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Audit Report 09.30.2007 MY OF OKEECHOBEE, FLORIDA Financial Statements Year Ended September 30, 2007 tCITY OF OKEECHOBEIP, FLORIDA - Table of Contents As of September 30, 2007 Page Introductory Section Title Page 1 Table of Contents 2 City Officials 3 Financial Section _ Independent Auditors' Report 5 Management's Discussion and Analysis 7 Basic Financial Statements Government-wide Financial Statements • Statement ofNet Assets 15 • Statement of Activities 16 Fund Financial Statements Governmental Funds • Balance Sheet 18 • Statement of Revenues, Expenditures, and Changes in Fund Balances 20 • Reconciliation of the Statement of Revenues, Expenditures and Changes in - Fund Balances of Governmental Funds to the Statement of Activities 22 Fiduciary Funds (Component Units that are Fiduciary in Nature) • Statement of Fiduciary Net Assets 23 • Statement of Changes in Fiduciary Net Assets 24 Notes to Financial Statements 25 Required Supplementary Information Other Than Management's Discussion and Analysis • Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General Fund 44 • Notes to Required Supplementary Information 45 • 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 47 • 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 49 • Schedule of Expenditures of Federal Awards 51 • Schedule of Findings and Questioned Costs 52 • Independent Auditors' Management Letter 55 • Affidavit of Impact Fee Compliance 59 2 CITY OF OKEECHOBEE, FLORIDA City Officials As of September 30, 2007 James E. Kirk Mayor, Chairman Roscoe Lowry Markham Dowling R. Watford, Jr. Clayton Williams 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 T , THIS PAGE IS INTENTIONALLY LEFT BLANK. ~I 4 T 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, 2007, 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 thereon have been furnished to us, and our opinion, insofar as it relates to the fiduciary fiend 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 financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our 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, 2007, 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 Standaards, we have also issued our report dated June 19, 2008 on our consideration of the City of Okeechobee, Florida's internal control over financial 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 financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Qrt6W Pub1kAceounA=ss 215 Bayuve Drive I Melbourne, FL 32940 1 p: (321) 255.0088 11» (321) 259.8648 2221 Lee Road, Suite 15 Winter Park, FL 32789 1 p: (407) 422.16811 E (407) 423.1681 wwwhoyman.com 55 City of Okeechobee, Florida Page Two The management's discussion and analysis, and budgetary comparison information on pages 7 through 12 and 44 through 45, 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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Okeechobee, Florida's basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial of the City of Okeechobee, Florida. The schedule of expenditures of federal awards 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. Hoyman Dobson - Melbourne, Florida June 19, 2008 I s - 6 CITY OF OKEECHOBLE, FLORIDA Management's Discussion and Analysis September 30, 2007 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, 2007. Please read it in conjunction with the City's basic financial statements, which immediately follow this discussion. FINANCIAL HIGHLIGHTS The following are highlights of financial activity for the year ended September 30, 2007: • The City's total assets exceeded its liabilities at September 30, 2007 by $17,252,153. • The City's total revenues were $8,025,159 for the year ended September 30, 2007, compared to total expenses of $5,674,546, which resulted in a $2,350,613 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: 1) 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, 2007 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 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 42 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 govemment-wide statement of net assets. City of Okeechobee Statement of Net Assets 2007 2006 Current and other assets $ 10,965,592 $ 9,227,438 Capital assets 7,239,350 6,834,598 Total assets 18,204,942 16,062,036 Other liabilities 260,562 495,626 Noncurrent liabilities 692,227 664,870 Total liabilities 952,789 1,160,496 Net assets: Invested in capital assets, net of related debt 6,817,917 6,409,553 Restricted 1,341,393 1,212,050 Unrestricted 9,092,843 7,279,937 Total net assets $ 17,252,153 $ 14,901,540 8 CITY OF OKEECHOBEE, FLORIDA Management's Discussion and Analysis September 30, 2007 Governmental Activities Total net assets increased by approximately $2.3 million primarily as a result of a $235,064 decrease in other liabilities and a $2.1 million increase in current and other assets. The decrease in other liabilities was due to an accounts payable balance of approximately $213,000 at the end of 2006 for the construction in progress that was paid in 2007. The increase in current and other assets was due to an approximately $1.7 million increase in cash and cash equivalents combined with an approximate $505,000 increase in construction in progress. The increase in cash resulted mainly from revenues exceeding expenditures in the general fund including the sale of land (1 lot at the commerce park) during 2007. The following table shows condensed revenue and expense data.: City of Okeechobee, Florida Statement of Activities 2007 2006 REVENUES: Program revenues: Charges for services $ 801,798 $ 705,821 Operating grants and contributions 723,757 892,449 Capital grants and contributions 602,489 312,868 General revenues: Property taxes 2,168,099 2,005,277 Public utility taxes 838,959 793,263 Franchise fees 571,394 492,638 Investment income and other 2,318,663 1,802,849 Total revenues 8,025,159 7,005,165 EXPENSES: General government 1,161,038 1,134,619 Public safety 2,884,814 2,799,856 Transportation 765,519 716,294 Physical environment 838,922 1,064,591 Interest on long-term debt 24,253 19,994 Total expenses 5,674,546 5,735,354 Change in net assets 2,350,613 1,269,811 NET ASSETS,-beginning 14,901,540 13,631,729 NET ASSETS, ending $ 17,252,153 $ 14,901,540 9 CITY OF OKEECHOBrE, FLORIDA Management's Discussion and Analysis September 30, 2007 Governmental Activities (continued) The City experienced an increase of approximately 14% in total revenues - a $1.02 million increase to $8.025 million. Capital grants and contributions increased mainly due to completion of the Commerce Park Street Project and the Baffle Box construction project. Much of the approximately $803,000 increase in general revenues came about because of an increase in investment income and other income. Other income increased primarily from the sale of a commercial lot within the commerce park. The City recognized $137,000 on the gain on sale of capital assets. The general government, public safety and transportation expenses increase approximately $161,000 or 3.4%. Increase in salaries, supplies, fuel, and insurance, all contributed to the increase in these expenses. The physical environment expenses decreased approximately $225,000 to $838,922. The physical environment expense decrease is due in part to less road repair & road striping being completed within the fiscal year. 