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Audit Report 09.30.2006 I I I I I I I I I I I I I I I I I I . CJed,'s o<<ie.t CITY OF OKEECHOBEE, FLORIDA Financial Statements Year Ended September 30, 2006 I I CITY OF OKEECHOBEE, FLORIDA Table of Contents As of September 30, 2006 Page I I I I I I I I I I I 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 . 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' Management Letter I I I I I I 2 3 5 7 15 16 18 20 22 23 24 25 46 47 49 51 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, 2006 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 THIS PAGE IS INTENTIONALLY LEFT BLANK. 4 I I--D I I I I I I I I I I I I I I I I I I cJ{1J~l)~ Independent Auditors' Report Honorable Mayor and Members of the City Council City of Okeechobee, Florida We have audited the accompanying financial 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, 2006, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Okeechobee, Florida's management. Our responsibility is to express opinions on these financial statements based on our audit. 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. 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 fmancial 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 opmlons. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective fmancial position of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Okeechobee, Florida, as of September 30, 2006, and the respective changes in financial 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 March 27, 2007 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 financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Certified Public Accountants 215 Baytree Drive 1 Melbourne, FL 32940 1 p: (321) 255.00881 f: (321) 259.8648 2221 Lee Road, Suite 151 Winter Park, FL 327891 p: (407) 422.16811 f: (407) 423.1681 www.hoyman.com City of Okeechobee, Florida Page Two The management'~ discussion and analysis, and budgetary comparison information on pages 7-12 and 46-47 are not a required part of the basic financial 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 required supplementary information. However, we did not audit the information and express no opinion on it. II~~ Hoyman Dobson Melbourne, Florida March 27, 2007 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 30,2006 Our discussion and analysis of the City of Okeechobee, Florida's (the City) financial performance provides an overview of the City's financial activities for the year ended September 30, 2006. 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, 2006: · The City's total assets exceeded its liabilities at September 30,2006 by $14,901,540. · The City's total revenues were $7,005,165 for the year ended September 30,2006, compared to total expenses of$5,735,354 which resulted in a $1,269,811 increase in net assets. 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 ofthe 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, 2006 B. 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 financial 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 ofthis 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 2006 2005 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 U nrestri cted Total net assets $ 9,227,438 6,834,598 16,062,036 495,626 664,870 1,160,496 $ 7,471,081 6,967,824 14,438,905 147,31 0 659,866 807,176 6,409,553 1,212,050 7,279,937 14,901,540 6,526,653 1,097,206 6,007,870 13,631,729 $ $ 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 30,2006 Governmental Activities Total net assets increased by approximately $1.3 million primarily as a result of a $348,000 increase in other liabilities and a $1.6 million increase in current and other assets. The increase in other liabilities was due to an approximately $317,000 increase in accounts payable which resulted mainly from construction in progress activities. The increase in current and other assets was due to an approximately $2.3 million increase in cash and cash equivalents combined with an approximate $536,000 decrease in due from other governments. The increase in cash resulted mainly from revenues exceeding expenditures in the general fund and grant reimbursements received in 2006 for construction completed during 2005. The decrease in due from other governments was also a result of the receipt in 2006 of the reimbursements from grants for the construction projects completed in 2005. The following table shows condensed revenue and expense data: City of Okeechobee,. Florida Statement of Activities 2006 2005 REVENUES: Program revenues: Charges for services $ 705,821 $ 642,920 Operating grants and contributions 892,449 1,010,019 Capital grants and contributions 312,868 2,421,262 General revenues: Property taxes 2,005,277 1,725,357 Public utility taxes 793,263 744,198 Franchise fees 492,638 396,548 Investment income and other 1,802,849 1,438,214 Total revenues 7,005,165 8,378,518 EXPENSES: General government 1,134,619 1,054,975 Public safety 2,799,856 2,582,009 Transportation 716,294 724,021 Physical environment 1,064,591 674,963 Interest on long-term debt 19,994 24,668 Total expenses 5,735,354 5,060,636 Change in net assets 1,269,811 3,317,882 NET ASSETS, beginning 13,631,729 10,313,847 NET ASSETS, ending $ 14,901,540 $ 13,631,729 9 CITY OF OKEECHOBEE, FLORIDA Management's Discussion and Analysis September 30, 2006 Governmental Activities (continued) The City experienced an almost 16% decrease in total revenues-a $1.373 