan Descriptions - The City contributes to two single-employer defmed benefit pension plans: City of Okeechobee Municipal Police Officers' Pension Trust Fund and City ofOkeechobee Municipal Firefighters' Pension Trust Fund (the Plans). The Plans provide retirement, disability, and death benefits to plan members and their beneficiaries. Chapters 185 and 175 of the Florida Statutes establish the minimum benefits and the minimum standards for the operation and funding of the Police Officers' and the Firefighters' Municipal Pension Trust Funds, respectively. Per City Ordinances Nos. 750 and 749, sole responsibility for administering the Plans is vested in the Board of Trustees of each plan. The Boards cannot amend the provisions of the plans without the approval of the City. The Plans issue publicly available fmancial reports that include fmancial statements and required supplementary information. The reports are available from the City ofOkeechobee, Florida, 55 S.E. Third Avenue, Okeechobee, Florida 34974. Funding Policies - The contribution requirements of plan members and the City are established and may be amended by City ordinance. Plan members are required to contribute 5% of their annual covered salary for the Police Officers' and Firefighters' Municipal Trust Funds. The City is required to contribute an amount equal to the difference in each year between the total aggregate member contributions for the year, plus state contributions for such year, and the normal cost for the year, as shown by the most recent actuarial valuation of the plan; the current rate is 18.84% for the Police Officers' plan and 6.28% for the Firefighters' plan. The City recognized as revenues and expenditures on-behalf payments relating to pension contributions for its public safety employees that the State of Florida paid to the Police Officers' and Firefighters' Plans in the amounts of $134,181 and $50,262, respectively. These contributions are funded by an excise tax upon certain casualty insurance companies on their gross receipts of premiums from policy holders. Annual Pension Cost - The annual required pension contributions for the Plans were determined as part of the October 1,2005 actuarial valuations using the aggregate actuarial cost method. The aggregate actuarial cost method does not identify or separately amortize unfunded actuarial liabilities. The actuarial assumptions included (a) 7% investment rate of return (net of administrative expenses) and (B) projected salary increases of 6% for the Police Officer's Trust and 7% for the Firefighter's Trust. Both (a) and (b) included an inflation component of 4%. The actuarial value of assets was determined using a method which recognizes actual investment return in excess of the assumed return evenly over a four year period. Trend information for each of the City's defmed benefit plans: / Annual Percentage / Net Year Pension OfAPC I Pension Ending Cost (APC) Contributed I Obligation , Municipal Police Officers' 9/30/03 $ 189,862 91 % $ (388,171.) 9/30/04 200,959 93 (375,035) 9/30/05 213,688 105 (385,076) . Municipal Firefighters' 9/30/03 $ 46,507 116 % $ (362,833) 9/30/04 45,897 102 (363,775) 9/30/05 53,415 95 (361,222) I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2005 \ NOTE 5 - OTHER INFORMATION (CONTINUED) B. RETIREMENT COMMITMENTS - DEFINED BENEFIT PLANS (CONTINUED) Pension Plan - Discretely Presented Component Unit Plan Description - The City contributes to the City ofOkeechobee and Okeechobee Utility Authority Employees' Retirement System (the System), a cost-sharing multiple employer defined benefit pension plan administered by the System's Board of Trustees. The System provides retirement, disability, and death benefits to plan members and their beneficiaries. The Board of Trustees is authorized by City Ordinance No. 686 to establish and amend all plan provisions. The System issues a publicly available fmancial report that includes fmancial statements and required supplementary information. That report is available from the City of Okeechobee, Florida, 55 S.E. Third Avenue, Okeechobee, Florida 34974. Funding Policy - The contribution requirements of the plan members and the City are established and may be amended by City ordinance. Plan members are required to contribute 6% of their covered annual salary. The City is required to contribute at an actuarially determined rate; the current rate is 9.8% of covered payroll. The City's contributions for the years ended September 30, 2005, 2004, and 2003 were $68,164, $65,511, and $56,715, respectively, and were equal to the required contributions for each year. Pension trust funds fiduciary net assets activity as of September 30, 2005 was as follows: ASSETS Cash and cash equivalents Receivables Total assets COMPONENT UNIT Police Total General Firefighters' Officers' Pension Employees' Pension Pension Trust Funds Pension $ 1,745,192 $ 4,136,648 $ 5,881,840 $ 