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Annual Financial Report - 2017-2018 - vFINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT CITY OF ATLANTIC BEACH, FLORIDA SEPTEMBER 30, 2018 FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT CITY OF ATLANTIC BEACH, FLORIDA SEPTEMBER 30, 2018 TABLE OF CONTENTS Independent Auditor’s Report .................................................................................................................. i-iii Management’s Discussion and Analysis ................................................................................................. iv-xi Basic Financial Statements Government-Wide Financial Statements Statement of Net Position ................................................................................................................... 1 Statement of Activities ........................................................................................................................ 2 Fund Financial Statements Balance Sheet - Governmental Funds ................................................................................................. 3 Reconciliation of Balance Sheet of Governmental Funds to the Statement of Net Position ............................................................................................................... 4 Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds ...................................................................................................... 5 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities..................................................................................................................... 6 Statement of Net Position - Proprietary Funds ................................................................................ 7-8 Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Funds ....................................................................................................................... 9-10 Statement of Cash Flows - Proprietary Funds .............................................................................. 11-13 Statement of Fiduciary Net Position ................................................................................................. 14 Statement of Changes in Fiduciary Net Position ............................................................................... 15 Notes to Financial Statements ......................................................................................................... 16-45 Required Supplementary Information General Employees’ Pension Plan: Schedule of Changes in Net Pension Liability and Related Ratios..................................................... 46 Schedule of Contributions ................................................................................................................. 47 Schedule of Investment Returns ....................................................................................................... 48 Police Officers’ Pension Plan: Schedule of Changes in Net Pension Liability and Related Ratios..................................................... 49 Schedule of Contributions ................................................................................................................. 50 Schedule of Investment Returns ....................................................................................................... 51 Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General Fund ............................................................................................... 52-53 Note to Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General Fund ................................................................................... 54 FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT CITY OF ATLANTIC BEACH, FLORIDA SEPTEMBER 30, 2018 TABLE OF CONTENTS Supplementary Information Combining Balance Sheet – Non-Major Governmental Funds ......................................................... 55-56 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances – Non-Major Governmental Funds .................................................................. 57-58 Combining Statement of Fiduciary Net Position .................................................................................... 59 Combining Statement of Changes in Fiduciary Net Position ................................................................. 60 Historical Revenues and Expenses ......................................................................................................... 61 Schedules of Net Revenues in Accordance with Bond Resolutions - Enterprise Funds (Water and Sewer) .......................................................................... 62 Other Bond Covenant Disclosures ......................................................................................................... 63 Other Statistical Information Major Utility Customers ......................................................................................................................... 64 Additional Elements of Report Prepared in Accordance With Government Auditing Standards, Issued by the Comptroller General of the United States; the Rules of the Auditor General of the State of Florida; and Other Contract Requirements Schedule of Source and Expenditure of the City Grant Funds ......................................................... 65 Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Basic Financial Statements Performed in Accordance with Government Auditing Standards ..................................................................................... 66-68 Independent Accountant’s Report on Compliance with Section 218.415, Florida Statutes ................................................................................................ 69 Management Letter ..................................................................................................................... 70-73 Management Response Letter ..................................................................................................... 74-76 INDEPENDENT AUDITOR’S REPORT i Certified Public Accountants P.O. Box 141270 ⦁ 222 N.E. 1st Street ⦁ Gainesville, Florida 32614-1270 ⦁ (352) 378-2461 Laurel Ridge Professional Center ⦁ 2347 S.E. 17th Street ⦁ Ocala, Florida 34471 ⦁ (352) 732-3872 443 East College Avenue ⦁ Tallahassee, Florida 32301 ⦁ (850) 224-7144 5001 Lakewood Ranch Blvd., Suite 101 ⦁ Sarasota, Florida 34240 ⦁ (941) 907-0350 1560 N. Orange Ave., Suite #450 ⦁ Winter Park, Florida 32789 MEMBERS OF AMERICAN AND FLORIDA INSTITUTES OF CERTIFIED PUBLIC ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES AND S.E.C. PRACTICE SECTIONS INDEPENDENT AUDITOR’S REPORT Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Atlantic Beach, Florida, (the City), as of and for the year ended September 30, 2018, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. ii Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida INDEPENDENT AUDITOR’S REPORT We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of September 30, 2018, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Change in Accounting Principle As discussed in Note 16 to the financial statements, during the current year, the City adopted Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, for Other Post-employment Benefits (OPEB). This statement establishes new accounting and financial reporting requirements for governments whose employees are provided with OPEB, including the recognition and measurement of liabilities, deferred outflows of resources, deferred inflows of resources, and expenses. In connection with the implementation of this statement, the City decreased its beginning net position in the governmental activities and the business-type activities by $83,271 and $60,288, respectively. Our opinion is not modified with respect to this matter. Correction of an Error As discussed in Note 16 to the financial statements, the City restated beginning net position of the business-type activities to correct errors related to depreciation expense and accumulated depreciation. The net effect is an increase to beginning net position of business-type activities of $282,575. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and other required information on pages iv–xi and 46–54 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by GASB, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. iii Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida INDEPENDENT AUDITOR’S REPORT Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The supplementary information on pages 55–63 and the other statistical information section on page 64, and the schedule of expenditures of grant funds per City of Jacksonville’s Ordinance Code Chapter 118.202(e) on page 65 are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary information and schedule of expenditures of grant funds per the City of Jacksonville’s Ordinance Code Chapter 118.202(e) are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information and schedule of expenditures of grant funds per the City of Jacksonville’s Ordinance Code Chapter 118.202(e) are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The other statistical information section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have issued our report dated December 6, 2019, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Report on Summarized Comparative Information We have previously audited the City’s 2017 financial statements, and our report dated June 28, 2018, expressed an unmodified opinion on those audited financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended September 30, 2017, is consistent, in all material respects, with the audited financial statements from which it was derived. December 6, 2019 Gainesville, Florida iv CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2018 As management of the City of Atlantic Beach, Florida (the City), we offer readers of our financial statements this narrative overview and analysis for the fiscal year ended September 30, 2018. Overview of the Financial Statements This management’s discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. The purpose of each of the three components of the basic financial statements is described below. Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private sector business. They include the Statement of Net Position and the Statement of Activities. The Statement of Net Position presents information on all of the City’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources with the difference between reported as net position. Net position is reported as one of three categories: invested in capital assets net of related debt; restricted; or unrestricted. Restricted net position is further classified as either net position restricted by enabling legislation or net position that is otherwise restricted. Over time, increases or decreases in net position 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 position changed during the most recent fiscal year. All changes in net position 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. Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues, referred to as “governmental activities,” from other functions that are intended to recover all or a significant portion of their costs through user fees and charges, referred to as “business-type activities.” The governmental activities of the City include public safety, road maintenance and construction, parks and recreation, conservation and resource management, and general government, which include administration and other support functions. The business-type activities of the City include the utility, comprised of the water and sewer systems, the stormwater system, the sanitation service and the building code enforcement enterprise fund. The government-wide financial statements can be found on pages 1-2 of this report. 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, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be categorized into either governmental funds, proprietary funds, or fiduciary funds. v CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2018 ■ 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 available resources, as well as on balances of available resources at the end of the fiscal year. Such information may be useful in evaluating a City’s near-term financing requirements. 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 government’s near-term financing decisions. Reconciliations are provided between the Governmental Funds Balance Sheet and the Statement of Net Position and the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances and Statement of Activities to facilitate this comparison between governmental funds and governmental activities. The City maintains 11 individual governmental funds. Information is presented separately in the Governmental Funds Balance Sheet and in the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances for the General Fund, which is considered to be a major fund. Data from the other 10 governmental funds are combined into a single, aggregated presentation called Non-Major Governmental Funds. Fund data for these non-major governmental funds is provided in the form of combining statements. These combining statements can be found on pages 55-58 of this report. The City adopts an annual appropriated budget for all funds but is only required to present a budget comparison for its General Fund. The Schedule of Revenues, Expenditures, and Changes in Fund Balance Budget and Actual - General Fund budgetary comparison schedule and notes on pages 52-53 of this report has been provided to demonstrate compliance with this budget. ■ Proprietary Funds The City maintains only one type of proprietary fund and that is enterprise funds. The enterprise funds are used to account for the activities of the water and sewer (utility), stormwater, building code enforcement, and sanitation activities. The proprietary fund financial statements provide the same type of information as the government- wide financial statements, only in more detail. Separate information of the utility, stormwater, sanitation and building code enforcement activities can be found in the basic proprietary fund financial statements on pages 7-13 of this report. ■ Fiduciary Funds Fiduciary funds are used to account for resources held for the benefit of parties outside the City (i.e., pension beneficiaries). Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on pages 14-15 of this report. vi CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2018 Notes to Financial Statements The notes to financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes begin on page 16 of this report. Other Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City’s progress in funding its obligation to provide pension benefits to its employees and a budgetary comparison schedule for the General Fund. Required supplementary information can be found beginning on page 46 of this report. Government-Wide Financial Analysis Net position may serve over time as a useful indicator of a City’s financial position. As can be seen in the summarized table below, the City’s assets exceeded liabilities by $79,925,000 at the close of the fiscal year ended September 30, 2018. By far the largest portion of the City’s net position, $67,702,000 (85%), reflects its investment in capital assets (i.e., land, buildings, equipment, and infrastructure), less any related, outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. A portion of the City’s net position, $5,015,000 (7%), represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position, $7,208,000 (8%), is used to meet the government’s ongoing obligations to citizens and creditors. City of Atlantic Beach’s Net Position September 30, 2018 and 2017 (In Thousands) Governmental Business-Type Activities Activities Totals 2018 2017 2018 2017 2018 2017 Current and other assets $9,610 $10,264 $11,851 $12,074 $21,461 $22,338 Capital assets 45,838 44,797 39,787 40,303 85,625 85,100 Total Assets 55,448 55,061 51,638 52,377 107,086 107,438 Deferred Outflow 2,336 2,654 1,547 1,870 3,883 4,524 Long-term liabilities outstanding 8,415 7,803 17,806 19,416 26,221 27,219 Other liabilities 861 1,549 3,335 3,661 4,196 5,210 Total Liabilities 9,276 9,352 21,141 23,077 30,417 32,429 Deferred Inflow 447 189 180 28 627 217 Net Position: Invested in capital assets, net of related debt 44,438 44,797 23,460 22,582 67,898 67,379 Restricted 2,005 1,634 3,010 2,286 5,015 3,920 Unrestricted 1,618 1,743 5,394 6,274 7,012 8,017 Total Net Position $48,061 $48,174 $31,864 $31,142 $79,925 $79,316 vii CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2018 As illustrated in the schedule on page vi, the City was able to report positive balances in all categories of net position, both for the government as a whole, as well as for its separate governmental and business - type activities. The same situation held true for the prior fiscal year. City of Atlantic Beach’s Change in Net Position For the Years Ended September 30, 2018 and 2017 (In Thousands) Governmental Business-type Activities Activities Totals 2018 2017 2018 2017 2018 2017 Revenues: Program Revenues: Charges for Services $1,786 $1,784 $11,779 $11,717 $13,565 $13,501 Operating Grants and Contributions 715 628 22 669 737 1,297 Capital Grants and Contributions 138 777 664 529 802 1,306 General Revenues: Property Taxes 5,063 4,730 - - 5,063 4,730 Sales Taxes 1,693 1,362 - - 1,693 1,362 Business and Utility Taxes 1,101 1,073 - - 1,101 1,073 State Revenue Sharing 358 345 - - 358 345 Discretionary Sales Surtax 901 839 - - 901 839 Investment Earnings (Loss) (19) 46 (19) 51 (38) 97 Miscellaneous 59 40 - - 59 40 Total Revenues 11,795 11,624 12,446 12,966 24,241 24,590 Expenses: General Government 2,819 2,488 - - 2,819 2,488 Public Safety 6,073 5,879 - - 6,073 5,879 Road Maintenance and Construction 2,062 1,893 - - 2,062 1,893 Parks and Recreation 1,487 1,408 - - 1,487 1,408 Conservation and Resource Management 2 19 - - 2 19 Interest/Fiscal Charges on Long-term Debt - - - - - - Utility - - 7,322 7,613 7,322 7,613 Stormwater - - 1,334 1,298 1,334 1,298 Sanitation - - 2,152 2,299 2,152 2,299 Building Code Enforcement - - 520 427 520 427 Total Expenses 12,443 11,687 11,328 11,637 23,771 23,324 Transfers 618 560 (618) (560) - - Change in Net Position (30) 497 500 769 470 1,266 Net Position-Beginning 48,174 47,677 31,142 30,373 79,316 78,050 Prior Period Adjustments (83) - 222 - 139 - Net Position-Beg. Restate 48,091 47,677 31,364 30,373 79,455 78,050 Net Position-Ending $48,061 $48,174 $31,864 $31,142 $79,925 $79,316 viii CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2018 Fund Financial Analysis As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. Following is a summary of fund activity financial information for the fiscal year, rounded to the nearest thousand dollars: ■ Governmental Funds At the end of the current fiscal year, the City’s governmental funds reported a combined ending fund balance of $9,168,460, a decrease of $154,861 in comparison with the prior year. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, the unassigned fund balance was $3,675,559, which equated to 26% of total General Fund expenditures without transfers. The net result of various revenue and expense items resulted in a decrease to the City’s General Fund of $244,000 or 2% during the current fiscal year. Property tax revenues increased by $332,933 or 7% from the previous year. This was a result of an increase in the taxable values. General Fund transfers in decreased by $195,200, while transfers out increased by $248,775. Overall, general fund expenditures increased by $2,150,066 or 17.77%. A large portion of this increase was due to the purchase of land for the Selva Peserve. Non-major governmental funds consisting of special revenue funds and the capital projects fund have a combined fund balance of $2,090,639. The net increase in fund balance after transfers in non-major governmental funds was $398,859. The increase in the fund was related to the decrease in Capital Outlay Expenditures and a decrease in transfers out. ■ Proprietary Funds The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. During the fiscal year the proprietary funds recorded revenues of $11,656,659, expenses of $10,789,416, net non-operating revenue of $453,575 and net capital contributions, grants and transfers of $45,960. The net position in the proprietary funds increased $499,535 as a result of the fiscal year’s activities. The unrestricted net position of the enterprise funds amounted to $5,589,530 at the end of fiscal year 2018. Stormwater rates stayed constant in fiscal year 2018 as there were no rate changes. The $8.39 per ERU is approximately 69%, compared to 71% for the prior year, of the total operating expenses of $1,287,083 needed to fully fund the operation with charges for service. During fiscal year 2018, the Sanitation Fund netted a decrease in net position of $468,713. This decrease was due to an increase in contract expenditures related to debris pickup, which is expected to be recovered in fiscal year 2019. General Fund Budgetary Highlights Net Budget The overall net difference from the final budgeted revenues and adjusted final budgeted expenses was a deficit of $527,000. The actual decrease in fund balance was $244,000. This resulted in a $283,000 excess variance below what was budgeted. ix CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2018 Capital Assets and Debt Administration Capital Assets―The City’s investment in capital assets, net of related depreciation, for its governmental and business-type activities as of September 30, 2018, amounted to $85,624,000. This investment in capital assets includes land, land improvements, land easements, buildings and infrastructure improvements, equipment, and construction in progress. The total change in the City’s capital assets, net of related depreciation, for the current fiscal year was an increase of $1,041,000 or 2.32% for governmental activities and a decrease of $(799,018) or 1.97% for business-type activities. Capital asset events during the current fiscal year included the following:  Governmental Activities Land reflected a $1,350,000 increase due to the purchase of the Selva Preserve land. Buildings reflected a net decrease of $167,000 as a result of depreciation. Intangible Assets reflected a net decrease of $13,000 as a result of depreciation. This asset category includes land easements and computer software. Improvements Other Than Buildings reflected a net decrease of $241,000. This represents capital asset increase of $479,000 offset by depreciation of $719,000. Equipment reflected a net increase of $10,000. This represents capital asset increase of $444,000, offset by depreciation of $434,000. Construction in progress increased by $103,000. ■ Business-Type Activities Buildings reflected a net decrease in asset value of $9,000 from depreciation. Improvements Other Than Buildings reflected a net decrease of $1,161,529. This represents capital asset increases of $1,261,759, offset by depreciation of $2,423,288. Equipment reflected a net increase of $293,000. This represents capital asset increase of $487,000, offset by depreciation of $194,000. Construction in Progress had a net increase of $78,000. x CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2018 City of Atlantic Beach’s Capital Assets (Net of Depreciation) (In Thousands) Governmental Business-type Activities Activities Totals 2018 2017 2018 2017 2018 2017 Land $11,914 $10,564 $1,656 $1,656 $13,570 $12,220 Intangibles 48 62 214 214 262 276 Buildings 7,047 7,215 44 52 7,091 7,267 Improvements-Other 24,812 25,052 35,407 36,286 60,219 61,338 Equipment 1,275 1,265 980 687 2,255 1,952 Construction in Progress 741 639 1,486 1,408 2,227 2,047 Total $45,837 $44,797 $39,787 $40,303 $85,624 $85,100 Additional information on the City’s capital assets can be found in Note 5 on pages 27-28 of this report. Long-Term Debt At the end of the 2018 fiscal year, the City had total bonded debt outstanding of $18,215,000. In 2018, the City secured $1,400,000 in bonds for the purchase of land. The amount of $16,814,449 represents the City’s debt related to its business type activities. This amount was comprised of debt secured solely by specified revenue sources. A detailed listing of the City’s debt can be found in the table below. City of Atlantic Beach’s Outstanding Debt September 30, 2018 (In Thousands) Business-type Activities Capital Improvement Revenue Bonds, Series 2018 $1,400 Utilities System Revenue Bond, Series 2014 10,525 F.D.E.P. State Revolving Funds Loan, 2010 526 F.D.E.P. State Revolving Funds Loan, 2009 5,764 Total $18,215 Debt service coverage calculations can be found on page 62. Additional information on the City’s long- term debt can be found in Note 6 on pages 28-32 of this report. Revenue Highlights: CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2018 • Total General Revenues for 2018 were $650,000 higher than 2017 revenue (page 2). Increases in property taxes of $333 ,000, the rece ipt of Insurance Premium Ta x in the amount of $237,000 made up the majority of this increase . • The 2018 taxable property values were about 7.82% higher than the 2017 values . The City Commission voted to use the same millage rate of 3 .2285 mills . The purpose for adopting the millage rate of 3.2285 was to maintain a level of ad valorem tax revenue sufficient to maintain adequate funding for the existing level of services at the estimated cost and to continue to maintain the City's infrastructure and adequate reserves . The final gross taxable property value was $1,617,621,987 . Ad valorem taxes of $5,063,409 represent 43 % of the General Fund revenues for 2018 . • The 2018 Intergovernmental revenues of $2,071,174 make up 17 .56% of general fund revenues . This is an decrease of $446,000 over 2017. • The City's investment portfolio is valued at approximately $16,214,000 as of September 30, 2018 . The investments showed a loss of $38,998 for the year. Expenditure Highlights: • Total Governmental Fund Expenditures increased in current year by $2,150,000 when compared to prior year . Capital expenditures increased from $496 ,000 in 2017 to $1 ,862,000 in 2018. This increase was a result the purchase of land. Requests for Information The financial report is designed to provide a general overview of the City 's finances for all those with an interest in the City's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Atlantic Beach , Fi nance Director, 800 Seminole Road, Atlantic Beach, Florida 32233 . 'ft4 LUJ JL;~ Melissa Burns Director of Finance xi BASIC FINANCIAL STATEMENTS These basic financial statements contain Government-wide Financial Statements, Fund Financial Statements, and Notes to Financial Statements. Governmental Business-Type 2017 Activities Activities Totals Totals Assets Equity in Pooled Cash and Investments 8,086,548$ 6,623,795$ 14,710,343$ 17,534,392$ Cash Held with Fiscal Agent - 1,337,616 1,337,616 - Receivables - Net 350 668,914 669,264 665,537 Internal Balances 367,030 (367,030) - - Due from Other Governments 1,114,979 154,115 1,269,094 1,412,547 Inventories 33,862 60,763 94,625 35,925 Notes Receivable - Current 760 15,759 16,519 16,519 Restricted Assets: Equity in Pooled Cash and Cash Equivalents - 3,236,620 3,236,620 2,548,752 Capital Assets: Land 11,913,572 1,656,018 13,569,590 12,219,590 Buildings 9,450,124 4,356,384 13,806,508 13,806,508 Improvements Other Than Buildings 41,817,798 85,317,678 127,135,476 125,395,055 Equipment 5,117,155 3,127,810 8,244,965 7,441,808 Intangibles - Easements and Computer Software 428,352 244,709 673,061 673,061 (Accumulated Depreciation and Amortization)(23,630,411) (56,402,423) (80,032,834) (76,482,989) Construction in Progress 741,396 1,486,408 2,227,804 2,046,568 Prepaid Items 4,956 - 4,956 4,141 Notes Receivable - Non-Current 1,520 121,023 122,543 120,841 Total Assets 55,447,991 51,638,159 107,086,150 107,438,255 Deferred Outflows of Resources Unamortized Refunding Loss - 755,602 755,602 863,546 OPEB Related 16,170 7,286 23,456 - Pension Related 2,319,375 784,131 3,103,506 3,660,566 Total Deferred Outflows of Resources 2,335,545 1,547,019 3,882,564 4,524,112 Liabilities Accounts Payable and Other Current Liabilities 328,224 452,638 780,862 1,857,143 Construction Retainages Payable 21,129 - 21,129 21,978 Due to Other Governments - 25,973 25,973 23,381 Unearned Revenue 85,092 181,993 267,085 218,275 Deposits 7,101 - 7,101 5,034 Compensated Absences - Current 349,760 139,588 489,348 509,028 Payable from Restricted Assets: Current Portion of Bonds Payable - 1,215,000 1,215,000 1,185,000 Current Portion of Loan Payable 70,000 369,444 439,444 358,258 Current Portion of Leases Payable - 63,060 63,060 - Accrued Interest Payable - 195,826 195,826 227,364 Customer Deposits - 691,244 691,244 653,012 Non-Current Liabilities: Due in More Than One Year 1,330,000 15,434,595 16,764,595 16,814,450 Compensated Absences - Non-Current 393,023 95,386 488,409 423,092 Other Postemployment Benefits Obligation 313,894 141,445 455,339 299,557 Net Pension Liability 6,377,619 2,134,761 8,512,380 9,833,585 Total Liabilities 9,275,842 21,140,953 30,416,795 32,429,157 Deferred Inflow of Resources OPEB Related 12,824 5,778 18,602 - Pension Related 434,220 174,599 608,819 217,306 Total Deferred Inflow of Resources 447,044 180,377 627,421 217,306 Net Position Net Investment in Capital Assets 44,437,986 23,460,087 67,898,073 67,378,075 Restricted for: Renewal and Replacement - 250,000 250,000 250,000 Debt Service - 394,939 394,939 401,046 Public Safety 141,524 - 141,524 137,287 Road Maintenance and Construction 1,162,321 - 1,162,321 1,078,005 System Development Fees - 1,900,438 1,900,438 1,244,694 Other Capital Projects 443,666 - 443,666 141,328 Other Purposes 257,310 - 257,310 277,248 Building Code Enforcement - 464,680 464,680 390,605 Unrestricted 1,617,843 5,393,704 7,011,547 8,017,616 Total Net Position 48,060,650$ 31,863,848$ 79,924,498$ 79,315,904$ CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET POSITION SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2017 2018 See accompanying notes. 1 Operating Capital Charges for Grants and Grants and Governmental Business-Type 2017 Functions/Programs Expenses Services Contributions Contributions Activities Activities Totals Totals Primary Government Governmental Activities: General Government 2,819,499$ 873,743$ -$ -$ (1,945,756)$ -$ (1,945,756)$ (1,566,934)$ Public Safety 6,098,227 731,296 101,449 - (5,265,482) - (5,265,482) (5,096,322) Road Maintenance and Construction 2,061,818 114,081 585,433 - (1,362,304) - (1,362,304) (879,240) Parks and Recreation 1,487,715 67,275 - 138,364 (1,282,076) - (1,282,076) (969,765) Conservation and Resource Management 151 - 28,057 - 27,906 - 27,906 13,821 Total Governmental Activities 12,467,410 1,786,395 714,939 138,364 (9,827,712) - (9,827,712) (8,498,440) Business-Type Activities: Utility 7,321,592 8,363,694 - 663,905 - 1,706,007 1,706,007 1,708,924 Stormwater 1,334,587 886,349 - - - (448,238) (448,238) (413,883) Sanitation 2,152,110 1,920,094 22,297 - - (209,719) (209,719) (94,596) Building Code Enforcement 520,018 609,048 - - - 89,030 89,030 78,280 Total Business-Type Activities 11,328,307 11,779,185 22,297 663,905 - 1,137,080 1,137,080 1,278,725 Total Primary Government 23,795,717$ 13,565,580$ 737,236$ 802,269$ (9,827,712) 1,137,080 (8,690,632) (7,219,715) General Revenues Property Taxes 5,063,409 - 5,063,409 4,730,476 Insurance Premium Tax 236,772 - 236,772 - Sales Taxes 1,456,150 - 1,456,150 1,361,838 Business and Utility Taxes 1,100,538 - 1,100,538 1,072,553 State Revenue Sharing 357,827 - 357,827 344,460 Discretionary Sales Surtax 901,165 - 901,165 839,014 Investment Earnings (Loss)(19,397) (19,600) (38,997) 97,069 Miscellaneous 83,346 - 83,346 40,238 Transfers 617,945 (617,945) - - Total General Revenues and Transfers 9,797,755 (637,545) 9,160,210 8,485,648 Change in Net Position (29,957) 499,535 469,578 1,265,933 Net Position, Beginning of Year 48,173,878 31,142,026 79,315,904 78,049,971 Prior Period Adjustments (83,271) 222,287 139,016 - Net Position, Beginning of Year (as Restated)48,090,607 31,364,313 79,454,920 78,049,971 Net Position, End of Year 48,060,650$ 31,863,848$ 79,924,498$ 79,315,904$ 2018 Program Revenues Net (Expense) Revenue and Changes in Net Position Primary Government CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2017 See accompanying notes. 2 Non-Major Totals Governmental Governmental 2017 General Funds Funds Totals Assets Equity in Pooled Cash and Investments 6,090,081$ 1,996,467$ 8,086,548$ 9,173,017$ Receivables - Net 350 - 350 651 Due from Other Funds 567,826 - 567,826 170,515 Due from Other Governments 801,900 313,079 1,114,979 1,061,705 Inventories 33,862 - 33,862 23,098 Notes Receivable - Current 760 - 760 760 Prepaid Items 4,956 - 4,956 4,141 Notes Receivable - Non-Current 1,520 - 1,520 1,520 Total Assets 7,501,255 2,309,546 9,810,801 10,435,407 Liabilities and Fund Balances Liabilities Accounts Payable and Accrued Liabilities 328,224 - 328,224 1,145,490 Construction Retainages Payable 4,783 16,346 21,129 4,340 Due to Other Funds - 200,795 200,795 170,515 Due to Pension Trust Funds - - - 8,500 Deposits 5,335 1,766 7,101 5,034 Unearned Revenue 85,092 - 85,092 22,990 Total Liabilities 423,434 218,907 642,341 1,356,869 Deferred Inflows of Resources - - - 64,939 Fund Balances Non-Spendable: Inventories 33,862 - 33,862 23,098 Prepaids 4,956 - 4,956 4,141 Restricted for: Public Safety - 141,524 141,524 137,287 Road Maintenance and Construction - 1,162,321 1,162,321 1,078,005 Other Capital Projects - 443,666 443,666 141,328 Other Purposes - 257,310 257,310 277,248 Committed to: Conservation and Resource Management - 86,638 86,638 58,732 Assigned to: Community Redevelopment Fund 50,000 - 50,000 50,000 Operating Reserves 3,313,444 - 3,313,444 3,176,334 Unassigned 3,675,559 (820) 3,674,739 4,067,426 Total Fund Balances 7,077,821 2,090,639 9,168,460 9,013,599 Total Liabilities and Fund Balances 7,501,255$ 2,309,546$ 9,810,801$ 10,435,407$ 2018 CITY OF ATLANTIC BEACH, FLORIDA BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2017 See accompanying notes. 3 Total Fund Balances of Governmental Funds 9,168,460$ 9,013,599$ Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds: Total Capital Assets 69,468,397$ 67,193,744$ (Accumulated Depreciation)(23,630,411) (22,397,170) 45,837,986 44,796,574 Non-exchange receivables that do not provide current financial resources and are not reported revenues in the funds.- 64,939 Certain pension and OPEB related amounts are being deferred and amortized over a period of years or are being deferred as contributions to the pension plan made after the measurement date: Deferred Outflows Related to Pensions 2,319,375 2,653,701 Deferred Outflows Related to OPEB 16,170 - Deferred Inflows Related to OPEB (12,824) - Deferred Inflows Related to Pensions (434,220) (188,855) 1,888,501 2,464,846 Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds: Compensated Absences (742,784) (685,458) Other Postemployment Benefits Obligation (313,894) (222,196) Bonds Payable (1,400,000) - Net Pension Liability (6,377,619) (7,258,426) (8,834,297) (8,166,080) Total Net Position of Governmental Activities 48,060,650$ 48,173,878$ 2018 2017 CITY OF ATLANTIC BEACH, FLORIDA RECONCILIATION OF BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2017 See accompanying notes. 4 Non-Major Totals Governmental Governmental 2017 General Funds Funds Totals Revenues Property Taxes 5,063,409$ -$ 5,063,409$ 4,730,476$ Non-Property Taxes 1,337,310 1,514,459 2,851,769 2,487,547 Permits, Fees, and Special Assessments 868,477 - 868,477 811,871 Intergovernmental Revenues 2,071,174 42,000 2,113,174 2,559,549 Fines and Forfeitures 90,781 33,585 124,366 139,956 Charges for Services 793,482 - 793,482 774,764 Investment Earnings (Loss)(18,294) (1,102) (19,396) 46,057 Miscellaneous Revenues 3,997 52,977 56,974 111,079 Inter-Fund Charges 1,581,091 - 1,581,091 1,522,863 Total Revenues 11,791,427 1,641,919 13,433,346 13,184,162 Expenditures General Government 3,737,331 - 3,737,331 3,363,862 Public Safety 6,033,639 96,134 6,129,773 5,838,089 Road Maintenance and Construction 1,486,869 386,854 1,873,723 1,799,598 Parks and Recreation 1,130,211 31,648 1,161,859 1,170,861 Conservation and Resource Management - 151 151 18,765 Capital Outlay 1,861,812 513,973 2,375,785 3,470,464 (Total Expenditures)(14,249,862) (1,028,760) (15,278,622) (15,661,639) Excess (Deficiency) of Revenues Over (Under) Expenditures (2,458,435) 613,159 (1,845,276) (2,477,477) Other Financing Sources (Uses) Debt Proceeds 1,400,000 - 1,400,000 - Debt Issuance Costs (50,000) - (50,000) - Gain on Disposal of Fixed Assets 32,192 - 32,192 - Transfers in 1,135,245 303,000 1,438,245 1,679,670 Transfers (out)(303,000) (517,300) (820,300) (1,119,225) Total Other Financing Sources (Uses)2,214,437 (214,300) 2,000,137 560,445 Net Change in Fund Balances (243,998) 398,859 154,861 (1,917,032) Fund Balances, Beginning of Year 7,321,819 1,691,780 9,013,599 10,930,631 Fund Balances, End of Year 7,077,821$ 2,090,639$ 9,168,460$ 9,013,599$ 2018 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2017 See accompanying notes. 5 Net Change in Fund Balances - Total Governmental Funds 154,861$ (1,917,032)$ Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Governmental funds report capital purchases as expenditures. However, in the statement of activities, the cost of those assets is depreciated over their estimated useful lives and reported as depreciation expense: Expenditures for Capital Assets 2,375,785$ 3,470,464$ (Current Year Depreciation)(1,334,374) (1,133,555) 1,041,411 2,336,909 Certain non-exchange revenues reported in the statement of activities are not considered current financial resources and, therefore, are not reported as revenue in the governmental funds.(64,939) (37,784) The issuance of bonds and similar long-term debt provides current financial resources to governmental funds and thus contribute to the change in fund balance. In the statement of net position, however, issuing debt increases long-term liabilities and does not affect the statement of activtities.(1,400,000) - The changes in net pension liability and pension related deferred outflows and inflows of resources result in an adjustment to pension expense in the statement of activities, but not in the governmental fund statements.301,116 141,034 Some expenses/revenues reported in the statement of activities do not require the use of or provide current financial resources and, therefore, are not reported as expenditures in governmental funds: Compensated Absences (57,325) (7,992) Other Postemployment Benefits Obligation (5,081) (18,494) (62,406) (26,486) Change in Net Position - Governmental Activities (29,957)$ 496,641$ 2018 2017 CITY OF ATLANTIC BEACH, FLORIDA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2017 See accompanying notes. 6 Building Code 2017 Utility Stormwater Sanitation Enforcement Totals Totals Assets Current Assets: Equity in Pooled Cash and Investments 4,319,105$ 1,634,731$ -$ 669,959$ 6,623,795$ 8,361,375$ Cash with Fiscal Agent 1,163,726 173,890 - - 1,337,616 - Accounts Receivable - Net 542,956 48,471 77,487 - 668,914 664,886 Due from Other Governments 35,244 - 118,871 - 154,115 350,842 Inventories 60,763 - - - 60,763 12,827 Notes Receivable - Current 15,759 - - - 15,759 15,759 Restricted Assets: Equity in Pooled Cash and Cash Equivalents 3,236,620 - - - 3,236,620 2,548,752 Capital Assets: Land 749,499 906,519 - - 1,656,018 1,656,018 Buildings 4,356,384 - - - 4,356,384 4,356,384 Improvements Other Than Buildings 66,417,940 18,899,738 - - 85,317,678 84,055,919 Equipment 2,280,911 573,752 189,877 83,270 3,127,810 2,667,929 Intangibles - Easements and Computer Software 226,394 - - 18,315 244,709 244,709 (Accumulated Depreciation and Amortization)(45,822,557) (10,323,004) (185,539) (71,323) (56,402,423) (54,085,819) Construction in Progress 1,124,844 361,564 - - 1,486,408 1,407,887 Notes Receivable - Non-Current 121,023 - - - 121,023 119,321 Total Assets 38,828,611 12,275,661 200,696 700,221 52,005,189 52,376,789 Deferred Outflows of Resources Unamortized Refunding Loss 657,374 98,228 - - 755,602 863,546 OPEB Related 4,819 762 - 1,705 7,286 - Pension Related 637,904 52,680 39,804 53,743 784,131 1,006,865 Total Deferred Outflows of Resources 1,300,097 151,670 39,804 55,448 1,547,019 1,870,411 Business-Type Activities - Enterprise Funds 2018 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET POSITION PROPRIETARY FUNDS SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2017 See accompanying notes. 7 Building Code 2017 Utility Stormwater Sanitation Enforcement Totals Totals Liabilities Current Liabilities Payable from Current Assets: Accounts Payable and Other Current Liabilities 253,520$ 66,276$ 119,625$ 13,217$ 452,638$ 711,653$ Construction Retainages Payable - - - - - 17,638 Due to Other Governments - - - 25,973 25,973 14,881 Due to Other Funds - - 367,030 - 367,030 - Unearned Revenue 90,605 29,898 61,490 - 181,993 195,285 Compensated Absences - Current 116,699 5,781 - 17,108 139,588 146,514 Current Liabilities Payable from Restricted Assets: Current Portion of Bonds Payable 1,057,050 157,950 - - 1,215,000 1,185,000 Current Portion of Loans Payable 369,444 - - - 369,444 358,258 Current Portion of Lease Payable 31,530 31,530 - - 63,060 - Accrued Interest Payable 179,886 15,940 - - 195,826 227,364 Customer Deposits 691,244 - - - 691,244 653,012 Non-Current Liabilities: Due in More Than One Year 14,122,001 1,312,594 - - 15,434,595 16,814,450 Compensated Absences - Non-Current 79,745 3,950 - 11,691 95,386 100,148 Other Postemployment Benefits Obligation 93,549 14,791 - 33,105 141,445 77,361 Net Pension Liability 1,736,664 143,419 108,365 146,313 2,134,761 2,575,159 Total Liabilities 18,821,937 1,782,129 656,510 247,407 21,507,983 23,076,723 Deferred Inflows of Resources OPEB Related 3,821 604 - 1,353 5,778 - Pension Related 142,039 11,730 8,863 11,967 174,599 28,451 Total Deferred Inflows of Resources 145,860 12,334 8,863 13,320 180,377 28,451 Net Position Net Investment in Capital Assets 14,410,764 9,014,723 4,338 30,262 23,460,087 22,581,501 Restricted for: Renewal and Replacement 250,000 - - - 250,000 250,000 Debt Service 394,939 - - - 394,939 401,046 System Development Fees 1,900,438 - - - 1,900,438 1,244,694 Building Code Enforcement - - - 464,680 464,680 390,605 Unrestricted 4,204,770 1,618,145 (429,211) - 5,393,704 6,274,180 Total Net Position 21,160,911$ 10,632,868$ (424,873)$ 494,942$ 31,863,848$ 31,142,026$ 2018 Business-Type Activities - Enterprise Funds CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET POSITION PROPRIETARY FUNDS SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2017 See accompanying notes. 