million decrease to $7.005 million. Capital grants and contributions decreased $2.108 million, mainly due to the completion of the Commerce Center which was fund by grants. Much of the approximately $790,000 increase in general revenues came about because of ad valorem property taxes yielding approximately $280,000 more revenue than in the prior year due to an increase in property values and new construction, unrestricted investment earnings increasing $153,000 to $240,000 due to increases in SBA deposits as well as a 1.6% increase in interest rates to 5.4% and finally, the City recognized $137,000 more in gain on sale of capital assets for a total of $196,000 due to sales and scrapping of more fixed assets than in the previous year. The public safety expenses increased approximately $218,000 to $2.8 million. Increases in salaries, supplies, fuel, repairs and retirement all contributed to the increase in public safety expenses. The physical environment expenses increased $390,000 to $1.065 million. The increase in physical environment expenses is due in part to increased trash collection fees and significant increases in road repairs related to road striping. 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 $8,025,671, an increase of $1,448,198 in comparison with the prior year. Approximately 83 percent of this total amount, $6,645,283 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 1) for public facilities of $1,207,867, and 2) for a variety of other restricted purposes of$I72,521. 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 $6,652,239, while total fund balance was $8,028,444. 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. Unreserved fund balance and total fund balance represent approximately 109% and 131 % of total general fund expenditures, respectively. 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 30,2006 The Community Development Capital Project fund has a fund balance deficit of $(6,997) as of September 30, 2006. The community development projects are being funded on a reimbursement basis with federal and state grant funds. These grants do not allow for reimbursement of the cost of the grant administrator consultant fees, the engineering inspection fees, and certain costs that were incurred before the grant was in place. The City will absorb the costs of the community development projects not funded by the grants. General Fund Budgetary Highlights The amount appropriated for expenditures increased from $5,754,192 to $6,309,627 an increase of $555,435. The amounts expended in the categories of physical environment and debt service principal exceeded the budgeted amounts by a total of $132,699 and $8,252, respectively, which was offset by expenditures of $189,745 less than the budgeted amounts for general government, public safety, capital outlay, and debt service resulting in net expenditures of $48,794 less than budgeted. The expenditures in excess of appropriation were mostly due to additional costs as a result of the road repairs and increased fees for trash collection. The debt service principal was exceeded due to the allocation of the budget between principal and interest. CAPITAL ASSETS AND LONG-TERM LIABILITIES Capital assets. The City's investment in capital assets for its governmental funds as of September 30, 2006, amounts to $6,834,598 (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 decreased $133,226 from $6,967,824. Major changes to capital assets during the current fiscal year included the following: · Entered into a lease for twenty four police vehicles. · Sold 24 used police vehicles. · Construction of the sidewalks and parks for downtown. · Sold Commerce Center lot. City's Capital Assets (net of depreciation) Land Buildings Improvements other than building Equipment Construction in progress Total 2006 1,290,965 1,221,860 3,455,458 866,315 $ 2005 1,301,965 1,253,601 1,275,903 835,983 2,300,372 6,967,824 $ $ 6,834,598 $ 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 30,2006 Long-term Liabilities City's Outstanding Debt Long-term Liabilities Note payable Capital leases Compensated absences Total $ 2006 2005 $ 29,338 425,046 411,833 239,824 218,695 664,870 $ 659,866 $ The City's long-term liabilities increased $5,004 (l percent) during the current fiscal year. Long-term liabilities increased even though the note payable was paid off. The addition of a new capital lease for new police cars and additional liability for compensated absences were mostly offset by the sale of the old police cars and payoff of the amount owed on the related lease. Additional information on the City's long-term debt can be found in note 4E and 4F on pages 38-39 of this report. ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The City Council maintained the millage rate of 7.1899 for fiscal year 2007. Revenues for the fiscal year 2007 adopted budget for all funds of the City total approximately $15,600,000, an increase of 21.9% from the prior year budget for all funds of approximately $12,800,000. The major changes occur in the General Fund, Public Facilities Fund, Industrial Development Fund, and the CDBG Grant Fund. Expenditures for the fiscal year 2007 adopted budget for all funds of the City total approximately $7,800,000, an increase of approximately 9.9% from the prior year budget for all funds of approximately $7,100,000. The major changes occur in the General Fund, Public Facilities Fund, Industrial Development Fund, and the CDBG Grant Fund. REQUESTS FOR INFORMATION This financial 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 TillS PAGE IS INTENTIONALLY LEFT BLANK. 