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 $9,994,482, an increase of $1,968,811 in comparison with the prior year. Approximately 85.8 percent of this total amount, $8,574,530 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 $1,338,846, and 2) for a variety of other restricted purposes of $81,106. 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 $7,929,298 while total fund balance was $9,346,703. 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 124% and 146% of total general fund expenditures, respectively. The Community Development Capital Project fund has a fund balance deficit of $7,007 as of September 30, 2007. 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. 10 i i CITY OF OKEECHOBEE, FLORIDA Management's Discussion and Analysis September 30, 2007 General Fund Budgetary Highlights The amount appropriated for expenditures increased from $6,309,627 to $6,554,748 an increase of $245,121. The amounts expended in the categories of legislative, city clerk, general services, fire, transportation and debt service exceeded the budgeted amounts by a total of $974, $5,299, $7,049, $9,031, $31,644 and $401,210, respectfully. Actual versus budgeted items had a total net affect-of $659,487. The expenditures in excess of appropriation were mostly due to unexpected additional costs as a result of the previous year's garbage collection charge, and other contractual services within the transportation department. Debt service principal and interest were budgeted in the current year as capital outlay. CAPITAL ASSETS AND LONG-TERM LIABILITIES Capital assets. The City's investment in capital assets for its governmental funds as of September 30, 2007, amounts to $7,239,350 (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 $404,752 from $6,834,598. 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. • Purchase of Equipment (Tractor). • Renovation and Expansion of Storage/Record Building. • Acquisition of Ladder Truck. • Sold Commerce Center lot. City's Capital Assets (net of depreciation) 2007 2006 Land $ 1,257,925 $ 1,290,965 Buildings 1,252,517 1,221,860 Improvements other than building 3,319,233 3,455,458 Equipment 904,615 866,315 Construction in progress 505,060 - Total $ 7,239,350 $ 6,834,598 Additional information on the City's capital assets can be found in note 4.C. on page 35 of this report. 11 CITY OF OKEECHOBP E, FLORIDA Management's Discussion and Analysis September 30, 2007 Long-term Liabilities City's Outstanding Debt Long-tern Liabilities 2007 2006 Capital leases $ 421,433 $ 425,046 Compensated absences 270,794 239,824 Total $ 692,227 $ 664,870 The City's long-term liabilities increased $27,357 during the current fiscal year. The addition of a new capital lease for new police cars were offset by the sale of the old police cars with a net decrease of $3,613. Long-term liabilities increase based on the increased additional liability for compensated absences. Additional information on the City's long-term debt can be found in note 4E and 4F on pages 36-37 of this report. ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The City Council decreased the millage rate of 7.1899 to 6.5010 (10.6%) for fiscal year 2008. Revenues for the fiscal year 2008 adopted budget for all funds of the City total approximately $15,700,000, an increase of less than .06% from the prior year budget for all funds of approximately $15,600,000. The minimal change in revenue is based on a reduction in intergovernmental revenues and anticipated grant funding. Expenditures for the fiscal year 2008 adopted budget for all funds of the City total approximately $7,200,000, a decrease of approximately 7.7% from the prior year budget for all funds of approximately $7,800,000. The major changes occur in the General Fund and Public Facilities 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 of Okeechobee, 55 S.E. Third Avenue, Okeechobee, Florida 34974. 12 1 f { BASIC FINANCIAL STATEMENTS 13 THIS PAGE IS INTENTIONALLY LEFT BLANK. j 14, i CITY OF OKEECHOBEE, FLORIDA Statement of Net Assets - Governmental Activities September 30, 2007 ASSETS Cash and cash equivalents $ 9,864,313 Accounts receivable 159,092 Due from other governments 210,823 Inventory 30,532 Overfunded pension costs 700,832 Capital assets: Nondepreciable Land 1,257,925 Construction in progress 505,060 Depreciable, net of accumulated depreciation Buildings 1,252,517 Improvements other than buildings 3,319,233 Equipment 904,615 Total assets 18,204,942 LIABILITIES Accounts payable 182,377 Accrued expenses 42,662 Deferred revenue 35,523 Noncurrent liabilities: Due within one year 90,806 Due in more than one year 601,421 Total liabilities 952,789 NET ASSETS Invested in capital assets, net of related debt 6,817,917 Restricted for: Law enforcement 2,547 Public facilities 1,338,846 Unrestricted 9,092,843 Total net assets $ 17,252,153 The accompanying notes are an integral part of this financial statement. 15 CITY OF OKEECHObf;E, FLORIDA Statement of Activities - Governmental Activities Year Ended September 30, 2007 Program Revenues Net (Expense) Operating Capital Revenue and Charges for Grants and Grants and Changes in Functions/Programs Expenses Services Contributions Contributions Net Assets General government $ 1,161,038 $ 742,926 $ 172,301 $ - $ (245,811) Public safety 2,884,814 30,878 79,930 - (2,774,006) Transportation 765,519 27,994 471,526 - (265,999) Physical environment 838,922 - - 602,489 (236,433) Interest on long term debt 24,253 - - - (24,253) Total governmental activities $ 5,674,546 $ 801,798 $ 723,757 $ 602,489 (3,546,502) General revenues Property taxes 2,168,099 Public utility taxes 838,959 Franchise fees 571,394 Shared revenues not restricted to specific programs 1,246,198 Unrestricted investment earnings 344,545 Miscellaneous 124,598 Gain on sale of capital assets 603,322 Total general revenues 5,897,115 Change in net assets 2,350,613 Net assets, beginning 14,901,540 Net assets, ending $ 17,252,153 The accompanying notes are an integral part of this financial statement. 16 3 r' THIS PAGE IS IN TENMONALLY LEFT BLANK. 17 CITY OF OKEECHOBLE, FLORIDA Balance Sheet - Governmental Funds September 30, 2007 Community Development Nonmajor General Capital Project Funds ASSETS Cash and cash equivalents $ 8,925,373 $ 284,154 $ 654,786 Accounts receivable 149,376 - Due from other governments 131,205 79,618 - Due from other funds 361,810 - " Inventory 30,532 - - Total assets $ 9,598,296 $ 363,772 $ 654,786 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 173,408 $ 8,969 $ - Accrued expenses 42,662 - Due to other funds - 361,810 - Deferred revenue 35,523 - " Total liabilities 251,593 370,779 - Fund balances: Reserved for: Encumbrances 48,027 - Inventory 30,532 - Law enforcement - - 2,547 Public facilities 1,338,846 - Unreserved, undesignated 7,929,298 (7,007) 652,239 Total fund balances (deficit) 9,346,703 (7,007) 654,786 Total liabilities and fund balances $ 9,598,296 $ 363,772 $ 654,786 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. Certain receivables in governmental activities are not financial resources and, therefore, are not reported in the funds. 