8 Building Code 2017 Utility Stormwater Sanitation Enforcement Totals Totals Operating Revenues Charges for Services: Customer Charges 8,237,671$ 886,349$ 1,848,528$ 609,048$ 11,581,596$ 11,537,995$ Franchise Permits - - 9,500 - 9,500 4,500 Miscellaneous Revenues 64,563 - - - 64,563 65,608 Total Operating Revenues 8,302,234 886,349 1,858,028 609,048 11,655,659 11,608,103 Operating Expenses Personal Services 2,056,311 237,354 55,440 410,753 2,759,858 2,881,359 Contractual Services 604,079 134,970 1,935,262 28,347 2,702,658 2,754,452 Supplies 398,803 45,043 - 3,345 447,191 345,072 Repairs and Maintenance 159,229 33,376 5,798 4,194 202,597 166,961 Utilities 348,357 - - - 348,357 353,574 Depreciation 1,983,736 634,262 1,093 6,789 2,625,880 2,695,589 Intergovernmental Charges 1,133,451 162,745 152,276 46,238 1,494,710 1,416,647 Other Expenses 146,239 39,333 2,241 20,352 208,165 421,867 (Total Operating Expenses)(6,830,205) (1,287,083) (2,152,110) (520,018) (10,789,416) (11,035,521) Operating Income (Loss)1,472,029 (400,734) (294,082) 89,030 866,243 572,582 Non-Operating Revenues (Expenses) Connection Charges 61,460 - - - 61,460 49,165 Intergovernmental - - 22,297 - 22,297 668,843 Franchise Fees - - 62,066 - 62,066 59,733 Investment Earnings (Loss)(15,856) (2,684) (269) (791) (19,600) 51,012 Interest Expense (404,297) (33,471) - - (437,768) (492,485) Gain on Disposal of Fixed Assets 6,820 - - - 6,820 - Amortization of Refunding Loss (93,910) (14,033) - - (107,943) (107,943) Total Non-Operating Revenues (Expenses)(445,783) (50,188) 84,094 (791) (412,668) 228,325 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2017 2018 Business-Type Activities - Enterprise Funds See accompanying notes. 9 Building Code 2017 Utility Stormwater Sanitation Enforcement Totals Totals Income (Loss) Before Contributions and Transfers 1,026,246$ (450,922)$ (209,988)$ 88,239$ 453,575$ 800,907$ Capital Contributions and Grants and Transfers System Development Charges 663,905 - - - 663,905 528,830 Transfers in - 285,000 - - 285,000 300,000 Transfers (out)(644,220) - (258,725) - (902,945) (860,445) Total Capital Contributions and Grants and Transfers 19,685 285,000 (258,725) - 45,960 (31,615) Change in Net Position 1,045,931 (165,922) (468,713) 88,239 499,535 769,292 Net Position, Beginning of Year 19,869,509 10,801,022 43,840 427,655 31,142,026 30,372,734 Prior Period Adjustments 245,471 (2,232) - (20,952) 222,287 - Net Position, Beginning of Year (as Restated)20,114,980 10,798,790 43,840 406,703 31,364,313 - Net Position, End of Year 21,160,911$ 10,632,868$ (424,873)$ 494,942$ 31,863,848$ 31,142,026$ FOR THE YEAR ENDED SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2017 2018 Business-Type Activities - Enterprise Funds PROPRIETARY FUNDS CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION See accompanying notes. 10 Building Code 2017 Utility Stormwater Sanitation Enforcement Totals Totals Cash Flows from Operating Activities Cash Received from Customers 8,308,079$ 892,560$ 1,858,338$ 626,984$ 11,685,961$ 11,622,151$ Cash Paid to Suppliers (1,656,097) (329,034) (2,198,836) (49,590) (4,233,557) (3,868,792) Cash Paid to Employees (2,125,463) (293,497) (55,276) (409,983) (2,884,219) (2,548,450) Cash Paid for Inter-Fund Services (1,133,451) (162,745) (152,276) (46,238) (1,494,710) (1,416,647) Net Cash Provided by (Used in) Operating Activities 3,393,068 107,284 (548,050) 121,173 3,073,475 3,788,262 Cash Flows from Non-Capital Financing Activities Connection Charges 61,460 - - - 61,460 90,998 Franchise Fees - - 62,066 - 62,066 - Due to Other Funds - - 367,030 - 367,030 - Transfers in - 285,000 - - 285,000 300,000 Transfers (out)(644,220) - (258,725) - (902,945) (860,445) Net Cash Provided by (Used in) Non-Capital Financing Activities (582,760) 285,000 170,371 - (127,389) (469,447) Cash Flows from Capital and Related Financing Activities Capital Grants 663,905 - 219,025 - 882,930 899,975 Fixed Asset Additions (1,004,928) (443,942) - - (1,448,870) (1,914,768) Proceeds from Sale of Fixed Assets 6,820 - - - 6,820 - Principal Payments on Long-Term Debt (1,389,209) (154,050) - - (1,543,259) (1,507,413) Lease Payments (33,447) (33,447) - - (66,894) - Interest Paid (432,283) (37,023) - - (469,306) (508,398) Net Cash Provided by (Used in) Capital and Related Financing Activities (2,189,142) (668,462) 219,025 - (2,638,579) (3,030,604) Business-Type Activities - Enterprise Funds CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2017 2018 See accompanying notes. 11 Building Code 2017 Utility Stormwater Sanitation Enforcement Totals Totals Cash Flows from Investing Activities Sale (Purchase) of Investments (1,293,199)$ 56,124$ 127,464$ (158,614)$ (1,268,225)$ (290,937)$ Interest Received (15,856) (2,684) (269) (791) (19,600) 55,292 Net Cash Provided by (Used in) Investing Activities (1,309,055) 53,440 127,195 (159,405) (1,287,825) (235,645) Net Increase (Decrease) in Cash and Cash Equivalents (687,889) (222,738) (31,459) (38,232) (980,318) 52,566 Cash and Cash Equivalents, Beginning of Year 1,606,171 413,211 31,459 108,788 2,159,629 2,107,063 Cash and Cash Equivalents, End of Year 918,282$ 190,473$ -$ 70,556$ 1,179,311$ 2,159,629$ Reconciliation of Operating Income (Loss) to Net Cash Provided by (Used in) Operating Activities Operating Income (Loss)1,472,029$ (400,734)$ (294,082)$ 89,030$ 866,243$ 572,582$ Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided by (Used in) Operating Activities: Depreciation 1,983,736 634,262 1,093 6,789 2,625,880 2,695,590 Change in Assets and Liabilities: Accounts Receivable (12,251) 6,211 310 - (5,730) (49,790) Due from/to other Governments (6,844) - - 17,936 11,092 (335) Inventory (47,936) - - - (47,936) - Compensated Absences (18,415) 3,796 - 2,931 (11,688) 4,922 Accounts Payable and Accrued Liabilities 48,546 (76,312) (255,535) 6,648 (276,653) 173,133 Customer Deposits 38,232 - - - 38,232 58,311 Unearned Revenue (13,292) - - - (13,292) 13,292 Change in Deferred Outflow - Pension Related 177,458 (22,485) 8,914 13,877 177,764 157,843 Change in Deferred Outflow - OPEB Related (4,819) 762 - (1,705) (5,762) - Change in Deferred Inflow - Pension Related 119,000 9,606 7,486 10,056 146,148 (20,729) Change in Deferred Inflow - OPEB Related 3,821 604 - 1,353 5,778 - Change in Net OPEB Liability 2,511 397 - 889 3,797 9,387 Change in Net Pension Liability (348,708) (48,823) (16,236) (26,631) (440,398) 174,056 Net Cash Provided by (Used in) Operating Activities 3,393,068$ 107,284$ (548,050)$ 121,173$ 3,073,475$ 3,788,262$ 2018 Business-Type Activities - Enterprise Funds CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2017 See accompanying notes. 12 - - - - - Building Code 2017 Utility Stormwater Sanitation Enforcement Totals Totals Reconciliation of Cash and Cash Equivalents to Balance Sheet Equity in Pooled Cash and Cash Equivalents in Current Assets 4,319,105$ 1,634,731$ -$ 669,959$ 6,623,795$ 8,361,375$ Cash Held With Fiscal Agent 1,163,726 173,890 - - 1,337,616 - Restricted Equity in Pooled Cash and Cash Equivalents 3,236,620 - - - 3,236,620 2,548,752 Equity in Pooled Investments (7,801,169) (1,618,148) - (599,403) (10,018,720) (8,750,498) Total Cash and Cash Equivalents 918,282$ 190,473$ -$ 70,556$ 1,179,311$ 2,159,629$ Supplemental Disclosure of Non-Cash Activities Amortization of Refunding Loss 93,910$ 14,033$ -$ -$ 107,943$ 107,943$ WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2017 2018 Business-Type Activities - Enterprise Funds CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2018, See accompanying notes. 13 2018 2017 Assets Cash and Cash Equivalents 199,406$ 566,377$ Due from Other Governments 123,068 - Due from City - 8,500 Interest Receivable 40,374 31,813 Investments at Fair Value 31,647,582 28,486,250 Other Assets 542 - Total Assets 32,010,972 29,092,940 Liabilities Accounts Payable and Accrued Liabilities - 37,343 Due to City 136,343 - Total Liabilities 136,343 37,343 Net Position Fiduciary Net Position - Held for Pensions 31,874,629$ 29,055,597$ Pension Trust Funds CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2017 See accompanying notes. 14 2018 2017 Additions Contributions: Employer 2,186,899$ 2,121,100$ Employees 249,034 253,576 State of Florida 236,772 - Total Contributions 2,672,705 2,374,676 Net Increase in Fair Value of Investments 1,923,625 2,334,700 Interest and Dividends 583,986 509,548 Miscellaneous Revenues - 8,500 Total Additions 5,180,316 5,227,424 Deductions Refunds of Contributions 34,253 35,562 Benefits 2,157,891 1,927,417 Investment Expenses 106,903 101,608 Administrative Expenses 53,101 106,748 Other 9,136 - Total Deductions 2,361,284 2,171,335 Change in Net Position 2,819,032 3,056,089 Net Position, Beginning of Year 29,055,597 25,999,508 Net Position, End of Year 31,874,629$ 29,055,597$ Pension Trust Funds CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2017 See accompanying notes. 15 16 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Note 1 - Summary of Significant Accounting Policies The accounting policies of the City of Atlantic Beach, Florida, (the City), conform to accounting principles generally accepted in the United States of America as applicable to governments. The following is a summary of the more significant policies used in the preparation of these financial statements: Reporting Entity The City was incorporated in 1957, under a charter in accordance with the laws of the State of Florida, Florida Statutes Section 57-1126. The City operates under a form of government, which comprises an elected City Commission (four Commissioners and a Mayor-Commissioner) and provides, under the administration of an appointed City Manager, the following services: public safety, public works (streets and infrastructure), recreation, conservation and resource management, sanitation, stormwater, reuse, planning, zoning, water and sewer, and general government services. In accordance with the Codification of Governmental and Financial Reporting Standards, the financial reporting entity consists of the primary government, organizations for which the primary government is financially accountable, and other organizations whose exclusions would cause the reporting entity ’s financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria for consideration in determining financial accountability. These criteria include appointing a majority of an organization’s governing body and: (1) the ability of the City to impose its will on that organization; or (2) the potential for that organization to provide specific benefits to or impose specific financial burdens on the City. Other considerations are whether the organization is legally separate, whether the City holds the corporate powers of the organization, and whether there is fiscal dependency by the organization on the City. Based upon the application of these criteria, the City has no component units. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the City. For the most part, the effect of inter-fund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or activity. Indirect costs are included in the program expense reported for individual functions and activities. Program revenues include: (1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or activity; and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or activity. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. 17 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Measurement Focus, Basis of Accounting, and Financial Statement Presentation Government-Wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and 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. As a general rule, the effect of inter-fund activity has been eliminated from the government-wide financial statements. The major exception to this general rule is charges between the City’s water and sewer function and various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. 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, including special assessments. General revenues include all taxes. Net position is reported as one of three categories: (1) Net Investment in Capital Assets; (2) Restricted; or (3) Unrestricted. Fund Financial Statements 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 sixty 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, other postemployment benefits, pension expense, and claims and judgments, are recorded only when payment is due. Taxes, intergovernmental revenue, licenses and permits, 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 City. The City reports the following major governmental fund: ■ 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. 18 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 The City reports the following major proprietary funds: ■ The Utility Fund accounts for the activities of the City’s water distribution, sewer collection and treatment systems, and reuse system. ■ The Sanitation Fund accounts for the activities of the City’s sanitation system. ■ The Stormwater Fund accounts for the activities of the City’s stormwater system. ■ The Building Code Enforcement Fund accounts for the activities of the City’s Building Department. Additionally, the City reports the following fund types: ■ Special Revenue Funds—The special revenue funds are used to account for the proceeds of specific revenue sources (other than major capital projects) that are legally restricted to expenditures for specified purposes. ■ Capital Projects Funds—The capital projects funds are used to account for the financial resources to be used for the acquisition or construction of major capital facilities and improvement projects (other than those financed by proprietary funds or special revenue funds). ■ Pension Trust Funds—These funds account for the activities of the Employees’ Retirement System, which accumulates resources for pension benefit payments to qualified police officers and general employees. Fund Balance Classification Fund Balance is reported in five components – non-spendable, restricted, committed, assigned, and unassigned: ■ Non-Spendable Fund Balance—amounts that are not in spendable form (such as inventory) or are required to be maintained intact. ■ Restricted Fund Balance—amounts constrained to specific purposes by their providers (such as grantors, bondholders, and higher levels of government), through constitutional provisions, or by enabling legislation. ■ Committed Fund Balance—amounts constrained to specific purposes by the City itself, using its highest level of decision-making authority (i.e., ordinance passed by City Commission). To be reported as committed, amounts cannot be used for any other purpose unless the City takes the same highest level action to remove or change the constraint. ■ Assigned Fund Balance—amounts the City intends to use for a specific purpose. Intent can be expressed by the City Commission or by an official or body to which the City Commission delegates the authority. ■ Unassigned Fund Balance—amounts that are available for any purpose. Positive amounts are reported only in the General Fund. 19 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 When both restricted and unrestricted resources are available for use, it is the City’s practice to use restricted resources first, then unrestricted resources as they are needed. When unrestricted resources (committed, assigned, and unassigned) are available for use in any governmental fund, it is the City’s practice to use committed resources first, then assigned, and then unassigned as needed. The City Commission establishes (and modifies or rescinds) fund balance commitments by passage of an ordinance. This is typically done through adoption and amendment of the budget. A fund balance commitment is further indicated in the budget document as a designation or commitment of the fu nd. Assigned fund balance is established by City Commission through adoption or amendment of the budget as intended for specific purpose (such as the purchase of fixed assets, construction, debt service, or for other purposes). In the General Fund, the City strives to maintain a fund balance operating reserve of approximately 25% of the subsequent year’s budgeted General Fund payroll and operating expenditures. Proprietary Funds Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the City’s enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Budgets General governmental revenue and expenditures accounted for in budgetary funds are controlled by a budgetary accounting system in accordance with various legal requirements which govern the City’s operations. Budgets are monitored at varying levels of classification detail; however, expenditures cannot legally exceed total appropriations at the individual fund level. Budgets are adopted for all governmental funds (general, special revenue, and capital projects). The City Manager is authorized to transfer budgeted amounts within departments within any fund; however, any revisions that increase the total expenditures of any department or fund must be approved by the City Commission. All necessary supplemental appropriations are adopted by the City Commission and are included in the reported budgetary data. The budget presented in the accompanying required supplemental information is prepared in conformity with accounting principles generally accepted in the United States of America. Cash and Investments Except where prohibited, cash resources of the individual funds are combined to form a pool of cash and investments. Investment earnings and losses on the pooled cash and investments are distributed to the appropriate funds based on the average monthly balance of investments in each fund. Investments are valued at fair market value (see Note 2). 20 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 For the purposes of the statement of cash flows, the City’s proprietary funds consider cash and cash equivalents to include cash and investments with an original maturity of three months or less. Receivables Receivables are recorded at their net realizable value. Inter-Fund Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to/from other funds” (i.e., the current portion of inter- fund loans) or “advances to/from other funds” (i.e., the non-current portion of inter-fund loans). Inventories Inventories consisting principally of expendable materials, supplies, and fuel are determined by physical count at the City’s year-end on an annual basis and are valued at the lower of cost (first-in, first-out) or market. On the balance sheet - governmental funds, the inventory balance reported is considered non- spendable fund balance, which indicates that it does not constitute “available spendable resources” even though it is a component of net current assets. The cost of governmental fund-type inventories is recorded as expenditure when consumed. Restricted Assets Certain enterprise fund assets are required to be segregated from other current assets due to various bond indenture agreements and City ordinances. These assets are legally restricted for specific purposes, such as debt service, new construction, and renewals and replacements. Use of Restricted Funds When both restricted and unrestricted resources are available for use in the City’s funds, it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed. Capital Assets Capital assets, which include property, plant and equipment, and infrastructure assets (e.g., roads, drainage improvements, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Property, plant and equipment with initial, individual costs that equal or exceed $1,000 and estimated useful lives of over one year are recorded as capital assets. Capital 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. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. 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. 