14 """"__,""__._""',_".,.,._....,,.,'..~,..'. . ,_ .,.,'_"_, _"".,"',~.,....."c.,C.."".._.,""..._..._"'__"'-"'._"_.,""...__,.__,._;,i,,,,",'.~-'"""'''''''-''' I CITY OF OKEECHOBEE, FLORIDA I Statement of Net Assets - Governmental Activities September 30,2006 I ASSETS Cash and cash equivalents $ 8,163,458 Accounts receivable 126,814 I Due from other governments 220,362 Inventories 10,663 I Overfunded pension costs 706,141 Capital assets: Nondepreciable I Land 1,290,965 Depreciable, net of accumulated depreciation Buildings 1,221,860 I Improvements other than buildings 3,455,458 Equipment 866,315 Total assets 16,062,036 I LIABILITIES Accounts payable 395,651 I Accrued expenses 30,284 Deferred revenue 69,691 Noncurrent liabilities: I Due within one year 73,114 Due in more than one year 591,756 I Total liabilities 1,160,496 NET ASSETS I Invested in capital assets, net of related debt 6,409,553 Restricted for: Law enforcement 4,183 I Public facilities 1,207,867 Unrestricted 7,279,937 Total net assets $ 14,90 I ,540 I I I I I I The accompanying notes are an integral part of this financial statement. 15 CITY OF OKEECHOBEE, FLORIDA Year Ended September 30,2006 Statement of Activities - Governmental Activities 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 $ 1,134,619 2,799,856 716,294 1,064,591 19,994 $ 614,187 35,642 55,992 $ 190,464 215,241 486,744 $ 312,868 $ 5,735,354 $ 705,821 $ 892,449 $ 312,868 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 $ (329,968) (2,548,973 ) (173,558) (751,723) (19,994) (3,824,216) 2,005,277 793,263 492,638 1,282,709 240,438 84,177 195,525 5,094,027 1,269,811 13,631,729 $ 14,901,540 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, 2006 Community De'elopment Nonmajor General Capital Project Funds ASSETS Cash and cash equivalents $ 7,939,266 $ 219,968 $ 4,224 Accounts receivable 126,814 Due from other governments 175,885 44,477 Due from other funds 265,321 Inventory 10,663 Total assets $ 8,517,949 $ 264,445 $ 4,224 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 389,530 $ 6,121 $ Accrued expenses 30,284 Due to other funds 265,321 Deferred revenue 69,691 Total liabilities 489,505 271,442 Fund balances: Reserved for: Encumbrances 157,675 Inventory 10,663 Law enforcement 4,183 Public facilities 1,207,867 Unreserved, undesignated 6,652,239 (6,997) 41 Total fund balances (deficit) 8,028,444 (6,997) 4,224 Total liabilities and fund balances $ 8,517,949 $ 264,445 $ 4,224 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 ""'ft.,~.,."...~..,"_"'~"~_<"__"""~""""""'"'''''''"'''_''~~'_~~'_',......"...,...;<."..-..",,;.."., I I Total I Governmental Funds I $ 8,163,458 126,814 I 220,362 265,321 10,663 I $ 8,786,618 I $ 395,651 30,284 I 265,321 69,691 760,947 I I 157,675 10,663 4,183 I 1,207,867 6,645,283 8,025,671 I I I 706,141 I 6,834,598 I (664,870) I $ 14,901,540 I I 19 CITY OF OKEECHOBEE, FLORIDA Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Year Ended September 30, 2006 General Revenues Taxes Intergovernmental Charges for services Licenses and permits Fines and forfeitures Interest and other Miscellaneous Total revenues $ 3,094,495 2,429,431 324,666 278,851 44,714 240,383 84,177 6,496,717 Expenditures Current: General government Public safety T ransportati on Physical environment Capital outlay Debt service: Principal retired Interest Total expenditures 1,113,483 2,620,409 716,294 603,017 561,493 1:./-, 471,717 19,994 6,106,407 Excess (deficiency) of revenues over (under) expenditures 390,310 Other financing sources (uses) Transfers in/(out) Capital lease proceeds Proceeds from sale of capital assets Total other financing sources Net change in fund balances Fund balances (deficit), beginning of year Fund balances (deficit), end of year 42,593 455,592 441,500 939,685 1,329,995 6,698,449 8,028,444 $ 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, 2006 Net change in fund balances - total governmental funds $ 1,448,198 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. 62,544 The net effect of various miscellaneous transactions involving capital assets (i.e. sales, trade ins, and donations) is to increase net assets. (195,770) The net effect of overfunded pension contributions that are reported as expenditures in the fund financial statements and are recorded as a net pension asset on the statement of net assets. (40,157) 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. 16,125 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. (21,129) Change in net assets of governmental activities $ 1,269,811 22 ,. --_..".,,,-,,~,,...,,,,........_=.._"_..,-~." I I I I I I I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Statement of Fiduciary Net Assets - Pension Trust Funds September 30,2006 Assets Cash and cash equivalents Prepaid insurance Receivables Total assets LIABILITIES AND FUND BALANCES Liabilities Accounts payable Fund Balances Reserved for pension benefits Total liabilities and fund balances The accompanying notes are an integral part of this financial statement. 23 Pension Trust Funds $ 6,463,844 53,635 $ 6,517,479 $ 20,979 6,496,500 $ 6,517,479 COMPONENT UNIT General Employees' Pension Trust $ 4,943,674 3,858 48,943 $ 4,996,475 $ 12,745 4,983,730 $ 4,996,475 CITY OF OKEECHOBEE, FLORIDA The accompanying notes are an integral part of this financial statement. 24 --..-,~~.,""..~.