4,378,452 3,637 25,540 29,177 70,121 $ 1,748,829 $ 4,162,188 $ 5,911,017 $ 4,448,573 - LIABILITIES Accounts payable $ 6,222 $ 10,107 $ 16,329 $ 14,365 FUND BALANCES Reserved for pension benefits 1,742,607 4,152,081 5,894,688 4,434,208 Total liabilities and fund balances $ 1,748,829 $ 4,162,188 $ 5,911,017 $ 4,448,573 41 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2005 NOTE 5 - OTHER INFORMATION (CONTINUED) B. RETIREMENT COMMITMENTS - DEFINED BENEFIT PLANS (CONTINUED) Pension trust funds increase in fiduciary net assets activity as of September 30, 2005 was as follows: COMPONENT UNIT Total General Firefighters' Police Pension Employees' Pension Pension Trust Funds Pension ADDITIONS Contributions State $ 50,262 $ 134,181 $ 184,443 $ City 600 79,470 80,070 228,510 Employees 19,819 38,927 58,746 140,699 Total contributions 70,681 252,578 323,259 369,209 Investment earnings: Net increase in fair value of investments 134,409 314,166 448,575 333,948 Interest and dividends 1,867 4,575 6,442 5,111 Total investment earnings 136,276 318,741 455,017 339,059 Less investment expense (10,964) (25,644) (36,608) (27,382) Net investment income 125,312 293,097 418,409 311,677 Total additions 195,993 545,675 741,668 680,886 DEDUCTIONS Benefits paid to participants 30,477 141,187 171,664 155,650 Refunds on termination 8,992 4,440 13,432 43,306 Administrative expenses 18,467 20,822 39,289 18,347 Total deductions 57,936 166,449 224,385 217,303 Change in net assets 138,057 379,226 517,283 463,583 Net assets held in trust for pension benefits, beginning of year 1,604,550 3,772,855 5,377,405 3,970,625 Net assets held in trust for pension benefits, end of year $ 1,742,607 $ 4,152,081 $ 5,894,688 $ 4,434,208 42 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2005 NOTE6-SUBSEQUENTEVENTS Subsequent to year end, the City Council approved amendments of the General Employees', Police Officers', and Firefighters' pension trust funds to insure they are in compliance with recent changes in the Internal Revenue Code which apply to tax qualified pension plans. The amendments incorporate revised Internal Revenue Service limitations on the joint and survivor benefits options and changes to the minimum distribution requirements of Internal Revenue Code Section 401 (aX9). In addition, amendments were made to various sections of the plans to eliminate any mandatory cash distributions in excess of $1,000 which under a new Internal Revenue Code Section 401(aX31)(B) would require the Board of Trustees to establish an IRA (individual retirement account) for any member or former member subject to an involuntary distribution who fails to elect in writing to receive either a cash distribution or rollover. The City Council approved the award of the Roadway Improvement bid in the amount of $681,544. The Council also approved the sale ofland for $515,000. NOTE 7 - CAPITAL PROJECTS FUND BALANCE DEFICIT Expenditures exceeded revenue in the Industrial Development and Downtown Redevelopment Capital Project funds which resulted in fund balance deficits. The expenditures in these capital project funds that are not reimbursed by grants will be funded by the General Fund. 43 TIllS PAGE IS INTENTIONALLY LEFT BLANK. 44 I I I I I I I I I I I I I I I I I I I REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT'S DISCUSSION AND ANALYSIS 45 CITY OF OKEECHOBEE, FLORIDA Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual General Fund Year Ended September 30, 2005 Actual Variance with Original Final (on Budgetary Final Budget Budget Budget Basis) Positive (Negative) Revenues Taxes $ 2,576,548 $ 2,576,548 $ 2,671,865 $ 95,317 Intergovernmental 1,875,416 1,875,416 2,513,349 637,933 Charges for services 271,588 271,588 305,917 34,329 Licenses and permits 130,316 130,316 249,149 118,833 Fines and forfeitures 41,253 41,253 37,406 (3,847) Interest 77 ,050 77 ,050 86,819 9,769 Miscellaneous 4,500 4,500 34,036 29,536 Total revenues 4,976,671 4,976,671 5,898,541 921,870 Expenditures Current: General government 1,023, 107 1,023,107 1,023,166 (59) Public safety 2,452,938 2,452,938 2,410,523 42,415 Transportation 680,707 680,707 719,692 (38,985) Physical environment 446,600 446,600 240,842 205,758 Capital outlay 540,825 540,825 560,546 (19,721) Debt service Principal 583,385 583,385 581,026 2,359 Interest 26,630 26,630 24,668 1,962 Total expenditures 5,754,192 5,754,192 5,560,463 193,729 Deficiency of revenues under expenditures (777,521) (777 ,521) 338,078 1,115,599 Other financing sources (uses) Capital lease proceeds 455,592 455,592 Sale of capital assets 410,600 410,600 430,600 20,000 Net other fmancing sources (uses) 410,600 410,600 886,192 475,592 Excess (deficiency) of revenues and other financing sources over (under) expenditures and other financing sources (uses) (366,921 ) (366,921 ) 1,224,270 1,591,191 Fund balances, beginning of year 5,224,990 5,224,990 5,520,052 (295,062) Fund balances, end of year $ 4,858,069 $ 4,858,069 6,744,322 $ 1,296,129 Reconciliation of budgetary to GAAP basis Current year encumbrances 3,249 Prior year encumbrances (49,122) $ 6,698,449 The accompanying notes to required supplementary information are an integral part of this financial schedule. 