21 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Property, plant and equipment are depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings and Improvements 10 – 40 Improvements Other Than Buildings 10 – 50 Infrastructure 25 – 100 Machinery and Equipment 3 – 40 Long-Term Obligations In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums, discounts, and refunding losses are deferred and amortized over the life of the bonds using the effective interest method. Bond issuance costs are expensed when incurred with the exception of bond insurance, which is amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Compensated Absences Accumulated unpaid vacation and sick pay are accrued when incurred in the government-wide and proprietary fund financial statements. Deferred Inflows/Outflows of Resources Deferred inflows of resources reported on applicable governmental fund types represent revenues, which are measureable but not available in accordance with the modified accrual basis of accounting. The deferred inflows will be recognized as revenue in the fiscal year they are earned or become available. Deferred outflows of resources represent consumption of net position that is applicable to a future reporting period. Deferred outflows have a positive effect on net position, similar to assets. Deferred inflows of resources represent the acquisition of net position that is applicable to a future reporting period. Deferred inflows have a negative effect on net position, similar to liabilities. Unamortized Refunding Loss—the difference between the net reacquisition cost of new debt and the net carrying amount of the old debt is recorded as a deferred outflow of resources. The unamortized refunding loss is recognized as expense over the remaining term of the new debt using the straight-line method. Pension and OPEB Related—the difference between expected and actual experience with regard to economic or demographic factors and changes to assumptions in the measurement of total pension and OPEB liability and the differences between expected and actual earnings on pension plan investments, are reported as deferred inflows or outflows of resources, to be recognized in expense in future years. Contributions made subsequent to the measurement date, but prior to the reporting date, are reported as deferred outflows of resources. 22 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Revenue Recognition Utility revenues are reported on the accrual basis in the accompanying financial statements. Grant revenues are recorded using the modified accrual basis in governmental funds and the accrual basis in the proprietary funds. Restricted grant revenues, which are received but not expended, are recorded as unearned revenues. Property Taxes The assessment of all properties and the collection of all property taxes are made through the Property Appraiser and Tax Collector of the City of Jacksonville, Florida. General property taxes are recorded as received, in cash, which approximates taxes levied less discounts for the current fiscal year. Taxes are levied on November 1 of each year. All taxes become delinquent on April 1 of the following year. Discounts are allowed for early payment. On or prior to June 1, interest-bearing certificates are sold for all uncollected real property taxes. Unsold certificates are held by the City of Jacksonville, Florida. Inter-Fund Transactions During the course of normal operations, the City has various transactions between funds to construct assets and comply with local ordinances and other legal restrictions. These transactions are reflected as transfers. In addition, certain transfers have been made between systems and accounts of the utility enterprise fund as required by bond covenants. Prior Period Information The financial statements include certain prior year summarized comparative information in total. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the City’s financial statements for the year ended September 30, 2017, from which the summarized information was derived. Future GASB Pronouncement Implementations The City is currently evaluating the effects that the following GASB Statements, which will be implemented in future financial statements, will have on its financial statements for subsequent fiscal years:  Statement No 83, “Certain Asset Retirement Obligations (AROs).” This Statement addresses accounting and financial reporting for certain AROs. An ARO is a legally enforceable liability associated with the retirement of a tangible capital asset. A government that has legal obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability. This Statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for AROs. This statement is currently under review and the City will consider the impact, if any, upon financial reporting. The provisions of this statement are effective for fiscal years beginning after June 15, 2018.  Statement No. 87, “Leases.” This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that 23 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. This statement is currently under review and the City will consider the impact, if any, upon financial reporting. The provisions of this statement are effective for fiscal years beginning after December 15, 2019. Note 2 - Cash and Investments The City maintains a cash and investment pool that is designed for use by all funds, except for those monies which are periodically transferred for pension investment purposes. In addition, investments are separately held and individually accounted for where contractual arrangements and bond covenants provide for and require such arrangements. At September 30, 2018, the carrying amount of cash on hand and on deposit with banks, including interest-bearing deposits was $1,908,218, and the related bank balance was $2,449,238. Monies which are placed on deposit with financial institutions in the form of demand deposit accounts, time deposit accounts, and certificates of deposit are defined as public deposits. All of the City’s public deposits are held in qualified public depositories pursuant to Florida Statutes Chapter 280, Florida Security for Public Deposits Act (the Act). Under the Act, all qualified public depositories are required to pledge eligible collateral having a market value equal to or greater than the average daily or monthly balance of all public deposits, times the depository’s collateral pledged level. The pledging level may range from 25% to 125% depending upon the depository’s financial condition and establishment period. All collateral must be deposited with an approved financial institution. Any losses to public depositors are covered by applicable deposit insurance, sale of securities pledged as collateral and, if necessary, assessments against other qualified public depositories of the same type as the depository in default. The City elected to adopt a written investment policy as authorized under Florida Statutes. Under the City’s investment policies, general investments’ activities are authorized to invest in obligations of the U.S. Treasury, demand deposits, U.S. government agency securities, certificates of deposit, U.S. government sponsored enterprises, government and corporate fixed income mutual funds, corporate notes and bonds, and local government investment pools. Pension trust funds can invest in the aforementioned and, additionally, authorized investments include domestic and foreign equity securities, domestic and foreign fixed income securities, and cash equivalent securities. Following are the investments, credit ratings, and maturities of the City’s governmental and business-type activities at September 30, 2018: Investment Maturities Fair Less Than 1-5 6-10 More Than Investment Type Value 1 Year Years Years 10 Years Total Money Market Funds/Cash $ 126,171 $ 126,171 $ - $ - $ - $ 126,171 Corporate Bonds 5,574,933 1,058,870 4,516,063 - - 5,574,933 U.S. Government Securities 9,346,194 3,417,858 5,928,336 - - 9,346,194 Federal Agency Securities 1,166,904 - 781,646 385,258 - 1,166,904 Florida PRIME 23,628 23,628 - - - 23,628 Total $ 16,237,830 $ 4,626,527 $ 11,226,045 $ 385,258 $ - $ 16,237,830 24 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Investment Moody’s Credit Percent of Type Rating Total U.S. Government Securities Aaa 57.64% Corporate Bonds Aaa 0.16% Corporate Bonds Aa2 0.35% Corporate Bonds Aa3 2.73% Corporate Bonds A1 3.68% Corporate Bonds A2 4.33% Corporate Bonds A3 6.58% Corporate Bonds Baa1 7.57% Corporate Bonds Baa2 3.16% Corporate Bonds Baa3 0.25% Corporate Bonds NR 5.57% Federal Agencies NR 7.20% Cash and Money Market NR 0.78% Listed below are the investments and maturities in the City’s pension trust funds at September 30, 2018: Investment Maturities Fair Less Than 1-5 6-10 More Than Investment Type Value* 1 Year Years Years 10 Years Total Cash Deposits and Money Markets $ 1,357,388 $ 1,357,388 $ - $ - $ - $ 1,357,388 Common Stocks 11,663,845 11,663,845 - - - 11,663,845 ETFs 5,302,497 5,302,497 - - - 5,302,497 Corporate Bonds 4,129,640 - 3,371,877 757,763 - 4,129,640 Mutual Funds 6,790,832 6,790,832 - - - 6,790,832 Government and GSE Bonds 1,949,400 - 814,094 595,699 539,607 1,949,400 ICMA Self Directed 494,354 494,354 - - - 494,354 Total $ 31,687,956 $ 25,608,916 $ 4,185,971 $1,353,462 $ 539,607 $ 31,687,956 * Fair value balances reported include $40,374 of interest receivable. The total pension investment balances of the City at September 30, 2018, are comprised of the following items: Investment Moody’s Credit Percent of Type Rating Total Corporate Bonds Aaa 1.32% Corporate Bonds A1 0.26% Corporate Bonds A2 0.78% Corporate Bonds A3/AA 2.07% Corporate Bonds Baa1 2.12% Corporate Bonds Baa2 2.53% Corporate Bonds Baa3 3.56% Corporate Bonds Ba2 0.40% Government and GSE Bonds Aaa 4.45% Government and GSE Bonds NR 1.70% ETFs NR 16.73% Mutual Funds NR 21.43% Stocks NR 36.81% Cash and Money Market NR 4.28% ICMA Self Directed NR 1.56% 25 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Credit Risk—It is the City’s Police Officers’ Retirement System Trust Fund’s and the City’s General Employees’ Retirement System Trust Fund’s investment policies to, at a minimum, limit 80% of the total fixed income portfolio to those that are rated investment grade of higher. The Police Officers’ Retirement System Trust Fund’s investment policy defines investment grade as “BBB”, Baa”, or their equivalent. Also, no more than 10% (at cost) of the fixed income portfolio total value can be invested in the securities of any single corporate issuer. The maximum allocation to International Equities is 25%. Custodial Credit Risk—For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City’s investment policy does not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The Finance Director may execute a third party Custodial Safekeeping Agreement with a commercial bank having trust powers or a trust company which is chartered by the United States government or the State of Florida. All securities purchased and/or collateral obtained by the City shall be properly designated as an asset of the City and held in safekeeping by the trust department or trust company, and no withdrawal of such securities, in whole or in part, shall be made from safekeeping, except by an authorized City staff member. The third party Custodial Safekeeping Agreement shall include letters of authority from the City with details as to responsibilities of parties, notification of security purchases, sales, deliver, repurchase agreements, wire transfers, safekeeping and transaction costs, procedures in case of wire failure or other unforeseen mishaps, including liability of each party. Fair Value Measurements The fair value hierarchy categorizes the inputs to valuation techniques used to measure fair value into three levels:  Level 1 Inputs―are quoted prices (unadjusted) for identical assets or liabilities in active markets that a government can access at the measurement date.  Level 2 Inputs―are inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly or indirectly.  Level 3 Inputs―are unobservable inputs for an asset or liability. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. If a price for an identical asset or liability is not observable, a government should measure fair value using another valuation technique that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. The City’s investments are measured at fair value on a recurring basis. Fair value measurements are categorized based on the valuation inputs used to measure an asset’s fair value in the hierarchy described above. The fair value measurements for the City’s operating investments are as follows at September 30, 2018: 26 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Restricted cash and investments at September 30, 2018, in the enterprise funds follows: Renewal System Enterprise Customer and Debt Development Funds Deposits Replacement Service Fees Totals Utility Fund $ 691,244 $ 250,000 $ 394,939 $ 1,900,438 $3,236,621 Note 3 - Receivables Receivables, net of the allowance for doubtful accounts at September 30, 2018, consist of the following: Less Total Allowance Accounts Accounts for Doubtful Receivable Fund Receivable Accounts Net General $ 350 $ - $ 350 Utility 563,193 (20,237) 542,956 Stormwater 54,496 (6,025) 48,471 Sanitation 88,315 (10,828) 77,487 Total $ 706,354 $ (37,090) $ 669,264 Quoted Prices in Significant Other Significant Active Markets for Oberservable Unobservable Identical Assets Inputs Inputs Investments by Fair Value Level Amount (Level 1)(Level 2)(Level 3) City Investments Corporate Bonds 5,574,933$ -$ 5,574,933$ -$ U.S. Government Securities 9,346,194 9,346,194 - - Federal Agency Securities 1,166,904 - 1,166,904 - Subtotal - City Investments 16,088,031 9,346,194 6,741,837 - General Employees' Pension Plan Money Markets 527,749 527,749 - - U.S. Treasury Obligations and Federal Agency Securities 1,377,242 998,120 379,122 - Corporate Bonds 2,878,364 - 2,878,364 - Mutual Funds 3,945,712 3,945,712 - - ETFs 3,455,309 3,455,309 - - Equities 7,653,978 7,653,978 - - ICMA Self Directed - - - - Subtotal - General Employees' Pension Plan 19,838,354 16,580,868 3,257,486 - Police Officers' Pension Plan Money Markets 829,639 829,639 - - U.S. Treasury Obligations and Federal Agency Securities 572,158 411,672 160,486 - Corporate Bonds 1,251,276 - 1,251,276 - Mutual Funds 2,845,120 2,845,120 - - ETFs 1,847,188 1,847,188 - - Equities 4,001,368 4,001,368 - - ICMA Self Directed 494,354 494,354 - - Subtotal - Police Officers' Pension Plan 11,841,103 10,429,341 1,411,762 - Total Investments Measured at Fair Value 47,767,488$ 36,356,403$ 11,411,085$ -$ Fair Value Measurements Using Investments Measured at the Net Asset Weighted Average Credit Value (NAV)Amount Maturity Risk Governmental Funds: State Board of Administration (SBA): Florida Prime 23,628$ 33 Days AAAm (S&P) 27 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Included in accounts receivable are $249,898 of water and sewer revenues earned, but not billed as of September 30, 2018. Note 4 - Notes Receivable It is the City’s policy to allow its water and sewer customers to pay connection fees over an extended period. Following is a summary of the outstanding balance at September 30, 2018: Notes Receivable $ 139,062 (Current Portion) (16,519) Total Notes Receivable – Non-Current $ 122,543 Note 5 - Capital Assets Capital asset activity for the fiscal year ended September 30, 2018, is as follows: Beginning Ending Balance Increases (Decreases) Balance Governmental Activities Capital Assets Not Being Depreciated: Land $ 10,563,572 $ 1,350,000 $ - $ 11,913,572 Construction in Progress 638,681 260,981 (158,266) 741,396 Total Capital Assets Not Being Depreciated 11,202,253 1,610,981 (158,266) 12,654,968 Capital Assets Being Depreciated: Buildings 9,450,124 - - 9,450,124 Intangible Assets 428,352 - - 428,352 Improvements Other Than Buildings 41,339,136 478,662 - 41,817,798 Machinery and Equipment 4,773,879 444,409 (101,133) 5,117,155 Total Capital Assets Being Depreciated 55,991,491 923,071 (101,133) 56,813,429 Less Accumulated Depreciation for: Buildings (2,235,944) (167,263) - (2,403,207) Intangible Assets (366,372) (13,630) - (380,002) Improvements Other Than Buildings (16,286,043) (719,345) - (17,005,388) Machinery and Equipment (3,508,811) (434,136) 101,133 (3,841,814) Total Accumulated Depreciation (22,397,170) (1,334,374) 101,133 (23,630,411) Total Capital Assets Being Depreciated, Net 33,594,321 (411,303) - 33,183,018 Governmental Activities Capital Assets, Net $ 44,796,574 $ 1,199,678 $ (158,266) $ 45,837,986 28 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Beginning Ending Balance Increases (Decreases) Balance Business-Type Activities Capital Assets Not Being Depreciated: Land $ 1,656,018 $ - $ - $ 1,656,018 Construction in Progress 1,407,887 794,359 (715,838) 1,486,408 Total Capital Assets Not Being Depreciated 3,063,905 794,359 (715,838) 3,142,426 Capital Assets Being Depreciated: Buildings 4,356,384 - - 4,356,384 Intangible Assets 244,709 - - 244,709 Improvements Other Than Buildings 84,055,919 1,261,759 - 85,317,678 Machinery and Equipment 2,667,929 486,583 (26,702) 3,127,810 Total Capital Assets Being Depreciated 91,324,941 1,748,342 (26,702) 93,046,581 Less Accumulated Depreciation for: Buildings (4,303,514) (8,813) - (4,312,327) Intangible Assets (30,853) (191) - (31,044) Improvements Other Than Buildings (47,488,158) (2,423,288) - (49,911,446) Machinery and Equipment (1,980,719) (193,589) 26,702 (2,147,606) Total Accumulated Depreciation (53,803,244) (2,625,881) 26,702 (56,402,423) Total Capital Assets Being Depreciated, Net 37,521,697 (877,539) - 36,644,158 Business-Type Activities Capital Assets, Net $ 40,585,602 $ (83,180) $ (715,838) $ 39,786,584 Depreciation expense was charged to functions/programs as follows: Governmental Activities General Governmental $ 231,892 Public Safety 234,338 Road Maintenance and Construction 593,504 Parks and Recreation 274,640 Total Depreciation Expense - Governmental Activities $ 1,334,374 Business-Type Activities Utility $ 1,983,736 Stormwater 634,262 Sanitation 1,093 Building Code Enforcement 6,789 Total Depreciation Expense - Business-Type Activities $ 2,625,880 Note 6 - Long-Term Debt Revenue Bonds and Loans payable are comprised of the following: Governmental Activities Revenue Bond Payable Capital Improvement Revenue Bond, Series 2018, Payable in Annual Installment of Principal and Semiannual Installments of Interest Through October 1, 2033, Bearing Coupon Rates of 3.550%, Secured Solely by a Pledge of non-Advalorem revenues. $ 1,400,000 Total Governmental Revenue Bonds Payable $ 1,400,000 29 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Business-Type Activities Revenue Bond Payable Utilities System Revenue Refunding Bond, Series 2014, Payable in Annual Installments of Principal and Semiannual Installments of Interest Through October 1, 2025, Bearing Coupon Rates of 2.330%, Secured Solely by a Pledge of and Lien on Net Water and Sewer System Revenues and Certain Other Revenues as Defined in the Bond Ordinance $ 10,525,000 Loans Payable Florida Department of Environmental Protection, Disbursements and Capitalized Interest for a $773,030 State of Florida Revolving Loan #DW160710, Issued to Finance the Construction Costs to Replace a Well at Water Treatment Plant No. 1 and a Transmission Main on Ocean Boulevard, Payable in Semiannual Installments of Principal and Interest Through November 15, 2030, with Financing Rates of 2.71%, Secured Solely by a Pledge of Net Water and Sewer System Revenues, After Payment of all Yearly Payment Obligations on Account of the Senior Revenue Obligations, as Defined in the Loan Agreement 525,873 Florida Department of Environmental Protection , Disbursements, Service Fee, and Capitalized Interest for a Combined $9,368,576 State of Florida Revolving Loan #WW160700, Issued to Finance the Construction of Treatment and Transmission Facilities for the Buccaneer WWTP Phase-out Improvements and TMDL Compliance Program WWTP #1, Payable in Semiannual Installments of Principal and Interest Through May 15, 2032, with Financing Rates of 3.14% and 2.88%, Secured Solely by a Pledge of Net Water and Sewer System Revenues, After Payment of all Yearly Payment Obligations on Account of the Senior Revenue Obligations, as Defined in the Loan Agreement 5,763,576 Total Revenue Bond and Loans Payable $ 16,814,449 The annual requirements to amortize all revenue bonds and loans payable outstanding at September 30, 2018, are as follows: Governmental Activities Year Ending Long-Term Debt September 30 Principal Interest Total 2019 $ 70,000 $ 48,458 $ 118,458 2020 75,000 47,215 122,215 2021 80,000 44,553 124,553 2022 80,000 41,713 121,713 2023 85,000 38,873 123,873 2024-2028 460,000 147,868 607,868 2029-2033 550,000 60,350 610,350 Total $ 1,400,000 $ 429,030 $ 1,829,030 30 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Business-Type Activities Year Ending Long-Term Debt September 30 Principal Interest Total 2019 $ 1,584,444 $ 423,466 $ 2,007,910 2020 1,620,979 383,330 2,004,309 2021 1,657,875 342,251 2,000,126 2022 1,705,143 300,101 2,005,244 2023 1,747,794 256,809 2,004,603 2024-2028 6,468,041 663,548 7,131,589 2029-2033 2,030,173 140,711 2,170,884 Total $ 16,814,449 $ 2,510,216 $ 19,324,665 Interest and amortization incurred during the year ended September 30, 2018, amounted to $440,048. Of the amount incurred, no interest was capitalized. The City is also required to maintain certain debt service coverage ratios in accordance with bond resolutions. As of September 30, 2018, and during the year then ended, the City was in compliance with those ratios. Capital Lease At the end of the fiscal year, the City entered into a lease agreement for financing the acquisition of a Vac- Con Vacuum