~....,-,....._"",."....._,.",,,__,.._~=~""k~'__'~"U_'"..~;o., I I I I I I I I I I I I I CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2006 NOTE CONTENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity B. Government-wide and Fund Financial Statements C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation D. Assets, Liabilities, and Net Assets or Equity I. Cash and investments 2. Receivables and payables 3. Prepaid items 4. Capital assets 5. Compensated absences 6. Long-term obligations 7. Fund equity 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 B. Explanation of certain differences between the governmental fund statement of revenues, expenditures, and changes in fund balances and the government-wide statement of activities 3. STEWARDSHIP. COMPLIANCE. AND ACCOUNTABILITY A. Budgetary information 4. DETAILED NOTES ON ALL FUNDS A. Deposits and investments B. Receivables C. Capital assets D. Interfimd receivables, payables, and transfers E. Capital lease F. Changes in long-term liabilities I I I I I I 5. OTHER INFORMATION A. Risk Management B. Retirement Commitments - Defmed Benefit Plans 6. CAPITAL PROJECT FUND BALANCE DEFICIT 7. SUBSEQUENT EVENTS PAGE 27 27 28 29 29 30 30 31 31 31 32 32 32 33 34 36 37 38 38 39 39 39 43 43 25 TillS PAGE IS INTENTIONALLY LEFT BLANK. 26 ~_"""~,_......,_............. ",j_~_'~~"'''''""""_"",~,.,,,,,,,,_,~,,,,,_c~. < 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, 2006 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 financial 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 financial statements to be misleading or incomplete. The financial data of these entities are reported in a separate column in the combined financial 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, 2006 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 community development capital project fund accounts for the assets, liabilities, revenues and expenditures related to the construction of infrastructure and other improvements in the City 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 30,2006 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 I, 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 financial statements. Amounts reported 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, 2006 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. ASSETS, LIABILITIES, AND NET ASSETS OR EQUITY (CONTINUED) 1. Cas" 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, 2006 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 Vehic1es 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, 2006 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. ASSETS, LIABILITIES, AND NET ASSETS OR EQUITY (CONTINUED) 7. Fund equity In the fund [mancial 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 $664,870 difference are as follows: Capital leases payable Compensated absences Net adjustment to reduce fund balance - total governmental funds to arrive at net assets-governmental activities $ 425,046 239,824 $ 664,870 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 ofthis $62,544 difference are as follows: Capital outlay $ Depreciation expense 575,753 (513,209) Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ 62,544 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 30,2006 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 ACTIVITIES (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 $195,770 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. $ (611,295) 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. 195,525 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. 220,000 Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ 195,770 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 financial resources of governmental funds". Neither transaction, however, has any effect on net assets. The details of this $16,125 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) 471,717 16,125 NOTE 3 - STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY A. BUDGETARY INFORMATION As permitted by GASB Statement No. 34, Basic financial Statements and Management Discussion and Analvsis 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 September 30,2006 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 $3,420,017 and the bank balance was $3,568,833. In addition, the City holds $324 of petty cash. The component unit's carrying amount of deposits was $110,813 and the bank balance was $110,813. 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 ,...._".~--......_.''''''',_.,...'''_.'''',,~.~... ,,,,,'_'..~"nq',_,-,,. 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, 2006 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) A. DEPOSITS AND INVESTMENTS (CONTINUED) At September 30, 2006, the City had the following investments: Investment Tvpe Investment Maturity (vears) Less than 1 1-5 Over 6 Ratine Fair Value Government-wide Local government surplus fund trust fund investment pool $4,743,117 $4,743,117 Unrated Pension Funds Fixed income securities have inherent [mancial 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 financial 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 39% of the investments and an international equity fund comprising approximately 9% of the investments. The portfolio characteristics of the intermediated term bond fund, which was comprised of approximately 30% U.S. Government and Federal Agency Securities, includes an average maturity of 7.5 years with an effective duration of 3.7 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 September 30, 2006 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) A. DEPOSITS AND INVESTMENTS (CONTINUED) Investment Tvpe Fair Value Ratinl! Proprietary Funds $ 1,030,475 U mated 10,266,230 $ 11,296,705 U mated Common and Collective Funds B. RECEIVABLES Receivables as of September 30, 2006 are as follows: Municipal Municipal Component Unit Police Officers' Firefighters' General Pension Pension Employees General Fund Trust Trust Pension Trust FranchisefUtility taxes $ 57,836 $ $ $ Garbage 48,128 Contributions 44,559 9,076 48,943 Other 20,850 Receivables, net $ 126,814 $ 44,559 $ 9,076 $ 48,943 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, 2006 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) C. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2006 was as follows: Beginning Transfers Ending Balance Increases Decreases Balance Governmental activities: Capital assets, not being depreciated: Land $ 1,301,965 $ $ (11,000) $ 1,290,965 Construction in progress 2,300,372 (2,300,372) Total capital assets, not being depreciated 3,602,337 (2,300,372) (11,000) 1,290,965 Capital assets, being depreciated: Buildings 1,592,277 1,592,277 Improvements other than buildings 1,530,115 2,534,632 4,064,747 Equipment 1,620,822 561,493 (474,987) 1,707,328 Total capital assets being depreciated 4,743,214 3,096,125 (474,987) 7,364,352 Less accumulated depreciation for: Buildings (338,676) (31,741) (370,417) Improvements other than buildings (254,212) (355,077) (609,289) Equipment (784,839) (126,391) 70,217 (841,013) Total accumulated depreciation (1,377,727) (513,209) 70,217 (1,820,719) Total capital assets, being depreciated, net 3,365,487 2,582,916 (404,770) 5,543,634 Governmental activities capital assets, net $ 6,967,824 $ 282,544 $ (415,770) $ 6,834,598 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 $ 19,552 115,578 378,079 513,209 $ 37 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2006 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) D. INTERFUND RECEIVABLES, PAY ABLES, AND TRANSFERS The composition of interfund balances as of September 30, 2006, is as follows: Due to/from other funds: Receivable Fund General Payable Fund Community Development Capital Project Amount $ 265,321 The City's capital projects are funded by federal and state grants on a reimbursement basis. The City advanced funds from the General Fund to the Capital Project Fund 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 (19,472) 436,120 $ Obligations of governmental activities under the capital lease at September 30,2006, were as follows: Year Ending Sept. 30, Principal Interest Total 2007 $ 51,769 $ 20,23 I $ 72,000 2008 54,399 17,601 72,000 2009 98,212 14,584 112,796 2010 145,281 7,052 152,333 2011 75,385 1,412 76,797 Total $ 425,046 $ 60,880 $ 485,926 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 30,2006 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) F. CHANGES IN LONG-TERM LIABILITIES Long-term liability activity for the year ended September 30, 2006, was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities: Notes payable $ 29,338 $ $ (29,338) $ $ Capital lease 411,833 455,592 (442,379) 425,046 51,769 Compensated absences 218,695 39,002 (17,873) 239,824 21,345 Long-term liabilities $ 659,866 $ 494,594 $ (489,590) $ 664,870 $ 73,114 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. B. RETIREMENT COMMITMENTS - DEFINED BENEFIT PLANS Plan Descriptions - The City contributes to two single-employer defined 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 financial reports that include financial statements and required supplementary information. The reports are available from the City ofOkeechobee, Florida, 55 S.E. Third Avenue, Okeechobee, Florida 34974. 39 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2006 NOTE 5 - OTHER INFORMATION (CONTINUED) B. RETIREMENT COMMITMENTS - DEFINED BENEFIT PLANS (CONTINUED) 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 16.86% for the Police Officers' plan and 5.94% 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 $51,372, 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 I, 2006 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 both the Police Officer's Trust and 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 ofthe City's defmed benefit plans: Annual Percentage Net Year Pension OfAPC Pension Ending Cost (APe) Contributed Obligation 9/30/04 $ 200,959 93 % $ (375,035) 9/30/05 213,688 105 (385,076) 9/30/06 278,439 96 (348,367) 9/30/04 $ 45,897 102 % $ (363,775) 9/30/05 53,415 95 (361,222) 9/30/06 45,897 96 (357,774) Municipal Police Officers' Municipal Firefighters' 40 ""--"'"."