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 compensated absences are not due and payable in the current period and, therefore, are not reported in the funds. Net assets of governmental activities f 18 The accompanying notes are an integral part of this financial statement. Total Governmental Funds $ 9,864,313 149,376 210,823 361,810 30,532 $ 10,616,854 $ 182,377 42,662 361,810 35,523 622,372 48,027 30,532 2,547 1,338,846 8,574,530 9,994,482 700,832 9,716 7,239,350 (692,227) $ 17,252,153 19 CITY OF OKEECHOBEE, FLORIDA Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds Year Ended September 30, 2007 General Revenues Taxes $ 3,405,824 Intergovernmental 2,202,811 Charges for services 386,314 Licenses and permits 315,435 Fines and forfeitures 39,719 Interest and other 344,551 Miscellaneous 112,448 Total revenues 6,807,102 Expenditures Current: General government 1,137,857 Public safety 2,723,832 Transportation 765,519 Physical environment 560,646 Capital outlay 719,464 Debt service: Principal retired 468,229 Interest 24,253 Total expenditures 6,399,800 Excess (deficiency) of revenues over (under) expenditures 407,302 Other financing sources (uses) Transfers in/(out) (652,099) Capital lease proceeds 464,616 Proceeds from sale of capital assets 1,098,440 Total other financing sources (uses) 910,957 Net change in fund balances 1,318,259 Fund balances (deficit), beginning of year 8,028,444 Fund balances (deficit), end of year $ 9,346,703 The accompanying notes are an integral part of this financial statement. 20 Community Total Development Nonmajor Governmental Capital Project Funds Funds $ - $ - $ 3,405,824 527,489 2,434 2,732,734 - - 386,314 - - 315,435 - 39,719 4 344,555 - 102 112,550 527,489 2,540 7,337,131 10 5 1,137,872 - - 2,723,832 - - 765,519 22,428 - 583,074 505,061 4,072 1,228,597 - - 468,229 - - 24,253 527,499 4,077 6,931,376 (10) (1,537) 405,755 - 652,099 - - 464,616 - 1,098,440 - 652,099 1,563,056 (10) 650,562 1,968,811 (6,997) 4,224 8,025,671 $ (7,007) $ 654,786 $ 9,994,482 21 CITY OF OKEECHOKEE, 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, 2007 Net change in fund balances - total governmental funds $ 1,968,811 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. 824,870 The net effect of various miscellaneous transactions involving capital assets (i.e. sales, trade ins, and donations) is to increase net assets. (420,118) 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. (5,309) 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. 3,613 Some revenue, the sale of fill dirt, is recorded in the statement of activities, but since it does not provide current financial resources is not reported as revenue in the funds. 9,716 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. (30,970) Change in net assets of governmental activities $ 2,350,613 22 CITY OF OKEECHOBEE, FLORIDA Statement of Fiduciary Net Assets - Pension Trust Funds September 30, 2007 COMPONENT UNIT General Pension Employees' Trust Funds Pension Trust Assets Cash and cash equivalents $ 7,506,780 $ 5,831,866 Receivables 74,873 61,886 Total assets $ 7,581,653 $ 5,893,752 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 27,705 $ 13,241 Fund Balances Reserved for pension benefits 7,553,948 5,880,511 Total liabilities and fund balances $ 7,581,653 $ 5,893,752 The accompanying notes are an integral part of this financial statement. 23 CITY OF OKEECHOBEE, FLORIDA Statement of Changes in Fiduciary Net Assets - Pension Trust Funds Year Ended September 30, 2007 COMPONENT UNIT General Pension Employees' Trust Funds Pension Trust Additions Contributions State $ 218,081 $ - City 177,868 312,956 Employees 67,334 170,580 Total contributions 463,283 483,536 Investment earnings: Net increase in the fair value of investments 884,473 682,342 Interest and dividends 24,145 20,269 908,618 702,611 Less investment expense (46,536) (36,231) Net investment income 862,082 666,380 Total additions 1,325,365 1,149,916 Deductions Benefits paid to participants 180,238 173,892 Refunds on termination 56,480 61,837 Administrative expenses 31,199 17,406 Total deductions 267,917 253,135 Change in net assets 1,057,448 896,781 Net assets held in trust for pension benefits, beginning of year 6,496,500 4,983,730 Net assets held in trust for pension benefits, end of year $ 7,553,948 $ 5,880,511 The accompanying notes are an integral part of this financial statement. 24 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY The City of Okeechobee (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 financial 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. 25 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 1- SUM IARY 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 financial 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. 26 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 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 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. 27, CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. ASSETS, LIABU TTIES, 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 1 st 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 - January 1 Levy date - Prior to September 30 Due date - November 1 Delinquent date - April 1 All property taxes remaining unpaid at May 30 are subject to a tax certificate sale by the Tax Collector. 3. Inventory Inventories are valued at cost which approximates market, using the first-in/first-out (FIFO) method. The costs of inventories are recorded as expenditures when used (consumption method). 28 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 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 Buildings 25-60 Building improvements 12-20 Vehicles 10 Equipment 5-15 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. 29, CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. ASSETS, LIABILITIES, AND NET ASSETS OR EQUITY (CONTINUED) 7. Fund equity In the fund financial 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 $692,227 difference are as follows: Capital leases payable $ 421,433 Compensated absences 270,794 Net adjustment to reduce fund balance - total governmental funds to arrive at net assets-governmental activities $ 692,227 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 $824,870 difference are as follows: Capital outlay $ 1,228,597 Depreciation expense (403,727) Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ 824,870 30 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 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 $(420,118) 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. $ (495,118) 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. 75,000 Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ (420,118) 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-terra debt consumes the current financial resources of governmental funds". Neither transaction, however, has any effect on net assets. The details of this $3,613 difference are as follows: Debt issued or incurred: Capital lease financing $ (464,616) Principal repayments 468,229 Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ 3,613 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. 