46 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Notes to Required Supplementary Information Septernber30,2005 A. BUDGETARY INFORMATION Annual budgets are adopted on a basis consistent with U.S. generally accepted accounting principles for all governmental funds. All annual appropriations lapse at fiscal year end. The City manager may make transfers of appropriations within a department as long as the total budget of the department is not increased. Transfers of appropriations between departments require the approval of the council. The legal level of budgetary control (i.e., the level at which expenditures may not legally exceed appropriations) is the department level. The council made several supplemental budgetary appropriations during the year. Encumbrances accounting is employed in governmental funds. Encumbrances (e.g., purchase orders, contracts) outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent year. For the year ended, budget expenditures exceeded revenues in the General fund. However, this is pursuant to the legally adopted budget to expend available fund equity (cash carryforward) and does not constitute a deficit. For the year ended September 30, 2005, general government expenditures, transportation expenditures, and capital outlay expenditures exceeded appropriations in the general fund by $59, $38,985, and $19,721, respectively. These excess expenditures were a result of audit adjustments and were covered by available fund balance in the general fund. 47 THIS PAGE IS INTENTIONALLY LEFT BLANK. 48 I I I I I I I I I I I I I I I I I I I SINGLE AUDIT SECTION 49 THIS PAGE lNTENTIONALL Y LEFT BLANK. 50 I I I I I I I I I I I I I I I I I I I HOYMAN, DOBSON & COMPANY, P.A. CERTIFIED PUBLIC ACCOUNTANTS _.IIII;,_"*".;"'''''~,0-:;''';''' 275 Boy tree Drive, Melbourne, Florida 32940, 321-255-0088, Fox 327-259-8648, www.hoymancom 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 Charles W Hoyman, Jr Barbara j. Oswalt Thomas l, Kirk Karen E. Ki rkla nd Deboroh A. Bradley D!RECTOR EMERITUS Roger W Dobson Eugene K. Bjernlng Honorable Mayor and Members of the City Council City of Okeechobee, Florida We have audited the fmancial statements of the governmental activities, each major fund, and the aggregate fund information of the City of Okeechobee, Florida, as of and for the year ended September 30, 2005, which collectively comprise the City's basic financial statements and have issued our report thereon dated May 20, 2006. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to fmancial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. We did not audit the financial statements of the fiduciary fund type and the discretely presented component unit. Those financial statements were audited by other auditors whose reports have been furnished to us, and this report, insofar as it relates to the fiduciary fund type and the discretely presented component unit, is based on the reports of the other auditors. Internal Control Over Financial Reportine In planning and performing our audit, we considered the City of Okeechobee, Florida's internal control over fmancial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the fmancial statements and not to provide an opinion on the internal control over fmancial reporting. However, we noted certain matters involving the internal control over fmancial reporting and its operation that we considered to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the City of Okeechobee's ability to record, process, summarize, and report financial data consistent with the assertions of management in the fmancial statements. A reportable condition is described in the accompanying schedule of fmdings and questioned costs as item 04-1. In addition we noted an opportunity for improving internal control that we have reported to management of the City of Okeechobee, Florida in a separate letter dated May 20, 2006. 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 fmancial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we believe that the reportable condition described above is a material weakness. 51 ,..;"',,- . American Institute of Certified Public Accountants. Florida Institute of Certified Public Accountants. SEC Practice Section 01 the AICPA . CPAmerica International Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Two Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Okeechobee, Florida's fmancial 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 fmancial 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 that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the City Council, management, specific legislative or regulatory bodies, federal and state awarding agencies, and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. #~/ ilk ~ (;,Mdl fl~r Hoyman, Dobson & Company, P.A. May 20, 2006 52 I I I I I I I I I I I I I I I I I I I HOYMAN DOBSON & COMPANY, P.A. CERTIFIED 'PUBLIC ACCOUNTANTS ~.