Truck. Lease payments including principal and interest are due each September 1, until 2022 at an interest rate of 3.98%. The asset acquired through the capital lease are as follows: Asset Vac-Con Vacuum Truck $ 334,544 Accumulated Depreciation - Net Book Value $ 334,544 The future minimum lease obligations and the net present value of these minimum lease payments as of September 30, 2018, were as follows: Year Ending September 30 Principal Interest Total 2019 $ 63,061 $ 10,614 $ 73,675 2020 65,562 8,113 73,675 2021 68,162 5,513 73,675 2022 70,865 2,810 73,675 Total $ 267,650 $ 27,050 $ 294,700 31 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 The following is a summary of the changes in long-term debt of the City for the year ended September 30, 2018: Balance Balance Due October 1, September 30, Within 2017 Additions Reductions 2018 One Year Governmental Activities Revenue Bonds Payable $ - $ 1,400,000 $ - $1,400,000 $ 70,000 Compensated Absences 685,458 409,104 (351,779) 742,783 349,760 OPEB Obligation 305,467* 8,427 - 313,894 - Net Pension Liability 7,258,426 - (880,807) 6,377,619 - Total Governmental Activities - Long-Term Liabilities $ 8,249,351 $ 1,817,531 $ (1,232,586) $ 8,834,296 $ 419,760 Business-Type Activities State Revolving Fund Loans $ 6,647,706 $ - $ (358,257) $ 6,289,449 $ 369,444 Revenue Bonds Payable 11,710,000 - (1,185,000) 10,525,000 1,215,000 Total Bonds/Loans Payable 18,357,706 - (1,543,257) 16,814,449 1,584,444 Capital Lease Payable - 334,544 (66,894) 267,650 63,060 Compensated Absences 246,662 128,023 (139,711) 234,974 139,588 OPEB Obligation 137,648* 3,797 - 141,445 - Net Pension Liability 2,575,159 - (440,398) 2,134,761 - Total Business-Type Activities - Long-term Liabilities $ 21,317,175 $ 466,364 $ (2,190,260) $ 19,593,279 $ 1,787,092 *Beginning balances restated for implementation of GASB No.75 Conduit Debt The City has issued Health Facility Revenue and Refunding Bonds to provide financial assistance to private sector entities for the acquisition and construction of health care facilities deemed to be in the public interest. These bonds are secured by the financed property and are payable solely from the payments received on the underlying mortgage loans. There is no obligation on the part of the City or any political subdivision for repayment of the bonds. Accordingly, the bonds are not reported as liabilities in the accompanying financial statements. As of September 30, 2018, there are two series of Health Facility Revenue and Refunding Bonds outstanding, with an aggregate principal amount payable of $53,005,000. Pledged Revenue The City has pledged certain revenues to repay certain bonds and notes outstanding as of September 30, 2018. The following table reports the revenues, sometimes net of related operating expenses, pledged for each debt issue, the amounts of such revenues received in the current year, the current year principal and interest paid on the debt, the approximate percentage of each revenue which is pledged to meet the debt obligation, and the date through which the revenue is pledged under the debt agreement, and the total pledged future revenues for each debt, which is the amount of the remaining principal and interest on the bonds and notes at September 30, 2018: 32 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Outstanding Net Principal Estimated Principal Pledged Revenue and Interest Percentage and Pledged Description Revenue Received Paid Pledged Interest Through 2014 – Utility System Utility Refunding Bonds Revenues $ 3,471,574 $ 1,444,038 41.60% $ 11,535,463 2026 Florida Department of Environmental Utility Protection, SRF Loan Revenues 3,471,574 49,879 1.44% 621,862 2031 Florida Department of Environmental Utility Protection, SRF Loan Revenues 3,471,574 511,953 14.75% 7,167,344 2032 Note 7 - Defined Benefit Pension Plans Plan Descriptions The City maintains two separate single-employer defined benefit pension plans, one for police officers and one for general employees, which cover substantially all full-time City employees hired before September 1, 2008. The general employees’ defined benefit plan is closed to new entrants. Full-time general employees hired on or after September 1, 2008, are covered by the defined contribution plan disclosed in Note 8. The pension plans do not issue separate stand-alone financial statements. Combining statements are included in the supplementary information to the basic financial statements. General Employees’ Retirement Plan Plan Description The General Employees’ Retirement Plan (the Plan) provides retirement, disability, and death benefits to Plan members and their beneficiaries. The City Commission has the authority to establish and amend the benefit provisions of the Plan. The Plan is governed by a Retirement Plan Board appointed by the City Commission and comprised of five members, two of which will be eligible legal residents of the City, two of which will be general employees elected by the majority of general employees who are members of the Plan, and one of which will be elected by the other four members. Plan membership in the General Employees’ Retirement Plan as of September 30, 2018 and 2017, is as follows: September 30, September 30, Retirees and Beneficiaries 2018 2017 Inactive Plan Members or Beneficiaries Currently Receiving Benefits 74 69 Inactive Plan Members Entitled to but Not Yet Receiving Benefits 7 10 Active Plan Members 34 37 Total 115 116 33 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Plan Benefits Normal retirement is available upon the attainment of age sixty and the completion of five years of credited service. Early retirement is available with a reduced benefit upon the attainment of age fifty-five and the completion of five years of credited service. For members hired before April 24, 2005, the normal retirement benefit shall equal 2.85% of average final compensation for each year of credited service. For members hired on or after April 24, 2005, the normal retirement benefit shall equal 2.50% of average final compensation for each year of credited service. The Plan includes a deferred retirement option program (DROP) under which members eligible for normal retirement may have their monthly pension benefit credited to an account while continuing to be actively employed for up to five years. As of September 30, 2018, Plan net position included $13,404 of DROP account balances. Contributions The City is required to contribute at an actuarially determined rate (64.35%) of valuation payroll for the year ended September 30, 2018. City contributions to the Plan were $1,332,119 for the year ended September 30, 2018. Plan members are required to contribute 6.0% of their annual covered salary. Contribution requirements are established by City code, which may be amended by the City Commission. Measurement Date The City elected to use a measurement date to value the net pension liability and related deferred inflows and outflows as of September 30, 2017, one year prior to the reporting date. The City’s Pension Plans do not issue separate financial statements. Therefore, the disclosures required for the Plan as of September 30, 2018, are also included below: September 30, 2018 Total Pension Liability $ 23,534,251 Plan Net Position (19,714,297) Net Pension Liability $ 3,819,954 *Note: Plan Net Position per Fiduciary Statement of Net Position on page 61 is different than the Plan Net Position noted above primarily due to the booking of a $3,245 payable. Differences are immaterial. General Employees’ Retirement Plan Net Position as a Percentage of Total Pension Liability 83.77% General Employees' Plan Total Pension Plan Fiduciary Net Pension Liability Net Position Liability Balances at September 30, 2016 22,032,455$ 16,524,333$ 5,508,122$ Changes for the Year: Service Cost 350,331 - 350,331 Interest 1,520,626 - 1,520,626 Difference Between Expected and Actual Experience of the Total Pension Liability 309,872 - 309,872 Contributions - Employer - 1,175,572 (1,175,572) Contributions - State - - - Contributions - Employee - 124,024 (124,024) Net Investment Income - 1,792,192 (1,792,192) Benefit Payments, Including Refunds of Contributions (1,319,107) (1,319,107) - Administrative Expenses - (55,702) 55,702 Other - 1,822 (1,822) Net Changes 861,722 1,718,801 (857,079) Balances at September 30, 2017 22,894,177$ 18,243,134$ 4,651,043$ 34 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 For the year ended September 30, 2018, the City recognized total pension expense of $1,239,814. The City reported deferred outflows of resources and deferred inflows of resources related to the General Employees’ Pension Plan from the following sources: Deferred Outflows of Resources Changes in Assumptions $ 143,330 Difference Between Expected and Actual Experience 232,952 Net Difference Between Projected and Actual Earnings - Contributions Made Subsequent to Measurement Date 1,332,119 Total Deferred Outflows of Resources $ 1,708,401 Deferred Inflows of Resources Difference Between Expected and Actual Experience $ 10,141 Net Difference Between Projected and Actual Earnings 370,261 Total Deferred Inflows of Resources $ 380,402 Contributions made after the measurement date (shown above) will be recognized as a reduction of net pension liability in the fiscal year ended September 30, 2018. Other amounts reported as deferred outflows of resources related to pensions will be recognized in pension expense as follows: Year Ending September 30 Amount 2019 $ 326,910 2020 17,224 2021 (220,641) 2022 (127,613) 2023 - Total $ (4,120) Plan Investments The Retirement Plan Board is responsible for establishing and amending the Plan’s investment policies. The Plan’s current investment policy gives the Board discretion to allocate assets with assistance of the Plan’s investment consultant. No formal targets are stated in the investment policy although the maximum allocation to international equities is 25%. The money-weighted rate of return on Plan investments, net of investment related expenses, was 8.67% and 10.92% for the years ended September 30, 2018 and 2017, respectively. Actuarial Assumptions The total pension liability was determined by actuarial valuations for the Plan as of September 30, 2017, rolled forward to September 30, 2018, using the following actuarial assumptions, applied to all periods included in the measurement: Inflation: 2.50% Salary Increases: Age based ranging from 4.80% - 9.50% (including 2.5% price inflation) Investment Rate of Return: 6.75%, net of investment expenses, including inflation 35 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Mortality: RP2000 Combined Health Participant Mortality Table (for preretirement mortality) and the RP-2000 Mortality Table for Annuitants (for post -retirement mortality), with mortality improvements projects to all future years after 2000 using Scale BB. Date of Experience Study: Other significant actuarial assumptions used in the October 1, 2017 valuation were based on the results of an actuarial experience study (dated August 9, 2017) for the period October 1, 2009 - September 30, 2016. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense of 0.50% and inflation of 2.50%) are developed for each major asse t class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation (see the discussion of the pension plans’ investment policy) are summarized in the following table: Target Long-Term Expected Asset Class Allocation Real Net Rate of Return US Large-Cap Growth Stocks 13% 7.4% US Large-Cap Value Stocks 12% 7.0% US Mid-Cap Growth Stocks 3% 8.6% US Mid-Cap Value Stocks 4% 7.8% US Mid-Cap Core Stocks 3% 6.9% US Small-Cap Growth Stocks 5% 9.6% US Small-Cap Value Stocks 5% 8.6% International Equities 5% 7.2% US Investment Grade Bonds 40% 1.8% Cash (US 90-day T-bill) 10% 0.2% Discount rate. A single discount rate was used to measure the total pension liability. The single discount rate was based on the expected rate of return on Plan investments of 6.75%. The projection of cash flows used to determine the single discount rate assumed that plan member contributions will be made at the current contribution rate and that City contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on Plan investments (6.75%) was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the net pension liability to changes in the discount rate. The following presents the net pension liability of the City, calculated using the discount rate noted below, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower or 1-percentage-point higher than the current rate: 36 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 As of September 30, 2018: Net Pension 1% Decrease Current Discount 1% Increase Liability (5.75%) Rate (6.75%) (7.75%) General Employees’ Pension Plan $ 6,422,922 $ 3,819,954 $ 1,591,301 As of September 30, 2017: Net Pension 1% Decrease Current Discount 1% Increase Liability (6.00%) Rate (7.00%) (8.00%) General Employees’ Pension Plan $ 7,144,341 $ 4,651,043 $ 2,517,190 Police Officers’ Retirement Plan Plan Description The Police Officers’ Retirement Plan (the Police Plan) provides retirement, disability, and death benefits to Police Plan members and their beneficiaries. The Police Plan is governed by the Policemen’s Pension Board of Trustees, although the City Commission retains the authority to establish and amend the benefit provisions of the Police Plan. The Policemen’s Pension Board of Trustees is appointed by the City Commission and comprised of five members, two of which will be eligible legal residents of the City, two of which will be police officers elected by the majority of police officers who are members of the Police Plan, and one of which will be elected by the other four trustees. Membership in the Police Officers’ Retirement Plan as of September 30, 2018 and 2017, is as follows: September 30, September 30, 2018 2017 Retirees and Beneficiaries Inactive Plan Members or Beneficiaries Currently Receiving Benefits 22 22 Inactive Plan Members Entitled to but Not Yet Receiving Benefits 4 4 Active Plan Members 24 23 Total 50 49 Plan Benefits For members hired before January 1, 2013, normal retirement is available upon the attainment of age fifty and the completion of twenty years of credited service, the attainment of age fifty -five and the completion of ten years of credited service, the completion of twenty-five years of credited service regardless of age, or the attainment of age sixty and the completion of five years of credited service. For members hired on or after January 1, 2013, normal retirement is available upon the attainment of age fifty-five and the completion of ten years of credited service or the attainment of age fifty-two and the completion of twenty-five years of credited service. Early retirement is available with a reduced benefit upon the attainment of age fifty and the completion of ten years of credited service. 37 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 For members hired before January 1, 2013, the normal retirement benefit shall equal 3.00% of average final compensation for each year of credited service. For members hired on or after January 1, 2013, the normal retirement benefit shall equal 2.00% of average final compensation for each year of credited service. The Police Plan includes a DROP under which members eligible for normal retirement may have their monthly pension benefit credited to an account while continuing to be actively employed for up to five years. As of September 30, 2018, Police Plan net position included $494,654 of DROP account balances. Contributions The City is required to contribute, at actuarially determined rates, if State of Florida contributions are not sufficient (combined City and State contributions were 52.12% of valuation payroll for the year ended September 30, 2018). City and State contributions to the Police Plan were $1,091,552 for the year ended September 30, 2018. Police Plan members are required to contribute 8.0% of their annual covered salary. Per City Code, the City Commission may amend established contribution requirements. Measurement Date The City elected to use a measurement date to value the net pension liability and related deferred inflows and outflows as of September 30, 2017, one year prior to the reporting date. The City’s Pension Plans do no issue separate financial statements. Therefore, the disclosures required for the Plan as of September 30, 2018, are also included below: September 30, 2018 Total Pension Liability $ 15,445,722 Plan Net Position (12,164,644) Net Pension Liability $ 3,281,078 Police Officers’ Retirement Plan Net Position as a Percentage of Total Pension Liability 78.76% *Note: Plan Net Position per Fiduciary Statement of Net Position on page 61 is different than the Plan Net Position noted above primarily due to the booking of a $1,066 receivable. Police Officers' Plan Total Pension Plan Fiduciary Net Pension Liability Net Position Liability Balances at September 30, 2016 13,798,817$ 9,473,354$ 4,325,463$ Changes for the Year: Service Cost 329,476 - 329,476 Interest 966,445 - 966,445 Difference Between Expected and Actual Experience of the Total Pension Liability 214,010 - 214,010 Contributions - Employer - 945,540 (945,540) Contributions - State - - - Contributions - Employee - 129,552 (129,552) Net Investment Income - 950,447 (950,447) Benefit Payments, Including Refunds of Contributions (643,872) (643,872) - Pension Plan Administrative Expense - (51,481) 51,481 Net Changes 866,059 1,330,186 (464,127) Balances at September 30, 2017 14,664,876$ 10,803,540$ 3,861,336$ 38 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 For the year ended September 30, 2018, the City recognized total pension expense of $811,224. The City reported deferred outflows of resources and deferred inflows of resources related to the Police Plan from the following sources: Deferred Outflows of Resources Net Difference Between Projected and Actual Earnings on Pension Plan Investments $ 161,812 Assumption Changes 141,741 Contributions Made Subsequent to Measurement Date 1,091,552 Total Deferred Outflows of Resources $ 1,395,105 Deferred Inflows of Resources Differences Between Project and Actual Experience $ 62,398 Assumption Changes 27,288 Net Difference Between Projected and Actual Earnings on Pension Plan Investments 138,731 Total Deferred Inflows of Resources $ 228,417 Contributions made after the measurement date (shown above) will be recognized as a reduction of net pension liability in the fiscal year ending September 30, 2018. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending September 30 Amount 2019 $ 128,060 2020 40,119 2021 (43,456) 2022 (49,587) 2023 - Total $ 75,136 Plan Investments The Policemen’s Pension Board of Trustees is responsible for establishing and amending the Police Plan’s investment policies. The Police Plan’s current investment policy gives the Board discretion to allocate assets with assistance of the Police Plan’s investment consultant. No formal targets are stated in the investment policy although the maximum allocation to international equities is 25%. The money- weighted rate of return on Plan investments, net of investment related expenses, was 8.26% and 10.80% for the years ended September 30, 2018 and 2017, respectively. Actuarial Assumptions The total pension liability was determined by actuarial valuations for the Plan as of October 1, 2017, rolled forward to September 30, 2018, using the following actuarial assumptions, applied to all periods included in the measurement: Inflation: 2.50% Salary Increases: Age based ranging from 4.50% - 18.50% (including 2.5% price inflation) 39 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Investment Rate of Return: 6.75% per year compounded annually, net of investment expenses. Mortality: RP-2000 Combined Health Participant Mortality Table for males and females with generational projections from the Year 2000 Projection Scale BB. Date of Experience Study: Other significant actuarial assumptions used in the October 1, 2017, valuation were based on the results of an actuarial experience study (dated August 9, 2017) for the period October 1, 2009 - September 30, 2016. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense of 0.50% and inflation of 2.50%) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation (see the discussion of the pension plans’ investment policy) are summarized in the following table: Long-Term Expected Asset Class Target Allocation Real Net Rate of Return US Large-Cap Growth Stocks 13% 7.4% US Large-Cap Value Stocks 12% 7.0% US Mid-Cap Growth Stocks 3% 8.6% US Mid-Cap Value Stocks 4% 7.8% US Mid-Cap Core Stocks 3% 6.9% US Small-Cap Growth Stocks 5% 9.6% US Small-Cap Value Stocks 5% 8.6% International Equities 5% 7.2% US Investment Grade Bonds 40% 1.8% Cash (US 90-day T-bill) 10% 0.2% Discount rate. A single discount rate was used to measure the total pension liability. The single discount rate was based on the expected rate of return on Police Plan investments of 6.75%. The projection of cash flows used to determine the single discount rate assumed that plan member contributions will be made at the current contribution rate and that City contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the Police Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current Police Plan members. Therefore, the long-term expected rate of return on Police Plan investments (6.75%) was applied to all periods of projected benefit payments to determine the total pension liability. 