~;' ,-' -_..,.","","---~~--",--'~-~'~""'"";-"-" 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, 2006 NOTE 5 - OTHER INFORMATION (CONTINUED) B. RETIREMENT COMMITMENTS - DEFINED BENEFIT PLANS (CONTINUED) Pension Plan - Discretelv 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 financial report that includes financial 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% oftheir covered annual salary. The City is required to contribute at an actuarially determined rate; the current rate is 11.04% of covered payroll. The City's contributions for the years ended September 30, 2006, 2005, and 2004 were $81,262, $68,164, and $65,511, respectively, and were equal to the required contributions for each year. Pension trust funds fiduciary net assets activity as of September 30,2006 was as follows: ASSETS Cash and cash equivalents Prepaid insurance Receivables Total assets COMPONENT UNIT Police Total General Firefighters' Officers' Pension Employees' Pension Pension Trust Funds Pension $ 1,919,456 $ 4,544,388 $ 6,463,844 $ 4,943,674 3,858 9,076 44,559 53,635 48,943 $ 1,928,532 $ 4,588,947 $ 6,51 7,4 79 $ 4,996,475 LIABILITIES Accounts payable $ 7,178 $ 13,801 $ 20,979 $ 12,745 FUND BALANCES Reserved for pension benefits 1,921,354 4,575,146 6,496,500 4,983,730 Total liabilities and fund balances $ 1,928,532 $ 4,588,947 $ 6,517,479 $ 4,996,475 41 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2006 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, 2006 was as follows: COMPONENT UNIT Total General Firefighters' Police Pension Employees' Pension Pension Trust Funds Pension ADDITIONS Contributions State $ 51,372 $ 134,181 $ 185,553 $ City 26,004 165,184 191,188 282,892 Employees 20,244 42,062 62,306 155,620 Total contributions 97,620 341,427 439,047 438,512 Investment earnings: Net increase in fair value of investments 137,187 321,375 458,562 352,211 Interest and dividends 3,177 7,386 10,563 8,657 Total investment earnings 140,364 328,761 469,125 360,868 Less investment expense (11,733) (27,488) (39,221) (30,098) Net investment income 128,631 301,273 429,904 330,770 Total additions 226,251 642,700 868,951 769,282 DEDUCTIONS Benefits paid to participants 30,477 148,650 179,127 156,186 Refunds on termination 1,885 43,135 45,020 44,302 Administrative expenses 15,142 27,850 42,992 19,272 Total deductions 47,504 219,635 267,139 219,760 Change in net assets 178,747 423,065 601,812 549,522 Net assets held in trust for pension benefits, beginning of year 1,742,607 4,152,081 5,894,688 4,434,208 Net assets held in trust for pension benefits, end of year $ 1,921,354 $ 4,575,146 $ 6,496,500 $ 4,983,730 42 u_...._~.._..~.......,,,....'..-'-"....~.,~~........,;,_"_,_~""A>,"'-..^""..,.--..-. 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, 2006 NOTE 6 - CAPITAL PROJECT FUND BALANCE DEFICIT Expenditures exceeded revenue in the Community Development Capital Project fund which resulted in a fund balance deficit. The expenditures in this capital project fund that are not reimbursed by grants will be funded by the General Fund. NOTE 7 - SUBSEQUENT EVENTS On January 2, 2007, the Council awarded the Commerce Center Northeast 12th Street Extension contract in the amount of$416,655. Subsequent to year end, the City entered a lease agreement to purchase twenty-four 2007 police vehicles at $20,000 per vehicle. 43 THIS PAGE IS INTENTIONALLY LEFT BLANK. 44 ......_..._,~...."_,~~_"_""u=,""~~_~.......,....,~__...;_~,.....".>~,..,"""'.....,.....^..,..."- 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, 2006 Actual Variance with Original Final (on Budgetary Final Budget Budget Budget Basis) Positive (Negative) Revenues Taxes $ 2,798,326 $ 2,798,326 $ 3,094,495 $ 296,169 Intergovernmental 2,150,423 2,150,423 2,429,431 279,008 Charges for services 288,328 288,328 324,666 36,338 Licenses and permits 236,316 236,316 278,851 42,535 Fines and forfeitures 26,782 26,782 44,714 17,932 Interest 70,000 70,000 240,383 170,383 Miscellaneous 4,500 4,500 84,177 79,677 Total revenues 5,574,675 5,574,675 6,496,717 922,042 Expenditures Current: General government 1 ,213 , 144 1,213,144 1,118,451 94,693 Public safety 2,638,676 2,638,676 2,620,469 18,207 Transportation 731,469 731,469 716,294 15,175 Physical environment 612,000 612,000 744,699 (132,699) Capital outlay 611,017 611,017 569,209 41,808 Debt service Principal 463,465 463,465 471,717 (8,252) Interest 39,856 39,856 19,994 19,862 Total expenditures 6,309,627 6,309,627 6,260,833 48,794 Excess (deficiency) of revenues over (under) expenditures (734,952) (734,952) 235,884 970,836 Other financing sources (uses) Operating transfers in (out) (85,000) (85,000) 42,593 127,593 Capital lease proceeds 455,592 455,592 Sale of capital assets 600 600 441,500 440,900 Net other financing sources (uses) (84,400) (84,400) 939,685 1,024,085 Excess (deficiency) of revenues and other financing sources over (under) expenditures and other financing sources (uses) (819,352) (819,352) 1,175,569 1,994,921 Fund balances, beginning of year 6,698,449 6,698,449 6,698,449 Fund balances, end of year $ 5,879,097 $ 5,879,097 7,874,018 $ 1,994,921 Reconciliation of budgetary to GAAP basis Current year encumbrances 157,675 Prior year encumbrances (3,249) $ 8,028,444 The accompanying notes to required supplementary information are an integral part ofthis [mancial 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 September 30, 2006 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 re-appropriated 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, 2006, physical environment expenditures and debt service expenditures exceeded appropriations in the general fund by $132,699 and $8,252, respectively. These excess expenditures were covered by available fund balance in the general fund. 47 THIS PAGE IS INTENTIONALLY LEFT BLANK. 48 ~ ._~"._,--.",...._,."""",-~~--._,..,,,..'''_',",""',;, '. .,;..,." .;,', I }--D I I I I I I I I I I I I I I I I I I ~l)~ Independent Auditors' Report on Internal Control Over Financial and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Honorable Mayor and Members of the City Council City of Okeechobee, Florida We have audited the financial statements of the governmental activities, each major fund, and the aggregate fund information of the City ofOkeechobee, Florida, as of and for the year ended September 30,2006, which collectively comprise the City's basic financial statements and have issued our report thereon dated February 9, 2007. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 Reporting In planning and performing our audit, we considered the City of Okeechobee, Florida's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Okeechobee, Florida's [mancial 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 [mancial statement amounts. However, providing an opinion on compliance with those provisions Certified Public Accountants 215 Baytree Drive I Melbourne, FL 32940 I p: (321) 255.00881 f: (321) 259.8648 2221 Lee Road, Suite 151 Winter Park, FL 327891 p: (407) 422.16811 f: (407) 423.1681 www.hoyman.com Honorable Mayor and Members ofthe City Council City of Okeechobee, Florida Page Two was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of the City of Okeechobee, Florida in a separate letter, Independent Auditors' Management Letter, dated March 27,2007. This report is intended solely for the information and use of the City of Okeechobee, Florida, City Council, management, 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. #~~ Hoyman Dobson Melbourne, Florida March 27, 2007 50 I }--D I I I I I I I I I I I I I I I I I ~;[;)~ Independent Auditors' Management Letter 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 30,2006, and have issued our report thereon dated March 27,2007. We conducted our audit in accordance with United States generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States. We have issued our Independent Auditors' Report on Compliance and Internal Control over Financial Reporting. Disclosures in that report, which is dated March 27, 2007, should be considered in conjunction with this management letter. Additionally, our audit was conducted in accordance with the provisions of Chapter 10.550, Rules of the Auditor General, which govern the conduct of local governmental entity audits performed in the State of Florida and require that certain items be addressed in this letter. The Rules of the Auditor General (Section 10.554(1)(h)1.) require that we address in the management letter, if not already addressed in the auditors' reports on compliance and internal controls, whether or not recommendations made in the preceding annual financial audit report have been followed. The recommendations made in the preceding annual financial audit report have been corrected except as noted below under the heading Prior Year Findings and Recommendations. As required by the Rules of the Auditor General (Section 10.554(1)(h)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 ofOkeechobee, Florida complied with Section 218.415, Florida Statutes. The Rules of the Auditor General (Section 10.554(1)(h)3.) require that we address in the management letter any findings and recommendations to improve financial management, accounting procedures, and internal controls. In connection with our audit, we had the following such findings: Certified Public Accountants 215 Baytree Drive I Melbourne, FL 329401 p: (321) 255.00881 f: (321) 259.8648 2221 Lee Road, Suite 151 Winter Park, FL 327891 p: (407) 422.16811 f: (407) 423.1681 www.hoyman.com Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Two FINANCIAL MANAGEMENT, ACCOUNTING PROCEDURES, AND INTEli~AL CONTROLS 1. Journal Entries Criteria: Management is responsible for establishing and maintaining effective control over and accounting for the assets of the City. Context: During our testing of journal entries we noted the absence of formal documentation and approval of entries made to the general ledger. While selecting journal entries from an "edit" report for testing it was noted that there were corrections of correcting entries. We also noted that the explanations accompanying the entries were inadequate in many instances. Effect: The accounting records could be adjusted by journal entries without proper approval or supporting documentation. Cause: The City does not have a system for documentation and approval of journal entries. Recommendation: We recommend the adoption of a policy whereby prior to entry in the accounting software, journal entries are formally prepared on a standardized worksheet with a full explanation and with reference to adequate supporting data. All entries should be initialed by the preparer and the individual approving them in order to attribute responsibility to the appropriate individuals. We further recommend the worksheets be maintained in a file in numerical order for easy access. Management's Response: Presently journal entries are made and are kept chronologically together for reference and review. The log and the entries as well as the documentation will continue to be available for review by all requesting the information. A list of numbered journal entries will be provided to the City Administrator for approval prior to entry in the accounting software. 