~~c,~0:iL~\~$-fi;MIS~,Vj~W;.i::>V<,,, 275 Bay tree Drive, Melbourne, Florida 32940, 321-255-0088, Fox 327-259-8648, www.hoyman.com Independent Auditors' Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 and Chapter 10.550 Charles W Hoyman, Jr. Barbara J Oswalt Thomas l Kirk Karen E. Kirkland Deboroh A. Bradley DiRECTOR EMERITUS Roger W Dobson Eugene K. Bierning Honorable Mayor and Members ofthe City Council City of Okeechobee, Florida Compliance We have audited the compliance of the City of Okeechobee, Florida, with the types of compliance requirements described in the U. S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement, and the requirements described in the Executive Office of the Governor's State Projects Compliance Supplement, that are applicable to each of its major federal programs and state projects for the year ended September 30, 2005. The City of Okeechobee, Florida's major federal programs and state projects are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs and state projects is the responsibility of the City of Okeechobee, Florida's management. Our responsibility is to express an opinion on the City ofOkeechobee, Florida's compliance based on our audit. 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-B3, Audits of States, Local Governments, and Non-Profit Organizations; and Chapter 10.550, Rules of the Auditor General. Those standards, OMB Circular A-B3, and Chapter 10.550, Rules of the Auditor General 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 or state project occurred. An audit includes examining, on a test basis, evidence about the City ofOkeechobee, Florida's 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. Our audit does not provide a legal determination of the City of Okeechobee, Florida's compliance with those requirements. In our opinion, the City of Okeechobee, Florida, complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs and state projects for the year ended September 30,2005. Internal Control Over Compliance The management of the City of Okeechobee, Florida, is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts and grants applicable to federal programs and state projects. In planning and performing our audit, we considered the City of Okeechobee, Florida's internal control over compliance with requirements that could have a direct and material effect on a major federal program or state project in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on the internal control over compliance in accordance with OMB Circular A-B3 and Chapter 10.550, Rules of the Auditor General. ><-;;J;,Y'Y::&i!;,*~ .:;~ . American Institute of Certified Public Accountants. Florida Institute of Certified Public Accountants. SEC Practice Section of the AI. C. PA . CPAmerica International Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Two Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control 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 noncompliance with applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major federal program or state project 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 compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the City of Okeechobee, Florida and management, federal and state awarding agencies and pass-through entities, and the State of Florida Office of the Auditor General and is not intended to be and should not be used by anyone other than these specified parties #~/~~~~~/f~. Hoyman, Dobson & Company, P.A. May 20, 2006 54 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Schedule of Findings and Questioned Costs Federal Programs and State Projects For the Year Ended September 30, 2005 SECTION I - SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of Auditor's report issued: Internal control over fmancial reporting: Unqualified Material weakness( es) identified? x yes no Reportable conditions(s) identified not considered to be material weaknesses? x none reported yes Noncompliance material to fmancial statements noted? x yes no Federal Awards Internal Control over major programs: Material weakness( es) identified? x yes no Reportable conditions(s) identified not considered to be material weaknesses? x none reported yes Type of auditor's report issued on compliance for major programs: Unqualified Any audit fmdings disclosed that are required to be reported in accordance with Circular A-133, Section.51 O( a)? x yes no Identification of major programs: CFDA Number(s) 11.300 14.228 Name of Federal Prof!ram or Cluster Public Works and Facilities Development Program Florida Small Cities CDBG Program Dollar threshold used to distinguish between Type A and Type