40 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Sensitivity of the net pension liability to changes in the discount rate. The following presents the net pension liability of the City, calculated using the discount rate noted below, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower or 1-percentage-point higher than the current rate: September 30, 2018 Net Pension 1% Decrease Current Discount 1% Increase Liability (5.75%) Rate (6.75%) (7.75%) Police Officers’ Pension Plan $ 5,147,498 $ 3,281,078 $ 1,727,757 September 30, 2017 Net Pension 1% Decrease Current Discount 1% Increase Liability (6.00%) Rate (7.00%) (8.00%) Police Officers’ Pension Plan $ 5,625,875 $ 3,861,336 $ 2,387,826 Note 8 - Defined Contribution Plan The City passed an ordinance in 2013 closing the General Employees’ defined benefit plan to new entrants and creating the City of Atlantic Beach Defined Contribution Plan. The City’s 457 defined contribution plan is administered through ICMA, which covers all eligible employees employed with the City on or after September 1, 2008, who are not covered by the City’s Police Officers’ defined benefit plan. Under the 457 Plan, the City contributes an employer matching contribution of up to 6% of earnings during the first ten years of service. Following ten years of service, the City contributes an additional fixed contribution of 4% of earnings for a total of 10%. Employees have the option to voluntarily contribute to the 457 Plan. Employer matching contributions from the City were $64,100 and $60,944 for the years ended September 30, 2018 and 2017, respectively. Under the 457 Plan, an employee is considered fully vested after 5 years of completed service. Note 9 - Postemployment Benefits Other Than Pensions Plan Description The City of Atlantic Beach administers a single-employer defined benefit health care plan (the Plan) that provides medical insurance benefits to its employees and their eligible dependents. In accordance with Section 112.0801 of the Florida Statutes, because the City provides a medical plan to active employees of the City and their eligible dependents, the City is also required to provide retirees with the opportunity to participate in this Plan. Benefit provisions for the Plan are established by the City Commission and may be amended by the City Commission. The City does not issue stand-alone financial statements for the Plan. 41 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Membership in the Plan consisted of the following, as of September 30, 2017, the date of the latest actuarial valuation: Retirees and Beneficiaries Receiving Benefits 4 Active Plan Members 104 Total 108 Funding Policy Contribution rates for the Plan are established on an annual basis by the City Commission. Eligible retirees and their covered dependents receiving benefits contribute 100% of the blended (active and retiree combined) equivalent premium rates. While the City does not directly contribute towards the costs of retiree premiums via an explicit subsidy, the ability of retirees to obtain health insurance coverage at a blended, group rate constitutes a significant economic benefit to retirees, or an “implicit” subsidy. This implicit subsidy is considered to be another postemployment benefit (OPEB) obligation of the City. Actuarial Methods and Assumptions For the September 30, 2017 actuarial valuation, the Entry Age Normal Actuarial Cost Method was used. This method determines a service cost rate as a fixed percentage of compensation for each active participant. The current years’ service cost is the participant’s compensation multiplied by the service cost rate. Under this method, service cost for each individual participant, payable from date of employment to date of retirement, is sufficient to pay for the participant’s benefit at retirement. Other actuarial assumptions are as follows: Discount Rate: 3.50% Investment Rate of Return: 0.0% Salary Increases: Rates used in the October 1, 2017 actuarial valuation of the City’s pension plans. Healthcare Cost Trend: Based on Getzen Model, with trend of 7.09% for 2018 and 5.00% for 2019, 6.50% for 2020 and gradually decreasing to an ultimate trend rate of 4.24% plus 0.38% increase for excise tax. Mortality: Mortality tables used for Regular and Special Risk Class members in the July 1, 2016 actuarial valuation of the Florida Retirement System. They are based on the results of a statewide experience study covering the period 2008 through 2013. Discount Rate. The discount rate used to measure the total OPEB liability was 3.50% as of September 30, 2018, which is equal to the single rate of return developed pursuant to GASB 75. The discount rate used to determine the liabilities under GASB 75 depends on the City’s funding policy. Since the City does not prefund benefits, the discount rate required to be used is based on a yield or index rate of a 20-year Municipal GO AA Index. Annual OPEB Cost and Net OPEB Obligation The City’s total OPEB liability was measured as of September 30, 2018, and was determined by an actuarial valuation as of September 30, 2017. 42 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Changes in the Total OPEB Liability: Total OPEB Liability Balance at September 30, 2017 $ 443,115 Changes for the Year: Service Cost 41,222 Interest on the Total OPEB Liability 14,667 Changes in Assumptions (21,261) Benefit Payments (22,404) Net Changes 12,224 Balance at September 30, 2018 $ 455,339 Covered-Employee Payroll $ 6,272,956 Total OPEB Liability as a Percentage of Covered Payroll 7.26% Sensitivity of the Total OPEB Liability to Changes in the Discount Rate. The following presents the total OPEB liability of the City, as well as what the City’s total OPEB liability would be if it were calculated using a discount rate that is 1-percentage-point lower or 1-percentage-point higher than the current discount rate: 1% Discount 1% Decrease Rate Increase Net OPEB Liability $ 510,928 $ 455,339 $ 408,159 Sensitivity of the Total OPEB Liability to Changes in Healthcare Cost Trend Rates. The following presents the total OPEB liability for the City, as well as what the City’s total OPEB liability would be if it were calculated using healthcare trend rates that are 1-percentage-point lower or 1-percentage-point higher than the current healthcare cost trend rates: 1% Discount 1% Decrease Rate Increase Net OPEB Liability $ 390,095 $ 455,339 $ 538,608 OPEB Expense and Deferred Inflows of Resources Related to OPEB For the year ended September 30, 2018, the City recognized OPEB expense of $53,231. At September 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Deferred Outflows of Inflows of Description Resources Resources Changes in Assumptions and Other Inputs $ - $ 18,602 Benefit Paid after the Measurement Date 23,456 - Total $ 23,456 $ 18,602 Of the total amount reported as deferred outflows of resources related to OPEB, $23,456 resulting from benefits paid subsequent to the measurement date and before the end of the fiscal year will be included as a reduction of the total OPEB liability in the year ended September 30, 2019. Other amounts reported as deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: 43 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Fiscal Year Ending September 30, Amount 2019 $ (2,658) 2020 (2,658) 2021 (2,658) 2022 (2,658) 2023 (2,658) Thereafter (5,312) Total $ (18,602) Note 10 - Inter-Fund Accounts Individual fund inter-fund receivables and payables at September 30, 2018, consist of the following: Due Due from Other to Other Funds Funds General $ 567,826 $ - Non-Major Governmental - 200,795 Sanitation Fund - 367,031 Total $ 567,826 $ 567,826 Inter-fund receivable/payables are due to timing differences associated with grant reimbursements. The receivable/payables are expected to be received/paid within one year. Note 11 - Inter-Fund Transfers Transfers of resources from a fund receiving revenue to the fund through which the resources are to be expended are recorded as transfers and are reported as other financing sources (uses) in the governmental funds and as transfers in (out) in the proprietary funds. Following is a summary of inter-fund transfers for the year ended September 30, 2018: Transfers In Non-Major General Governmental Transfers (Out) Fund Funds Stormwater General Fund $ - $ 303,000 $ - Non-Major Governmental Funds 232,300 - 285,000 Utility Fund 644,220 - - Sanitation Fund 258,725 - - Total Transfers $ 1,135,245 $ 303,000 $ 285,000 Transfers are used to move revenues from the fund that ordinance or budget requires to collect them to the fund that ordinance or budget requires to expend them. 44 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Note 12 - Commitments On June 2, 1999, the City entered into an agreement with the City of Jacksonville, Florida, whereas the City of Jacksonville will provide advanced life support and fire services to the residents and businesses located in the City. The term of the agreement shall be from the effective date and continuing for a period of 25 years unless terminated earlier by the parties (such parties must provide a one-year notice). For the year ended September 30, 2018, the City incurred $1,165,455 in services under this agreement. The amount will be adjusted annually by an amount equal to 103% of the previous year’s amount for all services provided by the City of Jacksonville. Note 13 - Contingencies The City is a defendant in several lawsuits which arose in the ordinary course of the City’s business. To the extent the outcome of such litigation has been determined to result in probable loss to the City, an estimated loss has been accrued in the accompanying financial statements. The outcome of the remaining claims cannot be determined at this time. Hurricanes In September 2017, most of the State of Florida was affected by Hurricane Irma, including the City. The President of the United States and the Governor of Florida declared most of the State a designated disaster area and issued relief to the State through public assistance grants, coordinated by Federal Emergency Management Agency (FEMA). Expenses were incurred by the City for hurricane preparedness, debris removal, repairs, and other hurricane-related costs; most of which occurred in fiscal year 2018. The City is working with state and federal liaisons to recover these costs. The City has submitted a total of $795,698 FEMA reimbursement requests related to Hurricane Irma. As of the date of the financial statements, it has not been determined the exact amounts that will be reimbursed by FEMA. Note 14 - Risk Management The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters for which the City carries commercial insurance. Insurance against losses are provided through the Public Risk Insurance Agency and LB Bryan and Company for the following types of risk: ■ Workers’ Compensation and Employer’s Liability ■ Automobile Liability ■ Automobile Physical Damage ■ Accidental Death and Dismemberment ■ General Liability ■ Public Officials’ Liability ■ Property Coverage The City’s coverage for workers’ compensation is under a retrospectively rated policy. Premiums are accrued based on the ultimate cost to-date of the City’s experience for this type of risk. 45 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2018 Note 15 - Other Disclosures Deficit Fund Balance CDBG Fund The City has an accumulated negative fund balance of $820 at September 30, 2018, in the CDBG fund. This is due to a timing difference between when the expenditures occurred and when the related reimbursements were received. This negative fund balance will be recovered in fiscal year 2019. Note 16 - Restatement of Beginning Net Position During the fiscal year ended September 30, 2019, the City implemented GASB Statement No. 75 – Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. GASB Statement No. 75 establishes standards for measuring and recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and expenses/expenditures. In compliance with this statement, the City’s liability for its proportionate share of the Net OPEB liability and related deferred outflows and deferred inflows of resources have been recorded resulting in a restatement of beginning net position as noted below. The City restated beginning net position for business-type activities due to an error in the calculation of depreciation expense for water/sewer assets. This error resulted in an overstatement of depreciation expense in the prior year. The effect of the prior period statement is noted in the table below. Governmental Business-Type Activities Activities Total Net Position – Beginning of Year as Previously Reported $ 48,173,878 $ 31,142,026 $ 79,315,904 Restatement Inc/(Dec): OPEB Liability (83,271) (60,288) (143,559) Depreciation Expense/ Accumulated Depreciation - 282,575 282,575 Total Restatement (83,271) 222,287 139,016 Net Position – Beginning of Year as Restated $ 48,090,607 $ 31,364,313 $ 79,454,920 Note 17 - Subsequent Events Subsequent to year-end, the City approved the issuance of additional conduit debt Health Care Facilities Revenue Bonds (Fleet Landing Project) Series 2018, not to exceed $140,000,000. The proceeds are to be used to finance or refinance all or part of the cost of certain capital projects. There is no obligation on the part of the City or any political subdivision for repayment of the bonds. Accordingly, the bonds are not reported as liabilities in the accompanying financial statements. REQUIRED SUPPLEMENTARY INFORMATION September 30,September 30,September 30,September 30,September 30, 2018 2017 2016 2015 2014 Total Pension Liability Service Cost 345,019$ 346,460$ 348,604$ 402,093$ 399,576$ Interest 1,574,193 1,485,239 1,437,296 1,404,316 1,386,245 Difference Between Actual and Expected Experience (473,189) 291,669 164,601 (162,280) - Changes in Assumptions 695,507 559,117 - - 1,814,460 Benefit Payments (1,481,923) (1,296,640) (1,175,906) (1,031,191) (697,702) Refunds (19,533) (22,467) (31,898) - (9,516) Net Change in Total Pension Liability 640,074 1,363,378 742,697 612,938 2,893,063 Total Pension Liability - Beginning 22,894,177 21,530,799 20,788,102 20,175,164 17,282,101 Total Pension Liability - Ending (a)23,534,251 22,894,177 21,530,799 20,788,102 20,175,164 Plan Fiduciary Net Position Contributions - Employer 1,332,119 1,175,572 1,112,344 863,613 950,980 Contributions - Employee 117,536 124,024 128,204 136,191 157,383 Net Investment Income 1,554,225 1,792,192 1,515,746 162,326 778,981 Benefit Payments (1,481,923) (1,296,640) (1,175,906) (1,031,191) (697,702) Refunds (19,533) (22,467) (31,898) - (9,516) Administrative Expenses (31,261) (55,702) (32,495) (41,909) (31,529) Other - 1,822 - - - Net Change in Plan Fiduciary Net Position 1,471,163 1,718,801 1,515,995 89,030 1,148,597 Plan Fiduciary Net Position - Beginning 18,243,134 16,524,333 15,008,338 14,919,308 13,770,711 Plan Fiduciary Net Position - Ending (b)19,714,297 18,243,134 16,524,333 15,008,338 14,919,308 Net Pension Liability - Ending (a) - (b)3,819,954$ 4,651,043$ 5,006,466$ 5,779,764$ 5,255,856$ Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 83.77%79.68%76.75%72.20%73.95% Covered Employee Payroll 1,958,933$ 2,067,067$ 2,136,733$ 2,269,850$ 2,623,050$ Net Pension Liability as a Percentage of Covered Employee Payroll 195.00%225.01%234.30%254.63%200.37% The data presented above was measured using actuarial methods prescribed by GASB 67/68. Additional years will be added to this schedule annually, until 10 years of data is presented. CITY OF ATLANTIC BEACH, FLORIDA GENERAL EMPLOYEES' PENSION PLAN SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS 46 September 30,September 30,September 30,September 30,September 30, 2018 2017 2016 2015 2014 Actuarially Determined Contribution 1,332,118$ 1,175,572$ 1,112,344$ 863,613$ 950,980$ Contributions in Relation to the Actuarially Determined Contribution 1,332,119 1,175,572 1,112,344 863,613 950,980 Contribution Deficiency (Excess)(1)$ -$ -$ -$ -$ Covered Employee Payroll 1,958,933$ 2,067,067$ 2,136,733$ 2,269,850$ 2,623,050$ Contributions as a Percentage of Covered Employee Payroll 68.00%56.87%52.06%38.05%36.25% Additional years will be added to this schedule annually until 10 years of data is presented. Valuation Date: Actuarially determined contribution rates are calculated as of September 30, two years prior to the end of the fiscal year in which contributions are reported. Methods and assumptions used to determine contribution rates: Funding Method:Entry Age Normal Cost Method Amortization Method:Closed, Level Dollar Method Remaining Amortization Period: 10 years Asset Valuation Method:4-year Smoothed Market Value: Difference between the expected and actual return on market value of assets phased in over a period of four (4) years (at the rate of 25% per year), adjusted to be no greater than 120% and no less than 80% of the fair market value. Inflation:2.5% per year Salary Increases:Age Based Ranging from 5.0% to 13.5% (including 2.5% price inflation) Interest Rate: 7.0% per year compounded annually, net of investment related expenses. Retirement Age: Experience-based table of rates that vary by age. Post Retirement COLA:None Mortality:RP2000 Combined Healthy Participant Mortality Table for males and females with generational projections from the year 2000 Projection Scale AA. Date of the Most Recent Experience Study:Other significant actuarial assumptions used in the September 30, 2016 valuation were based on the results of an actuarial experience study for the period October 1, 2001 - September 30, 2010. NOTES TO SCHEDULE OF CONTRIBUTIONS CITY OF ATLANTIC BEACH, FLORIDA GENERAL EMPLOYEES' PENSION PLAN SCHEDULE OF CONTRIBUTIONS September 30, 2016 47 September 30,September 30,September 30,September 30, 2018 2017 2016 2015 Annual Money-Weighted Rate of Return Net of Investment Expense 8.67%10.92%10.18%1.10% Additional years will be added to this schedule annually until 10 years of data is presented. SCHEDULE OF INVESTMENT RETURNS GENERAL EMPLOYEES' PENSION PLAN FOR THE YEAR ENDED SEPTEMBER 30, 2018 CITY OF ATLANTIC BEACH, FLORIDA 48 September 30,September 30,September 30,September 30,September 30, 2018 2017 2016 2015 2014 Total Pension Liability Service Cost 329,254$ 335,185$ 279,863$ 291,761$ 269,182$ Interest on the Total Pension Liability 1,016,983 970,877 931,370 900,982 879,486 Difference Between Actual and Expected Experience (209,232) 187,216 (2,998) (213,426) - Changes in Assumptions 454,983 (40,955) - - 1,275,669 Benefit Payments (675,968) (630,777) (730,794) (524,537) (524,537) Refunds (14,720) (13,095) (23,671) (28,505) (61,079) Other (Excess Premium Tax Liability)(120,454) - - 120,454 - Net Change in Total Pension Liability 780,846 808,451 453,770 546,729 1,838,721 Total Pension Liability - Beginning 14,664,876 13,856,425 13,402,655 12,855,926 11,017,205 Total Pension Liability - Ending (a)15,445,722 14,664,876 13,856,425 13,402,655 12,855,926 Plan Fiduciary Net Position Contributions - Employer 854,780 945,540 729,483 574,014 563,203 Contributions - State 236,772 - 112,972 103,528 96,217 Contributions - Member 131,498 129,552 117,274 112,354 103,095 Net Investment Income 853,894 950,447 804,901 43,534 642,480 Benefit Payments (675,968) (630,777) (730,794) (524,537) (524,537) Refunds (14,720) (13,095) (23,671) (28,505) (61,079) Administrative Expenses (25,152) (51,481) (29,933) (35,984) (22,742) Other (Excess Premium Tax Liability)- - - 120,454 - Net Change in Plan Fiduciary Net Position 1,361,104 1,330,186 980,232 364,858 796,637 Plan Fiduciary Net Position - Beginning 10,803,540 9,473,354 8,493,122 8,128,264 7,331,627 Plan Fiduciary Net Position - Ending (b)12,164,644 10,803,540 9,473,354 8,493,122 8,128,264 Net Pension Liability - Ending (a) - (b)3,281,078$ 3,861,336$ 4,383,071$ 4,909,533$ 4,727,662$ Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 78.76%73.67%68.37%63.37%63.23% Covered Employee Payroll 1,643,725$ 1,619,400$ 1,465,925$ 1,404,425$ 1,472,786$ Net Pension Liability as a Percentage of Covered Employee Payroll 199.61%238.44%299.00%349.58%321.00% The data presented above was measured using actuarial methods prescribed by GASB 67/68. Additional years will be added to this schedule annually until 10 years of data is presented. CITY OF ATLANTIC BEACH, FLORIDA POLICE OFFICERS' PENSION PLAN SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS 49 September 30,September 30,September 30,September 30,September 30, 2018 2017 2016 2015 2014 Actuarially Determined Contribution*841,726$ 849,061$ 825,700$ 665,091$ 654,280$ Contributions in Relation to the Actuarially Determined Contribution*1,091,552 945,540 842,455 677,542 659,420 Contribution Deficiency (Excess)(249,826)$ (96,479)$ (16,755)$ (12,451)$ (5,140)$ Covered Employee Payroll 1,619,400$ 