2. Expenditures in Excess of Budget Criteria: Management is responsible for budgetary control of the City's expenditures. Context: The Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget to Actual for the General Fund indicates expenditures exceeded the budgeted amount for the line items Physical Environment and Interest. Several departments are included in this line item which in total exceeds the budgeted amounts by $132,699 and $8,252, respectively. Effect: Exceeding the budgeted amount for individual line items of the budget could result in the City incurring expenditures in excess of appropriations and is in noncompliance with Florida Statutes. Cause: It does not appear the budget was monitored sufficiently to determine the need for transfers of funds within a department or the need to amend the budget to take into consideration the actual expenditures of the City. Recommendation: The budget is a tool for the management to monitor expenditures and maintain control over spending. We recommend the City utilize this tool to compare actual to budgeted expenditures to enable consistent monitoring and control of the City's expenditures, thereby, insuring they are within the limits set by the Board of Commissioners. 52 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 Management's Response: Continuous review of the budget and budget expenditures is made throughout the year. Management had already made the decision to complete a mid year amended budget to present to council for review and amendment for expenditures. The items included in the "Physical Environment Department" include more than one department. Our City charter allows overages as long as the department does not exceed the budget. PRIOR YEAR FINDINGS AND RECOMMENDATIONS 1. Credit Card Policy Criteria: Written policies and procedures, which clearly define responsibilities of employees, are essential in order to provide both management and employees with guidelines regarding the efficient and consistent conduct of City business and the effective safeguarding of the City's assets. In addition, written policies and procedures, if properly designed, communicated to employees, and effectively placed in operation; provide management additional assurances that City activities are conducted in accordance with applicable laws, ordinances, and other guidelines. Also, written policies and procedures assist in the training of new employees. Context: During our testing of travel and credit card expenditures we noted inconsistent documentation of credit card expenditures. Effect: The lack of a policy contributes to the opportunity for fraud and/or abuse to occur. Cause: The City does not have a written policy that provides guidance for the use of credit cards when employees travel on City business. Recommendation: We recommend the City implement a comprehensive written credit card policy consistent with applicable laws, ordinances, and other guidelines that complements the existing travel policy. Management's Response: A Travel/Per Diem and Credit Card Policy has been implemented and disseminated to Department heads and their employees. This will continue to ensure the services and commodities purchased are necessary for the Citys' operation. The Rules of the Auditor General (Section 10.554(l)(h)4.) require disclosure in the management letter of the following matters if not already addressed in the auditors' reports on compliance and internal controls and are not clearly inconsequential: (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 [mancial transactions; and (5) other inaccuracies, shortages, defalcations, and instances of fraud discovered by, or that come to the attention of, the auditor. Our audit disclosed no matters required to be disclosed by the Rules of the Auditor General (Section 1O.554(1)(h)4.). The Rules of the Auditor General (Section 10.554(1)(h)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. The City of Okeechobee, Florida was originally chartered as a Town on September 11, 1959. On July, 1970, the City was incorporated as a political subdivision of the State of Florida with a six member Council, including a Mayor and Deputy-Mayor. The City of Okeechobee was created pursuant to Chapter 70-983, Laws of Florida, Regular Session 1970. In November 1989, a 53 Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Four seventh Council member was added and the Mayor became a voting member. The Mayor and Council are elected by the registered voters of the City of Okeechobee, with the entire Council selecting the Deputy-Mayor. The Council appoints the City Manager, who in turn functions as the administrator of the everyday operations of the City. The City of Okeechobee, Florida has no component units. As required by the Rules of the Auditor General (Section 10.554(l)(h)6.a.), a statement must be included as to whether or not the local government entity has met one or more of the conditions described in Section 218.503(1), Florida Statutes. In connection with our audit, we determined that the City of Okeechobee, Florida did not meet any of the conditions described in Section 218.503(1), Florida Statutes. As required by the Rules of the Auditor General (Section 10.554(l)(h)6.b.), we determined that the annual financial report for the City of Okeechobee, Florida for the fiscal year ended September 30, 2006, filed with the Department of Financial Services pursuant to Section 218.32(1)(a), Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended September 30, 2006. As required by the Rules of the Auditor General (Sections 10.554(h)6.c. and 10.556(7)), we applied financial 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 financial information provided by same. This management letter is intended solely for the information of the City of Okeechobee, Florida, City Council, management, 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. #~~ Hoyman Dobson Melbourne, Florida March 27, 2007 54