B programs: $ 300,000 Auditee qualified as low-risk auditee? x yes no 55 CITY OF OKEECHOBEE, FLORIDA Schedule of Findings and Questioned Costs (Continued) Federal Programs and State Projects For the Year Ended September 30, 2005 ".' State Awards Internal Control over major projects: Material weakness( es) identified? x yes Reportable conditions(s) identified not considered to be material weaknesses? x yes Type of auditor's report issued on compliance for major projects: Unqualified Any audit findings disclosed that are required to be reported in accordance with Chapter 10.550, Rules of the Auditor General? x yes Identification of major proiects: State CSFA Number(s) 31.002 Name of State Proiect Economic Development Transportation Fund Dollar threshold used to distinguish between Type A and Type B projects: $ 300,000 no none reported no 56 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Schedule of Findings and Questioned Costs (Continued) Federal Programs and State Projects For the Year Ended September 30, 2005 SECTION n - FINANCIAL STATEMENT FINDINGS 04-1 RECONCILIA nON OF CONSULTANT PROVIDED INFORMA nON TO ACCOUNTING RECORDS Criteria: It is the responsibility of the City of Okeechobee management to design a system of internal control that provides reasonable assurance that transactions are properly recorded and accounted for to ensure reconciliation between the financial statements and federal grant reports. Condition: The City's general ledger accounts were not reconciled to the grant reports nor to the records the grant consultant provides to the City. Recommendation: We recommend the reports and reimbursement requests prepared for and provided to the City by the grant consultant be reconciled to the City's general ledger accounts on a consistent and timely basis. Management's Response: The City presently has in place procedures to review and reconcile expenditures/reimbursements request prepared for the City by the grant consultant. Copies of the grant reports are furnished to the finance department to ensure transactions are properly recorded and accounted for. SECTION ill - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS - Major Federal Programs No matters were reported. SECTION IV - STATE FINANCIAL ASSISTANCE FINDINGS AND QUESTIONED COSTS - Major State Projects No matters were reported. 57 CITY OF OKEECHOBEE, FLORIDA Summary Schedule of Prior Audit Findings for Federal Programs For the Year Ended September 30, 2005 The status of audit findings for the year ended September 30, 2004 is as follows: Findin!!s and Ouestioned Costs Status 04-1 Reconciliation of Consultant Provided Information to Accounting Records Repeated/Revised Planned corrective action: The City has developed and implemented procedures to review and reconcile grant expenditures with the reimbursement requests prepared for the City by the grant consultant. The grant reports are provided to the finance department to allow finance personnel to properly record and account for the grant transactions. 58 I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Schedule of Expenditures of Federal Awards and State Financial Assistance For the Year Ended September 30,2005 Federal/State Agency CFDA Grant Pass- Through Entity CSFA Contract Federal Program / State Project No. No. Expenditures u.s. Department of Commerce Economic Development Administration Direct Program Public Works and Facilities Development Program 11.300 04-01-04895 $ 653,313 U.S. Department of Housing and Urban Development Indirect Program Passed through Florida Department of Community Affairs Florida Small Cities CDBG Program 14.228 04DB-IQ-07-57-02-C 01 352,210 U.S. Department of Justice Indirect Program Passed through Florida Department of Law Enforcement Local Law Enforcement Block Grant 16.592 2005-LEBG-OKEE-I-L4-092 4,523 Department of Homeland Security Indirect Program Passed through Florida Department of Community Affairs Federal Emergency Management Agency 97.036 FEMA-1539-DR-FL 4,861 97.036 FEMA-1545-DR-FL 230,179 97.036 FEMA-1561-DR-FL 60,103 Total Department of Homeland Security 295,143 Total Expenditures of Federal Awards $1,305,189 59 CITY OF OKEECHOBEE, FLORIDA Schedule of Expenditures of Federal Awards and State Financial Assistance (continued) For the Year Ended September 30,2005 Executive Office of the Governor Florida Office of Tourism, Trade and Economic Development (OTTED) Economic Development Transportation Fund 31.002 OT-04-083 $ 958,524 Rural Community Development 31.008 OT -03-064 65,128 Total Expenditures of State Financial Assistance $1,023,652 Note A - Significant Accounting Policies: The Schedule of Expenditures of Federal Awards and State Financial Assistance is a summary of the City's federal award programs and state assistance projects presented on the modified-accrual basis of accounting in accordance with generally accepted accounting principles. 