1,619,400$ 1,465,925$ 1,404,425$ 1,472,786$ Contributions as a Percentage of Covered Employee Payroll 67.40%58.39%57.47%48.24%44.77% *Amounts include the contribution from the State of Florida. Additional years will be added to this schedule annually until 10 years of data is presented. Valuation Date: Actuarially determined contribution rates are calculated as of September 30, two years prior to the end of the fiscal year in which contributions are reported. Methods and assumptions used to determine contribution rates: Funding Method:Entry Age Normal Cost Method Amortization Method:Closed, Level % of Pay Method Remaining Amortization Period: 30 years Asset Valuation Method:Smoothed market value over a period of four (4) years, as prescribed under Internal Revenue Procedure 2000-40, adjusted to be no greater than 120% and no less than 80% of the fair market value. Inflation:2.5% per year Salary Increases:Age Based Ranging from 4.5% to 22.5% (including 2.5% price inflation) Payroll Growth: 3.50% Interest Rate: 7.0% per year compounded annually, net of investment related expenses. Retirement Age: Experience-based table of rates that vary by age Post Retirement COLA:None Mortality:RP2000 Combined Healthy Participant Mortality Table for males and females with generational projections from the year 2000 Projection Scale AA. Date of the Most Recent Experience Study:Significant assumptions used in the September 30, 2015 valuation were based on the results of an actuarial experience study (dated 2/15/2011) for the period of October 1, 2001 - September 30, 2010. CITY OF ATLANTIC BEACH, FLORIDA POLICE OFFICERS' PENSION PLAN SCHEDULE OF CONTRIBUTIONS NOTES TO SCHEDULE September 30, 2016 50 September 30,September 30,September 30,September 30, 2018 2017 2016 2015 Annual Money-Weighted Rate of Return Net of Investment Expense 8.26%10.80%9.93%0.53% Additional years will be added to this schedule annually until 10 years of data is presented. SCHEDULE OF INVESTMENT RETURNS POLICE OFFICERS' PENSION PLAN FOR THE YEAR ENDED SEPTEMBER 30, 2018 CITY OF ATLANTIC BEACH, FLORIDA 51 Variance With Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Revenues Property Taxes 4,987,481$ 4,987,481$ 5,063,409$ 75,928$ Non-Property Taxes 1,154,580 1,154,580 1,337,310 182,730 Permits, Fees, and Special Assessments 850,468 850,468 868,477 18,009 Intergovernmental Revenues 2,323,280 2,323,280 2,071,174 (252,106) Fines and Forfeitures 124,926 124,926 90,781 (34,145) Charges for Services 751,635 751,635 793,482 41,847 Interest Income 159,001 159,001 (18,294) (177,295) Miscellaneous Revenues 30,388 30,388 3,997 (26,391) Inter-Fund Charges 1,599,502 1,599,502 1,581,091 (18,411) Total Revenues 11,981,261 11,981,261 11,791,427 (189,834) Expenditures City Administration: City Commission 47,760 47,760 43,466 4,294 City Clerk 320,305 324,008 290,160 33,848 City Attorney 250,000 301,667 199,611 102,056 City Manager 387,943 410,894 409,072 1,822 Human Resources 228,545 228,545 228,343 202 Information Technology 771,460 800,177 770,920 29,257 Finance 930,734 942,421 928,173 14,248 Total City Administration 2,936,747 3,055,472 2,869,745 185,727 Planning and Zoning 326,715 328,723 274,618 54,105 General Government 542,407 590,590 574,783 15,807 Public Safety: Police 4,387,989 4,596,568 4,826,848 (230,280) School Crossing Guards 10,680 10,680 10,892 (212) Animal Control 92,747 93,287 90,546 2,741 Fire 1,524,888 1,549,564 1,463,392 86,172 Code Enforcement 75,552 75,552 34,708 40,844 Total Public Safety 6,091,856 6,325,651 6,426,386 (100,735) FOR THE YEAR ENDED SEPTEMBER 30, 2018 CITY OF ATLANTIC BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL - GENERAL FUND 52 Variance With Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Expenditures Public Works: Administration and Streets 1,582,488$ 1,602,973$ 1,260,154$ 342,819$ Fleet Maintenance 284,218 311,775 261,132 50,643 Total Public Works 1,866,706 1,914,748 1,521,286 393,462 Parks and Recreation: Recreation and Special Events 567,333 575,920 1,856,814 (1,280,894) Parks Maintenance 837,370 852,561 726,230 126,331 Total Parks and Recreation 1,404,703 1,428,481 2,583,044 (1,154,563) (Total Expenditures)(13,169,134) (13,643,665) (14,249,862) (606,197) Excess (Deficiency) of Revenues Over (Under) Expenditures (1,187,873) (1,662,404) (2,458,435) (796,031) Other Financing Sources (Uses) Debt Proceeds - - 1,400,000 1,400,000 Gain (Loss) on Disposal of Assets - - 32,192 32,192 Debt Issuance Costs - - (50,000) (50,000) Transfers in 1,135,245 1,135,245 1,135,245 - Transfers (out)(303,000) (303,000) (303,000) - Total Other Financing Sources (Uses)832,245 832,245 2,214,437 1,382,192 Excess of Revenues and Other Financing Sources Over Expenditures and Other Financing Uses (355,628) (830,159) (243,998) 586,161 Fund Balances, Beginning of Year 6,284,367 5,620,568 7,321,819 1,701,251 Fund Balances, End of Year 5,928,739$ 4,790,409$ 7,077,821$ 2,287,412$ (1) - Police expenditures are over budget due to the City receiving additional insurance premium tax from the state of Florida. These revenues are recorded in the general fund then expenses as pension expense and transferred to the police pension. (2) - Culture and Recreation expenditures are over budget due to the City issuing debt to purchase land for conservation. An offsetting revenue is recorded in the other financing sources section which results in a net of zero. FOR THE YEAR ENDED SEPTEMBER 30, 2018 CITY OF ATLANTIC BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL - GENERAL FUND 53 54 CITY OF ATLANTIC BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTE TO SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL - GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2018 Budgets and Budgetary Accounting General governmental revenues and expenditures accounted for in budgetary funds are controlled by a budgetary accounting system in accordance with various legal requirements which govern the City ’s operations. Budgets are monitored at varying levels of classification detail; however, expenditures cannot legally exceed total appropriations at the individual fund level. Encumbrances are recorded. Unexpended items which are unencumbered at year-end must be re-appropriated in the subsequent year. Budgets are adopted for all governmental funds (general, special revenue, and capital projects funds). The City Manager is authorized to transfer budgeted amounts within departments within any fund; however, any revisions that increase the total expenditures of any department or fund must be approved by the City Commission. All necessary supplemental appropriations are adopted by the City Commission and are included in the reported budgetary data. The budget presented in the accompanying required supplemental information is prepared in conformity with accounting principles generally accepted in the United States of America. SUPPLEMENTARY INFORMATION Local Convention Tree Option Development Half-Cent Court Cost Radio Replacement Gas Tax Tax Sales Tax Training Communication Assets Equity in Pooled Cash and Investments 86,638$ 95,679$ 233,913$ 833,770$ 60,275$ 52,561$ Due from Other Governments - 81,536 32,397 155,548 262 1,236 Total Assets 86,638 177,215 266,310 989,318 60,537 53,797 Liabilities, Deferred Inflows of Resources, and Fund Balances Liabilities Accounts Payable and Accrued Liabilities - - - - - - Construction Retainages Payable - - 9,000 4,212 - - Due to Other Funds - - - - - - Deposits - - - - - - Total Liabilities - - 9,000 4,212 - - Deferred Inflows of Resources - - - - - - Fund Balances Restricted for: Public Safety - - - - 60,537 53,797 Road Maintenance and Construction - 177,215 - 985,106 - - Other Capital Projects - - - - - - Other Purposes - - 257,310 - - - Committed: Conservation and Resource Management 86,638 - - - - - Unassigned - - - - - - Total Fund Balances 86,638 177,215 257,310 985,106 60,537 53,797 Total Liabilities, Deferred Inflows of Resources, and Fund Balances 86,638$ 177,215$ 266,310$ 989,318$ 60,537$ 53,797$ COMBINING BALANCE SHEET CITY OF ATLANTIC BEACH, FLORIDA Special Revenue Funds 2018 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2017 FOR THE YEAR ENDED SEPTEMBER 30, 2018, NON-MAJOR GOVERNMENTAL FUNDS 55 Totals Totals Community Special Non-Major Contraband Development Police Fire Revenues Capital Governmental 2017 Forfeiture Block Grants Grants Grant Funds Projects Funds Totals 26,763$ 118,760$ 375$ -$ 1,508,734$ 487,733$ 1,996,467$ 1,992,707$ - 100 42,000 - 313,079 - 313,079 382,396 26,763 118,860 42,375 - 1,821,813 487,733 2,309,546 2,375,103 - - - - - - - 508,748 - 3,134 - - 16,346 - 16,346 3,134 - 116,546 40,182 - 156,728 44,067 200,795 170,515 1,766 - - - 1,766 - 1,766 926 1,766 119,680 40,182 - 174,840 44,067 218,907 683,323 - - - - - - - - 24,997 - 2,193 - 141,524 - 141,524 137,287 - - - - 1,162,321 - 1,162,321 1,078,005 - - - - - 443,666 443,666 141,328 - - - - 257,310 - 257,310 277,248 - - - - 86,638 - 86,638 58,732 - (820) - - (820) - (820) (820) 24,997 (820) 2,193 - 1,646,973 443,666 2,090,639 1,691,780 26,763$ 118,860$ 42,375$ -$ 1,821,813$ 487,733$ 2,309,546$ 2,375,103$ Special Revenue Funds 2018 56 Local Convention Tree Option Development Half-Cent Court Cost Radio Replacement Gas Tax Tax Sales Tax Training Communication Revenues Taxes -$ 474,930$ 138,364$ 901,165$ -$ -$ Other Intergovernmental Revenues - - - - - - Fines and Forfeitures - - - - 5,471 24,773 Investment Earnings - (511) (472) (333) (86) (31) Miscellaneous Revenues 28,057 - - - - - Total Revenues 28,057 474,419 137,892 900,832 5,385 24,742 Expenditures Current: Public Safety - - - - 21,370 7,844 Road Maintenance and Construction - 281,385 23,335 82,134 - - Parks and Recreation - - 31,648 - - - Conservation and Resource Management 151 - - - - - Capital Outlay - - 102,847 410,116 - - (Total Expenditures)(151) (281,385) (157,830) (492,250) (21,370) (7,844) Excess (Deficiency) of Revenues Over (Under) Expenditures 27,906 193,034 (19,938) 408,582 (15,985) 16,898 Other Financing Sources (Uses) Transfers in - - - - - - Transfers (out)- (232,300) - (285,000) - - Total Other Financing Sources (Uses)- (232,300) - (285,000) - - Net Change in Fund Balances 27,906 (39,266) (19,938) 123,582 (15,985) 16,898 Fund Balances, Beginning of Year 58,732 216,481 277,248 861,524 76,522 36,899 Fund Balances, End of Year 86,638$ 177,215$ 257,310$ 985,106$ 60,537$ 53,797$ CITY OF ATLANTIC BEACH, FLORIDA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2017 2018 Special Revenue Funds 57 Totals Totals Community Special Non-Major Contraband Development Police Fire Revenue Capital Governmental 2017 Forfeiture Block Grants Grants Grant Funds Projects Funds Totals -$ -$ -$ -$ 1,514,459$ -$ 1,514,459$ 1,414,994$ - - 42,000 - 42,000 - 42,000 725,124 3,341 - - - 33,585 - 33,585 28,529 (17) - - - (1,450) 348 (1,102) 14,621 - - - 24,920 52,977 - 52,977 32,586 3,324 - 42,000 24,920 1,641,571 348 1,641,919 2,215,854 - - 42,000 24,920 96,134 - 96,134 168,426 - - - 386,854 - 386,854 400,000 - - - 31,648 - 31,648 - - - - 151 - 151 18,765 - - - 512,963 1,010 513,973 2,974,682 - - (42,000) (24,920) (1,027,750) (1,010) (1,028,760) (3,561,873) 3,324 - - - 613,821 (662) 613,159 (1,346,019) - - - - 303,000 303,000 349,225 - - - (517,300) - (517,300) (1,065,000) - - - - (517,300) 303,000 (214,300) (715,775) 3,324 - - - 96,521 302,338 398,859 (2,061,794) 21,673 (820) 2,193 - 1,550,452 141,328 1,691,780 3,753,574 24,997$ (820)$ 2,193$ -$ 1,646,973$ 443,666$ 2,090,639$ 1,691,780$ 2018 Special Revenue Funds 58 Police General Officers'Employees' Retirement Retirement 2018 2017 Plan Plan Totals Totals Assets Cash and Cash Equivalents 199,406$ -$ 199,406$ 566,377$ Due from Other Governments 123,068 - 123,068 - Due from City - - - 8,500 Interest Receivable 11,523 28,851 40,374 31,813 Investments at Fair Value 11,829,580 19,818,002 31,647,582 28,486,250 Other Assets - 542 542 - Total Assets 12,163,577 19,847,395 32,010,972 29,092,940 Liabilities Accounts Payable and Accrued Liabilities - - - 37,343 Due to City - 136,343 136,343 - Total Liabilities - 136,343 136,343 37,343 Total Net Position Held in Trust for Pension Benefits 12,163,577$ 19,711,052$ 31,874,629$ 29,055,597$ Pension Trust Funds CITY OF ATLANTIC BEACH, FLORIDA COMBINING STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2017 59 Police General Officers'Employees' Retirement Retirement 2018 2017 Plan Plan Totals Totals Additions Contributions: Employer 854,780$ 1,332,119$ 2,186,899$ 2,121,100$ Employees 131,498 117,536 249,034 253,576 State of Florida 236,772 - 236,772 - Total Contributions 1,223,050 1,449,655 2,672,705 2,374,676 Net Increase in Fair Value of Investments 675,092 1,248,533 1,923,625 2,334,700 Interest and Dividends 209,813 374,173 583,986 509,548 Miscellaneous Revenues - - - 8,500 Total Additions 2,107,955 3,072,361 5,180,316 5,227,424 Deductions Refunds of Contributions 14,720 19,533 34,253 35,562 Benefits 675,968 1,481,923 2,157,891 1,927,417 Investment Expenses 34,122 72,781 106,903 101,608 Administrative Expenses 21,887 31,214 53,101 106,748 Other Expenses 5,906 3,230 9,136 - Total Deductions 752,603 1,608,681 2,361,284 2,171,335 Change in Net Position 1,355,352 1,463,680 2,819,032 3,056,089 Net Position, Beginning of Year 10,808,225 18,247,372 29,055,597 25,999,508 Net Position, End of Year 12,163,577$ 19,711,052$ 31,874,629$ 29,055,597$ Pension Trust Funds CITY OF ATLANTIC BEACH, FLORIDA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2018, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2017 60 2014 2015 2016 2017 2018 Revenues Operating Revenues: Water: Customer Charges 2,955,863$ 2,992,677$ 3,177,331$ 3,262,314$ 3,206,520$ Miscellaneous Charges 54,852 62,286 62,477 65,198 64,563 Total Water 3,010,715 3,054,963 3,239,808 3,327,512 3,271,083 Sewer: Customer Charges 4,938,510 4,934,151 5,045,673 5,111,353 5,092,613 Miscellaneous Charges 1,237 107 - 590 - Total Sewer 4,939,747 4,934,258 5,045,673 5,111,943 5,092,613 Total Operating Revenues 7,950,462 7,989,221 8,285,481 8,439,455 8,363,696 Non-Operating Revenues: Investment Income (Loss): Water 186,681 (7,718) 58,092 21,455 (7,606) Sewer (43,954) (4,257) 38,929 17,281 (8,249) Total Non-Operating Revenues 142,727 (11,975) 97,021 38,736 (15,855) Total Revenues 8,093,189 7,977,246 8,382,502 8,478,191 8,347,841 Expenses Operating Expenses: Water 1,287,783 1,442,578 1,379,495 1,488,854 1,348,985 Sewer 2,170,495 2,055,780 2,064,614 2,309,637 2,393,828 Total Operating Expenses 3,458,278 3,498,358 3,444,109 3,798,491 3,742,813 Administrative, Non-Divisional and Other: Water 530,715 563,356 561,069 502,058 508,655 Sewer 677,464 734,839 725,248 591,161 624,796 Total Administrative, Non- divisional and Other 1,208,179 1,298,195 1,286,317 1,093,219 1,133,451 (Total Expenses)(4,666,457) (4,796,553) (4,730,426) (4,891,710) (4,876,264) Net Revenues Available for Debt Service 3,426,732 3,180,693 3,652,076 3,586,481 3,471,577 Non-Operating Income (Expense) Interest Expense (896,571) (556,635) (481,693) (455,259) (404,297) Loan Amortization (162,552) (98,507) (93,910) (93,910) (93,910) Total Non-Operating Income (Expense)(1,059,123) (655,142) (575,603) (549,169) (498,207) Net Income Before Depreciation and Operating Transfers 2,367,609$ 2,525,551$ 3,076,473$ 3,037,312$ 2,973,370$ FOR THE YEARS ENDED SEPTEMBER 30, 2014, THROUGH SEPTEMBER 30, 2018 HISTORICAL REVENUES AND EXPENSES CITY OF ATLANTIC BEACH, FLORIDA 61 2018 2017 Gross Revenues Utility 8,302,234$ 8,390,290$ Connection Charges 61,460 49,165 Interest (15,856) 38,736 Total Gross Revenues 8,347,838 8,478,191 Operating Expenses Personal Services 2,056,311 2,102,206 Contractual Services 604,079 551,554 Supplies 398,803 292,616 Repairs and Maintenance 159,229 133,608 Utilities 348,357 353,574 Intergovernmental Charges 1,133,451 1,093,219 Other Expenses 146,239 364,933 (Total Operating Expenses)(4,846,469) (4,891,710) Total Net Revenues in Accordance with Bond Resolutions 3,501,369$ 3,586,481$ Total Debt Service 1,999,898$ 2,015,811$ Debt Service Coverage Ratio 175.08%177.92% Required Debt Service Coverage Ratio 110.00%110.00% CITY OF ATLANTIC BEACH, FLORIDA SCHEDULES OF NET REVENUES IN ACCORDANCE WITH BOND RESOLUTIONS ENTERPRISE FUNDS (WATER AND SEWER) FOR THE YEARS ENDED SEPTEMBER 30, 2018 AND SEPTEMBER 30, 2017 62 Year Electricity Communications Gas Fuel Oil Total 2014 473,097$ 522,654$ 16,911$ 29$ 1,012,691$ 2015 476,997 526,996 15,555 7 1,019,555 2016 483,516 500,295 17,881 6 1,001,698 2017 475,895 479,551 15,229 - 970,675 2018 498,379 497,133 16,262 - 1,011,774 Year Total 2014 3,908,365$ 2015 4,113,476 2016 4,482,739 2017 4,730,476 2018 5,063,409 (Last Five Years) CITY OF ATLANTIC BEACH, FLORIDA OTHER BOND COVENANT DISCLOSURES FOR THE YEARS ENDED SEPTEMBER 30, 2014, THROUGH SEPTEMBER 30, 2018 Utility Service Tax Collections (Last Five Years) Ad Valorem Tax Collections 63 OTHER STATISTICAL INFORMATION Annual Billings Fleet Landing (Retirement Community)361,039$ Navy (Federal Government)244,573 City of Atlantic Beach, Florida 141,044 John Creek Estate (Mobile Home Park)130,065 Oaks of Atlantic Beach (Mobile Home Park)131,058 Hanna Park (Regional Park)105,624 Arium Atlantic Beach (Apartment Complex)111,325 PBH Mayport LLC 104,501 Sea Turtle Inn 99,962 Avesta Homes (Apartment Complex)64,673 Total 1,493,864$ CITY OF ATLANTIC BEACH, FLORIDA MAJOR UTILITY CUSTOMERS FOR THE YEAR ENDED SEPTEMBER 30, 2018 (UNAUDITED) 64 ADDITIONAL ELEMENTS OF REPORT PREPARED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS, ISSUED BY THE COMPTROLLER GENERAL OF THE UNITED STATES; THE RULES OF THE AUDITOR GENERAL OF THE STATE OF FLORIDA; AND OTHER CONTRACT REQUIREMENTS Source of City Funds Fiscal Year 2017-2018 Grant No. 5629-62 Amount of Award (Per City of Jacksonville Budget Ordinance)81,436$ (A) Actual Funds Received from City of Jacksonville in Last Audit Period - Actual Funds Received this Period (51,360) Amount Earned but Not Received this Period - Unspent Award Amount 30,076$ (B) Expenditure of City Funds (A) City Fiscal Year 2015-16 Grant #5629-62, Includes Total Award Amount Including Amendments (B) Project Complete, Amount Spent Less Than Total Award Actual 10/1/2017 Remaining Project/Federal Grant Number Budgeted 9/30/2018 Balance Jordan Park Improvements 81,436$ 51,360$ 30,076$ (B) Subgrant Recipient Per Interlocal Agreement CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF SOURCE AND EXPENDITURE OF THE CITY GRANT FUNDS PER ORDINANCE CODE CHAPTER 118.301(e) FOR FISCAL YEAR 2017-2018 City of Jacksonville Public Service Grants Received as a 65 66 Certified Public Accountants P.O. Box 141270 ⦁ 222 N.E. 1st Street ⦁ Gainesville, Florida 32614-1270 ⦁ (352) 378-2461 Laurel Ridge Professional Center ⦁ 2347 S.E. 17th Street ⦁ Ocala, Florida 34471 ⦁ (352) 732-3872 443 East College Avenue ⦁ Tallahassee, Florida 32301 ⦁ (850) 224-7144 5001 Lakewood Ranch Blvd., Suite 101 ⦁ Sarasota, Florida 34240 ⦁ (941) 907-0350 1560 N. Orange Ave., Suite #450 ⦁ Winter Park, Florida 32789 MEMBERS OF AMERICAN AND FLORIDA INSTITUTES OF CERTIFIED PUBLIC ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES AND S.E.C. PRACTICE SECTIONS INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF BASIC FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Atlantic Beach, Florida, (the City), as of and for the year ended September 30, 2018, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated December 6, 2019. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. We consider the following deficiencies in internal control to be material weaknesses: 67 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF BASIC FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 15-1 – Financial Close and Reporting Condition―At the commencement of final fieldwork it was noted that the preliminary working trial balance did not reflect all of the required closing entries. As a result, several adjustments were required after we began the audit process, including entries to adjust beginning fund balance, accrue unrecorded receivables and liabilities, and reverse prior year accruals. Effect―The lack of an effective financial close and reporting process increases the risk that material misstatements will not be detected in a timely manner. It also results in delays in performing and completing the audit. Recommendation―We recommend that the City’s finance department evaluates their monthly and yearly financial close and reporting process. In addition, the finance department should perform variance analysis throughout the year over major balance sheet and income statement accounts in order to identify and correct any errors in a timely manner. FY18 Update―The City continues to have significant and material errors and adjustments related to their financial reporting and close process, which significantly delayed the completion of the fiscal year 2018 audit resulting in the City not meeting the nine month deadline of submission to the auditor general. We recommend that the City hires an outside consultant to assist with the closing of the books prior to the commencement of the audit. 