31 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 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 $3,832,097 and the bank balance was $3,985,745. In addition, the City holds $324 of petty cash. The component units carrying amount of deposits was $64,793 and the bank balance was $64,793. Monies invested in amounts greater than the FDIC insurance coverage are secured by the banks pledging securities with the State Treasurer in the multiple financial institutions collateral pool. The investment of municipal $mds 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. 32, CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) A. DEPOSITS AND INVESTMENTS (CONTINUED) At September 30, 2007, the City had the following investments: Investment Maturitv (years) Investment Tvae Fair Value Less than 1 I_5 Over 6 Rating Government-wide Local government surplus fund trust fund investment pool $6,031,892 $6,031,892 - - Unrated Pension Funds Fixed income securities have inherent financial 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 34% of the investments and an international equity fund comprising approximately 9% of the investments. The portfolio characteristics of the intermediate term bond fund, which was comprised of approximately 38% U.S. Government and Federal Agency Securities, includes an average maturity of 6.9 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. 33 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) A. DEPOSITS AND INVESTMENTS (CONTINUED) Investment Tvue Fair Value Ratine Proprietary Funds $ 1,768,460 Unrated Common and Collective Funds 11,505,393 Unrated $ 13,273,853 B. RECEIVABLES Receivables as of September 30, 2007 are as follows: Municipal Municipal Component Unit Police Officers' Firefighters' General Pension Pension Employees General Fund Trust Trust Pension Trust Franchise/Utility taxes $ 108,242 $ - $ - $ - Garbage 15,729 - - - Contributions - 41,105 33,768 61,886 Other 25,405 - - - Receivables, net $ 149,376 $ 41,105 $ 33,768 $ 61,886 34, CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) C. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2007 was as follows: Beginning Ending Balance Increases Decreases Balance Governmental activities: Capital assets, not being depreciated: Land $ 1,290,965 $ - $ (33,040) $ 1,257,925 Construction in progress - 505,060 - 505,060 Total capital assets, not being depreciated 1,290,965 505,060 (33,040) 1,762,985 Capital assets, being depreciated: Buildings 1,592,277 87,198 (6,462) 1,673,013 Improvements other than buildings 4,064,747 59,009 (2,001) 4,121,755 Equipment 1,707,328 652,330 (545,389) 1,855,269 Total capital assets being depreciated 7,364,352 798,537 (512,852) 7,650,037 Less accumulated depreciation for: Buildings (370,417) (52,966) 2,887 (420,496) Improvements other than buildings (609,289) (193,233) - (802,522) Equipment (841,013) (157,528) 47,887 (950,654) Total accumulated depreciation (1,820,719) (403,727) 50,774 (2,173,672) Total capital assets, being depreciated, net 5,543,634 394,810 (462,078) 5,476,365 Governmental activities capital assets, net $ 6,834,598 $ 899,870 $ (495,118) $ 7,239,350 Depreciation expense was charged to functions /programs of the government as follows: Governmental activities: General government $ 15,302 Public safety 142,846 Physical environment 245,579 Total depreciation expense - governmental activities $ 403,727 35, x. CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) D. IlVTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS The composition of interfund balances as of September 30, 2007, is as follows: Due to/from other funds: Receivable Fund Payable Fund Amount General Community Development Capital Project $ 361,810 The City's capital projects are partially funded by federal 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. During the year ended September 30, 2007, the General Fund transferred $652,099 to a nonmajor fund. The funds represent proceeds from certain land sales recorded in the current fiscal year and are to be used for future capital projects. E. CAPITAL LEASE The government has entered into a lease agreement as lessee for financing 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 $ 464,616 Less: Accumulated depreciation (29,405) Total $ 435,211 Obligations of governmental. activities under the capital lease at September 30, 2007, were as follows: Year Ending Sept. 30, Principal Interest Total 2008 $ 52,247 $ 19,751 $ 71,998 2009 54,863 17,138 72,001 2010 123,287 13,593 136,880 2011 151,889 6,616 158,505 2012 39,147 481 39,628 Total $ 421,433 $ 57,579 $ 479,012 36 + CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 4 - DETAILED NOTES ON ALL FUNDS (CONTINUED) F. CHANGES IN LONG-TERM LIABILITIES Long-term liability activity for the year ended September 30, 2007, was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities: Capital lease $ 425,046 $ 464,616 $ (468,229) $ 421,433 $ 52,247 Compensated absences 239,824 52,452 (21,482) 270,794 38,559 Long-term liabilities $ 664,870 $ 517,068 $ (489,711) $ 692,227 $ 90,806 For the governmental activities, compensated absences and capital leases are generally liquidated by the general fund. NOTE 5 - v t nix 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 of Okeechobee 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 of Okeechobee, Florida, 55 S.E. Third Avenue, Okeechobee, Florida 34974. 37 CITY OF OKEECHOBE t, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 5 - OTHER INFORMATION (CONTINUED) B. RETIREMENT COMWITMENTS - 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 13.26% for the Police Officers' plan and 3.47% 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 $83,900, 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, 2007 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 of the City's defined benefit plans: Annual Percentage Net Year Pension Of APC Pension Ended Cost (APC) Contributed Obligation Municipal Police Officers' 9/30/05 $ 213,688 105 % $ (385,076) 9/30/06 278,439 96 (348,367) 9/30/07 255,926 96 (339,019) Municipal Firefighters' 9/30/05 $ 53,415 95 % $ (361,222) 9/30/06 45,897 96 (357,774) 9/30/07 80,896 105 (361,813) 38 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 5 - t, t u ii-m INFORMATION (CONTINUED) B. RETIREMENT COMMITMENTS - DEFINED BENEFIT PLANS (CONTINUED) Pension Plan - Discretelv Presented Comoonent Unit Plan Description - The City contributes to the City of Okeechobee 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% of their 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, 2007, 2006, and 2005 were $87,634, $81,262, and $68,164, respectively, and were equal to the required contributions for each year. Pension trust funds fiduciary net assets activity as of September 30, 2007 was as follows: COMPONENT UNIT Police Total General Firefighters' Officers' Pension Employees' Pension Pension Trust Funds Pension ASSETS Cash and cash equivalents $ 2,224,495 $ 5,282,285 $ 7,506,780 $ 5,831,866 Receivables 33,768 41,105 74,873 61,886 Total assets $ 2,258,263 $ 5,323,390 $ 7,581,653 $ 5,893,752 LIABILITIES Accounts payable $ 12,050 $ 15,655 $ 27,705 $ 13,241 FUND BALANCES Reserved for pension benefits 2,246,213 5,307,735 7,553,948 5,880,511 Total liabilities and fund Balances $ 2,258,263 $ 5,323,390 $ 7,581,653 $ 5,893,752 39, CITY OF OKEECHOBEr, FLORIDA Notes to Financial Statements September 30, 2007 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, 2007 was as follows: COMPONENT UNIT Total General Firefighters' Police Pension Employees' Pension Pension Trust Funds Pension ADDITIONS Contributions State $ 83,900 $ 134,181 $ 218,081 $ - City 26,775 151,093 177,868 312,956 Employees 22,538 44,796 67,334 170,580 Total contributions 133,213 330,070 463,283 483,536 Investment earnings: Net increase in fair value of investments 263,317 621,156 884,473 682,342 Interest and dividends 7,310 16,835 24,145 20,269 Total investment earnings 270,627 637,991 908,618 702,611 Less investment expense (13,867) (32,669) (46,536) (36,231) Net investment income 256,760 605,322 862,082 666,380 Total additions 389,973 935,392 1,325,365 1,149,916 DEDUCTIONS Benefits paid to participants 30,629 149,609 180,238 173,892 Refunds on termination 18,055 38,425 56,480 61,837 Administrative expenses 16,430 14,769 31,199 17,406 Total deductions 65,114 202,803 267,917 253,135 Change in net assets 324,859 732,589 1,057,448 896,781 Net assets held in trust for pension benefits, beginning ofyear 1,921,354 4,575,146 6,496,500 4,983,730 Net assets held in trust for pension benefits, end of year $ 2,246,213 $ 5,307,735 $ 7,553,948 $ 5,880,511 40 CITY OF OKEECHOBI:E, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 6 - POSTEMPLOYMENT BENEFITS v i t7 cA THAN PENSION As required by Section 112.0801, Florida Statutes, former employees who have retired prior to October 1, 1987, as well as those who retire on or after such date, and their eligible dependents, have the option to participate in the City's Group Health Insurance Plan. The City requires retirees to pay 100% of the premiums for retirees and their dependents. However, inclusion of retirees into the Plan represents an implicit cost to the City, as the claims experience of active employees is commingled with the claims experience of retirees to determine total health care costs per employee. The City funds this future implicit cost on a pay-as-you-go basis. As of September 30, 2007, there are 3 participants (retirees) receiving benefits. NOTE 7 - 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 8 - SUBSEQUENT EVENTS State Board of Administration. As discussed in Note 4.A., at September 30, 2007, the City had $6,031,892 invested in the State Board of Administration's Local Government Surplus Funds Trust Fund Investment Pool (Pool). On November 29, 2007, the State Board of Administration implemented a temporary freeze on the assets held in the Pool due to an unprecedented amount of withdrawals from the Fund coupled with the absence of market liquidity for certain securities within the Pool. The significant amount of withdrawals followed reports that the Pool held asset-backed commercial paper that was subject to sub prime mortgage risk. On December 4, 2007, based on recommendations from an outside financial advisor, the State Board of Administration restructured the Pool into two separate pools. Pool A consisted of all money market appropriate assets,. which was approximately $12 billion or 86% of Pool assets. Pool B consisted of assets that either defaulted on a payment, paid more slowly than expected, and/or had any significant credit and liquidity risk, which was approximately $2 billion or 14% of Pool assets. At the time of the restructuring, all current pool participants had their existing balances proportionately allocated into Pool A and Pool B. Currently, Pool A participants may withdraw 15% of their balance or $2 million, whichever is greater, without penalty. Withdrawals from Pool A in excess of the above limit are subject to a 2% redemption fee. New investments in Pool A are not subject to the redemption fee or withdrawal restrictions. Future withdrawal provisions from Pool A will be subject to further evaluation based on the maturities of existing investments and the liquidity requirements of the Pool. On December 21, 2007, Standard and Poor's Ratings Services assigned its "AAAM" principal stability fund rating to Pool A. Currently, Pool B participants are prohibited from withdrawing any amount from the Pool and a formal withdrawal policy has not yet been developed. Market valuations of the assets held in Pool B are not readily available. In addition, full realization of the principal value of Pool B assets is not readily determinable. 41 CITY OF OKEECHOBEY, FLORIDA Notes to Financial Statements September 30, 2007 NOTE 8 - SUBSEQUENT EVENTS (CONTINUED) As of April 30, 2008, the date of the latest investment statement from the State Board of Administration, the City has $432,688 and $488,033 invested in Pool A and B, respectively. Additional information regarding the Local Government Surplus Funds Trust Fund may be obtained from the State Board of Administration. Property Taxation. On January 29, 2008, the Florida electorate approved an amendment to the Florida Constitution relative to property taxation. This amendment (referred to as Amendment 1) was placed on the ballot by the Florida Legislature at a special session held in October 2007. With respect to homestead property, Amendment 1 increases the current $25,000 homestead exemption by another $25,000 (for property values between $50,000 - $75,000), except for school district taxes. Since the new $25,000 homestead exemption does not apply to school district taxes, this effectively amounts to a $15,000 increase to the existing homestead exemption, resulting in an estimated annual savings of $240 for an average homeowner. Amendment 1 also allows property owners to transfer (make portable) up to $500,000 of their Save Our Homes benefits to their next homestead when they move. Save Our Homes became effective in 1995 and limits (caps) the annual increase in assessed value for homestead property to three percent (3%) or the percentage change in the Consumer Price Index, whichever is less. With respect to non-homestead property, Amendment 1 limits (caps) the annual increase in assessed value for non-homestead property (businesses, industrial property, rental property, second homes, etc.) to ten percent (10%), except for school district taxes. The Amendment also provides a $25,000 exemption for tangible personal property. Amendment 1 becomes effective on October 1, 2008, with the exception of the ten percent (10%) assessment cap on non-homestead property which becomes effective on January 1, 2009. Based on information received from the Okeechobee Property Appraiser's Office, the estimated annual loss of property tax revenues for the City of Okeechobee, Florida from the additional homestead exemption and the $25,000 exemption for tangible personal property is approximately $159,339. At present, there is no accurate way to determine the impact of the portability and assessment cap on non-homestead property provisions in terms of potential loss of property tax revenues. Long-term debt. The City entered into a capital lease for a computer system November 6, 2007. The City will make 5 annual payments of $44,386, including interest of 14%, from January 15, 2008 to January 15, 2012. The City must keep the amount of the principal, $194,838, in an escrow account and can make payments to the lessor for the lease from the account. The City entered into a 5 year capital purchase lease agreement for police vehicles on February 5, 2008. The City will make annual payments of $18,000 for the first three years and $42,333 for the last two years including principal and interest. The nominal annual interest rate is 4.85%. 