60 I I I I I I I I I I I I I I I I I I I HOYMAN DOBSON & COMPANY, P.A. CERTIFIED'PUBLlC ACCOUNTANTS 1 Ii !~~ ",9%"("(".,*.'.' 215 Boy tree Drive, Melbourne, Florida 32940, 321-255-0088, Fox 327-259-8648, www.hoyman.com Independent Auditors' Management Letter Charles W Hoyman, Jr Barbara J. Oswalt Thomas l. Kirk Karen E. Kirkland Deborah A. Bradley DIRECTOR EMERITUS Roger W Dobson Eugene K. Bjerning Honorable Mayor and Members of the City Council City of Okeechobee, Florida We have audited the financial statements of the City of Okeechobee, Florida as of and for the fiscal year ended September 30, 2005, and have issued our report thereon dated May 20, 2006. We conducted our audit in accordance with United States generally accepted auditing standards; 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. We have issued our Independent Auditor's Report on Compliance and Internal Control over Financial Reporting and on Compliance and Other Matters, Independent Auditors' Report on Compliance with Requirements Applicable to each Major Federal Program and State Project, and Schedule of Findings and Questioned Costs. Disclosure in these reports, which are dated May 20, 2006, should be considered in conjunction with this management letter. Additionally, our audit was conducted in accordance with Chapter 10.550, Rules of the Auditor General. Those rules (Section 1O.554(1)(g)1.a.) require that we address in the management letter, if not already addressed in the auditors' reports on compliance and internal controls or schedule of findings and questioned costs, whether or not inaccuracies, shortages, defalcations, fraud, and/or violations of laws, rules, regulations, and contractual provisions reported in the preceding annual financial audit report have been corrected. There were no inaccuracies, shortages, defalcations, fraud, and/or violations of laws, rules, regulations, and contractual provisions reported in the preceding annual financial audit report. The Rules of the Auditor General (Section 1O.554(1)(g)1.b.) require that we address in the management letter, if not already addressed in the auditors' reports on compliance and internal controls or schedule of findings and questioned costs, whether or not recommendations made in the preceding annual financial audit report have been followed. The status of the findings from the prior year management letter are as follows: Internal Control Over Financial Reportin2 Status 04-1 Reconciliation of Consultant Provided Information to Accounting Records Repeated/revised 04-2 Filing of Annual Financial Audit Report Corrected Manae-ement Letter Status Records Maintenance and Report Filing Corrected As required by the Rules of the Auditor General (Section 1O.554(1)(g)2.), the scope of our audit included a review of the provisions of Section 218.415., Florida Statutes, regarding the investment of public funds. In connection with our audit, we determined that the City of Okeechobee, Florida complied with Section 218.415, Florida Statutes. >>YJiliM Jl . American Institute of Certified Public Accountants. Florida Institute of Certified Public Accountants. SEC Practice Section of the AI.CPA . CPAmerica International Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Two The Rules of the Auditor General (Section 10.554(l)(g)4.) require disclosure in the management letter of the following matters if not already addressed in the auditors' reports on compliance and internal controls or schedule of findings and questioned costs: (1) violations of laws, rules, regulations, and contractual provisions that have occurred, or are likely to have occurred; (2) improper or illegal expenditures; (3) improper or inadequate accounting procedures (e. g., the omission of required disclosures from the financial statements); (4) failures to properly record financial transactions; and (5) other inaccuracies, shortages, defalcations, and instances of fraud discovered by, or that come to the attention of, the auditor. We noted the following matters. 1. Fixed Asset Software Criteria: The GASB 34 fmancial statement presentation requires fixed assets to be recorded along with the related depreciation in the government wide financial statements. Granting agencies require fixed assets purchased with federal funds to be identified and tracked. Condition: The City uses multiple excel spreadsheets to record fixed assets and calculate depreciation. Due to the large number of fixed assets and volume of activity (additions and retirements) using excel spreadsheets to calculate depreciation and roll the schedules forward to a new year is very time consuming. In addition, there is a high probability that errors will occur. \ Recommendation: We rec,o, ,mm" end the City obtain computer software specifically designed to track fixed .) ~d.to,calculate..depr~ciation. Management's Response: The City has spoken to their software support and is investigating the possibility of implementing fixed asset software. 