17-1 – Timeliness and Accuracy of Bank Reconciliations Condition―The timely reconciliation of bank accounts is one of the key components of a sound system of internal controls. During the audit we noted that bank reconciliations for September 2017 had not been completed as of December 2017. The bank reconciliation was provided during final fieldwork in February 2018, but we noted errors in the reconciling items. Management made corrections to the September 2017 bank reconciliation, however, there remains a $10,000 unreconciled difference. Effect―Inaccurate or delayed bank reconciliations result in an increased risk that errors or irregularities will go undetected for extended periods of time. Recommendation―We recommend that the City implement procedures to ensure that all bank accounts are reconciled within 20 days of month-end. FY18 Update―At the commencement of the audit, the City had material unreconciled balances in excess of $500,000, which were uncorrected for a significant time period. This also resulted in the delay and completion of the audit. As of September 30, 2019, the City had an unreconciled difference of $105,000. The City will need to continue to investigate this significant variance and determine the source of the difference. 68 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF BASIC FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, non-compliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of non-compliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. December 6, 2019 Gainesville, Florida 69 Certified Public Accountants P.O. Box 141270 ⦁ 222 N.E. 1st Street ⦁ Gainesville, Florida 32614-1270 ⦁ (352) 378-2461 Laurel Ridge Professional Center ⦁ 2347 S.E. 17th Street ⦁ Ocala, Florida 34471 ⦁ (352) 732-3872 443 East College Avenue ⦁ Tallahassee, Florida 32301 ⦁ (850) 224-7144 5001 Lakewood Ranch Blvd., Suite 101 ⦁ Sarasota, Florida 34240 ⦁ (941) 907-0350 1560 N. Orange Ave., Suite #450 ⦁ Winter Park, Florida 32789 MEMBERS OF AMERICAN AND FLORIDA INSTITUTES OF CERTIFIED PUBLIC ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES AND S.E.C. PRACTICE SECTIONS INDEPENDENT ACCOUNTANT’S REPORT ON COMPLIANCE WITH SECTION 218.415, FLORIDA STATUTES Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida We have examined the City of Atlantic Beach, Florida’s (the City) compliance with Section 218.415, Florida Statutes during the period ended September 30, 2018, as required by Section 10.556(10)(a), Rules of the Auditor General. Management is responsible for the City’s compliance with those requirements. Our responsibility is to express an opinion on the City’s compliance based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants (AICPA) and, accordingly, included examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination of the City’s compliance with specified requirements. In our opinion, the City complied, in all material respects, with the aforementioned requirements for the year ended September 30, 2018. This report is intended solely for the information and use of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, the Florida Auditor General, the City, its management, and is not intended to be, and should not be, used by anyone other than these specified parties. December 6, 2019 Gainesville, Florida 70 Certified Public Accountants P.O. Box 141270 ⦁ 222 N.E. 1st Street ⦁ Gainesville, Florida 32614-1270 ⦁ (352) 378-2461 Laurel Ridge Professional Center ⦁ 2347 S.E. 17th Street ⦁ Ocala, Florida 34471 ⦁ (352) 732-3872 443 East College Avenue ⦁ Tallahassee, Florida 32301 ⦁ (850) 224-7144 5001 Lakewood Ranch Blvd., Suite 101 ⦁ Sarasota, Florida 34240 ⦁ (941) 907-0350 1560 N. Orange Ave., Suite #450 ⦁ Winter Park, Florida 32789 MEMBERS OF AMERICAN AND FLORIDA INSTITUTES OF CERTIFIED PUBLIC ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES AND S.E.C. PRACTICE SECTIONS MANAGEMENT LETTER Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida Report on the Financial Statements We have audited the financial statements of the City of Atlantic Beach, Florida (the City) as of and for the year ended September 30, 2018, and have issued our report thereon dated December 6, 2019. Auditor’s Responsibility We conducted our audit 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 Chapter 10.550, Rules of the Auditor General. Other Reporting Requirements We have issued our Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards, and Independent Accountant’s Report on an examination conducted in accordance with AICPA Professional Standards, AT-C Section 315, regarding compliance requirements in accordance with Chapter 10.550, Rules of the Auditor General. Disclosures in those reports and schedule, which are dated December 6, 2019, should be considered in conjunction with this management letter. Prior Audit Findings Section 10.554(1)(i)1., Rules of the Auditor General, requires that we determine whether or not corrective actions have been taken to address findings and recommendations made in the preceding annual financial report. Corrective actions have been taken to address prior audit findings 17-02 and 17-04. Prior Year uncorrected Findings and Recommendations are reported below: Tabulation of Uncorrected Audit Findings Current Year Finding # 2016-2017 FY Finding # 2015-2016 FY Finding # 18-1 17-3 15-1 18-2 18-3 71 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida MANAGEMENT LETTER Official Title and Legal Authority Section 10.554(1)(i)4., 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. This information is included in Note 1 to the financial statements. Financial Condition and Management Sections 10.554(1)(i)5.(a) and 10.556(7), Rules of the Auditor General, require that we apply appropriate procedures and report the results of our determination as to whether or not the City has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and identification of the specific condition(s) met. In connection with our audit, we determined that the City did not meet any of the conditions described in Section 218.503(1), Florida Statutes. Pursuant to Sections 10.554(1)(i)5(c) and 10.556(8), Rules of the Auditor General, we applied financial condition assessment procedures. It is management’s responsibility to monitor the City’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. Section 10.554(1)(i)2., Rules of the Auditor General, requires that we communicate any recommendations to improve financial management. In connection with our audit, we have the following recommendations: 17-3 – Insurance Premium Tax Revenues Condition – During review of the Police Officers’ Retirement Plan, we noted that the fiscal year 2017 insurance premium tax revenues were withheld by the State of Florida for several months due to reporting issues identified by the State of Florida that were not corrected timely. The City contributed additional funds to the Plan during 2017 to cover the contribution shortfall. The reporting issues were corrected during fiscal year 2018 and the City ultimately received the withheld funds. Recommendation – The timely correction of any reporting errors is important to avoid monies being withheld by the State of Florida and minimize the loss of potential investment earnings. FY 18 Update – The City received their 2017 insurance premium tax revenues payment during fiscal year 2018. However, the 2018 payment was received after year-end due to continued errors which were not corrected timely by the City. The 2018 payment was received during fiscal year 2019. 18-1 – Fixed Asset Misstatements and Reconciliation to Subsidiary Ledger Condition – During our testing of fixed assets, we noted that the City mistakenly keyed in the incorrect amount for fixed asset purchases for several fixed assets, which resulted in material misstatements requiring a prior period adjustment of $282,575 to accumulated depreciation in the utility fund, and a current year correction of $559,498 to depreciation expense and accumulated depreciation. The original cost of the fixed assets were not effected as the City only uses the subsidiary listing to post depreciation expense. In addition, the subsidiary ledger does not agree with the general ledger at year-end. It appears there are fully depreciated assets in the subsidiary ledger that have been removed on the general ledger and there is a possibility of improperly recorded or missing assets in the subsidiary listing. 72 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida MANAGEMENT LETTER Recommendation – We recommend that the City implement controls to ensure that the amounts entered into the subsidiary ledger (depreciation module) are reconciled to the general ledger at least annually. In addition, we recommend that the City investigates and corrects the differences between the subsidiary ledger and the general ledger. 18-2 – Significant Budget Over Expenditures Condition – During our testing of budgetary compliance, we noted that the City’s general fund had budget over expenditures in the police and parks and recreation departments of $100,735 and $1,154,563, respectively. The over expenditure related to the police department is due to the City receiving an additional casualty premium receipt from the State of Florida. This additional revenue and the related expense was not budgeted for. The over expenditure in the parks and recreation department was due to the City issuing debt to purchase land for conservation purposes. The debt proceeds and related capital outlay were budgeted in the debt service fund but not in the general fund, where the actual transactions were recorded. Recommendation – We recommend that the City review their controls for ensuring that all significant budget to actual expenditure variances are reviewed and approved by the City Commission. 18-3 – General Employees’ Pension Plan Pooled Cash Balances Condition – During the review of the General Employees’ Pension Plan (the Pension Fund) it was noted that the Pension Fund had a negative cash balance at the end of the year. The City’s General Fund Pooled Cash account lent money to the Pension Plan to cover the deficit resulting in the Pension Plan having a zero cash balance. The pension plan pooled cash is used to pay current benefit payments, and adequate treasury management should be in place to ensure the plan’s pooled cash has adequate monies on hand to pay benefits and other costs when due. Recommendation – We recommend that the City implement a monthly process that evaluates the pension plans pooled cash balances to ensure monies are effectively and efficiently moved between the pension plans investment and pooled cash accounts. Annual Financial Report Sections 10.554(1)(i)5.(b.) and 10.556(7), Rules of the Auditor General, require that we apply appropriate procedures and report the results of our determination as to whether the annual financial report for the City for the fiscal year ended September 30, 2017, 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, 2018. In connection with our audit, we determined that these two reports were in agreement. Special District Component Units Section 10.554(1)(i)5.(d), Rules of the Auditor General, requires that we determine whether or not a special district that is a component unit of a county, municipality, or special district, provided the financial information necessary for proper reporting of the component unit, within the audited financial statements of the county, municipality, or special district in accordance with Section 218.39(3)(b), Florida Statutes. In connection with our audit, we determined that there were no special district component units that were required to be reported in accordance with Section 218.39(3)(b), Florida Statutes. 73 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida MANAGEMENT LETTER Other Matters Section 10.554(1)(i)3., Rules of the Auditor General, requires that we address non-compliance with provisions of contracts or grant agreements, or abuse, that have occurred, or are likely to have occurred, that have an effect on the financial statements that is less than material but which warrants the attention of those charged with governance. In connection with our audit, we did not have any such findings. Purpose of this Letter Our management letter is intended solely for the information and use of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, the Florida Auditor General, Federal and other granting agencies, and applicable management, and is not intended to be and should not be used by anyone other than these specified parties. December 6, 2019 Gainesville, Florida 74 City of Atlantic Beach 800 Seminole Road Atlantic Beach, Florida 32233-54445 Telephone (904) 247-5800 Fax (904) 247-5819 http://www.coab.us December 3, 2019 Purvis, Gray and Company, LLP P.O. Box 141270 Gainesville, FL 32614 RE: Responses to the Management Letter Internal Control Over Financial Reporting 15-1 – Financial Close and Reporting Condition―At the commencement of final fieldwork it was noted that the preliminary working trial balance did not reflect all of the required closing entries. As a result, several adjustments were required after we began the audit process, including entries to adjust beginning fund balance, accrue unrecorded receivables and liabilities, and reverse prior year accruals. Effect―The lack of an effective financial close and reporting process increases the risk that material misstatements will not be detected in a timely manner. It also results in delays in performing and completing the audit. Recommendation―We recommend that the City’s finance department evaluates their monthly and yearly financial close and reporting process. In addition, the finance department should perform variance analysis throughout the year over major balance sheet and income statement accounts in order to identify and correct any errors in a timely manner. FY18 Update―The City continues to have significant and material errors and adjustments related to their financial reporting and close process, which significantly delayed the completion of the fiscal year 2018 audit resulting in the City not meeting the nine month deadline of submission to the auditor general. We recommend that the City hires an outside consultant to assist with the closing of the books prior to the commencement of the audit. Management Response to Comment 15-1 – Financial Close and Reporting The previous Finance Director left prior to the completion of the audit, and the City hired an outside consultant to assist with the year-end closing process and prepare the books for the audit. In addition to the hiring of the new Finance Director, the City has engaged an outside consultant to assist with the year- end closing process prior to the commencement of the audit. This will ensure the audit report will be completed prior to the submission deadline. 17-1 – Timeliness and Accuracy of Bank Reconciliations Condition―The timely reconciliation of bank accounts is one of the key components of a sound system of internal controls. During the audit we noted that bank reconciliations for September 2017 had not been 75 completed as of December 2017. The bank reconciliation was provided during final fieldwork in February 2018, but we noted errors in the reconciling items. Management made corrections to the September 2017 bank reconciliation, however, there remains a $10,000 unreconciled difference. Effect―Inaccurate or delayed bank reconciliations result in an increased risk that errors or irregularities will go undetected for extended periods of time. Recommendation―We recommend that the City implement procedures to ensure that all bank accounts are reconciled within 20 days of month-end. FY18 Update―At the commencement of the audit, the City had material unreconciled balances in excess of $500,000, which were uncorrected for a significant time period. This also resulted in the delay and completion of the audit. As of September 30, 2019, the City had an unreconciled difference of $105,000. The City will need to continue to investigate this significant variance and determine the source of the difference. Management’s Response to Comment 17-1 – Timeliness and Accuracy of Bank Reconciliations The City will reconcile all bank accounts on or before the 20th day of each month, and determine the sources of any differences. Other Matters 17-3 – Premium Tax Revenues Condition―During the review of the Police pension plan it was noted that the fiscal year 2017 premium tax revenues were held by the State of Florida. This was due to reporting issues noted by the State of Florida. It was noted in fiscal year 2018 that these reporting issues were corrected and the City has since received the withheld premium tax monies. Recommendation―The timely correction of any reporting errors is important to avoid monies being withheld by the State of Florida. In addition, due to monies being withheld this potentially results in loss investment earnings. FY 18 Update – The City received their 2017 insurance premium tax revenues payment during fiscal year 2018. However, the 2018 payment was received after year-end due to continued errors which were not corrected timely by the City. The 2018 payment was received during fiscal year 2019. Management Response to Comment 17-3 – Premium Tax Revenues The City has taken steps necessary to ensure the state report will be filed by the deadline. 18-1 – Fixed Asset Misstatements and Reconciliation to Subsidiary Ledger Condition – During our testing of fixed assets, we noted that the City mistakenly keyed in the incorrect amount for fixed asset purchases for several fixed assets, which resulted in material misstatements requiring a prior period adjustment of $282,575 to accumulated depreciation in the utility fund, and a current year correction of $559,498 to depreciation expense and accumulated depreciation. The original cost of the fixed assets were not effected as the City only uses the subsidiary listing to post depreciation expense. In addition, the subsidiary ledger does not agree with the general ledger at year-end. It appears there are fully depreciated assets in the subsidiary ledger that have been removed on the general ledger and there is a possibility of improperly recorded or missing assets in the subsidiary listing. 76 Recommendation – We recommend that the City implement controls to ensure that the amounts entered into the subsidiary ledger (depreciation module) are reconciled to the general ledger at least annually. In addition, we recommend that the City investigates and corrects the differences between the subsidiary ledger and the general ledger. Management Response to Comment 18-1 – Fixed Asset Misstatements and Reconciliation to Subsidiary Ledger The City will implement controls to ensure that the amounts in the subsidiary ledger agree to the general ledger. This process will done on a quarterly basis and graduate to an annual process. The current differences will be investigated and corrected. 18-2 – Significant Budget Over Expenditures Condition – During our testing of budgetary compliance, we noted that the City’s general fund had budget over expenditures in the police and parks and recreation departments of $100,735 and $1,154,563, respectively. The over expenditure related to the police department is due to the City receiving an additional casualty premium receipt from the State of Florida. This additional revenue and the related expense was not budgeted for. The over expenditure in the parks and recreation department was due to the City issuing debt to purchase land for conservation purposes. The debt proceeds and related capital outlay were budgeted in the debt service fund but not in the general fund, where the actual transactions were recorded. Recommendation – We recommend that the City review their controls for ensuring that all significant budget to actual expenditure variances are reviewed and approved by the City Commission. Management Response to Comment 18-2 – Significant Budget Over Expenditures The City will review its controls and adjust to ensure that all significant budget to actual expenditure variances are reviewed and approved by the City Commission. 18-3 – General Employees’ Pension Plan Pooled Cash Balances Condition – During the review of the General Employees’ Pension Plan (the Pension Fund) it was noted that the Pension Fund had a negative cash balance at the end of the year. The City’s General Fund Pooled Cash account lent money to the Pension Plan to cover the deficit resulting in the Pension Plan having a zero cash balance. The pension plan pooled cash is used to pay current benefit payments, and adequate treasury management should be in place to ensure the plan’s pooled cash has adequate monies on hand to pay benefits and other costs when due. Recommendation – We recommend that the City implement a monthly process that evaluates the pension plans pooled cash balances to ensure monies are effectively and efficiently moved between the pension plans investment and pooled cash accounts. Management Response to Comment 18-3 – General Employees’ Pension Pooled Cash Balances The City will perform monthly evaluations of is pooled cash balances for the pension plans to ensure that monies are moved between investment and pooled cash accounts.