42 REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT'S DISCUSSION AND ANALYSIS 43 CITY OF OKEECHOBEE, ORIDA Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual General Fund Year Ended September 30, 2007 Actual Variance with Original Final (on Budgetary Final Budget Budget Budget Basis) Positive (Negative) Revenues Taxes $ 2,997,926 $ 3,335,509 $ 3,405,824 $ 70,315 Intergovernmental 2,286,594 2,182,745 2,202,811 20,066 Charges for services 401,827 378,309 386,314 8,005 Licenses and permits 284,751 249,109 315,435 66,326 Fines and forfeitures 28,730 32,218 39,719 7,501 Interest 110,000 239,759 344,551 104,792 Miscellaneous 2,600 647,207 112,448 (534,759) Total revenues 6,112,428 7,064,856 6,807,102 (257,754) Expenditures Current: General government: Legislative 131,247 116,474 117,448 (974) Executive 161,618 146,330 144,710 1,620 City Clerk 182,672 161,469 166,768 (5,299) Financial Services 217,160 181,898 180,556 1,342 Legal Council 80,468 48,924 45,738 3,186 General Services 503,162 566,838 573,887 (7,049) Total general government 1,276,327 1,221,933 1,229,107 (7,174) Public safety: Fire 1,179,437 1,083,976 1,093,007 (9,031) Police 1,750,382 1,695,732 1,666,560 29,172 Total public safety 2,929,819 2,779,708 2,759,567 20,141 Transportation 1,271,169 1,127,560 1,159,204 (31,644) Physical environment 695,000 420,615 136,887 283,728 Capital outlay 890,000 913,660 512,905 400,755 Debt service: Principal 58,000 68,746 468,229 (399,483) Interest 28,000 22,526 24,253 (1,727) Total debt service 86,000 91,272 492,482 (401,210) Total expenditures 7,148,315 6,554,748 6,290,152 264,596 Excess (deficiency) of revenues over (under) expenditures (1,035,887) 510,108 516,950 6,842 Other financing sources (uses) Operating transfers in (out) - (652,099) (652,099) - Capital lease proceeds 467,592 464,161 464,616 455 Sale of capital assets 430,596 446,250 1,098,440 652,190 Net other financing sources (uses) 898,188 258,312 910,957 652,645 Excess (deficiency) of revenues and other financing sources over (under) expenditures and other financing sources (uses) (137,699) 768,420 1,427,907 659,487 Fund balances, beginning of year 8,028,444 8,028,444 8,028,444 - Fund balances, end of year $ 7,890,745 $ 8,796,864 9,456,351 $ 659,487 Reconciliation of budgetary to GAAP basis Current year encumbrances 48,027 Prior year encumbrances (157,675) Fund balance on GAAP basis $ 9,346,703 The accompanying notes to required supplementary information are an integral part of this financial schedule. 44 CITY OF OKEECHOBEE, FLORIDA Notes to Required Supplementary Information September 30, 2007 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 September 30, 2007, expenditures exceeded the budgeted amounts for the Legislative, City Clerk, General Services, Fire and Transportation departments by $974, $5,299, $7,049, $9,031 and $31,644, respectively. In addition, expenditures for debt service principal and interest exceeded the budgeted amounts by $399,483 and $1,727, respectively. These excess expenditures were covered by available fund balance in the general fund. 45, THIS PAGE IS INTENTIONALLY LEFT BLANK. 46 r Independent Auditors' Report on Internal Control Over Financial rting 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 remaining fund information of the City of Okeechobee, Florida, as of and for the year ended September 30, 2007, which collectively comprise the City of Okeechobee, Florida's basic financial statements and have issued our report thereon dated June 19, 2008. 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 as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, butt not for the purpose of expressing an opinion on the effectiveness of the City of Okeechobee, Florida's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City of Okeechobee, Florida's internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects City of Okeechobee, Florida's ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City of Okeechobee, Florida's financial statements that is more than inconsequential will not be prevented or detected by the City of Okeechobee, Florida's internal control. We consider all of the deficiencies described in the accompanying schedule of findings and questioned costs to be significant deficiencies in internal control financial reporting. Qr[ifwdPubUcAecomfar to 215 Baytree Drive I Melbourne, FL 32940 1 p: (321) 255.0088 1 F (321) 259.8648 2221 Lee Road, Suite 15 Winter Park, FL 32789 1 p: (407) 422.1681 fi (407) 423.1681 wwwhoyman.com i Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Two A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the City of Okeechobee, Florida's internal control. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. However, of the significant deficiencies described in the schedule of findings and questioned costs, we consider certain items [2007-01 and 2007-03] to be material weaknesses. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Okeechobee, Florida's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed an instance of noncompliance or other matters that is required to be reported under Government Auditing Standards and which is described in the accompanying schedule of findings and questioned costs as item 2007-02. We noted a certain matter that we reported to management of the City of Okeechobee, Florida in a separate letter dated June 19, 2008. City of Okeechobee, Florida's response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. We did not audit the City of Okeechobee, Florida's responses, and accordingly, we express no opinion on them. This report is intended solely for the information and use of management, City Council and federal awarding agencies and is not intended to be and should not be used by anyone other than these specified parties. Hoyman Dobson Melbourne, Florida June 19, 2008 48, Z)W-W i~ 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 Honorable Mayor and Members of the 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 that are applicable to its major federal program for the year ended September 30, 2007. The City of Okeechobee, Florida's major federal program is 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 its major federal program is the responsibility of the City of Okeechobee, Florida's management. Our responsibility is to express an opinion on the City of Okeechobee, 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-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City of Okeechobee, 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 its major federal program for the year ended September 30, 2007. 