2. Credit Card Policy Criteria: The City is responsible for providing policies for employees to follow in order to safeguard and prudently manage the City's assets. _._~--".__._-_.~- C Ition: The City does not have a policy that provides guidance for the use of credit cards when emp 0 avel on City business. The lack of a policy contributes to the opportunity for fraud and/or abuse to occur. During the testing of employee travel, several instances were encountered in which reimbursement of credit card expenditures lacked documentation. In addition, we found that the City is regularl a in late fees and finance charges on credit cards. These fees r - 25 to $37 per month per card. Recommendation: We recommend the City implement a comprehensive credit card policy that complements the existing travel policy. We further recommend prompt payment of credit card bills and that employees be required to reimburse the City for any non-approved charges. Management's Response: All charges for the fund year 2004-2005 were found to be valid expenses. The Finance Department presently reviews each expenditure charged to credit cards. Department heads must complete and approve of charges and submit vouchers for all purchases to the finance department along with ~ receipts. The City will develop and provide a written olicy per the described procedures for distribution. / The City is conti . g 0 ensure . n timel basis to avOl any a ltIona . 62 I I I I I I I I I I I I I I I I I I I Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Three 3. Budget Responsibility Criteria: The City is responsible for adhering to approved budgets and budget amendments must be approved by the City Council. Condition: During the course of the 2005 audit, we proposed certain journal entries that were accepted and recorded by management. As a result of these entries in the general fund, general government expenditures exceeded appropriations by $59, transportation expenditures exceeded appropriations by $38,985, and capital outlay expenditures exceeded appropriations by $19,721. These excess expenditures were covered by available fund balance in the general fund. Recommendation: We recommend that the City perform periodic reviews for variances between actual and budgeted results and document the variances. If the investigation of budget variances suggests that the budget is inaccurate, or if business conditions vary from expectations, the budget should be revised to reflect current conditions or more reasonable estimates. Such a practice makes the City better able to account for unexpected expenditures which may arise as a result of journal entries identified by management more than 60 days after fiscal ye~encl,orby adjustingjoumalentries identified as part .QfJ.h.~~nual audit. /..'..,' " ----- /i-ianagement's Response: The City will review its budget and request approval ifne~de(:lbythe City Council ( ,~o amend the budget prior to the fiscal year end. -'.'-"-~':~_"".<_"___.~'_~"n.__.~_.,._..,....",....,,_......_____~ The Rules of the Auditor General (Section 10.554(1)(g)5.) also require that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in the management letter, unless disclosed in the notes to the financial statements. This information is disclosed in the notes to the financial statements. As required by the Rules of the Auditor General (Section 10.554(1)(g)6.a.), the scope of our audit included a review of the provisions of Section 218.503(1), Florida Statutes, regarding financial emergencies. In connection with our audit, we determined that the City of Okeechobee, Florida has not met any of the financial emergency conditions described in Section 218.503(1), Florida Statutes. As required by the Rules of the Auditor General (Section 10.554(1)(g)6.b.), we determined that the annual financial report for the City of Okeechobee, Florida for the fiscal year ended September 30, 2005, filed with the Department of Financial Services pursuant to Section 218.32, Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended September 30,2005. As required by the Rules of the Auditor General (Sections 10.554(g)(6)c. and 10.556), we applied financial condition assessment procedures. It is management's responsibility to monitor the entity's financial condition, and our financial condition assessment was based in part on representations made by management and the review of fmancial information provided by same. This report is intended solely for the information and use of the City Council, management, federal and state awarding agencies and pass-through entities, and the State of Florida Office of the Auditor General and is not intended to be and should not be used by anyone other than these specified parties. ~, ~~1 ~hdl.,qll~ Hoyman, Dobson & Company, P.A. May 20, 2005 63 THIS PAGE IS INTENTIONALLY LEFT BLANK. 64 AUGUST 1, 2006 - REGULAR MEETING - PAGE 15 OF 176 0 5 IX. NEW BUSINESS CONTINUED. A. 1. b) Vote on motion to read by title only and set final public hearing date. KIRK - ABSENT CHANDLER - YEA VOTE MARKHAM - YEA WATFORD - YEA WILLIAMS - YEA MOTION CARRIED. c) City Attorney to read proposed Ordinance No. 956. Attorney Cook read proposed Ordinance No. 956 as follows: "AN ORDINANCE OF THE CITY OF OKEECHOBEE, FLORIDA; AMENDING THE OFFICIAL ZONING MAP OF OKEECHOBEE BY REZONING A CERTAIN TRACT OF LAND MORE PARTICULARLY DESCRIBED HEREIN, FROM RESIDENTIAL SINGLE FAMILY-ONE (RSF-1) ZONING DISTRICT TO RESIDENTIAL MUL TIPLE FAMIL Y (RMF) ZONING DISTRICT; AMENDING THE ZONING MAP ACCORDINGL Y; PROVIDING FOR CONFLICTS, SEVERABILITY AND AN EFFECTIVE DA TE." 2. a) Motion to approve the first reading of proposed Ordinance No. 956. Council Member Markham moved to approve the first reading of proposed Ordinance No. 956; seconded by Council Member Chandler. b) Discussion. This Rezoning Petition is associated with Comprehensive Plan Amendment Application No. 06-013-SSA. Due to that application being tabled, the rezoning petition cannot be considered prior to the land use therefore a motion to table was in order. c) Vote on motion. Council Member Markham moved to table until Auqust 15. 2006; seconded by Council Member Chandler. KIRK - ABSENT CHANDLER - YEA VOTE MARKHAM - YEA WATFORD - YEA WILLIAMS - YEA MOnON CARRIED. B. Discussion pertaining to the2005 Financial Statements and Audit, prepared by Hoyman, Dobson & Company - Deborah A. Bradley. Ms. Deborah Bradley of Hoyman, Dobson and Company, PA., presented and distributed copies of the results for the 2004/2005 Fiscal Year audit. It has been an interesting year with the change of employees with Lola Parker leaving and India Riedel taking her position. Mrs. Riedel has done a great job. Findings were of limited significance. Two of the three items significance noted from last year's report have been corrected. Those items being: Internal Control Over Financial Report 04-2; Filing of Annual Financial Audit Report; and Management Letter, Records Maintenance and Report Filing; The item that was repeated was 04-1 Reconciliation of Consultant Provided Information to Accounting Records under Internal Control over Financial Report. 606 AUGUST 1, 2006 - REGULAR MEETING - PAGE 16 OF 17 IX. NEW BUSINESS CONTINUED. B. Discussion pertaining to the2005 Financial Statements and Audit, prepared by Hoyman, Dobson & Company continued. This year report noted three new matters. 1. Fixed Asset Software. The GASB 34 financial statement presentation requires fixed assets to be recorded along with the related depreciation in the government wide financial statements. Granting agencies require fixed assets purchased with federal funds to be identified and tracked. We are recommending the City obtain computer software specifically designed to track fixed assets and to calculate depreciation. 2. Credit Card Policy. The City is responsible for providing policies for employees to follow in order to safeguard and prudently mange the City's assets. We recommend the City implement a comprehensive credit card policy that complements the existing travel policy; We further recommend prompt payment of credit card bills and that the employees be required to reimburse the City for any non-approved charges. 3. Budget Responsibility. The City is responsible for adhering to approved budgets and budget amendment sand must be approved by the City Council We recommend that the City perform periodic reviews for variances between actual and budgeted results and document the variances. If the investigation of budget variances suggest that the budget is inaccurate, or if the business conditions vary from expectations, the budget should be revised to reflect current conditions or more reasonable estimate. Such a practice make the City better able to account for unexpected expenditures which may arise as a result fo journal entries identified by management more than 60 days after fiscal year end, or by adjusting journal entries identified as part of the annual audit. Ms. Bradley reported that the City is financially sound. A big issue noted in the budget is that the City received a considerable amount of funding from FEMA reimbursements and they were recorded as revenue, and should not have been. The proper recording of these funds has been reviewed with Staff. Mayor Pro-Tern Watford thanked Ms. Bradley for her presentation. He remarked that it was good to see we are in better shape than anticipated. Also he questioned the Net Pension Obligation and should we be concerned? Ms. Bradley suggested the Council talk with an actuary, that this could be a potential liability in the future. Council Markham moved to accept the 2004-2005 Fiscal Year Financial Statements and Audit as presented and prepared by Hoyman. Dobson and Company; seconded by Council Member Williams. KIRK - ABSENT CHANDLER - YEA VOTE MARKHAM - YEA WATFORD - YEA WILUAMS - YEA MOTION CARRIED.