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. 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 fe program in order to determine our auditing procedures for the purpose of expressing our opinion on co but not for the purpose of expressing an opinion on the effectiveness of internal con ver Orafed PxbbeAecouxtants 215 Baytree Drive I Melbourne, FL 32940 1 p: (321) 255.0088 1 iA (321) 259.8648 2221 Lee Road, Suite 15 1 Winter Park, FL 32789 1 p: (407) 422.1681 F (407) 423.1681 wwwhoyman.com Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Two Accordingly, we do not express an opinion on the effectiveness of the City of Okeechobee, Florida's internal control over compliance. A control deficiency in an entity's internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity's internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of management, City Council, others within the entity, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. A q"02, Hoyman Dobson Melbourne, Florida June 19, 2008 50 CITY OF OKEECHOBEE, FLORIDA Schedule of Expenditures of Federal Awards For the Year Ended September 30, 2007 Federal Agency Grant Pass-Through Entity CFDA Contract Federal Program No. No. Expenditures U.S. Department of Housing and Urban Development Indirect Program Passed through Florida Department of Community Affairs Florida Small Cities CDBG Program 14.228 06DB-3K-07-57-02-E-10 $ 527,489 U.S. Department of Justice Indirect Program Passed through Florida Department of Law Enforcement Justice Assistance Grant (JAG) 16.738 2007-JAGD-OKEE-1P4-085 2,434 Total Expenditures of Federal Awards $ 529,923 Note A - Significant Accounting Policies: The Schedule of Expenditures of Federal Awards is a summary of the City's federal award programs presented on the modified-accrual basis of accounting in accordance with generally accepted accounting principles. 51 CITY OF OKEECHOBEE, FLORIDA Schedule of Findings and Questioned Costs September 30, 2007 SECTION I - SUMMARY OF AUDITORS' RESULTS Financial Statements Type of Auditors' report issued: Internal control over financial reporting: Unqualified Material weakness(es) identified? X Yes No Significant deficiencies(s) identified not considered to be material weaknesses? X Yes none reported Noncompliance material to financial statements noted? X Yes No Federal Awards Internal Control over major programs: Material weakness(es) identified? Yes X No Significant deficiencies(s) identified not considered to be material weaknesses? Yes X none reported Type of auditors` report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported In accordance with Circular A-133, Section 510(a) Yes X no identification of major programs: CFDA Number(s) Name of Federal Program or Cluster 14.228 Florida Small Cities CDBG Program Dollar threshold used to distinguish between Type A and Type B programs: $ 300,000 Auditee qualified as a low-risk auditee? yes X no 52 CITY OF OKEECHOBEE.) FLORIDA Schedule of Findings and Questioned Costs (Continued) September 30, 2007 SECTION II - FINDINGS - FINANCIAL STATEMENTS 2007-01 Accounting Policies and Procedures Criteria: Accounting policies and procedures should be in place that provide reasonable assurance that the general ledger is free of material misstatements. Condition: Management does not have procedures in place to provide reasonable assurance that the general ledger is free of material misstatements. Effect: During the audit, several journal entries were required to correct balances due to/from City funds, balances transferred between City funds, deferred revenue balances from the prior year, encumbrances outstanding at year end, current year grant revenue, and end of year accrued liabilities. Recommendation: We recommend management develop and adopt procedures to provide reasonable assurance that the general ledger is free of material misstatements. Specifically, management should develop and utilize a checklist of anticipated closing entries to be made at year end, and review all journal entries made during the year. In addition, appropriate members of management should perform an analytic review of year end general ledger balances to identify necessary adjustments. All recommended procedures performed at year end should be documented. Management's Response: Past practice has been, as part of the auditor's engagement, for management to identify and supply appropriate information for the auditors to develop some adjusting journal entries. In the future the City will make every effort to reasonably adjust the trial balance so it is consistent with generally accepted accounting principles prior to the start of the audit. 2007-02 Expenditures in Excess of Budget Criteria: Management is responsible for budgetary control of the City's expenditures. Condition: 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 Legislative, City Clerk, General Services, Fire and Transportation departments by $974, $5,299, $7,049, $9,031 and $31,644, respectively. In addition, expenditures for debt service principal and interest exceeded the budgeted amounts by $399,483 and $1,727, respectively, due to such costs being budgeted as capital outlay. The net budget vs. actual variance between capital outlay and debt service is $0. Effect: Exceeding the budgeted amounts for individual departments represents noncompliance with Florida Statutes. 53 CITY OF OKEECHOBEE, FLORIDA Schedule of Findings and Questioned Costs (Continued) September 30, 2007 SECTION II - FINDINGS - FINANCIAL STATEMENTS (CONTINUED) Recommendation: The budget is a tool for management to monitor expenditures and maintain control over spending. We recommend the City utilize this tool to compare and project 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 City Council. Management's Response: The Finance department as well as Management continuously reviews the budget, and budget expenditures throughout the year. At the time of the amended budget process, funds were not amended to include all possible changes in each line item. Unencumbered expenses and revenues exceeded the amount in the amended budget. 2007-03 Journal Entries Criteria: Management is responsible for establishing and maintaining effective control over and accounting for the assets of the City. Condition: During our testing of journal entries in the prior year 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. During the current year audit, we noted management maintained a standardized worksheet to capture all journal entries, including explanations and supporting documentation. However, there is no evidence of a review of the proposed journal entries prior to being posted to the general ledger. Effect: The accounting records could be adjusted by journal entries without proper approval. Cause: The City does not have a system for 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 initialed by the preparer and the individual approving them in order to attribute responsibility to the appropriate individuals. Management's Response: Presently journal entries are made and are kept chronologically together for reference and review along with documentation and explanation to support the journal entry. The log will be reviewed and initialed by the City Administrator once a month. The entries as well as the documentation will continue to be available for review by all requesting the information. SECTION III - FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL PROGRAMS None noted. 54, 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, 2007, and have issued our report thereon dated June 19, 2008. 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 and OMB Circular A-133, Audits of States, Local Governments, an Non-Profit Organizations. We have issued our Independent Auditors' Report on Compliance and Internal Control over Financial Reporting, Independent Auditors' Report on Compliance and Internal Control over Compliance Applicable to each Major Federal Program, and Schedule of Findings and Questioned Costs. Disclosures in those reports, which are dated June 19, 2008, 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. ❖ Section 10.554(lxi)l., Rules of the Auditor General, requires that we determine whether or not corrective actions have been taken to address significant findings and recommendations made in the preceding annual financial audit report The recommendations made in the preceding annual financial audit report have been corrected except as noted in the Independent Auditors' Report on Internal Control under the heading Prior Year Findings and Recommendations. ❖ Section 10.554(1)(i)2., Rules of the Auditor General, requires our audit to include 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 City of Okeechobee, Florida complied with Section 218.415, Florida Statutes. ❖ Section 10.554(1)(i)3., Rules of the Auditor General, requires that we address in the management letter any recommendations to improve financial management, accounting procedures, and internal controls. In connection with our audit, we had the following such findings: C nVUd PubhcAccouutmw 215 Baytree Drive I Melbourne, FL 32940 1 p: (321) 255.0088 ( F (321) 259.8648 2221 Lee Road, Suite 15 1 Winter Park, FL 32789 1 p: (407) 422.16811 h (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 INTERNAL CONTROLS 1. Review of Travel Expenditures Criteria: Management is responsible to review and approve all travel expenditures incurred by City employees to ensure travel is necessary and appropriate. Condition: During our testing of travel expenditures, we noted one instance where there was no documented review and approval of the travel and related reimbursement request The employee that incurred the travel expenditures was the same employee that completed the travel reimbursement request form and also reviewed and approved the reimbursement request form prior to payment. Effect: The City could pay for inappropriate travel expenditures without a proper level of review and approval of the travel expenses and supporting documentation. Cause: The City is not following its policy to have all travel expenses reviewed and approved by an appropriate level of management prior to payment by the City. Recommendation: We recommend the City follow its travel policy and require an appropriate level of review and approval for all travel expenditures, including travel reimbursement requests. The policy should be applied consistently for all City employees. Management's Resnonse: Travel vouchers are signed by the employee as well as the department head and then reviewed by the finance department. Items charged on Visa, are personally reviewed by the Account Supervisor and a voucher requesting payment is signed. All items to be paid whether travel or not require two signatures for checks, so all items are reviewed. The Finance Department will initial either expenditure or voucher as approval for payment in the absence of an employee who does not have a department head for travel expenditures and/or reimbursements. ❖ Section 10.554(lxi)4., Rules of the Auditor General, requires that we address violations of provisions of contracts and grant agreements or abuse that have an affect on the financial statements that is less than material but more than inconsequential. In connection with our audit, we did not have any such findings. ❖ Section 10.554(1)(i)5., Rules of the Auditor General, requires, based on professional judgment, the reporting of the following matters that are inconsequential to the financial statements, considering both quantitative and qualitative factors: (1) violations of laws, rules, regulations, and contractual provisions or abuse that have occurred, or were likely to have occurred, and would have an immaterial effect on the financial statements; (2) improper expenditures or illegal acts that would have an immaterial effect on the financial statements; and (3) control deficiencies that are not significant deficiencies, including, but not limited to; (a) improper or inadequate accounting procedures (e. g., the omission of required disclosures from the financial statements); (b) failures to properly record financial transactions; and (c) other inaccuracies, shortages, defalcations, and instances of fraud discovered by, or that come to the attention of, the auditor. In connection with our audit, we did not have any such findings. ❖ Section 10.554(1)(i)6., Rules of the Auditor General, requires that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in this management letter, unless disclosed in the notes to the financial statements. The legal authority of City of Okeechobee, Florida is disclosed in the footnotes. City of Okeechobee, Florida has no component units. 56 Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Three ❖ Section 10.554(l)(i)7.a., Rules of the Auditor General, requires a statement 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, and identification of the special condition(s) met. In connection with our audit, we determined that City of Okeechobee, Florida did not meet any of the conditions described in Section 218.503(1), Florida Statutes. ❖ Section 10.554(lxi)7.b., Rules of the Auditor General, requires that we determine whether the annual financial report for City of Okeechobee, Florida for the fiscal year ended September 30, 2007, filed with the Florida 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, 2007. In connection with our audit, we determined that these two reports were in agreement. ❖ Sections 10.554(i)7.c. and 10.556(7), Rules of the Auditor General, require that we apply financial condition assessment procedures. In connection with our audit, 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 financial information provided by same. The Rules of the Auditor General (Section 10.554(l)(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 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 June 19, 2008 57, THIS PAGE IS INTENTIONALLY LEFT BLANK. 58, 9 LL) City o Okeechobee AFFIDAVIT OF IMPACT FEE COMPIANOE The City of Okeechobee, Florida has complied with Section 163.3I801 of Florida Statues regarding accounting and reporting of impact fee collections and expenditures for Fiscal Year 2007. ~ I~ 4 r j1 f Brian rWh teh India Riedel - City Ad ini tar Finance Department f -55 S.E. Third Avenue • Okeechobee, i'lorida 34974-29()3 • (863) 763-3372 • Fax: (863) 763-1686 59